UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1996. OR / / Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___________to ________. Commission File No. 0-16469 JEAN PHILIPPE FRAGRANCES, INC. ( Exact name of registrant as specified in its charter ) Delaware 13-3275609 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 551 Fifth Avenue, New York, New York 10176 -------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrants telephone number, including area code: (212) 983-2640. 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 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 issuers classes of common stock, as of the latest practicable date. At August 13, 1996 there were 9,871,981 shares of common stock, par value $.001 per share, outstanding.
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES INDEX Page Number Part I. Financial Information Item I. Financial Statements 1 Consolidated Balance Sheets as of June 30, 1996 (unaudited) and December 31, 1995 (audited) 2 Consolidated Statements of Income for the Three Month and Six Month Periods Ended June 30, 1996 (unaudited) and June 30, 1995 (unaudited) 3 Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 1996 (unaudited) and June 30, 1995 (unaudited) 4 Notes to Unaudited Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Part II. Other Information 10 Signatures 10
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Part I. Financial Information Item I. Financial Statements In the opinion of management the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented. Such financial statements have been condensed in accordance with the rules and regulations of the Securities and Exchange Commission and therefore, do not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 1995 included in the Company's annual report filed on Form 10-K. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results to be expected for the entire fiscal year. Page 1
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS June 30, December31, 1996 1995 ----------- ----------- (unaudited) Current assets: Cash and cash equivalents $ 14,762,812 $ 14,203,713 Accounts receivable, net 26,248,148 22,884,355 Inventories 27,384,210 26,093,106 Receivables, other 2,485,169 970,468 Other 1,465,807 987,017 Deferred tax benefit 1,402,426 2,400,935 ------------ ------------ Total current assets 73,748,572 67,539,594 Equipment and leasehold improvements, net 1,926,852 1,970,126 Other assets 1,569,544 1,313,694 Deferred tax benefit 0 581,507 Intangible assets, net 9,802,700 12,596,322 ------------ ------------- $ 87,047,668 $ 84,001,243 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable, banks $ 8,895,287 $ 9,921,881 Accounts payable 18,695,305 15,012,125 Income taxes payable 442,016 1,241,933 ------------ ------------ Total current liabilities 28,032,608 26,175,939 ------------ ------------ Long-term debt, less current portion 493,878 596,092 ------------ ------------ Minority interests 5,472,578 5,252,979 ------------ ------------ Shareholders' equity: Common stock, $.001 par; authorized 30,000,000 shares; outstanding 9,871,981 and 10,009,981 shares at June 30, 1996 and December 31, 1995, respectively 9,872 10,010 Additional paid-in capital 20,609,985 20,609,985 Retained earnings 35,615,540 32,565,096 Foreign currency translation adjustment 786,595 1,681,305 Treasury stock, at cost, 948,503 and 810,503 shares at June 30, 1996 and December 31, 1995, respectively (3,973,388) (2,890,163) ------------ ------------ 53,048,604 51,976,233 ------------ ------------ $ 87,047,668 $ 84,001,243 ============ ============ See notes to financial statements. Page 2
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ----------- ------------ ----------- ------------ (unaudited) (unaudited) (unaudited) (unaudited) <S> <C> <C> <C> <C> Net sales $ 22,582,754 $ 22,152,130 $ 45,885,030 $ 43,764,527 Cost of sales 12,588,684 11,187,095 24,798,367 21,846,800 ------------ ------------ ------------ ------------ Gross margin 9,994,070 10,965,035 21,086,663 21,917,727 Selling, general and administrative 8,039,477 7,977,722 15,911,499 15,826,088 Income from operations 1,954,593 2,987,313 5,175,164 6,091,639 ------------ ------------ ------------ ------------ Other charges (income): Interest 197,519 287,463 407,826 529,926 Loss on foreign currency 125,895 19,932 146,138 258,648 Interest and dividend (income) (122,190) (56,862) (263,302) (125,552) (Gain) on sale of stock of subsidiary, net (13,752) (19,881) (13,752) (19,881) ------------ ------------ ------------ ------------ 187,472 230,652 276,910 643,141 ------------ ------------ ------------ ------------ Income before income taxes 1,767,121 2,756,661 4,898,254 5,448,498 Income taxes 374,314 1,090,746 1,429,434 2,129,723 ------------ ------------ ------------ ------------ Net income before minority interest 1,392,807 1,665,915 3,468,820 3,318,775 Minority interest in net income of consolidated subsidiary 115,184 37,908 418,376 70,184 ------------ ------------ ------------ ------------ Net income $ 1,277,623 $ 1,628,007 $ 3,050,444 $ 3,248,591 ============ ============ ============ ============ Net income per common and common equivalent share $ 0.13 $ 0.16 $ 0.30 $ 0.31 ============ ============ ============ ============ Number of common and common equivalent shares outstanding 10,148,168 10,458,483 10,115,963 10,443,885 ============ ============ ============ ============ </TABLE> See notes to financial statements. Page 3
