<PAGE>
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 April 30, 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 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 executive offices) (zip code)
(305) 818-8000
(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 June 3, 1999
---------------------------- -----------------
Common Stock, $.01 par value 13,802,380 shares
<PAGE>
FRENCH FRAGRANCES, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets - January 31, 1999 and
April 30, 1999 3
Consolidated Statements of Income -
Three Months Ended April 30, 1998 and 1999 4
Consolidated Statements of Cash Flow -
Three Months Ended April 30, 1998 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 16
2
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<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, 1999 April 30, 1999
---------------- --------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 6,111,603 $ 12,593,038
Accounts receivable, net 51,796,247 46,533,907
Inventories 133,305,803 123,776,156
Advances on inventory purchases 7,553,560 6,417,461
Prepaid expenses and other assets 5,758,400 8,887,113
------------ ------------
Total current assets 204,525,613 198,207,675
------------ ------------
Property and equipment, net 19,020,630 19,226,552
------------ ------------
Other assets:
Exclusive brand licenses and trademarks, net 55,658,151 53,992,221
Senior note offering costs, net 4,491,073 4,355,557
Deferred income taxes, net 1,208,153 1,208,153
Other intangibles and other assets 9,804,560 9,183,246
------------ ------------
Total other assets 71,161,937 68,739,177
------------ ------------
Total assets $294,708,179 $286,173,404
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 5,639,369 $ --
Accounts payable - trade 21,698,507 23,685,624
Other payables and accrued expenses 15,869,404 14,396,468
Current portion of long-term debt 3,861,767 1,853,266
------------ ------------
Total current liabilities 47,069,047 39,935,358
------------ ------------
Long-term debt, net (See Note 4) 176,158,756 176,129,684
------------ ------------
Total liabilities 223,227,803 216,065,042
------------ ------------
Commitments and contingencies (See Note 5)
Shareholders' equity:
Convertible, redeemable preferred stock,
Series B, $.01 par value (liquidation
preference of $.01 per share); 350,000
shares authorized; 271,596 shares issued
and outstanding 2,716 2,716
Convertible, redeemable preferred stock,
Series C, $.01 par value (liquidation
preference of $.01 per share); 571,429
shares authorized; 511,355 shares issued
and outstanding 5,114 5,114
Common stock, $.01 par value, 50,000,000
shares authorized; 13,812,704 shares issued
and outstanding 138,127 138,127
Additional paid-in capital 31,633,413 31,633,413
Retained earnings 39,701,006 38,328,992
------------ ------------
Total shareholders' equity 71,480,376 70,108,362
------------ ------------
Total liabilities and shareholders'
equity $294,708,179 $286,173,404
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net sales $46,546,294 $57,532,267
Cost of sales 33,229,130 40,318,303
----------- -----------
Gross profit 13,317,164 17,213,964
----------- -----------
Operating expenses:
Warehouse and shipping 1,888,758 2,893,137
Selling, general and administrative 5,856,672 9,239,206
Depreciation and amortization 1,596,115 2,772,547
----------- -----------
Total operating expenses 9,341,545 14,904,890
----------- -----------
Income from operations 3,975,619 2,309,074
----------- -----------
Other income (expense):
Interest expense, net (3,537,324) (4,552,875)
Other income (expense) 48,704 (7,049)
----------- -----------
Other income (expense), net (3,488,620) (4,559,924)
----------- -----------
Income (loss) before income taxes 486,999 (2,250,850)
Provision for (benefit from) income taxes 183,257 (878,836)
----------- -----------
Net Income (loss) $ 303,742 $(1,372,014)
=========== ===========
Earnings (loss) per common shares:
Basic $0.02 $(0.10)
===== ======
Diluted $0.02 $(0.10)
===== ======
Weighted average number of common shares:
Basic 13,669,122 13,812,704
=========== ===========
Diluted 17,618,366 15,212,443
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
--------------------------
1998 1999
------------ -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 303,742 $(1,372,014)
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,596,115 2,772,547
Amortization of senior note offering
costs and note premium 99,666 144,154
Change in assets and liabilities,
net of effects from acquisitions:
(Increase) decrease in accounts receivable (13,343,943) 4,506,840
(Increase) decrease in inventories (11,461,831) 8,556,696
Decrease in advances on inventory purchases 489,501 1,136,099
Increase in prepaid expenses and other assets (28,808) (3,011,155)
(Decrease) increase in accounts payable (15,879,168) 1,987,117
Decrease in other payables and accrued expenses (2,173,544) (1,215,410)
------------ -----------
Net cash (used in) provided by
operating activities (40,398,270) 13,504,874
------------ -----------
Cash Flows from Investing Activities:
Additions to property and equipment,
net of disposals (1,031,498) (808,784)
Net cash portion of purchase of intangible asset (5,150,000) --
------------ -----------
Net cash used in investing activities (6,181,498) (808,784)
------------ -----------
Cash Flows from Financing Activities:
Proceeds from the exercise of employee
stock options 117,480 --
Proceeds from the exercise of stock
purchase warrants 275,000 --
Proceeds from the conversion of preferred stock 268,780 --
Net proceeds from the issuance of senior notes 41,500,000 --
Net proceeds from (payments on) short-term debt 1,743,000 (5,639,369)
Payments on capital lease and installment loans (30,000) --
Payments on facility mortgage note (31,545) (46,211)
Payment on HBI Note (See Note 5) -- (529,075)
------------ -----------
Net cash provided by (used in)
financing activities 43,842,715 (6,214,655)
------------ -----------
Net (Decrease) Increase in Cash and
Cash Equivalents (2,737,053) 6,481,435
Cash and Cash Equivalents at Beginning of Period 7,667,119 6,111,603
------------ -----------
Cash and Cash Equivalents at End of Period $ 4,930,066 $12,593,038
============ ===========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $ 368,447 $ 453,747
============ ===========
Income taxes paid during the period $ 5,213,675 $ 131,433
============ ===========
See Notes to Consolidated Financial Statements.
</TABLE>
5
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<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
French Fragrances, Inc. (the "Company") is a manufacturer,
distributor and marketer of prestige designer fragrances and related
cosmetic products, primarily to retailers in the United States.
The consolidated financial statements included herein have been
prepared by the Company 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 the Company's Annual Report on Form 10-K for the
year ended January 31, 1999, filed with the Commission.
