UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 1996
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 1-6370
FRENCH FRAGRANCES, INC.
(Exact name of registrant as specified in its charter)
Florida 59-0914138
(State of incorporation) (IRS Employer
Identification No.)
14100 N.W. 60th Avenue
Miami Lakes, Florida 33014
(Address of principal (Zip code)
executive offices)
(305) 620-9090
(Registrant's telephone number, including area code)
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 subject to such filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Outstanding at
Class December 10, 1996
---------------------------- -----------------
Common stock, $.01 par value 13,127,715 shares
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
October 31, 1996 (Unaudited)and January 31, 1996
Unaudited Condensed Consolidated Statements of Income -
Three and Nine-Months Ended October 31, 1996 and 1995
Unaudited Condensed Consolidated Statements of Cash Flows -
Nine-Months Ended October 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<PAGE>
<TABLE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
October 31, January 31,
1996 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 878,428 $ 123,960
Accounts receivable, net of allowances
for doubtful accounts and returns
of $998,541 and $637,145, respectively 52,535,329 14,236,326
Inventories 62,117,284 25,850,669
Equipment held for sale -- 1,000,000
Advances on inventory purchases 1,612,030 --
Prepaid expenses and other current assets 900,422 1,370,777
----------- -----------
Total current assets 118,043,493 42,581,732
INVESTMENT IN UNCONSOLIDATED AFFILIATE 2,037,777 1,708,235
----------- -----------
RESTRICTED CASH AND INVESTMENTS 2,000,000 --
----------- -----------
PROPERTY AND EQUIPMENT, NET 12,697,223 11,099,492
----------- -----------
OTHER ASSETS
Exclusive brand licenses and
trademarks, net 45,635,511 14,671,875
Deferred income taxes, net 761,342 761,342
Other intangibles and other assets 821,799 561,138
----------- -----------
Total other assets 47,218,652 15,994,355
----------- -----------
TOTAL ASSETS $181,997,145 $ 71,383,814
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 52,136,649 $ 16,713,333
Accounts payable - trade 33,236,435 11,115,664
Other payables and accrued expenses 12,005,132 3,250,365
Current portion of capital lease,
installment loans, mortgage and HBI note 1,108,762 201,630
Loans from shareholders -- 410,000
Convertible subordinated debentures 600,000 600,000
Due to affiliates, net 1,501,694 2,268,819
----------- -----------
Total current liabilities 100,588,672 34,559,811
LONG-TERM LIABILITIES
Secured subordinated debentures 10,829,788 11,681,500
Subordinated debentures 11,080,000 --
Convertible subordinated debentures 5,460,000 --
Mortgage note 5,855,162 --
Capital lease and installment loans 1,160,000 1,269,860
Term loan and HBI note 3,992,290 4,333,333
----------- -----------
<PAGE>
Total liabilities 138,965,912 51,844,504
----------- -----------
COMMITMENTS
REDEEMABLE PREFERRED STOCK
Series A, $.01 par value; stated at
liquidation preference value of $100
per share; 20,000 shares authorized,
issued and outstanding at January 31, 1996 -- 2,000,000
----------- -----------
SHAREHOLDERS' EQUITY
Convertible, redeemable preferred stock,
Series B, $.01 par value (liquidation
preference of $.01 per share); 350,000
shares authorized; 332,806 and 350,000
shares issued and outstanding, respectively 3,328 3,500
Convertible, redeemable preferred stock,
Series C, $.01 par value liquidation
preference of $.01 per share); 571,429
shares authorized, issued and outstanding 5,714 --
Common stock, $.01 par value, 50,000,000
shares authorized; 13,127,715 and
9,641,290 shares issued and outstanding,
respectively 131,277 96,413
Additional paid-in capital 28,777,455 10,333,539
Retained earnings 14,113,459 7,105,858
----------- -----------
Total shareholders' equity 43,031,233 17,539,310
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $181,997,145 $ 71,383,814
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
1996 1995 1996 1995
------------------------ ------------------------
<S> <C> <C> <C> <C>
NET SALES $60,819,795 $37,747,018 $103,938,394 $68,392,587
COST OF SALES 40,106,595 27,611,529 68,799,941 51,731,018
---------- ---------- ---------- ----------
Gross Profit 20,713,200 10,135,489 35,138,453 16,661,569
---------- ---------- ---------- ----------
OPERATING EXPENSES
Warehouse and shipping 1,372,317 822,207 3,182,041 1,952,678
Selling 6,182,011 2,850,597 11,865,003 5,180,796
General & administration 1,326,238 854,389 2,797,461 1,669,127
Depreciation & amortization 1,055,395 346,065 2,582,631 937,927
---------- ---------- ---------- ----------
Total operating expenses 9,935,961 4,873,258 20,427,136 9,740,528
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 10,777,239 5,262,231 14,711,317 6,921,041
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income 2,048 2,841 6,490 10,167
Interest expense (1,878,588) (1,209,825) (4,892,421) (3,033,800)
Other income (expense) 427,662 (15,810) 753,372 (20,067)
---------- ---------- ---------- ----------
Other income (expense),
net (1,448,878) (1,222,794) (4,132,559) (3,043,700)
---------- ---------- ---------- ----------
INCOME BEFORE EQUITY IN
EARNINGS OF UNCONSOLIDATED
AFFILIATE AND PROVISIONS
FOR INCOME TAXES 9,328,361 4,039,437 10,578,758 3,877,341
EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATE,
50% OWNED 87,107 69,742 329,542 241,620
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 9,415,468 4,109,179 10,908,300 4,118,961
PROVISION FOR INCOME TAXES 3,376,850 1,642,856 3,900,699 1,613,666
---------- ---------- ---------- ----------
NET INCOME $ 6,038,618 $ 2,466,323 $ 7,007,601 $ 2,505,295
========== ========== ========== ==========
Earnings per common
share equivalent:
Primary $0.40 $0.35 $0.54 $0.35
==== ===== ==== ====
Fully diluted $0.39 $0.35 $0.53 $0.35
==== ===== ==== ====
Weighted average number
of common share
equivalents:
Primary 15,482,717 7,120,000 12,980,052 7,120,000
<PAGE>
========== ========= ========== =========
Fully diluted 15,636,768 7,120,000 13,134,639 7,120,000
========== ========= ========== =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
October 31,
1996 1995
--------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 7,007,601 $ 2,505,295
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation and amortization 2,582,631 937,927
Equity in earnings of unconsolidated
affiliate (329,542) (241,620)
Deferred tax benefit -- (96,000)
Change in assets and liabilities, net
of effects from the acquisitions:
(Increase) in accounts receivable (38,299,003) (18,290,233)
(Increase) decrease in inventories (34,903,284) 1,942,587
Increase in advances on inventory purchases (1,612,030) --
Decrease (increase) in prepaid expenses
and other current assets 1,045,855 (377,801)
Increase in accounts payable 22,120,772 5,244,569
Increase in other payables and accrued expenses 5,699,676 1,800,930
(Decrease) increase in due to affiliate,
net (747,666) 1,505,493
----------- -----------
Net cash (used in) operating activities (37,434,990) (5,068,853)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of exclusive brand license (18,997,935) (18,370,655)
Additions to property and equipment,
net of disposals (1,138,229) --
Cash restricted for capital improvements (2,000,000) (253,366)
----------- -----------
Net cash (used in) investing activities (22,136,164) (18,624,021)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock offering 18,014,626 --