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended June 30, 1996 1995 ----------- ---------- (unaudited) (unaudited) Operating activities: Net income $ 3,050,444 $ 3,248,591 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 709,055 669,386 Gain on sale of stock of subsidiary (13,672) 19,881 Minority interest in net income 416,045 70,184 Increase (decrease) in cash from changes in: Accounts receivable (4,036,793) (1,531,570) Inventories (1,902,104) (6,560,643) Other assets (1,839,341) 874,320 Deferred tax benefit 1,510,016 292,422 Accounts payable 4,101,180 4,155,620 Income taxes payable (758,917) (958,442) ------------ ----------- Net cash provided by operating activities 1,235,913 279,749 ------------ ----------- Investing activities: Purchase of equipment and leasehold improvements (291,132) (339,279) Trademark and license acquisitions (10,825) (96,099) Proceeds from sale of trademark 1,575,000 ------------ ----------- Net cash provided by (used in) investing activities 1,273,043 (435,378) ------------ ----------- Financing activities: Increase (decrease) in loan payable, bank (645,594) 3,026,676 Repayment of long-term debt (48,638) Proceeds from sale of stock of subsidiary 0 40,454 Purchase of treasury stock (1,083,363) (2,031,612) ------------ ----------- Net cash provided by (used in) financing activities (1,728,957) 986,880 ------------ ----------- Effect of exchange rate changes on cash (220,900) 1,665 ------------ ----------- Increase in cash and cash equivalents 559,099 832,916 Cash and cash equivalents at beginning of period 14,203,713 5,275,142 ------------ ----------- Cash and cash equivalents at end of period $ 14,762,812 $ 6,108,058 ============ =========== Supplemental disclosure of cash flows information: Cash paid during the period for: Interest $ 210,000 $ 545,000 Income taxes 883,000 3,038,000 See notes to financial statements. Page 4
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Notes to Unaudited Financial Statements 1. Significant Accounting Policies: The accounting policies followed by the Company are set forth in the notes to the Company's financial statements included in its Form 10-K which was filed with the Securities and Exchange Commission for the year ended December 31, 1995. 2. Earnings Per Share: Net income per common and common equivalent share is based on the weighted average number of common and common equivalent shares outstanding during each period. Common equivalent shares, which consist of unissued shares under options and warrants, are included in the computation when the results are dilutive. 3. Inventories: Inventories consist of the following: June 30, December 31, 1996 1995 ----------- ------------- Raw materials and component parts $11,770,092 $10,981,751 Finished goods 15,614,118 15,111,355 ----------- ----------- $27,384,210 $26,093,106 =========== =========== Page 5
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's long-term business strategy of building core volume and profitability, developing products in new categories, exploring strategic acquisition opportunities, and pursuing expansion in international markets, have resulted in another quarter of continued growth in sales. Three Months Ended June 30, 1996 Compared to June 30, 1995 Net sales increased 2% to $22.6 million, as compared to $22.2 million in 1995. This increase is the result of continued growth of the Company's Alternative Designer Fragrance lines and initial sales of the Company's recently introduced line of Aziza eye cosmetics. Sales, generated by the company's core Alternative Designer Fragrance lines, which increased 2%, were negatively impacted by customer returns of the Company's Romantic Illusion line of Alternative Designer Fragrances in excess of management's anticipation. The line was introduced on a promotional basis to select retail customers and the ultimate sell through was significantly below projections. Aziza, which made its debut in the latter part of the first quarter of 1996, represented approximately 4% of sales for the three months ended June 30, 1996. The Company's Cutex product line was down approximately 10%, which is reflective of the 1995 discontinuance of the Cutex Color Splash lip line. Sales by the Company's foreign subsidiaries were flat in both translated US dollars and at comparable foreign currency exchange rates. After a very strong second quarter in 1995, where sales increased 33%, and an exceptional first quarter in 1996, where sales increased 27%, our French subsidiaries have endured a very competitive marketplace and are preparing new product introductions to help fuel future growth. In addition, 1996 results include the effect of the sale of the Bal a Versaille trademarks in March of 1996. Gross margin for 1996 decreased to 44% of sales from 50% in 1995. The decline is primarily the result of the absorption of returns of Romantic Illusion products and the cost to refurbish such products for eventual resale. Such resale will include sales to the Company's wholesale and international customer base where the Company's return liability is minimal. Selling, general and administrative expenses represented 36% of net sales in both 1996 and 1995. Management has made it a top priority to control such expenditures and such efforts have been successful. Such efforts have been partially mitigated by a significant media advertising campaign which was launched during the three months ended June 30, 1996, in support of the introduction of the Company's Aziza eye cosmetic line. Page 6