The consolidated balance sheet of the Company as of January 31,
1999 is audited. The other consolidated financial statements are
unaudited, but in the opinion of management contain all adjustments
necessary to present fairly the consolidated balance sheet of the
Company as of April 30, 1999, the consolidated statements of income of
the Company for the three months ended April 30, 1999 and 1998, and
the consolidated statements of cash flow for the three months ended
April 30, 1999 and 1998. Operating results for the three months ended
April 30, 1999 are not necessarily indicative of the results for the
full fiscal year.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings per Share - Basic earnings per share is computed by
dividing the net income available to common shareholders by the
weighted average shares of outstanding common stock. The calculation
of diluted earnings per share is similar to basic earnings per share
except that the denominator includes dilutive potential common stock
such as stock options, warrants and convertible securities. In
addition, for the diluted earnings per share calculation, the interest
incurred on the convertible securities, net of tax, is added back to
net income. In accordance with generally accepted accounting
principles, basic and diluted loss per share are the same for the
three months ended April 30, 1999.
Segments of an Enterprise - In June 1997, the Financial
accounting Standards Board issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information ("SFAS No. 131"). SFAS No. 131 changes the way
public companies report information about segments of their business
in their annual financial statements and requires them to report
selected segment information in their quarterly reports issued to
shareholders. SFAS No. 131 also requires entitywide disclosures about
the products and services an entity provides, the foreign countries in
which it holds assets and reports revenues, and its major customers.
SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The adoption of SFAS No. 131 as of January 31, 1999 did not
have a material impact on the Company's consolidated financial
statements presentation because the Company does not have different
operating segments as defined in SFAS No. 131.
NOTE 3. SHORT-TERM DEBT
At April 30, 1999, the Company's credit facility (the "Credit
Facility") with Fleet National Bank ("Fleet") provided for borrowings
on a revolving basis of up to $50 million, with a $3 million sublimit
for letters of credit. In May 1999, the Credit Facility was renewed
through May 2002. In connection with the renewal, the sublimit
for letters of credit was increased to $10 million. Borrowings under
the Credit Facility are limited to eligible
6
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SHORT-TERM DEBT - (Continued)
accounts receivable and inventories and are secured by a first
priority lien on all of the Company's accounts receivable and
inventory. The Company's obligations under the Credit Facility rank
pari passu in right of payment with the Company's 10 3/8% Senior Notes
due 2007. The Credit Facility contains several covenants, the more
significant of which are that the Company 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 non-trade indebtedness;
provided, however, that the Company is permitted to repurchase up to
$5 million of its common stock, $.01 par value per share ("Common
Stock"), and to incur certain acquisition indebtedness. At April 30,
1999, there was no outstanding balance under the Credit Facility and
there were $4.2 million of outstanding letters of credit.
NOTE 4. LONG-TERM DEBT
The Company's long-term debt at January 31, 1999 and April 30,
1999 consists of the following:
<TABLE>
<CAPTION>
Description January 31, 1999 April 30, 1999
- ----------- ---------------- --------------
<S> <C> <C>
10 3/8% Senior Notes due May 2007, net $157,453,466 $157,403,171
8.5% Subordinated Debenture due May 2004,
net 6,479,966 6,479,966
7.5% Convertible Subordinated Debentures
due June 2006 4,778,643 4,778,643
J.P. Fragrances Debenture due May 2001, net 2,710,915 2,769,848
Miami Lakes Facility Mortgage Note due
July 2004 5,694,068 5,647,857
Other Indebtedness 2,903,465 903,465
------------ ------------
Total Long-Term Debt, gross 180,020,523 177,982,950
Less Current Portion of Long-Term Debt 3,861,767 1,853,266
------------ ------------
Total Long-Term Debt, net $176,158,756 $176,129,684
============ ============
</TABLE>
NOTE 5. COMMITMENTS AND CONTINGENCIES
In March 1996, the Company completed the acquisition (the Halston
Acquisition") from Halston Borghese, Inc. ("HBI") and its affiliates
of certain assets relating to the Halston fragrance brands, including
trademarks, inventory and intangible assets. As part of the
consideration for the Halston Acquisition, the Company issued a $2
million note to HBI (the "HBI Note"), which was to be repaid with
interest in October 1997. In September 1997, the Company set off
indemnification claims for breach of the asset purchase agreement by
HBI against amounts owed under the HBI Note. The parties submitted
the matter to arbitration in July 1998, and in April 1999, the parties
settled the dispute. Pursuant to the settlement, the HBI Note was
canceled and all claims of HBI were released in exchange for a payment
from the Company of approximately $530,000. As a result of the
settlement, the HBI Note and accrued interest thereon were removed
from the Current portion of long-term liabilities in the Company's
Consolidated Balance Sheet at April 30, 1999.
The Company is a party to a number of pending legal actions,
proceedings or claims. While any action, proceeding or claim contains
an element of uncertainty, management of the Company believes that
the outcome of such actions, proceedings or claims likely will not
have a material adverse effect on the Company's business, consolidated
financial position or results of operations.
7
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES
The provision for income taxes for the three months ended April
30, 1999 was calculated based upon an estimated tax rate of 39% for
the full fiscal year ending January 31, 2000.
NOTE 7. STOCK OPTION PLANS
During the three months ended April 30, 1999, the Company granted
options for the purchase of 235,000 shares of Common Stock at an
exercise price of $6.00 per share under the Company's 1995 Stock
Option Plan (the "1995 Plan"). In March 1999, the Company's Board of
Directors approved, subject to shareholder approval, an increase in
the number of shares of Common Stock that may be issued under the
1995 Plan from 1,500,000 to 2,200,000. At April 30, 1999, the Company
had granted options to purchase in the aggregate 1,387,040 shares of
Common Stock under the 1995 Plan.
NOTE 8. SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING
ACTIVITIES
The Company incurred the following non-cash financing and
investing activities during the three months ended April 30, 1998:
<TABLE>
<CAPTION>
Three Months Ended
April 30, 1998
--------------
<S> <C>
Conversion of 7.5% Convertible
Subordinated Debentures (including
accrued interest) into Common Stock $ 49,880
===========
Transactions in connection with the
March 1998 acquisition of the assets
of J.P. Fragrances, Inc. ("JPF"):
Issuance of Debenture to JPF $ 2,514,472
===========
Assumption of JPF's accounts payables $10,560,577
===========
</TABLE>
There were no non-cash financing and investing activities during the
three months ended April 30, 1999.
