<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( MARK ONE )
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1998.
OR
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from___________to
________.
Commission File No. 0-16469
JEAN PHILIPPE FRAGRANCES, INC.
( Exact name of registrant as specified in its charter )
Delaware 13-3275609
-------- ----------
( State or other jurisdiction of ( I.R.S. Employer
incorporation or organization ) Identification No.)
551 Fifth Avenue, New York, New York 10176
(Address of Principal Executive Offices) (Zip Code)
Registrants telephone number, including area code: (212) 983-2640.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.
At May 4, 1998 there were 8,807,281 shares of common stock, par value $.001
per share, outstanding.
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information
Item I. Financial Statements 1
Consolidated Balance
Sheets as of March
31, 1998 (unaudited)
and December 31,
1997 (audited) 2
Consolidated
Statements of Income
for the Three Months
Ended March 31, 1998
(unaudited) and
March 31, 1997
(unaudited) 3
Consolidated
Statements of Cash
Flows for the Three
Months Ended March
31, 1998 (unaudited)
and March 31, 1997
(unaudited) 4
Notes to Unaudited Financial
Statements 5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 6
Part II. Other Information 10
Signatures 10
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Part I. Financial Information
Item I. Financial Statements
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
position of the Company and its results of operations and cash flows for the
interim periods presented. Such financial statements have been condensed in
accordance with the rules and regulations of the Securities and Exchange
Commission and therefore, do not include all disclosures required by generally
accepted accounting principles. These financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1997 included in the Company's annual report filed on Form 10-K.
The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the entire
fiscal year.
Page 1
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $18,549,170 $18,721,525
Accounts receivable, net 25,931,943 26,255,311
Inventories 24,393,184 21,707,497
Receivables, others 1,346,997 622,416
Other 561,107 469,982
Deferred tax benefit 1,042,903 1,114,508
------------------ -----------------
Total current assets 71,825,304 68,891,239
Equipment and leasehold improvements, net 2,288,016 2,122,465
Other assets 1,102,685 1,274,721
Intangible assets, net 7,626,148 7,993,992
------------------ -----------------
$82,842,153 $80,282,417
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable, banks $3,633,062 $3,063,393
Accounts payable 18,674,135 17,573,570
Income taxes payable 4,141,829 3,411,629
------------------ -----------------
Total current liabilities 26,449,026 24,048,592
------------------ -----------------
Long-term debt, less current portion 409,839 424,349
------------------ -----------------
Minority interests 5,665,323 5,615,564
------------------ -----------------
Shareholders' equity:
Common stock, $.001 par; authorized
30,000,000 shares; outstanding 8,807,281 and
8,862,781 shares at March 31, 1998 and
December 31, 1997, respectively 8,807 8,863
Additional paid-in capital 20,729,692 20,685,873
Retained earnings 43,951,882 42,729,807
Foreign currency translation adjustment (3,108,270) (2,368,609)
Treasury stock, at cost, 2,038,703 and
1,975,703 shares at March 31, 1998 and
December 31, 1997, repectively (11,264,146) (10,862,022)
------------------ -----------------
50,317,965 50,193,912
------------------ -----------------
$82,842,153 $80,282,417
================== =================
</TABLE>
See notes to financial statements.
Page 2
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------------ -----------------
<S> <C> <C>
Net sales $20,806,102 $20,969,089
Cost of sales 10,901,884 10,922,548
------------------ -----------------
Gross margin 9,904,218 10,046,541
Selling, general and administrative 7,286,003 8,089,541
Loss on divestiture of license 1,300,000
------------------ -----------------
Income from operations 2,618,215 657,000
------------------ -----------------
Other charges (income):
Interest 121,366 182,061
Loss on foreign currency 43,679 33,824
Interest and dividend (income) (205,180) (208,452)
Loss on sale of stock of subsidiary, net 17,564
------------------ -----------------
(22,571) 7,43
------------------ -----------------
Income before income taxes 2,640,786 649,567
Income taxes 1,190,215 163,622
------------------ -----------------
Net income before minority interest 1,450,571 485,945
Minority interest in net income
of consolidated subsidiary 228,496 145,161
Net income $1,222,075 $340,784
================= ================
Net income per common share:
Basic $0.14 $0.04
Diluted $0.14 $0.04
================= ================
Number of common shares outstanding:
Basic 8,825,731 9,602,481
Diluted 9,019,620 9,605,404
================= ================
</TABLE>
See notes to financial statements.