Proceeds from the grant of stock purchase
warrants 40,000 --
Proceeds from the issuance of preferred stock 5,714 3,500
Proceeds from the issuance of secured
subordinated debentures 3,000,035 8,221,500
Payments to unconsolidated affiliate, net (19,459) (102,606)
Proceeds from term loans 8,960,000 7,000,000
Payments on term loans (10,333,333) (583,334)
Net proceeds from short-term debt 35,256,649 8,800,000
Payments on capital lease and installment
loans (160,972) (165,190)
(Payment to) loans from shareholders (410,000) 250,000
Proceeds from bridge and inventory loans 7,000,000 --
Payment of bridge and inventory loans (7,000,000) --
Proceeds from mortgage 6,000,000 --
Payments on mortgage (27,638) --
<PAGE>
----------- -----------
Net cash provided by financing activities 60,325,622 23,423,870
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 754,468 (269,004)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 123,960 646,149
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 878,428 $ 377,145
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 3,919,136 $ 2,722,991
=========== ===========
Income taxes paid during the period $ 1,963,441 $ 695,000
=========== ===========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND BUSINESS
French Fragrances, Inc. ("FFI") is a manufacturer,
distributor and marketer of prestige designer fragrances and
related cosmetic products, primarily to mass retailers in the
United States. FFI was formed in 1992 to acquire the net assets
of the fragrance and cosmetics distribution business of National
Trading Manufacturing, Inc. ("National Trading"). On November
30, 1995, FFI merged with Suave Shoe Corporation ("Suave") in a
reverse acquisition (the "Merger"). Following the Merger,
Suave, as the surviving corporation, changed its name to "French
Fragrances, Inc." The principal business operations following
the Merger consist of the fragrance business previously conducted
by FFI. In connection with the Merger, FFI has relocated its
fragrance distribution facilities to the larger facility formerly
occupied by Suave in Miami Lakes, Florida (the "Suave Facility").
All
references
to
FFI in these Notes to Condensed Consolidated
Financial Statements refer to the company organized in 1992 until
the November 30, 1995 Merger and to the surviving Corporation
following the Merger. The condensed consolidated financial
statements
are those of FFI and also include the accounts of FFI's
wholly-owned subsidiaries GB Parfums, Inc. and Halston Parfums,
Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation.
The condensed consolidated financial statements included
herein have been prepared by FFI pursuant to the rules and
regulations of the Securities and Exchange Commission (the
"Commission") for interim financial information. As such
financial statements do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements, they should be read in
conjunction with the financial statements and related footnotes
included in FFI's Form 10-K for the year ended January 31, 1996
and in FFI's Form 10-Q for the quarters ended April 30, 1996 and
July 31, 1996 filed with the Commission.
The condensed consolidated balance sheet of FFI as of
January 31, 1996 is audited. The other condensed consolidated
financial statements are unaudited, but in the opinion of
management contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the condensed
consolidated balance sheet of FFI as of October 31, 1996 , the
condensed consolidated statements of income of FFI for the three
and
nine
months ended October 31, 1996 and 1995, and the condensed
consolidated statements of cash flow for the nine months ended
October 31, 1996 and 1995. Operating results for the three or
nine months ended October 31, 1996 are not necessarily indicative
of the results for the full fiscal year.
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LONG LIVED ASSETS - FFI adopted the provisions of SFAS No.
121 effective for the nine months ended October 31, 1996. Long
lived assets are reviewed on an ongoing basis for impairment.
Estimated fair value is calculated using discounted cash flow
methods and other valuation techniques, such as appraisals.
EARNINGS PER SHARE - Earnings per share is based on the
weighted average number of common shares outstanding and includes
the effect of the issuance of shares in connection with the
assumed exercise of dilutive stock options and warrants and the
assumed conversion of dilutive convertible preferred stock.
Fully diluted earnings per share reflects additional dilution due
to the use of the market price at the end of the period when
higher than the average market price for the period, and does not
assume the conversion of the convertible subordinated debentures
with corresponding adjustments for interest expense, net of tax,
since the effect of such conversion is anti-dilutive. Earnings
per share for the three and nine months ended October 31, 1995
were computed using the number of common shares received by the
shareholders of FFI in connection with the Merger. Earnings per
share for the three and nine months ended October 31, 1996 are
calculated based on the actual number of common shares and common
share equivalents outstanding.
RESTRICTED CASH AND INVESTMENTS - Restricted cash and
investments consist of cash and investments held in trust and
committed for capital improvements on the Suave facility.
NOTE 3. ACQUISITIONS
HALSTON ACQUISITION - In March 1996, FFI completed the
acquisition (the "Halston Acquisition") from Halston Borghese,
Inc. ("HBI") and its affiliates of certain assets relating to the
Halston fragrance brands including the trademarks and certain
inventory and tangible assets. The purchase price was
approximately $22,000,000 and was paid as follows: (i)
$19,000,000 in cash; and (ii) a $2,000,000 note issued to HBI
maturing March 20, 2000 (the "HBI Note"), which is to be repaid
on a quarterly basis in an amount equal to 5% of the net sales
revenues of FFI from the sale of the Halston brands, provided
that no payments are due until October 15, 1997 and that the
accrued amount bears interest at 8% per annum. FFI also assumed
approximately $1,000,000 in trade payables. The cash portion of
the purchase price was financed as follows: (a) $3,000,000 from
the issuance of 8% Secured Subordinated Debentures, due 2005,
Series II (the "8% Series II Debentures"), and 571,429 shares of
Series C Convertible Preferred Stock, $.01 par value ("Series C
Convertible Preferred"); and (b) $16,000,000 in term loans from
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. ACQUISITIONS (Continued)
the two banks which are parties to FFI's credit facility. Each
share of Series C Convertible Preferred is convertible into one
share of FFI's Common Stock, $.01 par value ("Common Stock"),
upon the payment of a conversion price of $5.25 per share. The
term loans consisted of the following: (1) a $1,000,000 term loan
from one of the banks due December 31, 1996, bearing interest at
0.75% over prime (the "Halston Term Loan 1"); (2) $9,000,000 term
loans from both banks on the credit facility due December 31,
1998, bearing interest at 1.75% over prime (collectively, the
"Halston Term Loan 2"); and (3) a $6,000,000 term loan bearing
interest at 2% over prime from one of the banks due June 14, 1996
(the "Bridge Loan"). In June 1996, FFI issued a mortgage in the
amount of $6,000,000 on the Suave Facility to repay the Bridge
Loan.