8
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
In connection with the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"), the
Company is hereby providing cautionary statements identifying
important factors that could cause the Company's actual results to
differ materially from those projected in forward-looking statements
(as such term is defined in the Reform Act) made in this Quarterly
Report on Form 10-Q. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives,
assumptions or future events or performance (often, but not always,
through the use of words or phrases such as "likely will result," "are
expected to," "will continue," "is anticipated," "estimated,"
"intends," "plans" and "projection") are not historical facts and may
be forward-looking and may involve estimates and uncertainties which
could cause actual results to differ materially from those expressed
in the forward-looking statements. Accordingly, any such statements
are qualified in their entirety by reference to, and are accompanied
by, the following key factors that have a direct bearing on the
Company's results of operations: the absence of contracts with
customers or suppliers and the Company's ability to maintain and
develop relationships with customers and suppliers; the substantial
indebtedness and debt service obligations of the Company; the
Company's ability to successfully integrate acquired businesses or new
brands into the Company; the impact of competitive products and
pricing; supply constraints or difficulties; changes in the retail and
fragrance industries; the retention and availability of key personnel;
and general economic and business conditions. The Company cautions
that the factors described herein could cause actual results to differ
materially from those expressed in any forward-looking statements of
the Company and that investors should not place undue reliance on any
such forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which such statement is made,
and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which
such statement is made or to reflect the occurrence of anticipated or
unanticipated events or circumstances. New factors emerge from time
to time, and it is not possible for the Company to predict all of such
factors. Further, the Company cannot assess the impact of each such
factor on the Company's results of operations or the extent to which
any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements.
<PAGE>
General
This discussion should be read in conjunction with the Notes to
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, 1999. 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.
Results of Operations
Three Months Ended April 30, 1999 Compared to the Three Months Ended
April 30, 1998
Net Sales. Net sales increased $11.0 million, or 23.6%, to $57.5
million for the three months ended April 30, 1999, from $46.5 million
for the three months ended April 30, 1998. The increase in net sales
for the quarter was attributable to an increase in sales of both the
Company's owned or licensed brands (collectively, the "Controlled
Brands"), including the brands acquired as part of the January 1999
acquisition (the "PSI Acquisition") of the assets of Paul Sebastian,
Inc. ("PSI"), and brands that are distributed by the Company on a
non-exclusive basis through direct purchase relationships with
manufacturers or other sources ("Distributed Brands"). The increase
in net sales represents both an increase in the volume of products
sold to existing customers (including through increased sell through
of existing products and sales of new products), as well as sales to
new customers. Management believes that increased sales have resulted
from the Company's ability to provide its customers with a larger
selection of products and a continuous, direct supply of products.
9
<PAGE>
<PAGE>
Gross Profit. Gross profit increased $3.9 million, or 29.3%, to
$17.2 million for the three months ended April 30, 1999, from $13.3
million for the three months ended April 30, 1998. The increase in
gross profit was primarily attributable to the increase in product
sales of both the Controlled Brands and the Distributed Brands. Gross
margins increased from 28.6% to 29.9%, primarily as a result of a
proportionally larger increase in sales of Controlled Brands, which
typically sell at higher margins than the Distributed Brands.
Warehouse and Shipping Expense. Warehouse and shipping expenses
increased $1.0 million, or 53.2%, to $2.9 million for the three months
ended April 30, 1999, from $1.9 million for the three months ended
April 30, 1998. The increase resulted primarily from an increase in
labor and freight costs, which were associated with both the increase
in net sales and the shipment of inventory from the PSI Acquisition,
and an increase in inventory reserves.
SG&A. Selling, general and administrative ("SG&A") expenses
increased $3.4 million, or 57.8%, to $9.2 million for the three months
ended April 30, 1999, from $5.9 million for the three months ended
April 30, 1998. Of the increase in SG&A expenses, approximately $2.8
million represented an increase in selling and marketing expenses,
primarily as a result of the additional sales force and promotional
and marketing expenses related to the Paul Sebastian and Nautica
prestige fragrance lines added in connection with the PSI Acquisition.
General and administrative expenses for the three months ended April
30, 1999 increased $600,000 primarily as a result of the addition of
administrative personnel and an increase in accounts receivable
reserves. As a percentage of net sales, SG&A expenses increased from
12.6% for the three months ended April 30, 1998 to 16.1% for the three
months ended April 30, 1999 as a result of the addition of the PSI
business.
Depreciation and Amortization. Depreciation and amortization
increased $1.2 million, or 73.7%, to $2.8 million for the three months
ended April 30, 1999, from $1.6 million for the three months ended
April 30, 1998. The increase was primarily attributable to the
amortization of intangibles acquired in connection with the PSI
Acquisition, the Company's acquisition of the assets of JPF in March
1998 (the "JPF Acquisition") and the Company's acquisition of the
license for Wings by Giorgio Beverly Hills in November 1998.
Interest Expense, Net. Interest expense, net of interest income,
increased $1.0 million, or 28.7% to $4.6 million for the three months
ended April 30, 1999, from $3.6 million for the three months ended
April 30, 1998. This increase was primarily due to an increase in
average debt outstanding resulting from the April 1998 offering of $40
million principal amount of 10 3/8% Senior Notes due 2007.
Net Income. The Company incurred a net loss of $1.4 million for
the three months ended April 30, 1999, compared to net income of $0.3
million for the three months ended April 30, 1998, primarily as a
result of an increase in selling and marketing expenses associated
with the addition of the PSI business and an increase in interest
expense, partially offset by an increase in net sales.
EBITDA. EBITDA (operating income, plus depreciation and
amortization) decreased $0.5 million, or 9%, to $5.1 million for the
three months ended April 30, 1999, from $5.6 million for the three
months ended April 30, 1998. The EBITDA margin decreased to 8.8% for
the three months ended April 30, 1999, from 12.0% for the three months
ended April 30, 1998. The decreases in EBITDA and EBITDA margin were
primarily attributable to the selling and marketing expenses
associated with the PSI Acquisition discussed above.
10
<PAGE>
<PAGE>
Financial Condition
The Company improved its working capital utilization during the
quarter ended April 30, 1999. The Company generated $13.5 million of
net cash from operations during the three months ended April 30, 1999,
compared to using $40.4 million of net cash in operations during the
three months ended April 30, 1998, primarily as a result of a
significant decrease in accounts receivable and inventory. The
Company's use of net cash in operations during the three months ended
April 30, 1998 included inventory and accounts receivable acquired in
connection with the JPF Acquisition in March 1998.
