<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, 2000
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) (I.R.S. 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 9, 2000
---------------------------- ------------------
Common Stock, $.01 par value 13,201,551 shares
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -
January 31, 2000 and April 30, 2000 3
Consolidated Statements of Operations -
Three Months Ended April 30, 1999 and 2000 4
Consolidated Statement of Shareholders' Equity -
Three Months Ended April 30, 2000 5
Consolidated Statements of Cash Flow -
Three Months Ended April 30, 1999 and 2000 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
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 15
2
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, 2000 April 30, 2000
---------------- --------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,144,314 $ 8,361,918
Accounts receivable, net 63,485,136 64,404,034
Inventories 127,022,405 123,207,791
Advances on inventory purchases 2,785,475 4,366,992
Prepaid expenses and other assets 9,882,321 9,640,542
------------ ------------
Total current assets 225,319,651 209,981,277
------------ ------------
Property and equipment, net 20,232,312 21,158,460
------------ ------------
Other assets:
Exclusive brand licenses and
trademarks, net 49,043,292 47,371,823
Senior note offering costs, net 3,949,009 3,813,493
Deferred income taxes, net 3,337,409 3,337,409
Other intangibles and other assets 7,749,982 7,275,242
------------ ------------
Total other assets 64,079,692 61,797,967
------------ ------------
Total assets $309,631,655 $292,937,704
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ -- $ 6,278,804
Accounts payable - trade 31,436,903 22,935,150
Other payables and accrued expenses 19,102,919 7,407,293
Current portion of long-term debt 1,775,027 1,778,221
------------ ------------
Total current liabilities 52,314,849 38,399,468
------------ ------------
Long-term debt, net 175,030,227 172,810,091
------------ ------------
Total liabilities 227,345,076 211,209,559
------------ ------------
Commitments and contingencies (See Note 6)
Shareholders' equity:
Convertible, redeemable preferred stock,
Series B, $.01 par value (liquidation
preference of $.01 per share); 350,000
shares authorized; 265,801 and 265,794
shares issued and outstanding,
respectively 2,658 2,658
Convertible, redeemable preferred stock,
Series C, $.01 par value (liquidation
preference of $.01 per share); 571,429
shares authorized; 502,520 shares issued
and outstanding 5,025 5,025
Common stock, $.01 par value, 50,000,000
shares authorized; 14,186,399 and
14,188,451 shares issued and outstanding,
respectively 141,864 141,885
Additional paid-in capital 32,780,530 33,022,455
Treasury stock (870,500 and 935,500
shares at cost, respectively) (5,673,940) (6,150,358)
Retained earnings 55,030,442 54,706,480
------------ ------------
Total shareholders' equity 82,286,579 81,728,145
------------ ------------
Total liabilities and shareholders'
equity $309,631,655 $292,937,704
============ ============
See Accompanying Notes to Unaudited Consolidated Financial Statements.
3
</TABLE>
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended
April 30,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
Net sales $57,532,267 $65,708,707
Cost of sales 40,318,303 44,511,531
----------- -----------
Gross profit 17,213,964 21,197,176
----------- -----------
Operating expenses:
Warehouse and shipping 2,893,137 4,549,352
Selling, general and administrative 9,239,206 9,907,187
Depreciation and amortization 2,772,547 2,934,063
----------- -----------
Total operating expenses 14,904,890 17,390,602
----------- -----------
Income from operations 2,309,074 3,806,574
----------- -----------
Other income (expense):
Interest expense, net (4,552,875) (4,652,963)
Other (expense) income (7,049) 317,616
----------- -----------
Other income (expense), net (4,559,924) (4,335,347)
----------- -----------
Loss before income taxes (2,250,850) (528,773)
Benefit from income taxes (878,836) (204,811)
----------- -----------
Net loss $(1,372,014) $ (323,962)
=========== ===========
Loss per common share:
Basic $(0.10) $(0.02)
====== ======
Diluted $(0.10) $(0.02)
====== ======
Weighted average number of common shares:
Basic 13,812,704 13,301,853
========== ==========
Diluted 15,212,443 15,136,297
========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
</TABLE>
<PAGE>
<TABLE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
Preferred Stock Additional
Series B Series C Common Stock Paid-in
Shares Amount Shares Amount Shares Amount Capital
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 31, 2000 265,801 $2,658 502,520 $5,025 14,186,399 $141,864 $32,780,530
Issuance of Common
Stock upon conversion
of Series B
convertible preferred
stock (7) -- -- -- 51 -- 166
Issuance of Common
Stock upon exercise
of stock options -- -- -- -- 2,001 21 11,985
Repurchase of Common