Page 3
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
------------------ -----------------
<S> <C> <C>
Operating activities:
Net income $1,222,075 $340,784
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 299,734 353,329
Loss on divestiture of license 17,564 1,300,000
Minority interest in net income 228,496 145,161
Increase (decrease) in cash from changes in:
Accounts receivable (241,285) (179,546)
Inventories (3,157,123) (2,228,627)
Other assets (704,761) (603,744)
Deferred tax benefit 60,207 (17,025)
Accounts payable 1,582,965 2,170,592
Income taxes payable 817,542 141,962
------------------ -----------------
Net cash provided by operating activites 125,414 1,422,886
------------------ -----------------
Investing activities:
Purchase of equipment and leasehold improvements (330,181) (482,755)
Trademark and license acquisitions (5,542)
------------------ -----------------
Net cash (used in) investing activities (335,723) (482,755)
------------------ -----------------
Financing activities:
Increase (decrease) in loan payable, bank 660,243 431,093
Proceeds from exercise of options and warrants 43,827
Purchase of treasury stock (402,188)
------------------ -----------------
Net cash provided by financing activities 301,882 431,093
------------------ -----------------
Effect of exchange rate changes on cash (263,928) (566,606)
------------------ -----------------
Increase (decrease) in cash and cash equivalents (172,355) 804,618
Cash and cash equivalents at beginning of period 18,721,525 20,205,391
------------------ -----------------
Cash and cash equivalents at end of period $18,549,170 $21,010,009
================= =================
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $244,000 $210,000
Income taxes 312,000 883,000
</TABLE>
See notes to financial statements.
Page 4
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Notes to Unaudited Financial Statements
1. Significant Accounting Policies:
The accounting policies followed by the Company are set forth in the
notes to the Company's financial statements included in its Form 10-K
which was filed with the Securities and Exchange Commission for the
year ended December 31, 1997.
2. Earnings Per Share:
The Company previously adopted SFAS No. 128 "Earnings Per Share" in
the period ended December 31, 1997 and has retroactively applied the
effects for all periods presented herein. Accordingly, the
presentation of per share information includes calculations of basic
and diluted income per share. The impact on the per share amounts
previously reported was not significant.
Basic earnings per share are computed using the weighted average
number of shares outstanding during each period. Diluted earnings per
share are computed using the weighted average number of shares
outstanding during each period, plus the incremental shares
outstanding assuming the exercise of dilutive stock options.
3. Inventories:
Inventories consist of the following:
March 31, December 31,
1998 1997
-------------- -------------
Raw materials and component parts $10,483,575 $10,566,904
Finished goods 13,909,609 11,140,593
-------------- -------------
$24,393,184 $21,707,497
============== =============
Page 5
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Jean Philippe Fragrances is a leading manufacturer and distributor of
fragrances, cosmetics and personal care products, where innovation, diversity
and commitment to creating quality products for sale at intelligent prices are
achieved.
The Company, produces and distributes, world wide, a variety of fragrance,
personal care and cosmetic products including:
* Alternative Designer Fragrances and personal care products.
* International moderately priced fragrances.
* Brand name and licensed fragrances.
* Mass market cosmetics.
The Company's business strategy of building core volume and profitability,
developing products in new categories, exploring strategic acquisition
opportunities, and pursuing expansion in international markets remains as
management's primary long-term focus. Jean Philippe is determined to remain a
diversified fragrance and personal care products company. Growth opportunities
exist in each of our product lines and management's responsibility is to
develop them to achieve competitive superiority and, thereby maximize
shareholder value.