The Company's Credit Facility with Fleet, which provides for
borrowings on a revolving basis of up to $50 million (including up to
$10 million in letters of credit) for general corporate purposes,
including working capital needs and acquisitions, was renewed through
May 2002. See Note 3 to the Notes to Consolidated Financial
Statements. In connection with the renewal, loans under the revolving
credit portion of the Credit Facility now bear interest, at the option
of the Company, at a floating rate ranging from either (i) 1.625% over
the London InterBank Offered Rate ("LIBOR") to 2.125% over LIBOR or
(ii) the prime rate as quoted by Fleet to 0.5% over such prime rate,
in each case depending on the ratio of the Company's funded debt to
capital base. In connection with the renewal, the Credit Facility was
amended to permit the Company to repurchase up to an aggregate of $5
million of its Common Stock. At April 30, 1999, the Company had no
amounts borrowed under the Credit Facility and approximately $4.2
million of outstanding letters of credit.
In May 1999, the Company's Board of Directors authorized a share
repurchase program that allows the Company to purchase up to an
aggregate of $5 million of its Common Stock. Under the terms of the
program, which has no expiration date, the Company may buy stock, from
time to time, in the open market, depending on market conditions and
other factors. As of June 3, 1999, the Company had repurchased an
aggregate of 13,000 shares of its Common Stock under the share
repurchase program.
Year 2000
The Company has evaluated both its information technology ("IT")
systems and technologies which include embedded ("Non-IT") systems for
Year 2000 compliance. The Company believes that its IT and Non-IT
<PAGE>
systems are Year 2000 compliant. The primary IT systems of the
Company are: (1) a fully-integrated accounting, forecasting,
purchasing and order-entry software system; (2) an electronic data
interchange ("EDI") system, which allows customers of the Company to
order products electronically from the Company and to be invoiced
electronically for those orders; and (3) a distribution management
system, which assists the Company in facilitating and managing the
shipment of products to its customers. The software companies
that developed those systems all have represented to the Company that
their systems are Year 2000 compliant. In fact, all three systems are
relatively new, having been installed at the Company over the last
twenty-four months. The Company anticipates adding new features to
its existing distribution management system during the Summer of 1999,
which will allow the Company to better manage the receipt and control
of its inventory. The software developer of the distribution
management system has represented that the new features of the system
will be Year 2000 compliant. Other IT systems include the Company's
personal computers, servers and associated software, all of which the
Company believes are Year 2000 compliant. The Company's Non-IT
systems, which are generally embedded in its equipment and machinery,
have been evaluated for Year 2000 compliance. The Company believes
that all of its Non-IT systems are Year 2000 compliant.
As part of the Year 2000 project, the Company has identified
relationships with third parties, including customers, suppliers and
service providers, which the Company believes are material to its
business and operations. The Company has contacted these third
parties through questionnaires, letters or interviews in an effort to
determine the status of their Year 2000 readiness. The Company has
already received responses from many of those third parties and will
follow up with them until it is satisfied with the reported status of
their Year 2000 compliance efforts. The Company expects to complete
its third-party compliance review process
11
<PAGE>
<PAGE>
by August 1999. Additionally, the Company has been testing and will
continue to test EDI transmissions to its customers to determine Year
2000 compliance. For the remainder of 1999 and into 2000, the Company
will continue to assess and monitor the progress of its material third
party customers, suppliers and service providers in resolving Year
2000 issues.
Because the Year 2000 compliance features of the Company's IT
systems were an integral part of its recently-procured management
information systems, no specific costs have been attributed by the
Company to the Year 2000 compliance of its systems. Additionally, to
date, the Company has not determined that any of its Non-IT systems
need to be fixed or replaced due to Year 2000 issues. Although, the
Company has incurred and expects to continue to incur labor and
material costs associated with the assessment, testing and monitoring
of the Year 2000 compliance of its own systems and those of its
material third party customers, suppliers and service providers, these
costs have not been and are not anticipated to be material to the
Company's business, results of operations or financial position.
The Company anticipates minimal disruptions to its business and
operations as a result of system failures related to Year 2000 issues.
Nevertheless, if the Company or a key third party customer, supplier
or service provider experiences a systems failure due to a Year 2000
problem, the Company's business, results of operations or financial
position could be materially adversely affected. The Company believes
that the most significant impact would be an inability to process
customer transactions, to collect its accounts receivable or to ensure
timely delivery of inventory.
Although the Company does not believe that the actual impact of
Year 2000 issues will be material, the Company is currently developing
contingency plans to respond to potential Year 2000 issues. In
particular, the Company is developing contingency plans to receive
product requirements and to receive and fulfill customer orders in the
event that the delivery of products and the processing of customer
transactions are affected by Year 2000 issues. The Company will
continue to develop and refine its contingency plans based on tests
with third parties and its assessment of other internal and outside
risks. The Company anticipates completing the vast majority of its
contingency planning by August 1999.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe that it is materially at risk
relating to interest rate, foreign currency exchange rate or commodity
price risks fluctuations. The only debt instrument of the Company
that is subject to interest rate fluctuations is its $50 million
Credit Facility. While inflation likely would increase the interest
rates that the Company pays on its Credit Facility, based on the
amounts and projected utilization of the Credit Facility, the Company
does not anticipate that any such increase would be material to its
results of operations. Further, all of the Company's purchases of
fragrances and related cosmetic products from foreign suppliers
are in U.S. dollars, which avoids foreign currency exchange rate
risks. Moreover, while the Company's international sales may be
subject to foreign currency fluctuation risks, such sales, and any
currency fluctuations relating to those sales, have not been and are
not expected to be material to the Company's results of operations.
The Company does not believe that it experienced any material change
in its market risk relating to interest rate, foreign currency
exchange rate or commodity price risks fluctuations during the three
months ended April 30, 1999.
12
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ----------------------------------------------------------------------
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
(incorporated by reference to Exhibit 4.4 filed as part of
the Company's Form 10-Q for the quarter ended October 31,
1996 (Commission File No. 1-6370)).
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 Indenture dated as of May 13, 1997, between the Company
and Marine Midland Bank, as trustee (incorporated herein
by reference to Exhibit 4.1 filed as a part of the
Company's Form 8-K dated May 13, 1997 (Commission File No.
1-6370)).
4.2 Indenture dated as of April 27, 1998, between the Company
and Marine Midland Bank, as trustee (incorporated herein
by reference to Exhibit 4.1 filed as a part of the
Company's Form 8-K dated April 27, 1998 (Commission File
No. 1-6370)).
4.3 Credit Agreement dated as of May 13, 1997, between the
Company and Fleet National Bank (incorporated herein by
reference to Exhibit 4.3 filed as a part of the Company's
Form 8-K dated May 13, 1997 (Commission File No. 1-6370)).