Stock -- -- -- - -- -- --
Tax benefit from
exercise of stock
options -- -- -- -- -- -- 229,774
Net loss -- -- -- -- -- -- --
-----------------------------------------------------------------------------
Balance at
April 30, 2000 265,794 $2,658 502,520 $5,025 14,188,451 $141,885 $33,022,455
=============================================================================
(unaudited)
</TABLE>
<PAGE>
<TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
Total
Treasury Retained Shareholders'
Stock Earnings Equity
---------------------------------------------------------------
<S> <C> <C> <C>
Balance at
January 31, 2000 $(5,673,940) $55,030,442 $82,286,579
Issuance of Common
Stock upon conversion
of Series B
convertible preferred
stock -- -- 166
Issuance of Common
Stock upon exercise
of stock options -- -- 12,006
Repurchase of Common
Stock (476,418) -- (476,418)
Tax benefit from
exercise of stock
options -- -- 229,774
Net loss -- (323,962) (323,962)
-----------------------------------------------------
Balance at
April 30, 2000 $(6,150,358) $54,706,480 $81,728,145
(Unaudited) ============ =========== ===========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
5
</TABLE>
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
---------------------------
1999 2000
----------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,372,014) $ (323,962)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,772,547 2,934,063
Amortization of senior note
offering costs and note premium 144,154 140,562
Change in assets and liabilities:
Decrease (increase) in accounts
receivable 4,506,840 (918,898)
Decrease in inventories and
advances on inventory purchases 9,692,795 2,233,097
(Increase) decrease in prepaid
expenses and other assets (3,011,155) 212,762
Increase (decrease) in accounts
payable 1,987,117 (8,501,753)
Decrease in other payables and
accrued expenses (1,215,410) (11,465,849)
----------- ------------
Net cash provided by (used in)
operating activities 13,504,874 (15,689,978)
----------- ------------
Cash Flows from Investing Activities:
Additions to property and equipment,
net of disposals (808,784) (1,684,988)
----------- ------------
Net cash used in investing
activities (808,784) (1,684,988)
----------- ------------
Cash Flows from Financing Activities:
Proceeds from the exercise of employee
stock options -- 12,006
Payments to retire convertible
subordinated debentures (See Note 5) -- (2,184,000)
(Payments on) net proceeds from
short-term debt (5,639,369) 6,278,804
Repurchase of Common Stock -- (476,418)
Payments on facility mortgage note (46,211) (37,988)
Proceeds from the conversion of
preferred stock -- 166
Payment on HBI Note (See Note 6) (529,075) --
----------- ------------
Net cash (used in) provided by
financing activities (6,214,655) 3,592,570
----------- ------------
Net Increase (Decrease) in Cash and
Cash Equivalents 6,481,435 (13,782,396)
Cash and Cash Equivalents at
Beginning of Period 6,111,603 22,144,314
----------- ------------
Cash and Cash Equivalents at
End of Period $12,593,038 $ 8,361,918
=========== ============
Supplemental Disclosure of
Cash Flow Information:
Interest paid during the period $ 453,747 $ 456,163
=========== ============
Income taxes paid during the period $ 131,433 $ 10,257,225
=========== ============
See Accompanying Notes to Unaudited Consolidated Financial Statements.
6
</TABLE>
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
French Fragrances, Inc., doing business as FFI Fragrances (the
"Company"), is a manufacturer and marketer of prestige designer
fragrances and related skin treatment and cosmetic products, primarily
to retailers in the United States.
The accompanying unaudited 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. Accordingly, they do
not include all of the information and footnotes required by
accounting principles generally accepted in the United States of
America for complete financial statement presentation and 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, 2000, filed with the Commission.
The consolidated balance sheet of the Company as of January 31,
2000 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, 2000, the consolidated statements of
operations of the Company for the three months ended April 30, 1999
and 2000, the consolidated statement of shareholders' equity for the
three months ended April 30, 2000, and the consolidated statements of
cash flow for the three months ended April 30, 1999 and 2000.
Operating results for the three months ended April 30, 2000 are not
necessarily indicative of the results for the full fiscal year ended
January 31, 2001.
NOTE 2. EARNINGS (LOSS) 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.
Diluted loss per share equals basic loss per share for the three
months ended April 30, 1999 and 2000 as the assumed conversion of
convertible preferred stock and convertible debentures and the assumed
exercise of outstanding options and warrants would have an
anti-dilutive effect.
