Exhibit C-2
-----------
FRENCH FRAGRANCES, INC. UNAUDITED FINANCIAL STATEMENTS
<TABLE>
PAGE
----
<S> <C>
FRENCH FRAGRANCES, INC. UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of January 31, 2000 and October 31, 2000 ....................... C-2-2
Consolidated Statements of Income for the Nine Months Ended October 31, 1999 and 2000.......... C-2-4
Consolidated Statements of Shareholders' Equity for the Nine Months Ended October 31, 2000.....
C-2-5
Consolidated Statements of Cash Flow for the Nine Months Ended October 31, 1999 and 2000.......
C-2-6
Notes to Consolidated Financial Statements..................................................... C-2-7
</TABLE>
C-2-1
<PAGE>
FRENCH FRAGRANCES, INC. UNAUDITED FINANCIAL STATEMENTS
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, 2000 OCTOBER 31, 2000
---------------- ----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,144,314 $ 2,109,417
Accounts receivable, net 63,485,136 149,591,444
Inventories 127,022,405 125,986,130
Advances on inventory purchases 2,785,475 1,892,321
Prepaid expenses and other assets 9,882,321 9,057,649
------------ ------------
Total current assets 225,319,651 288,636,961
------------ ------------
Property and equipment, net 20,232,312 22,105,123
------------ ------------
Other assets:
Exclusive brand licenses and trademarks, net 49,043,292 44,174,068
Senior note offering costs, net 3,949,009 3,542,461
Deferred income taxes, net 3,337,409 3,337,409
Other intangibles and other assets 7,749,982 6,240,094
------------ ------------
Total other assets 64,079,692 57,294,032
------------ ------------
Total assets $309,631,655 $368,036,116
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt$ -- $ 30,994,807
Accounts payable - trade 31,436,903 49,877,637
Other payables and accrued expenses 19,102,919 20,008,733
Current portion of long-term debt 1,775,027 1,145,545
------------ ------------
Total current liabilities 52,314,849 102,026,722
------------ ------------
Long-term debt, net 175,030,227 171,427,100
------------ ------------
Total liabilities 227,345,076 273,453,822
------------ ------------
Commitments and contingencies (See Notes 4 and 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 264,168 shares, respectively, issued
and outstanding 2,658 2,642
Convertible, redeemable preferred stock, Series C, $.01 par value
(liquidation preference of $.01 per share); 571,429 shares
authorized; 502,520 and 499,870 shares, respectively,
issued and outstanding 5,025 4,999
Common stock, $.01 par value, 50,000,000 shares authorized;
14,186,399 and 14,219,345 shares issued and outstanding,
respectively 141,864 142,193
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
C-2-2
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<S> <C> <C>
Additional paid-in capital 32,780,530 33,179,308
Treasury stock (870,500 and 995,400 shares, respectively) (5,673,940) (6,613,040)
Retained earnings 55,030,442 67,866,192
------------ ------------
Total shareholders' equity 82,286,579 94,582,294
------------ ------------
Total liabilities and shareholders' equity $309,631,655 $368,036,116
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
C-2-3
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .......................................... $153,719,284 $163,427,548 $270,963,115 $296,045,613
Cost of sales.......................................... 100,591,767 108,413,347 175,329,645 193,337,251
------------ ------------ ------------ ------------
Gross profit................................... 53,127,517 55,014,201 95,633,470 102,708,362
------------ ------------ ------------ ------------
Operating expenses:
Warehouse and shipping......................... 6,425,285 8,640,460 13,177,988 19,270,876
Selling, general and administrative............ 21,160,290 17,640,757 41,237,436 39,677,883
Depreciation and amortization.................. 2,797,021 2,950,973 8,291,233 8,857,961
------------ ------------ ------------ ------------
Total operating expenses.................. 30,382,596 29,232,190 62,706,657 67,806,720
------------ ------------ ------------ ------------
Income from operations................................. 22,744,921 25,782,011 32,926,813 34,901,642
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net.......................... (5,206,850) (5,252,736) (14,332,926) (14,718,226)
Other income (expense)......................... (76,521) 12,405 (67,720) 875,036
------------ ------------ ------------ ------------
Other income (expense), net............... (5,283,371) (5,240,331) (14,400,926) (13,843,190)
------------ ------------ ------------ ------------
Income before income taxes............................. 17,461,550 20,541,680 18,526,167 21,058,452
Provision for income taxes............................. 6,818,852 8,019,255 7,234,623 8,222,702
------------ ------------ ------------ ------------
Net income .......................................... $10,642,698 $12,522,425 $11,291,544 $12,835,750
============ ============ ============ ============
Earnings per common share:
Basic.......................................... $ 0.77 $ 0.95 $ 0.82 $ 0.97
======== ======== ======= =======
Diluted........................................ $ 0.67 $ 0.83 $ 0.72 $ 0.85
======== ======== ======= =======
Weighted average number of common shares:
Basic.......................................... 13,843,835 13,213,905 13,823,434 13,244,233
============ ============ ============ ============
Diluted........................................ 15,979,532 15,212,207 15,755,846 15,133,473
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
C-2-4
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------
TOTAL
SERIES B SERIES C COMMON STOCK ADDITIONAL SHARE-
-------- -------- ------------ PAID-IN RETAINED TREASURY HOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ------ ------ ------ ------ ------- -------- ----- ------
<S> <C> <C> <C> <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 55,030,442 (5,673,940) 82,286,579
Issuance of Common Stock
upon conversion of Series B
convertible preferred stock. (1,633) (16) -- -- 11,628 116 38,271 -- -- 38,371
Issuance of Common Stock
upon conversion of Series C
convertible preferred stock. -- -- (2,650) (26) 2,650 26 13,912 -- -- 13,912
Issuance of Common Stock
upon exercise of stock -- -- -- -- 18,668 187 116,821 -- -- 117,008
options..............options
.