Three Months Ended March 31, 1998 Compared to March 31, 1997
Net sales aggregated $20.8 million in 1998, as compared to $21.0 million in
1997. On April 30, 1997, the Company divested its Cutex nail and lip products
license and net sales in 1997 include approximately $3.0 million of Cutex
product sales. Excluding such sales, net sales for 1998 increased 16%.
Page 6
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Domestic alternative designer fragrance sales increased 4% and sales generated
by the Company's French subsidiaries increased 25% for the three months ended
March 31, 1998, as compared to the three months ended March 31, 1997. At
comparable foreign currency exchange rates, sales by the Company's French
subsidiaries increased 36%. Expanded distribution of the Company's Burberrys
fragrance line continues to drive revenue growth.
The Company achieved a 48% gross profit margin in both the 1998 and 1997
periods despite the fact that the 1998 period did not include any sales of
higher margin Cutex products. The Company's program of "Product Value
Analysis" has more than achieved the goals originally intended. In addition,
the rise of the US dollar relative to the French franc continues to benefit
Inter Parfums, as much of their exports are sold in US dollars.
Selling, general and administrative expenses decreased $0.8 million to $7.3
million in 1998 as compared to $8.1 million in 1997 and represented 35% of
sales in 1998 as compared to 39% of sales in 1997. In connection with the
April 30, 1997 restructuring of the Company's domestic operations, which
coincided with the divestiture of the Company's Cutex license, the Company
reduced its domestic work force by approximately 20%. As a result of both the
work force reduction and the divestiture of the Cutex license, domestic
selling, general and administrative expenses declined to $2.9 million or 36%
of sales in 1998 as compared to $4.1 million or 39% of sales in 1997.
In the first quarter of 1997, the Company took a pre-tax charge against
earnings of $1.3 million to write-off intangible assets and other expenses
relating to the divestiture of the Cutex license. Management is confident that
such charge is sufficient to cover all potential obligations relating to the
Cutex business.
Interest expense decreased to $0.1 million for the three months ended March
31, 1998, as compared to $0.2 million for the three months ended March 31,
1997. The Company uses its available credit lines, as needed, to finance its
working capital needs. Positive cash flow has enabled the Company to reduce
its overall borrowing requirements.
As a result of better than expected gross margins and reductions in selling
and general administrative expenses, income before income taxes increased to
$2.6 million or 12.7% of net sales for the three months ended March 31, 1998,
as compared to $1.9 million or 9.3% of net sales for the corresponding period
of the prior year (adjusted to eliminate the effect of the 1997 $1.3 million
nonrecurring charge referred to above.)
Page 7
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
The Company's effective income tax rate increased to 45% in 1998 as compared
to 25% in 1997. The 1997 period benefitted from reductions of valuation
reserves on deferred tax assets, relating to the utilization of net operating
loss carry forwards. No such benefit was available for the 1998 period. In
addition, corporate income tax rates in France have increased from 36% to
approximately 43% over the last two years.
Net income increased to $1.2 million or $0.14 per diluted share for the three
months ended March 31, 1998, as compared to $0.3 million or $0.04 per diluted
share for the three months ended March 31, 1997. Results for 1997 include a
nonrecurring charge of $800,000, on an after tax basis, relating to the
divestiture of the Cutex license. Excluding the nonrecurring charge, net
income was $1.1 million or $0.12 per diluted share for the three months ended
March 31, 1997.
The weighted average shares outstanding were 8.8 million in 1998 and 9.6
million in 1997, and on a diluted basis, average shares outstanding were 9.0
million in 1998 and 9.6 million in 1997. Such decline is the result of the
Company's ongoing stock buyback program.
Liquidity and Capital Resources
The Company's financial position continues to show solid strength as a result
of profitable operating results and positive cash flow. At March 31, 1998,
working capital aggregated $45.4 million and the Company had cash and cash
equivalents on hand of $18.5 million. The Company's net book value was $5.71
per share as of March 31, 1998.