NOTE 3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost
is determined on the weighted-average method. The components of
inventory at January 31, 2000 and April 30, 2000 were as follows:
<TABLE>
<CAPTION>
January 31, April 30,
2000 2000
------------ ------------
<S> <C> <C>
Finished $103,548,955 $ 99,483,177
Work in progress 6,727,835 5,129,616
Raw materials 16,745,615 18,594,998
------------ ------------
$127,022,405 $123,207,791
============ ============
7
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4. SHORT-TERM DEBT
At April 30, 2000, 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 $10 million sublimit
for letters of credit. The Credit Facility matures in May 2002.
Borrowings under the Credit Facility are limited to eligible 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 $10 million of its common
stock, $.01 par value per share ("Common Stock"), and to incur certain
acquisition indebtedness. At April 30, 2000, the outstanding balance
under the Credit Facility was $6.3 million and there were $5.0 million
of outstanding letters of credit.
NOTE 5. LONG-TERM DEBT
The Company's long-term debt at January 31, 2000 and April 30,
2000 consisted of the following:
</TABLE>
<TABLE>
<CAPTION>
Description January 31, 2000 April 30, 2000
----------- ---------------- --------------
<S> <C> <C>
10 3/8% Senior Notes due May 2007, net $157,245,157 $157,191,270
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 2,594,643
J.P. Fragrances Debenture due May 2001, net 1,946,646 2,005,580
8.84% Miami Lakes Facility Mortgage Note
due July 2004 5,537,663 5,499,674
Other Indebtedness 817,179 817,179
------------ ------------
Total Long-Term Debt 176,805,254 174,588,312
Less Current Portion of Long-Term Debt 1,775,027 1,778,221
------------ ------------
Total Long-Term Debt, net $175,030,227 $172,810,091
============ ============
</TABLE>
In February 2000, the Company repurchased $2.18 million principal
amount of 7.5% Convertible Subordinated Debentures due 2006 (the "7.5%
Convertible Debentures") owned by its former Chairman and a company he
controls for an aggregate purchase price of $2.65 million. The
purchase price was based on the estimated fair market value of the
7.5% Convertible Debentures on the date of the transaction, which
includes consideration for the value of unrealized gain that the
debenture holder could have recognized upon a conversion and sale of
the 7.5% Convertible Debentures into Common Stock. The Company
recognized a loss related to the repurchase of $468,000, which is
included in Other expense in the Company's Consolidated Statement of
Operations for the three months ended April 30, 2000.
NOTE 6. COMMITMENTS AND CONTINGENCIES
In May 1998, the Company entered into a lease with an
unaffiliated third party for approximately 48,000 square feet of a
warehouse facility (the "Miami Lakes Annex") in Miami Lakes, Florida
to accommodate additional inventory requirements associated primarily
with its promotional set business. The lease has an initial term of
thirty months, with the Company having an option to extend for an
additional term of thirty months. The Company does not intend to
exercise its option on the Miami Lakes Annex.
8
<PAGE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6. COMMITMENTS AND CONTINGENCIES - (Continued)
In February 2000, the Company entered into a lease with an
unaffiliated third party for approximately 295,000 square feet of a
warehouse facility in Edison, New Jersey, which will be used primarily
for the Company's promotional set business and to process its product
returns. The lease has a term of twenty-six months.
In February 2000, the Company assumed a lease for approximately
173,000 square feet of a warehouse facility in Allentown,
Pennsylvania, which was leased by an unaffiliated third party as the
Company's promotional set fulfillment center for the 1999 holiday
season and extended through June 30, 2004. In May 2000, the Company
was released from all of its obligations under that lease, including
minimum lease payments in the aggregate of approximately $2.5 million
during the fiscal years ended January 31, 2001 through 2005.
The Company has commitments to purchase products from fragrance
manufacturers in the amount of approximately $63 million annually
during the calendar years ended December 31, 2000 and 2001.
In April 1999, the Company settled a dispute with Halston
Borghese, Inc. ("HBI") and certain of its affiliates concerning the
Company's acquisition of certain assets relating to the Halston
fragrance brands. Pursuant to the settlement, a $2,000,000 note
issued to HBI by the Company (the "HBI Note") was cancelled 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 January 31, 2000.
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.
NOTE 7. INCOME TAXES
The provision for income taxes for the three months ended April
30, 2000 was calculated based upon an estimated tax rate of 39% for
the full fiscal year ending January 31, 2001.