4.4 First Amendment to Credit Agreement and Other Transaction
Documents dated as of December 31, 1997, between the
Company and Fleet National Bank (incorporated herein by
reference to Exhibit 4.3 filed as a part of the Company's
Form 10-K for the fiscal year ended January 31, 1998
(Commission File No. 1-6370)).
4.5 Letter Agreement dated as of March 23, 1998, between the
Company and Fleet National Bank (incorporated herein by
reference to Exhibit 4.4 filed as a part of the Company's
Form 10-K for the fiscal year ended January 31, 1998
(Commission File No. 1-6370)).
4.6 Second Amendment to Credit Agreement and Other Transaction
Documents dated as of November 13, 1998, between the
Company and Fleet National Bank (incorporated herein by
reference to Exhibit 4.6 filed as a part of the Company's
Form 10-Q for the quarter ended October 31, 1998
(Commission File No. 1-6370)).
4.7 Third Amendment to Credit Agreement and Other Transaction
Documents dated as of May 17, 1999, between the Company
and Fleet National Bank.
13
<PAGE>
<PAGE>
Exhibit
Number Description
- ----------------------------------------------------------------------
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 herein by reference
to Exhibit 10.3 filed as part 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 April 6, 1998, between
the Company and Paul West (incorporated herein by
reference to Exhibit 10.5 filed as part of the Company's
Form 10-K for the year ended January 31, 1999 (Commission
File No. 1-6370)).
10.5 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)).
10.6 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)).
10.7 Asset Purchase Agreement dated as of February 25, 1998, by
and between the Company, J.P. Fragrances, Inc., Joseph A.
Pappalardo and Gloria Pappalardo (incorporated herein by
reference to Exhibit 2.1 filed as a part of the Company's
Form 8-K dated March 31, 1998 (Commission File No.
1-6370)).
10.8 Amendment to Asset Purchase Agreement dated as of March
30, 1998, by and between the Company, J.P. Fragrances,
Inc., Joseph A. Pappalardo and Gloria Pappalardo
(incorporated herein by reference to Exhibit 2.2 filed as
a part of the Company's Form 8-K dated March 31, 1998
(Commission File No. 1-6370)).
10.9 Lease Agreement dated as of May 4, 1998, between the
Company and Mac Papers, Inc. (incorporated by reference to
Exhibit 10.13 filed as a part of the Company's Form 10-Q
for the quarter ended April 30, 1998 (Commission File No.
1-6370)).
10.10 Asset Purchase Agreement dated as of January 20, 1999, by
and between the Company and Paul Sebastian, Inc.
(incorporated herein by reference to Exhibit 2.1 filed as
part of the Company's Form 8-K dated January 21, 1999
(Commission File No. 1-6370)).
27.1 Financial Data Schedule.
- ----------------------
14
<PAGE>
<PAGE>
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.
(1) A Current Report on Form 8-K dated January 21, 1999 was filed
on February 3, 1999 reporting the PSI Acquisition under Item
2. Acquisition or Disposition of Assets.
(2) An amended Current Report on Form 8-K dated January 21, 1999
was filed on April 5, 1999 setting forth the audited
financial statements of PSI for the fiscal years ended
December 31, 1997 and 1998 and unaudited pro forma financial
data for the Company reflecting the PSI Acquisition and the
JPF Acquisition under Item 7. Financial Statements and
Exhibits.
15
<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: June 3, 1999 /s/ E. Scott Beattie
-----------------------------
E. Scott Beattie
President and Chief Executive
Officer
(Principal Executive Officer)
Date: June 3, 1999 /s/ William J. Mueller
-----------------------------
William J. Mueller
Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
16
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
AND OTHER TRANSACTION DOCUMENTS
This Third Amendment to Credit Agreement and Other Transaction
Documents (the "Agreement"), made as of the 17th day of May, 1999, by
and between FLEET NATIONAL BANK, a national banking association with
its principal office at 111 Westminster Street, Providence, Rhode
Island 02903, in its capacity as agent and as lender ("Lender")
(sometimes hereinafter referred to as "Agent" or "Lender", as
appropriate depending on responsibility) and FRENCH FRAGRANCES, INC.,
a Florida corporation with its principal place of business at
14100 N.W. 60th Avenue, Miami Lakes, Florida 33014 ("Borrower").
W I T N E S S E T H:
WHEREAS, pursuant to the terms and conditions of that certain
Credit Agreement dated May 13, 1997 between Borrower and Lender, as
amended by a First Amendment to Credit Agreement and Other Transaction
Documents dated as of December 31, 1997 and as further amended by a
Second Amendment to Credit Agreement and Other Transaction Documents
dated as of November 13, 1998 (as amended, the "Credit Agreement"),
Lender agreed to make a revolving credit loan available to Borrower,
subject to the terms and conditions of the Credit Agreement; and
WHEREAS, Borrower has requested and Lender has agreed to renew
the revolving credit loan facility; and
WHEREAS, Lender is willing to amend the Credit Agreement subject
to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, and for good and valuable other
consideration, receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Defined Terms.
All capitalized terms not defined herein shall have the same
meaning ascribed to such terms as provided in the Credit Agreement.
Section 2. Representations and Warranties.
Borrower hereby represents and warrants to Lender that:
(a) Borrower is duly organized, validly existing and in good
standing as a corporation in the state of its incorporation, and is in
good standing and is qualified to do business as a foreign corporation
in all other jurisdictions where it is required to be so qualified,
except such jurisdictions, if any, in which the failure to be so
qualified will not have a material adverse effect on the financial
condition, business, assets, operations or properties of Borrower.
Borrower has all requisite power and authority to own and lease its
assets and properties and to conduct its business in the manner
presently conducted by it.
(b) Borrower has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement and the
execution, delivery and performance by Borrower of this Agreement has
been duly authorized by all requisite action. This Agreement has been
duly executed and delivered by Borrower, and is the valid and binding
obligation of Borrower, enforceable against Borrower in accordance
with its respective terms.
(c) The execution, delivery and performance by Borrower of this
Agreement will not violate or contravene (i) the articles of
incorporation or by-laws of Borrower, (ii) any provision of any law,
rule or regulation applicable to Borrower, (iii) any order, writ,
judgment, injunction, decree, determination or award of any court or
other agency of government to which Borrower is bound, or (iv) any
other agreement, lease, indenture or instrument to which Borrower is a
party or by which Borrower is bound, or be in conflict with, result in
a breach of, or constitute (with due notice or lapse of time or both)
a default under, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever, upon any
properties or assets of Borrower pursuant to any such other agreement,
lease, indenture or instrument.