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Interest expense decreased to $198,000 in 1996 from $287,000 in 1995. The Company's French subsidiaries used a portion of the proceeds of their November 1995 public offering to reduce short term borrowings. The Company continues to use its available credit lines, as needed, to finance its working capital needs. In 1996, the Company incurred a loss on foreign currency of $126,000 as compared to a loss of $20,000 in 1995. The 1996 loss was the effect of currency rate changes on a portion of intercompany borrowings, which were repaid by our French subsidiaries, during the three month period ended June 30, 1996. The Company's effective income tax rate decreased to 21% in 1996 from 40% in 1995. Such decline is due to the utilization of net operating loss carryforwards made available to the Company's foreign subsidiaries as a result of the March 1996 sale of the Bal a Versailles trademarks. Net income was $1.3 million for the three months ended June 30, 1996 as compared to $1.6 million for the corresponding quarter of the prior year. Earnings per share was $0.13 per share as compared to $0.16 per share for the corresponding quarter of the prior year. The weighted average number of shares outstanding was 10,148,168 in 1996 and 10,458,483 in 1995; such decline is the result of the Company's ongoing stock buyback program. Six Months Ended June 30, 1996 Compared to June 30, 1995 Net sales increased 5% to $45.9 million, as compared to $43.8 million in 1995. This increase is the result of continued growth of the Company's Alternative Designer Fragrance lines along with the continued success of new product development by the Company's international operations. Sales generated by the Company's core Alternative Designer Fragrance lines increased 9% and sales by the Company's French subsidiaries increased 12%; at comparable foreign currency exchange rates, sales by the Company's French subsidiaries increased 13%. The overall sales increase was achieved despite a significant decline in net sales of Cutex products caused, in part, by the 1995 discontinuance of the Cutex Color Splash lip line. Gross margin for 1996 decreased to 46% of sales from 50% in 1995. The decline in Cutex sales for the six months ended June 30, 1996, as compared to the corresponding period of the prior year, had a direct impact on gross margin as Cutex sales provide the Company with a higher gross margin than the Company's other product lines. The decline is also the result of the absorption of returns of Romantic Illusion products and the cost to refurbish such products for eventual resale. Such resale will include sales to the Company's wholesale and international customer base where the Company's return liability is minimal. Page 7
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Selling, general and administrative expenses decreased to 35% of net sales in 1996 as compared to 36% in 1995 reflecting our successful efforts in controlling such expenditures. Such efforts have been partially mitigated by a significant media advertising campaign which was launched during the three months ended June 30, 1996, in support of the introduction of the Company's Aziza eye cosmetic line. Interest expense decreased to $408,000 in 1996 from $530,000 in 1995. The Company's French subsidiaries used a portion of the proceeds of their November 1995 public offering to reduce short term borrowings. The Company continues to use its available credit lines, as needed, to finance its working capital needs. In 1996, the Company incurred a loss on foreign currency of $146,000 as compared to a loss of $259,000 in 1995. The 1995 loss was the effect of the steep decline of the U.S. dollar relative to the French franc. The 1996 loss was the effect of currency rate changes on a portion of intercompany borrowings, which were repaid by our French subsidiaries. The Company's effective income tax rate decreased to 29% in 1996 from 39% in 1995. Such decline is due to the utilization of net operating loss carryforwards made available to the Company's foreign subsidiaries as a result of the March 1996 sale of the Bal a Versailles trademarks. Net income was $3.1 million for the six months ended June 30, 1996 as compared to $3.2 million for the corresponding period of the prior year. Earnings per share was $0.30 per share compared to $0.31 per share for the corresponding period of the prior year. The weighted average number of shares outstanding was 10,115,963 in 1996 and 10,443,885 in 1995; such decline is the result of the Company's ongoing stock buyback program. Page 8
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Liquidity and Capital Resources The Company's financial position continues to show solid strength as a result of profitable operating results and positive operating cash flow. At June 30, 1996, working capital aggregated $45.7 million and the Company had cash and cash equivalents on hand of approximately $14.8 million. The Company's Board of Directors has authorized the repurchase of up to 1,000,000 shares of the Company's common stock and as of June 30, 1996, 462,305 shares had been purchased at an average price per share of $8.60. The Company's short-term financing requirements are expected to be met by available cash at June 30, 1996, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 1996 are a $12.0 million unsecured revolving line of credit provided by a domestic commercial bank and $6.0 million in credit lines provided by a consortium of international financial institutions. Borrowings under the domestic revolving line of credit are due on demand and bear interest at the prime rate. Management of the Company believes that funds generated from operations, supplemented by its available credit facilities, will provide it with sufficient resources to meet all present and reasonably foreseeable future operating needs. Operating activities provided $1.2 million of net cash for the six months ended June 30, 1996. The Company continues to closely monitor and improve its procedures with respect to collection of outstanding receivables and inventory levels reflect the increase necessary to support the upcoming selling season. Inflation rates in the U.S. and foreign countries in which the Company operates have not had a significant impact on operating results for the period ended June 30, 1996. Page 9
JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES Part II. Other Information Items 1,2,3,4,5 and 6 are omitted as they are either not applicable or have been included in Part I. 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 on the 14th day of August 1996. JEAN PHILIPPE FRAGRANCES, INC. By: /s/ Russell Greenberg ------------------------------ Russell Greenberg, Executive Vice President and Chief Financial Officer Page 10