The 1995 initial public offering in France of approximately 21% of the common
stock of the Company's subsidiary, Inter Parfums, has proven to be extremely
successful. In addition to the strength such stock sale provided to the
financial position of Inter Parfums, the proceeds of the offering have enabled
Inter Parfums to control its growth and invest for the future without
incurring any significant increase in debt. Long-term debt of Inter Parfums
stood at $0.4 million as of March 31, 1998.
As a result of the successful operating results of Inter Parfums and the
significant increase in its stock price, in January 1998, the Company
exercised its rights to convert the remaining portion of its convertible debt,
approximately $4.4 million, into 318,326 additional shares of Inter Parfums
bringing the total shares outstanding to 2,209,000. The conversion price was
approximately $14 per share while Inter Parfums stock is presently trading at
approximately $32 per share. The effect of this conversion increases the
Company's ownership percentage from 76.4% to 79.8%.
Page 8
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
During the quarter ended March 31, 1998, the Company continued repurchasing
its common stock pursuant to an authorized repurchase plan aggregating 2
million shares. As of March 31, 1998, 1,552,505 shares of common stock have
been purchased at an average price per share of $7.28.
The Company's short-term financing requirements are expected to be met by
available cash at March 31, 1998, cash generated by operations and short-term
credit lines provided by domestic and foreign banks. The principal credit
facilities for 1998 are a $12.0 million unsecured revolving line of credit
provided by a domestic commercial bank and $12.0 million in credit lines
provided by a consortium of international financial institutions.
Internally generated cash provided by operating activities was $0.1 million
for the three months ended March 31, 1998 as compared to $1.4 million for the
three months ended March 31, 1997. A buildup of inventory during the three
months ended March 31, 1998 required the use of cash from operating
activities. Cash from operating activities is expected to be the Company's
primary source of funds to finance future operating needs and investments in
new ventures.
Cash provided by operating activities is also expected to finance the Company's
stock repurchase program. During 1998, 63,000 shares of common stock were
purchased by the Company at a cost of $0.4 million.
Management of the Company believes that funds generated from operations,
supplemented by its available credit facilities, will provide it with
sufficient resources to meet all present and reasonably foreseeable future
operating needs.
The Company has substantially completed all projects to address "Year 2000"
compliance with respect to its internal information systems. As such,
management believes that "Year 2000" transition will not have a material
adverse effect on future results.
Inflation rates in the U.S. and foreign countries in which the Company
operates have not had a significant impact on operating results for the three
months ended March 31, 1998.
Page 9
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Part II. Other Information
Items 1, 2, 3, 4, 5 and 6 are omitted as they are either not
applicable or have been included in Part I.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 8th day of May 1998.
JEAN PHILIPPE FRAGRANCES, INC.
By: /s/ Russell Greenberg
---------------------------
Russell Greenberg,
Executive Vice President and
Chief Financial Officer
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 18,549,170
<SECURITIES> 0
<RECEIVABLES> 25,931,943
<ALLOWANCES> 0
<INVENTORY> 24,393,184
<CURRENT-ASSETS> 71,825,304
<PP&E> 2,288,016
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,842,153
<CURRENT-LIABILITIES> 26,449,026
<BONDS> 0
0
0
<COMMON> 9,474,353
<OTHER-SE> 40,843,612
<TOTAL-LIABILITY-AND-EQUITY> 82,842,153
<SALES> 20,806,102
<TOTAL-REVENUES> 20,806,102
<CGS> 10,901,884
<TOTAL-COSTS> 18,187,887
<OTHER-EXPENSES> (22,571)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,366
<INCOME-PRETAX> 2,640,786
<INCOME-TAX> 1,190,215
<INCOME-CONTINUING> 1,450,571
<DISCONTINUED> 0
<EXTRAORDINARY> 228,496
<CHANGES> 0
<NET-INCOME> 1,222,075
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