Repurchase of Common Stock. -- -- -- -- -- -- -- -- (939,100) (939,100)
Tax benefit from exercise
of stock options............ -- -- -- -- -- -- 229,774 -- -- 229,774
Net income .................
-- -- -- -- -- -- -- 12,835,750 -- 12,835,750
------- ------ ------- ------- ---------- --------- ---------- ---------- ---------- ----------
Balance at October 31, 2000
(unaudited)................. 264,168 $2,642 499,870 $ 4,999 14,219,345 $ 142,193 33,179,308 67,866,192 (6,613,040) 94,582,294
======= ====== ======= ======= ========== ========= ========== ========== ========== ==========
</TABLE>
C-2-5
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
1999 2000
------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 11,291,544 $ 12,835,750
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 8,291,233 8,857,961
Amortization of senior note offering costs and note premium 428,925 298,241
Change in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable (93,575,141) (86,126,309)
Decrease in inventories 5,619,872 1,036,275
Decrease in advances on inventory purchases 3,954,616 893,152
(Increase) decrease in prepaid expenses and other assets (2,272,851) 823,295
Increase in accounts payable 24,285,967 18,440,734
Increase in other payables and accrued expenses 6,621,633 999,272
------------ ------------
Net cash used in operating activities (35,354,202) (41,941,629)
------------ ------------
Cash Flows from Investing Activities:
Additions to property and equipment, net of disposals (3,039,355) (4,213,965)
------------ ------------
Net cash used in investing activities (3,039,355) (4,213,965)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from the exercise of employee stock options 258,456 169,167
Payments to retire convertible subordinated debentures -- (2,184,000)
Proceeds from the conversion of preferred stock 182,539 124
Payments on term loans (1,615,362) (317,178)
Net proceeds from short-term debt 38,639,552 30,994,807
Payment of J.P. Fragrances debenture and other indebtedness -- (1,480,000)
Payments on facility mortgage note (119,245) (123,123)
Repurchase of Common Stock (363,200) (939,100)
------------ ------------
Net cash provided by financing activities 36,982,740 26,120,697
------------ ------------
Net Decrease in Cash and Cash Equivalents (1,410,817) (20,034,897)
Cash and Cash Equivalents at Beginning of Period 6,111,603 22,144,314
------------ ------------
Cash and Cash Equivalents at End of Period $ 4,700,786 $ 2,109,417
============ ============
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $ 8,496,074 $ 10,147,428
============ ============
Income taxes paid during the period $ 5,887,633 $ 12,898,152
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
C-2-6
<PAGE>
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 October 31, 2000, the
consolidated statements of income of the Company for the three and nine months
ended October 31, 1999 and 2000, the consolidated statement of shareholders'
equity for the nine months ended October 31, 2000, and the consolidated
statements of cash flow for the nine months ended October 31, 1999 and 2000.
Operating results for the three and nine months ended October 31, 2000 are not
necessarily indicative of the results for the full fiscal year ended January 31,
2001.
NOTE 2. 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. Such
amounts were $54,657 and $29,676 for the three months ended October 31, 1999 and
2000, respectively, and $109,313 and $80,702 for the nine months ended October
31, 1999 and 2000, respectively.
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 October 31, 2000 were as follows:
JANUARY 31, 2000 OCTOBER 31, 2000
---------------- ----------------
Finished $103,548,955 $104,278,548
Work in progress 6,727,835 4,508,785
Raw materials 16,745,615 17,198,797
---------------- ----------------
$127,022,405 $125,986,130
================ ================
C-2-7
<PAGE>
NOTE 4. SHORT-TERM DEBT
The Company's credit facility (the "Credit Facility") with Fleet
National Bank ("Fleet") provides for borrowings on a revolving basis of up to
$50 million, with a $10 million sublimit for letters of credit. On October 12,
2000, the Credit Facility was amended to provide for a seasonal increase in the
borrowing limit to $65 million through December 31, 2000. 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 October 31, 2000, the outstanding balance under the Credit
Facility was $31.0 million and there were $1.0 million of outstanding letters of
credit.
