<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, 1999.
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 7, 1999 there were 7,417,581 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 1. Financial Statements 1
Consolidated Balance Sheets as
of March 31, 1999 (unaudited)
and December 31, 1998 (audited) 2
Consolidated Statements of
Income for the Three Months Ended
March 31, 1999 (unaudited) and
March 31, 1998 (unaudited) 3
Consolidated Statements of
Cash Flows for the Three Months
Ended March 31, 1999 (unaudited) and
March 31, 1998 (unaudited) 4
Notes to Unaudited Financial
Statements 5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7
Part II. Other Information 11
Signatures 11
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Part I. Financial Information
Item 1. 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,
1998 included in the Company's annual report filed on Form 10-K.
The results of operations for the three months ended March 31, 1999 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
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------- ----------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $19,328,874 $23,355,915
Accounts receivable, net 25,464,613 28,013,811
Inventories 21,221,154 21,938,972
Receivables, other 1,490,702 617,110
Other 1,251,539 1,084,512
Deferred tax benefit 1,053,957 1,107,285
--------------- ---------------
Total current assets 69,810,839 76,117,605
Equipment and leasehold 2,761,566 2,988,365
improvements, net
Other assets 764,053 921,849
Intangible assets, net 7,049,260 7,710,910
--------------- ---------------
$80,385,718 $87,738,729
=============== ===============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Loans payable, banks $4,037,011 $4,171,558
Accounts payable and accrued expenses 17,679,006 18,192,388
Income taxes payable 4,354,354 4,155,305
--------------- ---------------
Total current liabilities 26,070,371 26,519,251
--------------- ---------------
Long-term debt 183,780 199,929
--------------- ---------------
Minority interests 6,976,946 7,339,559
--------------- ---------------
Shareholders' equity:
Common stock, $.001 par; authorized 30,000,000
shares; outstanding 7,614,581 and 8,462,781
shares at March 31, 1999 and
December 31, 1998, respectively 7,615 8,463
Additional paid-in capital 20,729,692 20,729,692
Retained earnings 48,499,684 47,342,754
Accumulated other comprehensive income (2,978,534) (811,884)
Treasury stock, at cost, 3,231,403 and
2,383,203 shares at March 31, 1999 and
December 31, 1998, respectively (19,103,836) (13,589,035)
--------------- ---------------
47,154,621 53,679,990
--------------- ---------------
$80,385,718 $87,738,729
=============== ===============
</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,
1999 1998
--------------- --------------
<S> <C> <C> <C>
Net sales $19,583,551 $20,806,102
Cost of sales 10,099,031 10,901,884
-------------- -------------
Gross margin 9,484,520 9,904,218
Selling, general and
administrative 7,133,969 7,286,003
-------------- -------------
Income from operations 2,350,551 2,618,215
-------------- -------------
Other charges (income):
Interest 105,852 121,366
Loss on foreign currency 68,464 43,679
Interest and dividend (income) (199,335) (205,180)
Loss on sale of stock of subsidiary, net 17,564
-------------- -------------
(25,019) (22,571)
-------------- -------------
Income before income taxes 2,375,570 2,640,786
Income taxes 977,956 1,190,215
-------------- -------------
Net income before minority
interest 1,397,614 1,450,571
Minority interest in net
income of consolidated
subsidiary 240,684 228,496
-------------- -------------
Net income $1,156,930 $1,222,075
============== =============
Net income per common share:
Basic $0.15 $0.14
Diluted $0.15 $0.14
============== =============
Number of common shares
outstanding:
Basic 7,888,373 8,825,731
Diluted 7,975,223 9,019,620
============== =============
</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,
1999 1998
---------------- ----------------
<S> <C> <C> <C>
Operating activities:
Net income $1,156,930 $1,222,075
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 414,990 299,734
Loss on sale of stock of subsidiary 17,564
Minority interest in net income 240,684 228,496
Increase (decrease) in cash from changes in:
Accounts receivable 1,088,775 (241,285)
Inventories (506,585) (3,157,123)
Other assets (980,840) (704,761)