The
mortgage note provides for interest at 8.84%, a 20-year
amortization schedule and a maturity date eight years from
issuance. Of the $6,000,000 mortgage note, $2,000,000 is being
held in escrow to be drawn upon for the completion of the capital
improvements on the Suave Facility. In July 1996, with a portion
of the net proceeds received from the public offering (the
"Offering") of 3,364,000 shares of Common Stock, FFI repaid the
Halston Term Loan 1 and the Halston Term Loan 2. See Note 4.
FMG ACQUISITION - In May 1996, FFI completed the acquisition
(the "FMG Acquisition") of certain assets of Fragrance Marketing
Group, Inc. ("FMG"), including contract rights under certain
license and exclusive distribution agreements in the United
States for the Ombre Rose, Lapidus, Faconnable, Balenciaga,
Bogart, Chevignon and Niki de Saint Phalle fragrance brands,
inventory, accounts receivable and tangible assets. In addition,
FFI assumed approximately $3,100,000 of certain trade and other
payables of FMG and discharged approximately $600,000 of accounts
receivable due from FMG. In addition to the payables assumed and
the discharge of the receivable, the consideration for the assets
included approximately $4,300,000 in cash, $11,100,000 aggregate
principal amount of 8.5% Subordinated Debentures (the "8.5%
Debentures") and $900,000 of FFI inventory delivered to FMG. FFI
also issued to FMG (for assignment to its shareholders and senior
management) warrants for an aggregate of 1,075,000 shares of
Common Stock, which will be exercisable at $7.50 per share from
July 1997 to January 2002. The cash portion of the purchase
price was financed from FFI's revolving credit facility. The
8.5% Debentures consist of: (i) a $4,000,000 8.5% Debenture
which requires mandatory principal payments of $2,000,000 in May
1998 and 1999; (ii) a $7,000,000 8.5% Debenture which requires
mandatory annual principal repayments of $2.33 million commencing
May 2002, with the remaining balance due May 2004; and (iii) a
$100,000 8.5% Debenture which requires mandatory annual principal
repayments of $33,000 commencing May 2002, with the remaining
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. ACQUISITIONS (Continued)
balance due May 2004. In addition, warrants for 160,000 shares
of common stock, which will be exercisable at $7.50 per share
from July 1997 to January 2002, were issued to certain key
employees of FMG as an inducement to join FFI.
The following unaudited information presents FFI's pro forma
operating data for the nine months ended October 31, 1996 and
1995 as if the Halston Acquisition and the FMG Acquisition had
been consummated at the beginning of each of the periods
presented and include certain adjustments to the historical
consolidated statements of income of FFI to give effect to the
acquisition of intangible trademarks and associated rights,
license and distribution arrangements and other acquired net
assets, the payment of the purchase prices in such acquisitions,
the related issuances of additional indebtedness by FFI, and the
increased amortization of intangible assets. The Halston
fragrance brands acquired were not operated or accounted for
separately by HBI. In addition, HBI had never segregated indirect
operating cost information relative to these brands.
Accordingly, the proforma adjustments reflect the historical net
sales, cost of sales and direct operating expenses of the Halston
fragrance brands for the period from January 1, 1996 through
March 20, 1996 and for the nine months ended June 30, 1995.
Direct operating expenses consist principally of marketing,
advertising and demonstrator expenses and exclude selling,
general and administrative, research and development, interest,
income tax and amortization of intangible expenses. The
unaudited pro forma financial data are not indicative of the
results of operations that would have been achieved had the
transactions been consummated prior to the periods in which they
were completed, or that might be attained in the future.
<TABLE>
<CAPTION>
Pro Forma
Nine Months Ended
October 31, October 31,
1996 1995
------------- -------------
<S> <C> <C>
Net sales $107,361,000 $88,687,000
Net income $ 6,140,000 $ 1,555,000
Net income per share equivalent $ 0.47 $ 0.22
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PUBLIC OFFERING OF COMMON STOCK
In July 1996, FFI completed the Offering of 3,364,000 shares
of Common Stock at a price of $6.00 per share. FFI realized
approximately $18,000,000 of net proceeds from the Offering.
Approximately $9,300,000 of the net proceeds were used to repay
the outstanding balance of the Halston Term Loan 1 and the
Halston Term Loan 2, and the balance of the net proceeds were
used to reduce outstanding borrowings under FFI's credit
facility. See Notes 3 and 7. In connection with the Offering,
FFI issued warrants for an aggregate of 162,500 shares of Common
Stock to the representatives of the underwriters, exercisable at
$7.20 per share from June 28, 1997 to June 28, 1999.
NOTE 5. EXCHANGE OFFER
In July 1996, FFI also consummated an exchange offer (the
"Exchange Offer"), pursuant to which FFI issued $5,460,000
principal amount of 7.5% Subordinated Convertible Debentures Due
2006 (the "7.5% Convertible Debentures") in exchange for the
20,000 outstanding shares of Series A Preferred Stock, $.01 par
value ("Series A Preferred"), and the $3,460,000 principal amount
of outstanding principal amount of 12.5% Secured Subordinated
Debentures Due 2002 (the "12.5% Debentures"). Pursuant to the
Exchange Offer, each share of Series A Preferred was exchanged
for $100 principal amount of 7.5% Convertible Debentures, and
each outstanding 12.5% Debenture was exchanged for the equivalent
principal amount of 7.5% Convertible Debentures. The 7.5%
Convertible Debentures (i) are unsecured, (ii) require interest
only payments at 7.5% per annum, payable semi-annually until
maturity ten years from the date of issue, at which time the
entire principal amount and any unpaid accrued interest is due
and payable, (iii) are convertible at any time, at the option of
the holder, into shares of Common Stock at $7.20 per share (the
"Conversion Price"), and (iv) are redeemable, at the option of
FFI, at their principal amount commencing three years from the
date of issue, but only in the event the Common Stock, at the
time the redemption notice is delivered by FFI, has been trading
at no less than 200% of the Conversion Price for 20 consecutive
trading
days.
The
shares of Series A Preferred have been canceled.
NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATE
The following represents condensed financial information of
Fine Fragrances, Inc. ("Fine Fragrances"), a fragrance
distribution company which is 50% owned by FFI; FFI's investment
in Fine Fragrances is accounted for under the equity method:
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATE (Continued)
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996 January 31, 1996
---------------- ----------------
<S> <C> <C>
Current assets $4,596,080 $3,284,066
Other assets 909,296 742,265
--------- ---------
Total assets $5,505,376 $4,026,331
========= =========
Current liabilities $1,678,676 $ 970,716
Shareholders' equity 3,826,700 3,055,615
--------- ---------
Total liabilities and
shareholder's equity $5,505,376 $4,026,331
========= =========
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
1996 1995 1996 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
Net Sales $2,486,424 $1,267,283 $5,944,627 $3,909,104
========= ========= ========= =========
Net Income $ 211,547 $ 176,815 $ 771,085 $ 595,238
========= ========= ========= =========
</TABLE>
FFI's equity in the net income of Fine Fragrances as
reflected in the accompanying statements of income has been
reduced for the amortization of the exclusive distribution
agreements of Fine Fragrances. The exclusive distribution
agreements are being amortized using the straight-line method
over six years, the term of the agreements.
The reconciliation of the investment in unconsolidated
affiliate is as follows:
<TABLE>
<CAPTION>
October 31, 1996 January 31, 1996
---------------- ----------------
<S> <C> <C>
Equity interest at 50% $1,913,332 $1,527,790
Unamortized exclusive
distribution agreements 124,445 180,445
--------- ---------
Carrying value $2,037,777 $1,708,235
========= =========
</TABLE>
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATE (Continued)
Current liabilities primarily relate to a $2,000,000 secured
line of credit from a bank. The interest rate is prime rate plus
2.5% (prime rate was 8.25% at October 31, 1996). The line is
secured by receivables and inventories. The line is subject to
annual review and renewal by the bank in April. Amounts
outstanding were $1,311,976 and $912,000 at October 31, 1996 and
January 31, 1996, respectively. There are no other material
commitments or contingencies for Fine Fragrances.
NOTE 7. SHORT-TERM DEBT
In March 1996, FFI entered into a new credit facility with
two banks to replace the existing credit facility. The new
credit facility provides for borrowings on a revolving basis of
up to $30,000,000 (which is increased to $40,000,000 from July 1
to December 31 as an over line for the holiday season).
Borrowings are limited to eligible accounts receivable and
inventories. Borrowings are also collateralized by FFI's shares
of common stock in its subsidiaries and in Fine Fragrances and
all other assets other than the Suave Facility, including
accounts receivable and inventories. The credit facility
contains several covenants, the more significant of which are
that FFI maintain a minimum level of equity and meet certain
debt-to-equity, interest coverage and liquidity ratios. The
credit facility also includes a prohibition on the payment of
dividends and other distributions to shareholders and
restrictions on the incurrence of additional indebtedness. The
new credit facility also includes the term loan issued in
connection with the Geoffrey Beene acquisition in March 1995 of
which $4,833,333 remained outstanding at October 31, 1996. In
connection with the new credit facility, FFI issued to the banks
warrants to purchase 50,000 shares of common stock exercisable at
$5.50 per share until March 14, 1998. In August 1996, the credit
facility was amended to increase the over line borrowings for the
1996 holiday season from $40,000,000 to $55,000,000.
NOTE 8. RELATED PARTY TRANSACTIONS
FFI has various monitoring agreements with affiliates of FFI
pursuant to which such affiliates provide financial advisory
services to FFI. In consideration of the services provided, such
affiliates receive annual fees totaling $275,000 which are
payable in quarterly installments. FFI also paid to one of its
affiliates
a
management
services fee of $200,000 for management and
financial advisory services performed in connection with the
Halston Acquisition.
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. RELATED PARTY TRANSACTIONS (Continued)
In the normal course of business or from time-to-time, FFI
and its affiliates, Fine Fragrances and National Trading, have
entered into transactions which are reflected on the balance
sheet as Due to affiliates, net. During the nine months ended
October 31, 1996, such transactions are summarized as follows:
<TABLE>
<CAPTION>
Fine Due to Due to Total
Fragrances (from) (from) due to
Advances Management Fine National (from)
from Fine Fees and Fragrances, Trading, Affiliates,
Fragrances Other net net net
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at
January 31, 1996 $1,863,160 $(1,151,436) $ 711,724 $1,557,095 $2,268,819
Advances, net 995,000 995,000 222,500 1,217,500
Management fee (12%) (755,358) (755,358) (755,358)
Interest 109,683 109,683 109,683
Repayments (368,784) (368,784) (970,166) (1,338,950)
--------- ---------- --------- ---------- ---------
Balance at
October 31, 1996 $2,599,059 $(1,906,794) $ 692,265 $ 809,429 $1,501,694
========= ========== ========= ========= =========
</TABLE>
NOTE 9. INCOME TAXES
The provision for income taxes for the three and nine months
ended October 31, 1996 was calculated based upon the estimated
tax rate of 39% for the full fiscal year ending January 31, 1997.
NOTE 10. STOCK OPTION PLANS
During the nine months ended October 31, 1996, FFI granted
options (i) for 20,000 shares at an exercise price of $5.25 per
share and for 45,000 shares at an exercise price of $6.50 per
share under the 1981 Employee Stock Option and Stock Appreciation
Plan; (ii) for 92,500 shares at an exercise price of $6.50
per share under the 1995 Stock Option Plan; and (iii) for 7,000
shares at an exercise price of $6.00 per share and for
37,500 shares at an exercise price of $7.00 per share under the
Non-Employee Director Stock Option Plan.
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND
INVESTING ACTIVITIES:
FFI incurred the following non-cash financing and investing
activities for the nine months ended October 31, 1996. During
the nine months ended October 31, 1995, FFI incurred no such
activities:
HBI Note issued in connection
with the Halston Acquisition $ 2,000,000
==========
7.5% Convertible Debentures issued
in connection with the Exchange Offer $ 5,460,000
==========
Redemption of 8% Debentures used to
pay for conversion of preferred stock $ 403,982
==========
ACQUISITION OF FMG ASSETS
Fair value of assets acquired, excluding
inventory $14,552,489
==========
8.5% Debentures issued, net of discount $11,080,000
==========
Warrants issued $ 20,000
==========
Liabilities assumed $ 3,107,328
==========
Discharge of receivable and inventory
transferred $ 1,544,489
==========
Inventory acquired for other than cash $ 1,199,332
==========
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Notes
to
Condensed
Consolidated Financial Statements contained herein and
Management's Discussion and Analysis of Financial Condition and
Results
of
Operations appearing in the Company's Form 10-K for the
year ended January 31, 1996. The results of operations for an
interim period may not give a true indication of results for the
year. In the following discussions, all comparisons are with the
corresponding items in the prior year.
French
Fragrances,
Inc, a Florida corporation (the "Company"),
was known as Suave Shoe Corporation until the November 30, 1995
merger of a privately-held Florida corporation named French
Fragrances, Inc. ("French") with and into the Company (the
"Merger"). Following the Merger, the Company, as the surviving
corporation
in the Merger, changed its name to "French Fragrances,
Inc." In December 1994, the Company permanently discontinued its
shoe
manufacturing
and
importing operations and prior to the Merger
was engaged primarily in disposing of its property, plant and
equipment.
