<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended June 30, 1997
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 number 1-13714
COTY US INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1342491
(State of Incorporation) (IRS Employer Identification No.)
237 Park Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-850-2300
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subjected to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of August 1, 1997, there were 100 shares of the Company's common stock
outstanding, all of which were held by Coty Inc. (formerly Benckiser Cosmetics
Holdings, Inc.), a subsidiary of Joh. A. Benckiser GmbH.
1
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COTY US INC.
FORM 10-Q
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996.................................................3
Consolidated Statements of Operations for the three
month and six month periods ended June 30, 1997 and 1996..........4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996......................................5
Notes to Unaudited Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........7
Part II. Other Information.................................................9
Signatures ......................................................10
2
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PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COTY US INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 446 $ 7,199
Trade accounts receivable, less allowance for doubtful
accounts of $5,995 and $5,270, respectively 31,789 88,072
Inventories 106,712 53,563
Due from affiliates, net 4,913 4,279
Deferred income taxes 34,809 35,094
Prepaid expenses and other current assets 9,025 7,548
---------- ----------
Total current assets 187,694 195,755
Property, plant and equipment, net 25,332 24,966
Goodwill and other intangibles, net 320,595 327,358
---------- ----------
Total assets $ 533,621 $ 548,079
========== ==========
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $ 45,752 $ 41,430
Income and other taxes payable 2,795 22,512
Accrued liabilities 65,778 137,822
---------- ----------
Total current liabilities 114,325 201,764
Long-term bank debt 79,765 --
Senior subordinated notes 131,742 131,535
Deferred income taxes 20,955 19,829
Other long-term liabilities 30,377 28,297
---------- ----------
Total liabilities 377,164 381,425
Preferred stocks of subsidiary held by affiliate 93,147 90,470
Stockholder's equity
Common stock, $1 par, 100 shares authorized, issued
and outstanding -- --
Additional paid-in capital 36,809 36,809
Retained earnings 26,501 39,375
---------- ----------
Total stockholder's equity 63,310 76,184
---------- ----------
Total liabilities and stockholder's equity $ 533,621 $ 548,079
========== ==========
</TABLE>
See notes to Unaudited Consolidated Financial Statements.
3
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COTY US INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 64,956 $ 66,000 $ 119,440 $ 130,586
Cost of sales 20,614 20,870 38,504 42,545
----------- ----------- ----------- -----------
Gross profit 44,342 45,130 80,936 88,041
Selling, general and administrative 46,982 44,198 88,283 86,911
Amortization of intangibles 4,883 4,864 9,765 9,727
Quintessence integration costs -- 1,500 -- 1,500
----------- ----------- ----------- -----------
Operating loss (7,523) (5,432) (17,112) (10,097)
Interest expense 5,073 5,317 9,493 10,088
Other income, net (558) (571) (1,172) (987)
Minority interest in preferred stocks 1,338 1,338 2,677 2,677
----------- ----------- ----------- -----------
Loss before income tax benefit (13,376) (11,516) (28,110) (21,875)
Income tax benefit (7,250) (6,129) (15,236) (11,640)
----------- ----------- ----------- -----------
Net loss $ (6,126) $ (5,387) $ (12,874) $ (10,235)
=========== =========== =========== ===========
</TABLE>
See notes to Unaudited Consolidated Financial Statements.
4
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COTY US INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss $(12,874) $(10,235)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 11,939 12,140
Minority interest in preferred stocks 2,677 2,677
Provision for post-retirement benefits 1,355 1,244
Provision for bad debts 725 1,204
Deferred income taxes 1,411 1,215
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 55,558 49,442
Increase in inventories (53,149) (51,404)
Increase in prepaid expenses and other (1,477) (613)
Increase in accounts payable 4,322 3,568
Decrease in accrued liabilities and other (94,037) (78,384)
-------- --------
Net cash used in operating activities (83,550) (69,146)
-------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (2,334) (1,486)
-------- --------
Net cash used in investing activities (2,334) (1,486)
-------- --------
Cash flows from financing activities
Net proceeds from long-term bank debt 79,765 73,503
Net increase in due from affiliates (634) (2,558)
-------- --------
Net cash provided by financing activities 79,131 70,945
-------- --------
Net increase (decrease) in cash and cash equivalents (6,753) 313
Cash and cash equivalents, beginning of period 7,199 445
-------- --------
Cash and cash equivalents, end of period $ 446 $ 758
======== ========
Cash paid for:
Interest $ 8,117 $ 8,482
======== ========
Income taxes $ 3,470 $ 489
======== ========
</TABLE>
See notes to Unaudited Consolidated Financial Statements.
5
<PAGE>
COTY US INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements include
the accounts of Coty US Inc. (formerly Coty Inc.) and its subsidiaries
(the "Company") after elimination of all material intercompany
balances and transactions. Coty US Inc. is an indirect wholly owned
subsidiary of Joh. A. Benckiser GmbH, a German company ("Benckiser").
These financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto contained in
the Company's Annual Report on Form 10-K. The interim statements are
unaudited but include all adjustments, which consist of only normal
and recurring accruals, that management considers necessary to fairly
present the results for the interim periods. Results for interim
periods are not indicative of results for a full year due to the
seasonal nature of the Company's business
(2) Inventories
Inventories consisted of the following:
June 30, December 31,
1997 1996
-------- -------
Raw materials $ 35,670 $15,787
Work-in-process 26,609 10,388
Finished goods 44,433 27,388
-------- -------
$106,712 $53,563
======== =======
(3) Parent Only Financial Information
Coty US Inc.'s subsidiaries, QHIG and Quintessence, are guarantors of
the Company's Senior Subordinated Notes due 2005 (the "Notes").
Substantially all operations, assets and liabilities of the Company
are those of Coty US Inc. Summarized unconsolidated financial
information of Coty US Inc., exclusive of intercompany balances
between Coty US Inc. and its subsidiaries, is as follows:
June 30, December 31,
1997 1996
---- ----
Balance Sheet:
Current assets $181,889 $189,802
Non-current assets 309,613 314,273
Current liabilities 111,166 198,605
Non-current liabilities 255,808 172,228
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations:
Net sales $ 64,956 $ 66,000 $ 119,440 $ 130,586
Gross profit 44,342 45,130 80,936 88,041
Operating loss (6,653) (3,062) (15,373) (6,858)
Loss before income tax benefit (11,666) (8,525) (23,784) (16,705)
Net loss (6,862) (5,013) (13,985) (9,823)
</TABLE>
6
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
Results of Operations
Six months and quarter ended June 30, 1997 versus six months and quarter ended
June 30, 1996.
Net sales decreased by $11,146, or 8.5%, to $119,440 for the six months ended
June 30, 1997 from $130,586 for the six months ended June 30, 1996 and
decreased by $1,044, or 1.6%, to $64,956 for the quarter ended June 30, 1997
from $66,000 for the quarter ended June 30, 1996. The decrease is primarily due
to a reduction of approximately $15,000 in trial size and Mother's Day
promotional shipments. In addition, net sales of for the Company's cosmetics
and Calgon bath businesses were approximately $9,000 lower than prior year.
Partially offsetting these decreases were the launches of Nokomis and Calgon
Body Mists with combined net sales totaling $14,302 and $6,925 for the six
months and quarter ended June 30, 1997, respectively.
Gross profit was 67.8% and 67.4% of net sales for the six months ended June 30,
1997 and 1996, respectively, and 68.3% and 68.4%, respectively, of net sales
for the quarters ended June 30, 1997 and 1996. Gross profit percentage for the
six months ended June 30, 1997 was favorably impacted by product mix.
Promotional trial size and Mother's Day sales represented a lower proportion of
total net sales volume in 1997 than 1996.
Selling, general and administrative expenses increased by $1,372 or 1.6%, to
$88,283, or 73.9% of net sales, for the six months ended June 30, 1997 from
$86,911, or 66.6% of net sales, for the six months ended June 30, 1996 and by
$2,784, or 6.3%, to $46,982, or 72.3% of net sales, for the quarter ended June
30, 1997 from $44,198, or 67.0% of net sales, for the quarter ended June 30,
1996. The increase as a percentage of net sales for the six months and quarter
ended June 30, 1997 as compared to the six months and quarter ended June 30,
1996 was primarily the result of lower net sales and the timing of certain
expenses. Management expects that on a full year basis, selling, general and
administrative expenses as a percentage of net sales will be consistent with
1996. The Company spent approximately $50,630, or 42.4% of net sales, for the
six months ended June 30, 1997 and $28,127, or 43.3% of net sales, for the
quarter ended June 30, 1997 for advertising and promotional purposes compared
to $51,831, or 39.7% of net sales, for the six months ended June 30, 1996 and
$26,780, or 40.6% of net sales, for the quarter ended June 30, 1996.
Interest expense decreased by $595, or 5.9%, to $9,493 for the six months ended
June 30, 1997 from $10,088 for the six months ended June 30, 1996 and by $244,
or 4.6%, to $5,073 for the quarter ended June 30, 1997 from $5,317 for the
quarter ended June 30, 1996. The decrease is primarily due to lower average
borrowings during the six months and quarter ended June 30, 1997 as compared to
the similar 1996 periods, as well as lower average interest rates.
Other income, net increased by $185 to $1,172 for the six months ended June 30,
1997 from $987 for the six months ended June 30, 1996 and slightly decreased to
$558 for the quarter ended June 30, 1997 from $571 for the quarter ended June
30, 1996. The net increase for the six months ended June 30, 1997 as compared
to the six months ended June 30, 1996 is primarily due to fees from Lancaster
Group US LLC, an affiliate, recorded by the Company in return for providing
various management, administrative and manufacturing services.