Deferred tax benefit 27,209 60,207
Accounts payable 441,162 1,582,965
Income taxes payable 481,876 817,542
------------- -------------
Net cash provided by operating activities 2,364,201 125,414
------------- -------------
Investing activities:
Purchase of equipment and leasehold improvements (139,344) (330,181)
Trademark and license acquisitions (1,700) (5,542)
------------- -------------
Net cash (used in) investing activities (141,044) (335,723)
------------- -------------
Financing activities:
Increase in loan payable, bank 192,308 660,243
Proceeds from exercise of options and warrants 43,827
Purchase of treasury stock (5,515,649) (402,188)
------------- -------------
Net cash provided by (used in) financing (5,323,341) 301,882
activities
------------- -------------
Effect of exchange rate changes
on cash (926,857) (263,928)
------------- -------------
Increase (decrease) in cash and (4,027,041) (172,355)
cash equivalents
Cash and cash equivalents at
beginning of period 23,355,915 18,721,525
------------- -------------
Cash and cash equivalents at end
of period $19,328,874 $18,549,170
============= ==============
Supplemental disclosure of cash
flows information:
Cash paid during the period for:
Interest $113,000 $244,000
Income taxes $467,000 312,000
</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, 1998.
2. Comprehensive Income:
Comprehensive income (loss) aggregated ($1,009,720) and $482,414 for
the three months ended March 31, 1999 and 1998, respectively, as a
result of foreign currency translation adjustments.
3. Geographic areas:
Information on the Company's operations by geographic areas is as
follows:
Three months ended Three months ended
March 31, 1999 March 31, 1998
-------------- --------------
Net sales:
United States $ 6,326,328 $ 8,094,195
Europe 13,282,222 12,720,453
South America 85,414
Eliminations (25,000) (93,961)
------------- -------------
$ 19,583,550 $ 20,806,101
============= =============
Net Income:
United States $ 288,664 $ 530,595
Europe 905,641 903,480
South America (37,375) (212,000)
------------- -------------
$ 1,156,930 $ 1,222,075
============= =============
Page 5
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Notes to Unaudited Financial Statements
4. Earnings Per Share:
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.
5. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Raw materials and component parts $ 8,678,580 $ 7,570,613
Finished Goods 12,542,574 14,368,359
------------ ------------
$ 21,221,154 $ 21,938,972
============ ============
</TABLE>
Page 6
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company 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.
Jean Philippe Fragrances, Inc. and its French subsidiary Inter Parfums, S.A.
("Inter Parfums"), specialize in prestige perfumes (60% of net sales for the
three months ended March 31, 1999) and consumer perfumes and cosmetics:
o Prestige products -- For each prestige brand, owned or licensed, the
Company develops an original concept for the perfume consistent with
world market trends;
o Consumer products -- Jean Philippe Fragrances designs, markets and
distributes inexpensive fragrances and personal care products including
alternative designer fragrances and mass market cosmetics. Inter
Parfums designs, markets and distributes a broad range of inexpensive
fragrances, highlighting the "Made in France" label.
Three Months Ended March 31, 1999 as Compared to the Three Months
Ended March 31, 1998
Net sales aggregated $19.6 million in 1999, as compared to $20.8 million in
1998. Sales generated by the Company's French subsidiary, Inter Parfums,
increased 4.4% in 1999; however, at comparable foreign currency exchange rates,
sales by Inter Parfums were virtually unchanged in 1999 as compared to 1998. The
Company's prestige fragrance lines increased 8.5% while its consumer products
line decreased 21.5%.
The increase in sales of prestige fragrances reflects expanded distribution of
the S.T. Dupont fragrance line which was launched in September 1998 and the
continued success of the Burberry fragrance line. While several new prestige
fragrance projects are on the drawing board, most have target launch dates in
the year 2000. These projects include, the launch of the Company's Paul Smith
fragrance line, two new perfume lines under the Burberry trade name, as well as
two new perfume lines under the S.T. Dupont trade name.