Following the Merger, the Company's operations consist
solely of the business of French (the accounting acquiror in the
Merger) which is the manufacturing, distribution and marketing of
prestige
fragrances and related cosmetic products. Therefore, the
following discussion and analysis of the results of operations of
the Company represents the discussion and analysis of the results
of operation of French until the Merger and the discussion and
analysis
of
the
results
of operation and financial condition of the
Company following the Merger.
RESULTS OF OPERATIONS
Three Months Ended October 31, 1996 Compared to the Three Months
Ended October 31, 1995
Net sales increased $23.1 million, or 61%, to $60.8 million
for
the
three months ended October 31, 1996 from $37.7 million for
the
three
months
ended
October 31, 1995. The increase in net sales
was
primarily attributable to (i) the acquisition in March 1996 of
the
Halston
fragrance brands (the "Halston Acquisition"); (ii) the
acquisition from Fragrance Marketing Group in May 1996 of the
exclusive distribution agreements for several fragrance brands
including Ombre Rose, Lapidus, Faconnable, Balenciaga and Bogart
(the
"FMG
Acquisition"); (iii) the Company's engagement to serve as
the exclusive United States distributor of the Benetton fragrance
brands in December 1995, and (iv) an increased selection of other
fragrance
products, including specially designed products, for the
mass
market. International sales increased to over $2,000,000 for
the
three
months ended October 31, 1996, compared to approximately
$242,000
for the three months ended October 31, 1995, primarily as
a result of the increase in foreign distribution of the Geoffrey
Beene brands, as well as sales of Halston products following the
Halston
Acquisition.
The Company expects to continue to expand the
<PAGE>
<PAGE>
international distribution of both the Halston and Geoffrey Beene
brands. The increase in net sales represents both an increase in
the
volume
of
products
sold to existing customers, as well as sales
to new customers. Management of the Company believes that the
increased
sales resulted from the Company's ability to provide its
customers with a continuous, direct supply of product, a larger
selection of products and the development and growth of certain
product categories.
Gross profit increased $10.6 million, or 104%, to $20.7
million for the three months ended October 31, 1996 from $10.1
million
for
the three months ended October 31, 1995. The increase
in gross profit and the increase in gross margin (from 26.9% to
34.1%) were primarily attributable to the addition of the product
sales from the Halston brands, as well as the brands formerly
distributed by Fragrance Marketing Group, all of which were at
higher
gross
profit
margins, and an increase in the sale of certain
product categories with higher gross margins such as holiday
fragrance sets.
Warehouse
and
shipp
ing expenses increased $550,000, or 67%, to
$1,372,000 for the three months ended October 31, 1996 from
$822,000
for
the
three
months ended October 31, 1995. The increase
resulted
from
the
increase in net sales and higher customer service
expenses.
Selling, general and administrative expenses increased $3.8
million, or 103%, to $7.5 million for the three months ended
October 31, 1996 from $3.7 million for the three months ended
October 31, 1995. The increase in selling, general and
administrative expenses was primarily a result of an increase in
advertising and promotional expenses for the Halston and Geoffrey
Beene
brands, an increase in sales commissions associated with the
increase in net sales and the addition of sales, marketing and
administrative personnel since the FMG Acquisition. The Company
expects its advertising and promotional expenses to continue to
grow as a result of the acquisition of the Halston and Geoffrey
Beene brands and the exclusive United States distribution
arrangements for other fragrance brands.
Depreci
ation and amortization increased $709,000, or 205%, to
$1,055,000 for the three months ended October 31, 1996 from
$346,000
for
the
three
months ended October 31, 1995. The increase
was
primarily
attributable to increased amortization of intangibles
arising from the acquisition of the Halston trademarks in March
1996
and
the
acquisition of the exclusive license agreements in the
FMG Acquisition in May 1996.
Interest expense, net of interest income, increased 55% to
$1.9
million for the three months ended October 31, 1996 from $1.2
million
for
the
three
months ended October 31, 1995. This increase
was primarily due to the increase in average debt outstanding
resulting
from the Halston Acquisition and the FMG Acquisition, as
<PAGE>
<PAGE>
well as increased borrowings under the revolving portion of the
Company's bank credit facility to accommodate increased working
capital requirements, including the increased wholesale inventory
levels needed to support higher net sales.
Other income reflects the receipt by the Company of $440,000
from
the
sale in September of common stock of a Company engaged in
an unrelated business which the Company had held since 1984 (the
"Stock Transaction"). In connection with this sale, the Company
had received a non-refundable deposit of $60,000 during the prior
fiscal quarter and also received at the closing a non-interest
bearing
promissory
note
in the principal amount of $100,000 payable
over two years.
Net
income
increase
d 145% to $6.0 million for the three months
ended October 31, 1996, from $2.4 million for the three months
ended October 31, 1995, primarily as a result of the increase in
net
sales
and
gross
profit which were partially offset by increased
interest and amortization expenses resulting from the Halston
Acquisition
and
the
FMG
Acquisition and increased selling expenses.
Net income per share for the Company increased to $0.40 for
the
three
months
ended
October 31, 1996, compared to net income per
share
for
French
(on
a
p
ro forma basis using the 7.12 shares of the
Company
to
1
share
of
Fr
ench conversion rate in the Merger) of $.35
per
share
for
the
three
months ended October 31, 1995, primarily as
a
result
of
the increase in net income, which was partially offset
by
(i)
the
increased
number of outstanding shares to give effect to
the Merger in November 1995 and the Company's public offering of
3,364,000
common
shares
in July 1996, and (ii) the assumed exercise
or conversion of stock options and convertible securities whose
exercise or conversion price was below the market price for the
Company's
common shares at the end of the fiscal quarter under the
treasury stock method.
Nine Months Ended October 31, 1996 Compared to the Nine Months
Ended October 31, 1995
Net sales increased $35.5 million, or 52%, to $103.9 million
for the nine months ended October 31, 1996 from $68.4 million for
the
nine
months ended October 31, 1995. The increase in net sales
was primarily attributable to the Halston Acquisition, the FMG
Acquisition, the Company's engagement to serve as the exclusive
United States distributor of the Benetton fragrance brands,
increased
sales of the Geoffrey Beene fragrance brands, as well as
an
increased selection of additional fragrance products, including
specially designed products, for the mass market. International
sales increased to approximately $4.3 million for the nine months
ended
October
31,
1996, compared to approximately $842,000 for the
nine months ended October 31, 1995 as a result of both increased
sales
of
Geoffrey Beene products and the sales of Halston products
since the Halston Acquisition. The increase in net sales
<PAGE>
<PAGE>
represents both an increase in the volume of products sold to
existing
customers, as well as sales to new customers. Management
believes that the increased sales resulted from the Company's
ability to provide its customers with a continuous, direct supply
of
product,
a larger selection of products and the development and
growth of certain product categories.