(d) There is no action, suit or proceeding at law or in equity
or by or before any court, governmental instrumentality or other
agency pending, or to Borrower's knowledge, threatened against, or in
any way affecting Borrower which, if adversely determined, would have
a material adverse effect on the business, operations, properties,
assets or condition, financial or otherwise, of Borrower.
(e) No consent, approval or authorization from, or filing of any
declaration or statement with, any court, governmental instrumentality
or other agency is required in connection with or as a condition to
the execution, delivery or performance of this Agreement, by Borrower.
(f) Except as set forth in Schedule I attached hereto, Borrower
hereby reaffirms and restates, as of the date hereof, all of the
representations and warranties made by it in the Credit Agreement, as
amended by this Agreement, except to the extent altered by actions
permitted pursuant to the terms thereof or expressly contemplated
pursuant to the terms hereof, or to the extent Lender has been advised
in writing of any inaccuracy with respect to such representations
or warranties and have waived the same in writing.
(g) No Event of Default exists under the Credit Agreement, or
any event which, with the giving of notice or passage of time or both,
would constitute such an Event of Default, has occurred which has not
been waived in writing by Lender or which will not be cured upon the
execution and delivery by Borrower of this Agreement.
Section 3. Amendments to Credit Agreement.
The Credit Agreement is hereby amended, effective as of the date
hereof, as follows:
Section 3.01. Amendments to Definitions.
The definitions of "Applicable Eurodollar Rate Margin",
"Applicable Revolving Funded Debt Rate", "Borrowing Base", "Eligible
Inventory", "Revolving Credit Maturity Date" and "Subordinated
Debentures" set forth in Section 1.01 of the Credit Agreement are
hereby amended to read in their entirety as follows:
"Applicable Eurodollar Rate Margin" shall mean,
if the Funded Debt to then the Applicable
Capital Base is: Eurodollar Rate Margin is:
greater than
2.00 : 1.00 2.125%
less than or equal to
2.00 : 1.00 but greater than
1.50 : 1.00 1.875%
less than or equal
to 1.50 : 1.00 1.625%.
"Applicable Revolving Funded Debt Rate" shall mean the rate of
interest which corresponds to the Funded Debt to Capital Base ratio as
follows:
Funded Debt to
Capital Base Interest Rate
greater than 2.00:1.00 Prime Rate + .50%
<PAGE>
less than or equal to 2.00:1.00 Prime Rate + .25%
but greater than 1.50:1.00
less than or equal to 1.50:1.00 Prime Rate.
"Borrowing Base" shall mean, as of any date, the sum of, without
duplication, (i) eighty-five percent (85%) of Approved Eligible
Accounts Receivable determined as of such date, plus, (ii) eighty
percent (80%) of Eligible Accounts Receivable (other than Approved
Eligible Accounts Receivable) determined as of such date, plus (iii)
fifty percent (50%) of Eligible In-House Inventory; provided that the
portion of the Borrowing Base derived from clause (iii) shall be
capped at Twenty-Five Million Dollars ($25,000,000), and provided
further that there shall be a reserve against total Eligible In-House
Inventory of One Million Two Hundred Thousand Dollars ($1,200,000).
The foregoing definition of "Borrowing Base", including the
respective percentages set forth therein, may be amended from time to
time by the execution and delivery of an Amendment Letter or other
written instrument executed by Borrower and Lenders.
"Eligible Inventory" shall mean the lower of fair market value or
cost of Borrower's inventory of raw materials, work-in-process and
finished goods determined on a consolidated FIFO basis in accordance
with GAAP which, as of the day preceding any calculation of the
Revolving Credit Commitment, is in good condition, meets all standards
imposed by any governmental agency or department or division thereof
having regulatory authority over such goods, their use, manufacture
and/or sale, is currently usable or currently saleable in the normal
course of the applicable Borrower's business, is not on consignment to
or from any Person and is not otherwise deemed by the Majority Lenders
in their reasonable discretion to be ineligible less any Ineligible
Inventory.
"Revolving Credit Maturity Date" shall mean May 31, 2002, as
extended from time to time by the execution and delivery of an
Amendment Letter or other written instrument executed and delivered by
Lenders hereunder.
"Subordinated Debentures" shall mean the FMG Subordinated
Debentures, the 7.5% Convertible Debentures, the JPF Debentures and
the PSI Debenture.
Section 3.02. Additional Definitions.
Section 1.01 of the Credit Agreement is hereby further amended by
adding the following new definitions:
<PAGE>
"Ineligible Inventory" shall mean all inventory over fifty
percent (50%) of Inventory which is subject to a Non-Permissible
Licensing Agreement".
"Non-Permissible Licensing Agreement" shall mean any licensing
agreement for the manufacturing and distribution of fragrance products
and related cosmetic products which does not allow Agent, on behalf of
the Lenders, to sell the applicable Inventory back to the licensor at
cost or/and sell such Inventory for a period of at least ninety days
following notice by Agent to the licensor of its intention to do so in
the event such agreement is terminated.".
"PSI Debenture" shall mean the $500,000 Junior Subordinated
Debenture issued by Borrower to Paul Sebastian, Inc.
Section 3.03. Amendment to Section 2.03.
Section 2.03 of the Credit Agreement is hereby amended by
deleting it in its entirety and replacing it with the following:
"Section 2.03. The Revolving Credit Commitment.
(a) The Revolving Credit Commitment shall be equal to the
lesser of:
(i) the Borrowing Base as in effect from time to time, or
(ii) Fifty Million Dollars ($50,000,000).
(b) The Borrowing Base shall be adjusted upon Agent's review and
acceptance of (i) each monthly Borrowing Base Certificate submitted by
Borrower or (ii) any additional information obtained by Agent
(including any Request for Advance or updated Borrowing Base
Certificates) relating to the determination of Eligible Accounts
Receivable and Eligible Inventory.
(c) Borrower may, at its option, upon prepayment of all
outstanding principal of and interest on the Revolving Credit Notes in
accordance with the terms of Section 2.06 hereof, and upon thirty (30)
days' prior written notice to Agent, cancel the Revolving Credit
Commitment. Borrower may, at its option, upon thirty (30) days' prior
written notice to Agent, but not more frequently than two (2) times in
any fiscal year of Borrower, reduce the Revolving Credit Commitment by
an amount not less than One Hundred Thousand Dollars ($100,000), or,
if a greater amount, in integral multiples of Fifty Thousand Dollars
($50,000); provided, however, that the Revolving Credit Commitment
shall not at any time be reduced by operation of this Section 2.03(c)
to an amount less than the aggregate unpaid principal amount then
outstanding under the Revolving Credit Notes and to an amount equal to
the face amount of any Letters of Credit still outstanding. Any such
reduction or cancellation shall be irrevocable and shall not affect
any of the obligations or liabilities of Borrower to Lenders under the
Revolving Credit Notes (except to the extent prepaid).".