Page 7
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
In March 1999, the Company entered into an exclusive license agreement with the
Christian Lacroix Company (a division of Group LVMH). This new association, with
a prestigious fashion label, will further strengthen our position in prestige
fragrance distribution. The first Christian Lacroix product line is expected to
be launched internationally at the end of 1999, on the basis of a project
currently under development. Management is also actively pursuing new license
agreements to build upon the strength of its existing portfolio.
The success of the Company's prestige fragrance lines was mitigated by sales
declines in its consumer products lines, including the domestic alternative
designer fragrances. Net sales generated by domestic operations decreased 22% in
the 1999 period. The economic situation in Eastern Europe, Brazil and other
Latin American countries continues to affect sales in these territories. In
addition, the market for alternative designer fragrances is very price sensitive
and the consolidation of customers through numerous announced mergers of mass
market customers is also affecting sales as customers reduce inventory levels
and eliminate duplicate vendors. This trend is expected to continue throughout
1999 and is affecting the entire industry.
In an attempt to combat the negative impact of this industry-wide trend, in
January 1999 the Company introduced its newest consumer products line, "Parfums
Deja New." Parfums Deja New was conceived, designed and created entirely
in-house, and is produced domestically. This line, which consists of an original
fragrance, unique packaging and premium ingredients, has a suggested retail
price of $15.00 to $35.00. It was created to capitalize on a recent developing
trend in the fragrance market, the blurring of the distinction between prestige
and mass market products. Initial orders have exceeded original expectations and
management expects this line to contribute positively to sales and earnings in
1999. However, for the three month period ended March 31, 1999, sales generated
by Parfums Deja New did not fully compensate for sales declines in the Company's
other consumer product lines.
Gross profit margin increased to 48.4% of net sales in 1999, as compared to
47.6% of net sales in 1998. The Company's prestige fragrance lines generate a
slightly higher gross profit margin than the Company's consumer product lines.
Sales of the Company's prestige line products continue to experience solid
growth, and therefore, represent a greater portion of the Company's overall
sales.
Selling, general and administrative expenses aggregated $7.1 million and $7.3
million in 1999 and 1998, respectively, and represented 36% of net sales in 1999
and 35% of net sales in 1998. Domestic selling, general and administrative
expenses declined to $2.3 million in 1999 as compared to $2.9 million in 1998
and as a percentage of net sales, was 36% for both periods.
Page 8
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
Selling, general and administrative expenses incurred by Inter Parfums increased
to $4.8 million or 36% of net sales in 1999 as compared to $4.4 million or 35%
of net sales in 1998. Such increase is the result of expenses incurred to
support the Company's growing portfolio of prestige fragrance brands in an
effort to build upon each brand's awareness.
Interest expense aggregated $0.1 million in 1999 which was slightly below 1998
levels. The Company uses its credit lines, as needed, to finance working capital
needs. As a result of profitable operating results and positive cash flow,
overall borrowing levels continue to decline.
The Company incurred a loss on foreign currency of $0.07 million in 1999 as
compared to a loss of $0.04 million in 1998. On occasion, the Company enters
into foreign currency forward exchange contracts as a hedge for short-term inter
company borrowings, and for receivables to be collected in a foreign currency.
The Company's effective income tax rate was 41% in 1999, as compared to 45% in
1998. The 1998 rate was negatively impacted by losses from the Company's
Brazilian subsidiary for which no tax benefit could be recognized at the time.
The Company made its decision to close its Brazilian subsidiary during the
second half of 1998, and simultaneously with that decision, the Company was able
to recognize the expected tax benefit.
Net income was $1.2 million or $0.15 per diluted share in 1999 as compared to
$1.2 million or $0.14 per diluted share in 1998.
The weighted average shares outstanding declined 10.6% to 7.9 million in 1999,
as compared to 8.8 million in 1998. On a diluted basis, average shares
outstanding was 8.0 million in 1999 and 9.0 million in 1998. Such decline is the
result of the Company's ongoing stock buyback program.