Gross profit increased $18.5 million, or 111%, to $35.1
million for the nine months ended October 31, 1996 from $16.6
million for the nine months ended October 31, 1995. The increase
in gross profit and gross margin (from 24.4% to 33.8%) was
primarily attributable to the increase in product sales from the
Halston,
Geoffrey Beene and Benetton brands, as well as the brands
formerly distributed by Fragrance Marketing Group, all of which
were at higher gross profit margins, and an increase in the sale
of certain product categories with higher gross margins such as
holiday fragrance sets.
Warehou
se and shipping expenses increased $1,229,000, or 63%,
to $3,182,000 for the nine months ended October 31, 1996 from
$1,953,000 for the nine months ended October 31, 1995. The
increase resulted from both the increase in net sales and higher
customer service expenses.
Selling, general and administrative expenses increased $7.8
million, or 114%, to $14.7 million for the nine months ended
October 31, 1996 from $6.9 million for the nine months ended
October 31, 1995. The increase in selling, general and
administrative expenses was primarily a result of an increase in
advertising and promotional expenses for the Halston and Geoffrey
Beene
brands, an increase in sales commissions associated with the
increase in net sales and the addition of sales, marketing and
administrative personnel since the FMG Acquisition.
Depreciation and amortization increased $1,645,000, or 175%,
to $2,583,000 for the nine months ended October 31, 1996 from
$938,000
for the nine months ended October 31, 1995. The increase
was
primarily
attributable to increased amortization of intangibles
arising from the acquisition of the Halston trademarks in March
1996,
the
acquisition of the Geoffrey Beene license and trademarks
in March 1995 (the "Geoffrey Beene Acquisition") and the
acquisition of the exclusive license agreements in the FMG
Acquisition in May 1996.
Interest expense, net of interest income, increased 62% to
$4.9 million for the nine months ended October 31, 1996 from $3.0
million
for
the nine months ended October 31, 1995. This increase
was primarily due to the increase in average debt outstanding
resulting from the Geoffrey Beene Acquisition, the Halston
Acquisition and the FMG Acquisition. The increase in interest
expense also reflects increased borrowings under the revolving
portion of its bank credit facility to accommodate increased
working capital requirements, including the increased wholesale
inventory levels needed to support higher net sales.
<PAGE>
<PAGE>
Other
income primarily reflects the receipt by the Company of
$500,000 from the Stock Transaction, as well as approximately
$100,000 from the sale of shoe products and equipment held by the
Company from before the Merger.
Equity in earnings of affiliates increased $88,000, or 36%,
to $330,000 for the nine months ended October 31, 1996 from
$242,000
for
the
nine
months ended October 31, 1995, as a result of
increases in net sales by Fine Fragrances, Inc. of fragrance
products manufactured by COFCI, S.A.
Net
income increased 180% to $7.0 million for the nine months
ended
October
31,
1996,
from $2.5 million for the nine months ended
October 31, 1995, primarily as a result of the increase in net
sales and gross profit which were partially offset by increased
interest and amortization expenses resulting from the Halston
Acquisition,
the
Geoffrey Beene Acquisition and the FMG Acquisition
and increased selling expenses.
Net income per share for the Company increased to $0.54 for
the
nine
months
ended
October 31, 1996, compared to $0.35 per share
for French (on a pro forma basis using the 7.12 shares of the
Company
to
1
share
of
Fr
ench conversion rate in the Merger) for the
nine months ended October 31, 1995, primarily as a result of the
increase in net income, which was partially offset by (i) the
increased
number
of
outstanding shares to give effect to the Merger
in November 1995 and the Company's public offering of 3,364,000
common shares in July 1996, and (ii) the assumed exercise or
conversion of stock options and convertible securities whose
exercise or conversion price was below the market price for the
Company's
common shares at the end of the fiscal quarter under the
treasury stock method.
FINANCIAL CONDITION
During the nine months ended October 31, 1996, the Company
completed the Halston Acquisition and the FMG Acquisition. See
Note
3
to
the
Notes
to
Condensed Consolidated Financial Statements.
As a result of these acquisitions, the Company has increased its
investments in exclusive brand licenses and trademarks. These
acquisitions, along with the Company's increased selection of
additional fragrance brands, have had a significant effect on the
increase in net sales and net income of the Company, especially
during the quarter ended October 31, 1996, which is historically
the quarter with the highest net sales as a result of increased
demand by retailers in anticipation of the holiday season. The
increase in accounts receivable at October 31, 1996 is directly
related to the increase in net sales. The increase in inventory
and trade payables at October 31, 1996 resulted primarily from
opportunity buying of certain distributed products on favorable
pricing and credit terms. The Company funded its working capital
requirements during the nine months ended October 31, 1996
primarily with short term debt from the revolving portion of its
<PAGE>
<PAGE>
bank credit facility and with vendor credit, and the increase in
short term debt at October 31, 1996 primarily reflects the
increased working capital requirements during the quarter ended
October 31, 1996. See Note 7 to the Notes to Condensed
Consolidated Financial Statements.
During the nine months ended October 31, 1996, the Company
also completed (i) the public offering of 3,364,000 shares of
Common Stock at a price of $6.00 per share, and (ii) the exchange
offer, pursuant to which it issued $5.46 million principal amount
of 7.5% Subordinated Convertible Debentures Due 2006 in exchange
for
20,000
outstanding
shares of Series A Preferred Stock, $.01 par
value, and $3.46 million outstanding principal amount of 12.5%
Secured
Subordinated
Debentures Due 2002. See Notes 4 and 5 to the
Notes to Condensed Consolidated Financial Statements.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Description
------- ----------------------------------------
2.1 Agreement and Plan of Merger, dated as
of May 19, 1995, by and between the
Company and French (incorporated herein
by reference to Exhibit 2.1 filed as a
part of the Company's Form 8-K dated
November 30, 1995 (Commission File No.
1-6370)).
3.1 Amended and Restated Articles of
Incorporation of the Company dated
March 6, 1996 (incorporated herein by
reference to Exhibit 3.1 filed as a part
of the Company's Form 10-K for the
fiscal year ended January 31, 1996
(Commission File No. 1-6370)).
3.2 Amendment dated September 19, 1996 to the
Amended and Restated Articles of
Incorporation of the Company.
3.3 By-Laws of the Company (incorporated
herein by reference to Exhibit 3.2 filed
as a part of the Company's Form 10-K for
the fiscal year ended January 31, 1996
(Commission File No. 1-6370)).
4.1 Credit Agreement, dated as of March 14,
1996, among the Company, Fleet National
Bank and Bank of America Illinois
(incorporated herein by reference to
Exhibit 4.1 filed as a part of the
Company's Form 8-K dated March 20, 1996
(Commission File No. 1-6370)).