Section 3.04. Amendment to Section 2.07.
Section 2.07 of the Credit Agreement is hereby amended to read in
its entirety as follows:
"Section 2.07. Revolving Credit Unused Commitment Fee.
Borrower hereby agrees to pay to Agent for the account of each
Lender computed from the Closing Date to and including the Revolving
Credit Maturity Date, a revolving credit commitment fee in an amount
equal to the applicable percentage of the average daily unused
portion of the Revolving Credit Commitment (as in effect as of the
date of any determination thereof, giving effect to any adjustment
pursuant to Section 2.03) based on the following:
if the Funded Debt to then the Applicable
Capital Base is: Percentage is:
greater than
2.00 : 1.00 .375%
less than or equal to
2.00 : 1.00 but greater than
1.50 : 1.00 .25%
less than or equal
to 1.50 : 1.00 .25%.
payable quarterly in arrears, commencing July 31, 1997 and continuing
on the last day of each October, January, April and July thereafter
and payable upon payment in full of the Revolving Credit Notes and
cancellation of the Revolving Credit Commitment, and on the Revolving
Credit Maturity Date. Such fee shall be computed on the basis of a
360-day year, counting the actual number of days elapsed.".
Section 3.05. Amendment to Section 4.11.
Subsection (b) of Section 4.11 of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(b) The aggregate outstanding amount of all Letters of Credit
issued pursuant hereto shall at no time exceed a face amount equal to
Ten Million Dollars ($10,000,000).".
<PAGE>
Section 3.06. Amendment to Article V.
Article V of the Credit Agreement is hereby amended by adding the
following new subsection:
"Section 5.21. Year 2000.
To Borrower's knowledge, Borrower has taken or will take all
necessary action to assess, evaluate and correct all of the hardware,
software, embedded microchips and other processing capabilities it
uses so that it will be able to function properly and without
interruption or ambiguity using date information before, during and
after January 1, 2000.".
Section 3.07. Amendment to Section 7.09.
Section 7.09 of the Credit Agreement is hereby amended by
deleting it in its entirety and replacing it with the following:
"Section 7.09. Shareholders' Equity Base. Maintain at the end
of each fiscal quarter Shareholders' Equity Base at least equal to
$60,000,000 ("Minimum Amount") from the Closing Date through and
including the fiscal quarter ending January 31, 1999; provided,
however, such Minimum Amount shall be increased ninety (90) days
following each fiscal year end after January 31, 1999 in an amount
equal to 50% of the net income of Borrower for the preceding
fiscal year, and; provided further, the Minimum Amount shall be
immediately increased by an amount equal to the net proceeds received
by Borrower as a result of any Public Offering, upon Borrower's
receipt of the net proceeds therefrom.".
Section 3.08. Amendment to Article VII.
Article VII of the Credit Agreement is hereby amended by adding a
new Section 7.13 as follows:
"Section 7.13. Distribution Agreements.
"With respect to distribution agreements entered into by Borrower
after the date of this Third Amendment (and excluding product acquired
through license agreements or purchase orders), Borrower agrees to use
commercially reasonable efforts to obtain the agreement of the
manufacturer to allow Borrower or Agent, (on behalf of the Lenders),
as the case may be, the right upon termination of the distribution
agreement, to sell the Inventory sold under such distribution
agreement for a period of at least ninety (90) days following
termination or to require the manufacturer to repurchase such
<PAGE>
Inventory at cost. Upon execution of any such agreement, Borrower
agrees to deliver a copy to Lender."
Section 3.09. Amendment to Section 8.01.
Subsection (f) of Section 8.01 of the Credit Agreement is hereby
amended by deleting the numerical reference to "$12,560,034" and
replacing it with "$15,000,000".
Section 3.10. Amendment to Section 8.09.
Section 8.09 of the Credit Agreement is hereby amended by
deleting subsection (f) and replacing it with the following two
subsections:
"(f) provided no Event of Default exists, to the stockholders of
the Borrower in order to repurchase such shares in an amount up to an
aggregate of Five Million Dollars ($5,000,000); and
(g) additional Restricted Distributions (exclusive of those set
forth in subsections (a) through (f) hereof) in an amount not to
exceed $50,000 in the aggregate per annum.".
Section 3.11. Amendment to Section 8.10.
Section 8.10 of the Credit Agreement is hereby amended to read in
its entirety as follows:
"Section 8.10. Capital Expenditures. Make Capital Expenditures
during any fiscal year in excess of $4,000,000.".
Section 3.12. Amendment to Article IX.
Article IX of the Credit Agreement is hereby amended by deleting
in subsections (e) and (i) the numerical reference to "$100,000" and
replacing it in both places with "$500,000".
Section 3.13. Amendment to Article IX.
Article IX of the Credit Agreement is further amended by deleting
in subsection (k) the numerical reference to "$50,000" and replacing
it with "$250,000".
Section 3.14. Amended Exhibit.
Exhibit A attached hereto is hereby intended to replace Exhibit B
to the Credit Agreement and is hereby intended to read as Exhibit B -
Amended.
<PAGE>
Section 4. Security Documents.
(a) Borrower and Lender each hereby confirm that all references
to the "Credit Agreement" or the "Agreement" in any of the Security
Documents shall be deemed to be references to the Credit Agreement as
amended hereby; that the obligations of Borrower under the Credit
Agreement, as amended hereby, and fees and expenses in connection
therewith constitute additional indebtedness, liabilities and
obligations of Borrower to Lender, all of which are secured by the
Security Documents, and that all references to "indebtedness" and/or
"obligations" secured by such instruments shall be deemed amended to
include all obligations of Borrower in respect of the Credit Agreement
as amended hereby.
(b) Borrower hereby ratifies and reaffirms its grant and
conveyance to Agent for the ratable benefit of the Lenders of a
security interest in and lien upon all collateral covered by any
of the Security Documents.