Liquidity and Capital Resources
As a result of continued profitable operating results, the Company's financial
position remains very strong. At March 31, 1999, working capital aggregated $44
million with a working capital ratio of almost 3 to 1. The Company had cash and
cash equivalents on hand of $19 million, its net book value aggregated $6.19 per
outstanding share as of March 31, 1999 and the Company had virtually no
long-term debt.
Page 9
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
The Company is confident in the long-term growth potential of its business. As
such, it consistently uses its common stock repurchase program in an effort to
increase shareholder value. The Company's net asset value per share is $6.19.
Furthermore, the market value of the Company's investment in its publically
traded French subsidiary, Inter Parfums, presently represents approximately
$7.85 per share of the Company's outstanding common stock. Therefore, during the
three month period ended March 31, 1999, the Company continued to repurchase its
shares. During such period the Company repurchased 848,200 shares of its common
stock at an average purchase price of $6.50.
Since the inception of the repurchase program, which began in 1995, the Company
repurchased 2.94 million shares of its common stock, or approximately 28% of
outstanding shares, at an average price of $6.92 per share, bringing total
shares outstanding to its present level of 7.42 million.
The Company's short-term financing requirements are expected to be met by
available cash at March 31, 1999, cash generated by operations and short-term
credit lines provided by domestic and foreign banks. The principal credit
facilities for 1999 are a $12.0 million unsecured revolving line of credit
provided by a domestic commercial bank and approximately $12.0 million in credit
lines provided by a consortium of international financial institutions.
Cash provided by operating activities aggregated $2.4 million for the three
months ended March 31, 1999 as compared to $0.1 million for the corresponding
period of the prior year. Cash provided by operating activities continues to be
the Company's primary source of funds to finance operating needs, investments in
new ventures, as well as to finance the Company's stock repurchase program.
Management of the Company believes that funds generated from operations,
supplemented by its present cash position and 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.
In January 1999, certain member countries of the European Union established
permanent fixed rates between their existing currencies and the European Union's
common currency ("the Euro"). The transition period for the introduction of the
Euro is scheduled to phase in over a period ending January 1, 2002. The
introduction of the Euro and the phasing out of the other currencies will not
have a material impact on the Company's consolidated financial statements.
Page 10
<PAGE>
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES
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, 1999.
Statements included herein which are not historical in nature are forward
looking statements. Forward looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results to be
materially different from projected results. Such factors include changes in
product acceptance by consumers, effectiveness of sales and marketing efforts
and competition. Given these uncertainties, persons are cautioned not to place
undue reliance on the forward looking statements.
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 12th day of May 1999.
JEAN PHILIPPE FRAGRANCES, INC.
By: /s/ Russell Greenberg
------------------------------
Russell Greenberg,
Executive Vice President and
Chief Financial Officer
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,328,874
<SECURITIES> 0
<RECEIVABLES> 25,464,613
<ALLOWANCES> 0
<INVENTORY> 21,221,154
<CURRENT-ASSETS> 69,810,839
<PP&E> 2,761,566
<DEPRECIATION> 0
<TOTAL-ASSETS> 80,385,718
<CURRENT-LIABILITIES> 26,070,371
<BONDS> 0
0
0
<COMMON> 1,633,471
<OTHER-SE> 45,521,150
<TOTAL-LIABILITY-AND-EQUITY> 80,385,718
<SALES> 19,583,551
<TOTAL-REVENUES> 19,583,551
<CGS> 10,099,031
<TOTAL-COSTS> 17,233,000
<OTHER-EXPENSES> (25,019)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105,852
<INCOME-PRETAX> 2,375,570
<INCOME-TAX> 977,956
<INCOME-CONTINUING> 1,397,614
<DISCONTINUED> 0
<EXTRAORDINARY> 240,684
<CHANGES> 0
<NET-INCOME> 1,156,930
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