NOTE 8. STOCK OPTION PLANS
During the three months ended April 30, 2000, the Company granted
options for the purchase of 590,000 shares of Common Stock at an
exercise price of $8.125 per share under the Company's 1995 Stock
Option Plan (the "1995 Plan"). The 1995 Plan currently provides for
the issuance of options to purchase in the aggregate 2,200,000 shares
of Common Stock. At April 30, 2000, the Company had granted options
to purchase in the aggregate 1,959,207 shares of Common Stock under
the 1995 Plan, including shares subject to outstanding options and
those issued upon the exercise of options and excluding shares
cancelled as a result of the termination of employment relationships.
9
<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"), French
Fragrances, Inc., doing business as FFI Fragrances (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.
GENERAL
This discussion should be read in conjunction with the Notes to
Unaudited Consolidated Financial Statements contained herein and
Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing in the Company's Annual Report on Form
10-K for the year ended January 31, 2000. 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.
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended April 30, 2000 Compared to the Three Months Ended
April 30, 1999
--------------------------------------------------------------------
Net Sales. Net sales increased $8.2 million, or 14.2%, to $65.7
million for the three months ended April 30, 2000, from $57.5 million
for the three months ended April 30, 1999. The increase in net sales
over the corresponding prior-year period was primarily attributable to
an increase in sales of the brands acquired as part of the January
1999 acquisition (the "PSI Acquisition") of the assets of Paul
Sebastian, Inc. The increase in net sales represents primarily an
increase in the volume of products sold to existing customers.
Management believes that increased sales during the three months ended
April 30, 2000 have resulted from the Company's ability to provide its
customers with a larger selection of products and a continuous, direct
supply of products.
10
<PAGE>
<PAGE>
Gross Profit. Gross profit increased $4.0 million, or 23.1%, to
$21.2 million for the three months ended April 30, 2000, from $17.2
million for the three months ended April 30, 1999. The increase in
gross profit and gross margin (from 29.9% to 32.3%) was primarily
attributable to the increase in product sales of the higher margin
brands acquired in connection with the PSI Acquisition.
Warehouse and Shipping Expense. Warehouse and shipping expenses
increased $1.7 million, or 57.2%, to $4.5 million for the three months
ended April 30, 2000, from $2.9 million for the three months ended
April 30, 1999. The increase resulted primarily from an increase in
facility, labor and freight expenses associated with the increased
sales and one-time costs associated with the closing of a facility in
Allentown, Pennsylvania, which served as a promotional set fulfillment
center during 1999, and the start-up of a facility in Edison, New
Jersey, which will serve as the promotional set fulfillment center
this fiscal year. The Company was released from all of its lease
obligations on the Allentown facility in May 2000. Because the
Allentown and Edison facilities were opened in July 1999 and February
2000, respectively, results for the three months ended April 30, 1999
do not reflect any expenses associated with those facilities.
SG&A. Selling, general and administrative ("SG&A") expenses
increased approximately $668,000, or 7.2%, to $9.9 million for the
three months ended April 30, 2000, from $9.2 million for the three
months ended April 30, 1999. The increase in SG&A expenses was
primarily a result of the addition of information systems and
administrative personnel and an increase in the accounts receivable
reserves. As a percentage of net sales, SG&A expenses, however,
decreased to 15.1% for the three months ended April 30, 2000, from
16.1% for the three months ended April 30, 1999.
Depreciation and Amortization. Depreciation and amortization
increased approximately $162,000, or 5.8%, to $2.9 million for the
three months ended April 30, 2000, from $2.8 million for the three
months ended April 30, 1999. The slight increase was primarily
attributable to the addition of tools and molds developed for the
Company's products.
Interest Expense, Net. Interest expense, net of interest income,
increased approximately $100,000, or 2.2%, to $4.7 million for the
three months ended April 30, 2000, from $4.6 million for the three
months ended April 30, 1999. The slight increase was primarily due to
an increase in average debt outstanding under the Company's credit
facility (the "Credit Facility") with Fleet National Bank ("Fleet").
<PAGE>
Other Income and Expense. During the three months ended April
30, 2000, the Company recognized other income, net of other expenses,
of approximately $318,000, primarily related to the sale of certain
trademark and related intangible rights and the resolution of
insurance claims, partially offset primarily by a loss associated with
the repurchase of convertible subordinated debentures.
Net Income. The Company's net loss decreased $1.0 million, or
76.4%, to approximately $324,000 for the three months ended April 30,
2000, from $1.4 million for the three months ended April 30, 1999,
primarily due to increased net sales and gross margin, which was
partially offset by the increase in warehouse and shipping expenses.