4.2 First Amendment to Credit Agreement and
Other Transaction Documents dated as of
May 10, 1996, among the Company, Fleet
National Bank and Bank of America Illinois
(incorporated herein by reference to
Exhibit 4.1 filed as a part of the
Company's Form 8-K dated May 14, 1996
(Commission File No. 1-6370)).
4.3 Letter Agreement, dated May 29, 1996,
regarding the Credit Agreement dated as
of March 14, 1996, as amended, among the
Company, Fleet National Bank and Bank of
America Illinois (incorporated herein by
reference to Exhibit 4.4(c) filed as a
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
part of the Company's Amendment No. 1
to Registration Statement on Form S-1
dated June 7, 1996 (Registration Statement
No. 333-4588)).
4.4 Second Amendment to Credit Agreement and
Other Transaction Documents dated as of
August 28, 1996, among the Company, Fleet
National Bank and Bank of America Illinois
(incorporated by reference to Exhibit 4.4
filed as part of the Company's Form 10-Q
for the quarter ended July 31, 1996
(Commission File No. 1-6370)).
10.1 Registration Rights Agreement dated as of
November 30, 1995, among the Company,
Bedford Capital Corporation ("Bedford"),
Fred Berens, Rafael Kravec and Eugene Ramos
(
incorporated herein by reference to Exhibit
10.1 filed as a part of the Company's Form
10-K for the fiscal year ended September
30, 1995 (Commission File No. 1-6370)).
10.2 Amendment dated as of March 20, 1996 to
Registration Rights Agreement dated as of
November 30, 1995, among the Company,
Bedford, Fred Berens, Rafael Kravec and
Eugene Ramos (incorporated herein by
reference to Exhibit 10.2 filed as a part
of the Company's Form 10-K for the year
ended January 31, 1996 (Commission File
No. 1-6370)).
10.3 Second Amendment dated as of July 22, 1996
to Registration Rights Agreement dated as
of November 30, 1995, among the Company,
Bedford, Fred Berens, Rafael Kravec and the
Estate of Eugene Ramos (incorporated by
reference to Exhibit 10.3 filed as part of
of the Company's Form 10-Q for the quarter
ended July 31, 1996 (Commission File No.
1-6370)).
10.4 Employment Agreement dated as of July 2,
1992, between French and Rafael Kravec,
as amended on July 2, 1995 (incorporated
herein by reference to the exhibit filed as
a part of the Company's Form 10-K for the
fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
10.5 Amendment to Employment Agreement dated as
of May 2, 1996, between the Company and
Rafael Kravec (incorporated herein by
reference to Exhibit 10.22 filed as a part
of the Company's Registration Statement on
Form S-1 dated May 3, 1996 (Registration
Statement No. 333-4588)).
10.6 Non-Employee Director Stock Option Plan
(incorporated herein by reference to
Exhibit 10.4 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.7 1995 Stock Option Plan (incorporated herein
by reference to Exhibit 10.5 filed as a
part of the Company's Form 10-K for the
fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
10.8 Monitoring Agreement dated as of July 2,
1992, between French and Bedford, as
amended as of February 14, 1995
(incorporated herein by reference to
Exhibit 10.7 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.9 Monitoring Agreement dated as of February
14, 1995, between French and Bedford
(incorporated herein by reference to
Exhibit 10.8 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.10 Monitoring Agreement dated as of July 2,
1992, between French and Nevcorp, Inc.,
as amended as of February 14, 1995
(incorporated herein by reference to
Exhibit 10.9 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
10.11 Monitoring Agreement dated as of July 2,
1992, between French and ESB Consultants,
Inc., as amended as of February 14, 1995
(incorporated herein by reference to
Exhibit 10.10 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission
File No. 1-6370)).
10.12 Monitoring Agreement dated as of February
14, 1995, between French and Nevcorp, Inc.
(incorporated herein by reference to
Exhibit 10.11 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.13 Monitoring Agreement dated as of February
14, 1995, between French and ESB
Consultants, Inc. (incorporated herein by
reference to Exhibit 10.12 filed as a
part of the Company's Form 10-K for the
fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
10.14 Lease Agreement, dated as of July 2,1992,
between French and National Trading
(incorporated herein by reference to
Exhibit 10.13 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.15 Option Agreement, dated July 2, 1992,
between French and National Trading and
Memorandum of Lease and Option Agreement
related thereto (incorporated herein by
reference to Exhibit 10.14 filed as a
part of the Company's Form 10-K for the
fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
10.16 Amended and Restated Exclusive Trademark
License Agreement, dated February 29, 1980,
between Geoffrey Beene, Inc. (formerly
Geoffrey Beene Interim Corp.), a New York
corporation, and Epocha Distributors, Inc.
now known as Sanofi, Beaute, Inc.) as
amended July 29, 1992 and February 13, 1995
(incorporated herein by reference to
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
Exhibit 10.15 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.17 Asset Purchase Agreement dated as of
February 13, 1995, by and between Sanofi
Beaute, Inc. and Bedford Capital Financial
Corporation, as assigned to and assumed by
French (incorporated herein by reference to
Exhibit 10.19 filed as part of the
Company's Form 10-K for the fiscal year
ended January 31, 1996 (Commission File No.
1-6370)).
10.18 Asset Purchase Agreement dated as of
February 1, 1996, by and between the
Company and Halston-Borghese, Inc. and
its affiliates (incorporated herein by
reference to Exhibit 2.1 filed as a part
of the Company's Form 8-K dated March 20,
1996 (Commission File No. 1-6370)).
10.19 Asset Purchase Agreement dated as of
April 17, 1996, by and between the
Company and Fragrance Marketing Group,
Inc. and Rene Garcia and Jose Miguel
Norona, including the forms of Debentures
and Seller's Warrant related thereto
(incorporated herein by reference to
Exhibit 10.21(a) filed as a part of the
Company's Registration Statement on Form
S-1 dated May 3, 1996 (Registration
Statement No. 333-4588)).
10.20 Amendment to Asset Purchase Agreement
dated as of May 14, 1996, by and between
the Company and Fragrance Marketing
Group, Inc. and Rene Garcia and Jose
Miguel Norona (incorporated herein by
reference to Exhibit 2.2 filed as a part
of the Company's Form 8-K dated May 14,
1996 (Commission File No. 1-6370)).
10.21 Amendment to Asset Purchase Agreement
dated as of July 1, 1996, by and between
the Company and Fragrance Marketing
Group, Inc. and Rene Garcia and Jose
Miguel Norona.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
27.0 Financial Data Schedule.
99.1 Agreement Among Bedford Interests, dated
February 14, 1995 (incorporated herein by
reference to Exhibit 99.2 filed as a part
of the Company's Form 8-K dated
November 30, 1995 (Commission File No.
1-6370)).