Financial Condition, Liquidity and Capital Resources
The Company's business is seasonal in nature. During the first and second
quarters of the year working capital borrowings generally increase as payments
are made for the prior Christmas season's advertising and promotional costs,
credits are given on returns and inventory purchases are made. These borrowing
requirements are partly offset by significant cash collections related to prior
year Christmas season sales. Borrowings generally continue to increase during
the third quarter, primarily to finance the build up of accounts receivable
related to the back-to-school and Christmas selling seasons. During the fourth
quarter, significant cash is generated as customer payments on Christmas orders
are received.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
The Company's principal future uses of funds are expected to be for operating
expenses, working capital requirements, debt service, income taxes and, subject
to limitations under the Company's debt instruments, dividend payments to its
parent. In December 1994, the Company entered into an unsecured credit facility
(the "Credit Facility") which provided the Company with (i) a term loan (the
"Term Loan") of $70,000 and (ii) a revolving loan facility (the "Revolving Loan
Facility") of up to $160,000. Up to $10,000 of the Revolving Loan Facility may
be used to issue standby and/or commercial letters of credit. The Term Loan was
fully repaid as of December 31, 1996. As of June 30, 1997, borrowings under the
Revolving Loan Facility amounted to $79,765. Unamortized debt issuance costs
relating to the Credit Facility amounted to $1,576 at June 30, 1997.
Subject to certain exceptions, the Credit Facility restricts the Company's
ability to pay dividends on the preferred stocks other than in-kind. The Credit
Facility also contains certain covenants that place restrictions (subject to
certain exceptions) on the Company (and its subsidiaries) with respect to
guarantees, sale of certain assets, consolidations and mergers, loans and
advances, indebtedness, issuance of stock and change of control.
The Notes contain certain covenants including provisions that place
restrictions (subject to certain exceptions) on the Company (and its
subsidiaries) with respect to guarantees, loans and advances, indebtedness,
sale of certain assets, mergers and consolidations, issuance and sale of
subsidiary stock and certain transactions with affiliates, including capital
stock dividend payments.
The Company's primary sources of funds are expected to be cash from operations
and borrowings under the Revolving Loan Facility. Management believes that the
Company's cash on hand, anticipated funds from operations and borrowings under
the Revolving Loan Facility will be sufficient to cover the Company's working
capital, debt service and capital expenditure requirements for a period of at
least twelve months.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including the Company's Annual Report on Form 10-K and
this Form 10-Q) may contain statements which are not historical facts,
so-called "forward-looking statements", which involve risks and uncertainties.
In particular, statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" relating to the sufficiency of funds to
meet working capital and capital expenditure requirements may be
forward-looking statements. The Company's actual future results may differ
significantly from those stated in any forward-looking statements. Factors that
may cause such differences include, but are not limited to, the factors
discussed below. Each of these factors, and others, are discussed from time to
time in the Company's filings with the Securities and Exchange Commission which
are deemed incorporated by reference herein.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices; the timing
and cancellation of customer orders; the loss of a significant customer;
returns from certain retailers; changes in product mix; the Company's ability
to introduce new products on a timely basis; introduction of products by the
Company's competitors; market acceptance of the Company's and its competitors'
products; the level of orders received which can be shipped in a quarter; the
Company's success in its marketing efforts; and the timing of investments in
research and development. As a result of the foregoing and other factors, the
Company may experience material fluctuations in future operating results on a
quarterly or annual basis which could materially and adversely affect its
business, financial condition and operating results.
8
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PART 11. OTHER INFORMATION
Item 1 Legal Proceedings - The Company is involved in various routine
legal proceedings arising in the ordinary
course of its business. The Company believes
that the outcome of all pending legal
proceedings in the aggregate will not have a
material adverse effect on the financial
condition or results of operations of the
Company.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
9
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duty caused this report to be signed by the undersigned
thereunto duly authorized.
COTY US INC.
/s/ Daniel J. Finnegan
---------------------------
Daniel J. Finnegan
Vice President, Finance
(Principal Financial and
Accounting Officer)
Dated: August 13, 1997
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information information extracted from
the Consolidated Balance Sheet as of June 30, 1997, Statement of Operations and
Statement of Cash Flows for the period ended June 30, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 446
<SECURITIES> 0
<RECEIVABLES> 37,784
<ALLOWANCES> 5,995
<INVENTORY> 106,712
<CURRENT-ASSETS> 187,694
<PP&E> 46,014
<DEPRECIATION> 20,682
<TOTAL-ASSETS> 533,621
<CURRENT-LIABILITIES> 114,325
<BONDS> 211,507
0
93,147
<COMMON> 0
<OTHER-SE> 63,310
<TOTAL-LIABILITY-AND-EQUITY> 533,621
<SALES> 119,440
<TOTAL-REVENUES> 119,440
<CGS> 38,504
<TOTAL-COSTS> 38,504
<OTHER-EXPENSES> 98,048
<LOSS-PROVISION> 725
<INTEREST-EXPENSE> 9,493
<INCOME-PRETAX> (28,110)
<INCOME-TAX> (15,236)
<INCOME-CONTINUING> (12,874)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,874)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