EBITDA. EBITDA (operating income, plus depreciation and
amortization) increased $1.7 million, or 32.6%, to $6.7 million for
the three months ended April 30, 2000, from $5.1 million for the three
months ended April 30, 1999. The EBITDA margin increased to 10.3% for
the three months ended April 30, 2000, from 8.8% for the three months
ended April 30, 1999. The increases in EBITDA and EBITDA margin were
primarily attributable to the increase in product sales of higher
margin brands acquired in connection with the PSI Acquisition and a
decrease in SG&A expenses as a percentage of net sales.
11
<PAGE>
<PAGE>
FINANCIAL CONDITION
The Company used $15.7 million of net cash in operations during
the three months ended April 30, 2000, compared to generating $13.5
million of net cash from operations during the three months ended
April 30, 1999, primarily as a result of a significant decrease in
trade and other payables and accrued expenses, an increase in accounts
receivable, and a smaller decrease in inventories relative to the
corresponding prior-year period. The Company received $3.6 million of
net cash from financing activities during the three months ended April
30, 2000, compared to using $6.2 million of net cash from financing
activities during the three months ended April 30, 1999, primarily as
a result of increased borrowings under the Company's Credit Facility,
which were partially offset by the Company's repurchase of certain
convertible subordinated debentures.
The Company has the Credit Facility with Fleet, which provides
for borrowings on a revolving basis of up to $50 million (with a $10
million sublimit for commercial letters of credit) for general
corporate purposes, including working capital needs and acquisitions.
See Note 4 to the Notes to Unaudited Consolidated Financial
Statements. At April 30, 2000, the Company had $6.3 million
outstanding under the Credit Facility and approximately $5.0 million
of outstanding letters of credit.
In fiscal 2000, the Company's Board of Directors authorized a
share repurchase program that allows the Company to purchase up to an
aggregate of $10 million of its Common Stock. As of April 30, 2000,
the Company had repurchased an aggregate of 935,500 shares of its
Common Stock under the share repurchase program at an average price of
$6.57.
In February 2000, the Company repurchased $2.18 million principal
amount of 7.5% Convertible Subordinated Debentures due 2006 (the "7.5%
Convertible Debentures") owned by its former Chairman and a company he
controls for an aggregate purchase price of $2.65 million. The
purchase price was based on the estimated fair market value of the
7.5% Convertible Debentures on the date of the transaction, which
includes consideration for the value of unrealized gain that the
debenture holder could have recognized upon a conversion and sale of
the 7.5% Convertible Debentures into Common Stock.
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, 2000.
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
HSBC Bank USA (formerly 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
HSBC Bank USA (formerly 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 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)).
4.6 Third Amendment to Credit Agreement and Other Transaction
Documents dated as of May 17, 1999, between the Company and
Fleet National Bank (incorporated herein by reference to
Exhibit 4.7 filed as a part of the Company's Form 10-Q for
the quarter ended April 30, 1999 (Commission File No.
1-6370)).
10.1 Registration Rights Agreement dated as of November 30, 1995,
among the Company, Bedford Capital Corporation, 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)).
13
<PAGE>
<PAGE>
Exhibit
Number Description
------- -------------------------------------------------------------
10.2 Amendment dated as of March 20, 1996 to Registration Rights
Agreement dated as of November 30, 1995, among the Company,
Bedford Capital Corporation, 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 Capital Corporation, Fred Berens, Rafael
Kravec and the Estate of Eugene Ramos (incorporated 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 Non-Employee Director Stock Option Plan (incorporated herein
by reference to Exhibit 4.11 filed as a part of the Company's
Form S-8 dated July 7, 1999 (Commission File No. 1-6370)).
10.5 1995 Stock Option Plan (incorporated herein by reference to
Exhibit 4.12 filed as a part of the Company's Form S-8 dated
July 7, 1999 (Commission File No. 1-6370)).
27.1 Financial Data Schedule.
---------------------
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 Securities and Exchange
Commission upon request.
(b) Reports on Form 8-K.
None.
14
<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 12, 2000 /s/ E. Scott Beattie
---------------------------------------
E. Scott Beattie
Chairman, President and Chief Executive
Officer
(Principal Executive Officer)
Date: June 12, 2000 /s/ Frank V. Vetrano
---------------------------------------
Frank V. Vetrano
Vice President, Finance, Treasurer and
Corporate Controller
(Principal Financial and Accounting
Officer)
15