99.2 Amendment dated as of February 23, 1996
to Agreement Among Bedford Interests,
dated February 14, 1995 (incorporated
herein by reference to Exhibit 99.2 filed
as a part of the Company's Form 10-K for
the fiscal year ended January 31, 1996
(Commission File No. 1-6370)).
99.3 Second Shareholders Agreement, dated
July 2, 1992, among Bedford and certain
members of the Bedford Funds, as amended
(incorporated herein by reference to
Exhibit 99.3 filed as a part of the
Company's Form 8-K dated November 30,
1995 (Commission File No. 1-6370)).
--------------
The foregoing list omits instruments defining the rights of
holders of long term debt of the Company where the total amount
of securities authorized thereunder does not exceed 10% of the
total assets of the Company. The Company hereby agrees to
furnish a copy of each such instrument or agreement to the
Commission upon request.
(b) Reports on Form 8-K.
None.
<PAGE>
<PAGE>
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.
FRENCH FRAGRANCES, INC.
Date: December 13, 1996 /s/ Rafael Kravec
------------------ -----------------------------
Rafael Kravec
President and Chief Executive
Officer (Principal Executive
Officer)
Date: December 13, 1996 /s/ William J. Mueller
------------------ -----------------------------
William J. Mueller
Vice President-Operations,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
ARTICLES OF AMENDMENT
TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FRENCH FRAGRANCES, INC.
---------------------------
These Articles of Amendment to the Amended and Restated
Articles
of
Incorporation of French Fragrances, Inc., were adopted
by
the
Board
of
Directors of French Fragrances, Inc., on August 26,
1996, and no shareholder action was required in accordance with
Section 607.0631 of the Florida Business Corporation Act.
I. The name of the Corporation is French Fragrances, Inc.
II. The reduction in the number of authorized shares is 20,000
shares of Series A Preferred Stock, par value $.01 per
share.
III. After giving effect to such reduction of shares, the total
number of shares which the Corporation is authorized to
issue, itemized by class and series, is as follows:
(1) 50,000,000 shares of Common Stock, par value $.01 per
share;
(2) 350,000 shares of Series B Convertible Preferred Stock,
par value $.01 per share;
(3) 571,429 shares of Series C Convertible Preferred Stock,
par value $.01 per share; and
(4) 4,428,571 shares of Serial Preferred Stock, par value
$.01 per share.
Date: September 19, 1996 FRENCH FRAGRANCES, INC.
------------------
By: /s/ William J. Mueller
---------------------------
Vice President-Operations
and Chief Financial Officer
SECOND AMENDMENT TO
ASSET PURCHASE AGREEMENT
------------------------
This SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT (the
"AMENDMENT") is entered into this 1st day of July, 1996, by and
among
French
Fragrances, Inc., a Florida corporation (the "Buyer"),
and Fragrance Marketing Group, Inc., a Florida corporation (the
"Seller"), and Rene Garcia and Jose Miguel Norona, the sole
shareholders
of the Seller (collectively, the "Shareholders"), and
amends
that
certain Asset Purchase Agreement among the Seller, the
Buyer and the Shareholders dated April 17, 1996 as amended on
May
14,
1996
(the
"Purchase Agreement"). All capitalized terms not
otherwise defined herein shall have the meanings set forth in the
Purchase Agreement.
WHEREAS,
the
partie
s entered into the Purchase Agreement, and,
pursuant to Section 14.2 thereof, desire to amend the Purchase
Agreement;
NOW,
THEREFORE,
in
consideration of the covenants and promises
contained herein and such other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1.
Sec
tion 2.1(a)(d) of the Purchase Agreement is deleted in
its entirety and replaced with the following:
"(d) a warrant exercisable for 1,075,000 shares
of the Buyer's common stock, par value $0.01 per
share (the "Warrant Stock"), in the form of Exhibit
E hereto (the "Warrant" and collectively with the
Cash Purchase Price, Inventory Purchase Price,
Debenture Price, the "Purchase Price"); provided
that, the Seller hereby authorizes and directs the
Buyer that the Warrant be issued to the Seller for
1,017,500 shares of Warrant Stock and that Warrants
in the form of Exhibit E be issued to David Alfin for
10,750 shares of Warrant Stock and for 46,750
shares of Warrant Stock and which additional
Warrants and Warrant Stock shall be subject to
the same terms and conditions contained in this
Agreement, as amended, as are applicable to the
Seller's Warrant and the shares issuable upon
exercise of the Seller's Warrant, including,
without limitation, the provisions of Section 12.5,
"Offset; Security Interest", on a pro rata basis
with the Seller's Warrant, and treated for all
purposes as if they were the Seller's Warrant, and
upon exercise, Warrant Stock, under this Agreement,
as amended."
<PAGE>
<PAGE>
2. (a) Except as amended hereby, the Purchase Agreement
remains in full force and effect in accordance with its terms and
conditions and is reaffirmed for all purposes.
(b) This Amendment may be executed in any number of
counterparts
, each of which shall be deemed an original. Delivery
of
executed
signature pages hereof by facsimile transmission shall
constitute effective and binding execution and delivery hereof.
(c) This Amendment shall be shall be governed by and
construed in accordance with the laws of the State of Florida
applicable to contracts made and to be performed in Florida,
without regard to conflicts of law principles thereunder.
(d) This Amendment shall be binding upon, and inure to
the
benefit
of,
the
parties hereto and their respective successors,
assigns, heirs, beneficiaries, estates, executors and personal
representatives.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
FRENCH FRAGRANCES, INC.
By: /s/ Rafael Kravec
---------------------------
Rafael Kravec
President
FRAGRANCE MARKETING GROUP, INC.
By: /s/ Rene Garcia
---------------------------
Rene Garcia
President
RENE GARCIA
By: /s/ Rene Garcia
---------------------------
JOSE MIGUEL NORONA
By: /s/ Jose Miguel Norona
---------------------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 2,878,428
<SECURITIES> 0
<RECEIVABLES> 53,533,870
<ALLOWANCES> 998,541
<INVENTORY> 63,729,314
<CURRENT-ASSETS> 118,043,493
<PP&E> 13,976,745
<DEPRECIATION> 1,279,522
<TOTAL-ASSETS> 181,997,145
<CURRENT-LIABILITIES> 100,588,672
<BONDS> 38,377,240
0
9,042
<COMMON> 131,277
<OTHER-SE> 42,899,956
<TOTAL-LIABILITY-AND-EQUITY> 181,997,145
<SALES> 103,938,394
<TOTAL-REVENUES> 103,938,394
<CGS> 68,799,941
<TOTAL-COSTS> 89,227,077
<OTHER-EXPENSES> 4,892,421
<LOSS-PROVISION> 165,000
<INTEREST-EXPENSE> 4,892,421
<INCOME-PRETAX> 10,578,758
<INCOME-TAX> 3,900,699
<INCOME-CONTINUING> 7,007,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,007,601
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.53
</TABLE>