(c) Borrower and Lender each hereby confirm that nothing
contained herein or done pursuant hereto shall limit or be construed
to limit the security interest or lien previously granted by Borrower
to Agent for the ratable benefit of the Lender under any of the
Security Documents, or the priority thereof over other liens,
encumbrances and security interests. Except as amended hereby, the
Security Documents shall remain in full force and effect and Borrower
hereby ratifies and confirms the Security Documents in all other
respects, including, without limitation, the continuing grant of a
lien on and interest in the collateral covered thereby.
Section 5. Conditions Precedent to Second Amendment.
The effectiveness of the transactions described herein shall be
subject to the following conditions:
(a) This Agreement and the First Amendment to Security Agreement
shall have been executed and delivered by Borrower and Lender.
(b) The fees and disbursements of Lender and Lender's counsel
shall be paid in full on the Effective Date.
(c) Borrower shall have executed and/or delivered to Agent the
following:
(i) Certificate of the Secretary or Assistant Secretary of
Borrower certifying as to the due authorization, execution and
delivery by Borrower of this Agreement; and
<PAGE>
(ii) Certificate of the Secretary or Assistant Secretary of
Borrower certifying as to the names of the officers of Borrower
authorized to sign this Agreement, and any other documents or
certificates to be delivered pursuant to this Agreement, together with
the true signatures of such officers. Lender may conclusively rely on
such certificates until Agent shall receive a further certificate of
the Secretary or an Assistant Secretary of Borrower canceling or
amending the prior certificate and submitting the signatures of the
officers named in such further certificate.
(d) All legal matters relating to this Agreement shall be
satisfactory to Lender and its counsel.
Section 6. Ratification.
Borrower hereby ratifies and confirms all of its obligations,
covenants, duties and agreements set forth in the Credit Agreement, as
amended by the terms hereof. All references to the "Credit Agreement"
or the "Agreement" contained in the Credit Agreement, the Notes, the
Security Documents and all other documents and instruments evidencing
obligations of Borrower under or in connection with the Credit
Agreement, the Notes or the Security Documents, shall be deemed to be
amended to refer to the Credit Agreement, as amended by the
terms hereof.
Section 7. Expenses.
All costs and expenses, including reasonable attorneys' fees,
relating to the negotiation, preparation, execution and delivery of
this Agreement and all instruments, agreements and documents
contemplated hereby shall be the responsibility of Borrower.
Section 8. Miscellaneous.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Rhode Island applicable to contracts
made and to be performed within such State. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. The headings of the Articles and Sections of this
Agreement are inserted for convenience only and shall not constitute a
part hereof.
Section 9. No Defenses.
Borrower hereby acknowledges and agrees that the Credit
Agreement, as amended by the terms hereof, and the other Transaction
<PAGE>
Documents are not subject as of the date hereof to any defenses,
rights of setoff, claims or counterclaims that might limit the
enforceability thereof.
Section 10. Facility Fee.
In consideration of Lender's commitment to enter into this
Agreement, Borrower hereby agrees to pay to Lender a facility fee
equal to One Hundred Thousand Dollars ($100,000).
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers hereunto duly authorized,
all as of the day and year first above written.
LENDER:
FLEET NATIONAL BANK
By /s/ Douglas E. Scala
--------------------
Douglas E. Scala
Senior Vice President
AGENT:
FLEET NATIONAL BANK
By /s/ Douglas E. Scala
--------------------
Douglas E. Scala
Senior Vice President
BORROWER:
FRENCH FRAGRANCES, INC.
By /s/ Oscar E. Marina
-------------------
Vice President
<PAGE>
EXHIBIT B- Amended
BORROWING BASE CERTIFICATE
Fleet National Bank
111 Westminster Street Date:
Providence, RI 02903
Attention: Douglas E. Scala
Senior Vice President
Ladies and Gentlemen:
Pursuant to the provisions of Section 2.01 of that certain Credit
Agreement (as amended, the "Agreement") dated as of May 13, 1997,
among Fleet National Bank, as agent, French Fragrances, Inc., as
Borrower, and Fleet National Bank, as a lender, the undersigned hereby
represents and warrants that the aggregate principal amount of
Advances (as defined in the Agreement) outstanding under the Revolving
Credit Notes dated as of May 13, 1997, (as amended, the "Note") of the
undersigned in the aggregate principal amount of $50,000,000, after
taking into consideration the amount of the Advance, if any, requested
this date, is less than or equal to the "Revolving Credit Commitment"
(as defined in the Agreement) in effect on the date hereof (as
calculated below in accordance with the Agreement).
Commitment: Lesser of:
A. $50,000,000
(or)
B. Borrowing Base:
1. Total Accounts Receivable (as of , 19 ): $________
(a) Approved Eligible Accounts Receivable
0-30 Days: $__________
31-60 Days: $__________
61-90 Days: $__________
Total Approved Eligible AR: $_________
Percentage advance: 85%
Approved AR Borrowing Base: $_________
<PAGE>
(b) Eligible Accounts Receivable (other than Approved Eligible
Accounts Receivable):
0-30 Days: $__________
31-60 Days: $__________
61-90 Days: $__________
Total Eligible AR: $_________
Percentage advance: 80%
Approved AR Borrowing Base: $_________
TOTAL AR BORROWING BASE $_________
2. Inventory Borrowing Base
(a) Eligible In-House Inventory; at $________
(b) Less a reserve against Total Eligible In-House Inventory of
$1,200,000
(c) Capped at a maximum of $25,000,000
TOTAL INVENTORY
BORROWING BASE $_________
3. Total Borrowing Base:
AR Borrowing Base: $_________
plus
Inventory Borrowing Base $_________
TOTAL $_________
Very truly yours
FRENCH FRAGRANCES, INC.
By:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> APR-30-1999
<CASH> 12,593,038
<SECURITIES> 0
<RECEIVABLES> 47,644,489
<ALLOWANCES> 1,110,582
<INVENTORY> 123,776,156
<CURRENT-ASSETS> 198,207,675
<PP&E> 24,307,443
<DEPRECIATION> 5,080,891
<TOTAL-ASSETS> 286,173,404
<CURRENT-LIABILITIES> 39,935,358
<BONDS> 176,129,684
0
7,830
<COMMON> 138,127
<OTHER-SE> 69,962,405
<TOTAL-LIABILITY-AND-EQUITY> 286,173,404
<SALES> 57,532,267
<TOTAL-REVENUES> 57,532,267
<CGS> 40,318,303
<TOTAL-COSTS> 55,223,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 4,566,589
<INCOME-PRETAX> (2,250,850)
<INCOME-TAX> (878,836)
<INCOME-CONTINUING> (1,372,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,372,014)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