NOTE 5. LONG-TERM DEBT
The Company's long-term debt at January 31, 2000 and October 31, 2000
consisted of the following:
<TABLE>
<CAPTION>
Description January 31, 2000 October 31, 2000
----------- --------------------------------------
<S> <C> <C>
10 3/8% Senior Notes due May 2007, net $157,245,157 $157,083,496
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 1,000,000
8.84% Miami Lakes Facility Mortgage Note due July 2004 5,537,663 5,414,540
Other Indebtedness 817,179 --
---------------- --------------------
Total Long-Term Debt 176,805,254 172,572,645
Less Current Portion of Long-Term Debt 1,775,027 1,145,545
---------------- --------------------
Total Long-Term Debt, net $175,030,227 $171,427,100
================ ====================
</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 of the 7.5% Convertible Debentures into Common Stock and sale of such
Common Stock. The Company recognized a loss related to the repurchase of
$468,000, which is included in Other income (expense) in the Company's
Consolidated Statement of Income for the nine months ended October 31, 2000.
C-2-8
<PAGE>
NOTE 6. COMMITMENTS AND CONTINGENCIES
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 is being used as a fulfillment center 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 and $76 million
annually during the calendar years ended December 31, 2000 and 2001,
respectively.
The Company is a party to a number of pending legal actions,
proceedings and claims. While any action, proceeding and 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 nine months ended October 31,
1999 and 2000 was calculated based upon an estimated effective tax rate of 39%
for the full fiscal years ending January 31, 2000 and 2001.
NOTE 8. STOCK OPTION PLANS
During the nine months ended October 31, 2000, the Company granted
options for the purchase of 861,626 shares of Common Stock at exercise prices
ranging from $8.125 per share to $8.4375 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, all of which have been issued. During the nine months ended October 31,
2000, the Company granted options for 30,000 shares at an exercise price of
$7.25 per share under the Company's Non-Employee Director Stock Option Plan.
In November 2000, the Company's Board of Directors adopted a 2000 Stock
Incentive Plan (the "2000 Plan"). Pursuant to the 2000 Plan, the Company may
grant stock options, stock appreciation rights, stock awards, performance awards
and stock units to its officers, employees, consultants and advisors in an
aggregate of up to 3,000,000 shares of Common Stock. The 2000 Plan will be
submitted to the shareholders of the Company for approval at a special meeting
of shareholders.
C-2-9
<PAGE>
NOTE 9. SUBSEQUENT EVENTS
On October 30, 2000, the Company entered into a definitive agreement
with an affiliate of Unilever, N.V. ("Unilever") to acquire certain assets and
to assume certain liabilities relating to the Elizabeth Arden prestige
fragrance, cosmetics and skin care lines and the Elizabeth Taylor and White
Shoulders prestige fragrance lines. In connection with the consummation of this
acquisition, the Company will enter into agreements with affiliates of Unilever
related to product distribution, manufacturing, transition services and
information technology services. The purchase price is expected to consist of
approximately $190 million cash and $50 million liquidation preference ($35
million estimated fair value) of a new series of convertible preferred stock of
the Company. The transaction has been approved by the Boards of Directors of
both the Company and Unilever and is subject to customary closing conditions
including certain regulatory approvals. While neither party's shareholders are
required to approve the transaction, the Company intends to convene a special
shareholders meeting for shareholders to approve certain issuances of Common
Stock upon conversion of the convertible preferred stock to be included, and the
exercise of certain warrants that may be included, as part of the purchase
price. At such meeting, the shareholders will also be asked to approve an
amendment to the Company's Amended and Restated Articles of Incorporation to
change the Company's name to Elizabeth Arden, Inc. Holders of a majority of the
outstanding Common Stock of the Company have agreed to vote in favor of such
issuances of Common Stock. There is no guarantee that the Company and Unilever
will be able to satisfy all of the closing conditions, or that the Company will
obtain the requisite financing. Accordingly, there is no assurance that the
acquisition will be consummated.
NOTE 10. REDEMPTION OF SERIES B AND SERIES CONVERTIBLE PREFERRED STOCK
On October 30, 2000, the Company issued an irrevocable notice of
redemption to holders of the Company's Series B and Series C convertible
preferred stock. Holders of the 264,168 shares of the Company's Series B and
Series C convertible preferred stock may convert each share of Series B
convertible preferred stock into 7.12 shares of the Company's Common Stock, for
a total of 1,880,876 shares of Common Stock, at a conversion price of $3.30 per
share of Common Stock. Holders of the 499,870 shares of the Company's Series C
convertible preferred stock may convert each share of Series C convertible
preferred stock into one share of the Company's Common Stock at a conversion
price of $5.25 per share of Common Stock. These holders must convert their
shares into shares of the Company's Common Stock prior to December 29, 2000 or
the Company will redeem each share for $.01 per share. If all holders of the
Company's Series B and Series C convertible preferred stock convert their
shares, the total proceeds to the Company will be approximately $8.8 million.
C-2-10
