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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 31, 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 N.W. 60th Avenue
Miami Lakes, Florida 33014
(Address of principal executive offices)
(305) 818-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of April 27, 2000 was approximately $70.3 million based on the
$7.88 per share average of the bid and ask prices for the Common Stock on
the Nasdaq National Market on such date and determined by subtracting from the
number of shares outstanding on that date the number of shares held by the
registrant's directors, executive officers and holders of at least 10% of the
outstanding shares of Common Stock.
As of April 27, 2000, the registrant had 13,249,951 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Portions of the Registrant's Proxy Statement relating to the Annual
Meeting of Shareholders to be held on June 16, 2000.
French Fragrances, Inc.
FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders. . . 12
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . 13
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 15
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . . . . 21
Item 8. Financial Statements and Supplementary Data. . . . . . . 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . 42
Part III
Item 10. Directors and Executive Officers of the Registrant . . . 42
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 42
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 42
Item 13. Certain Relationships and Related Transactions . . . . . 42
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. . . . . . . . . . . . . . . . . . . 42
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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IN CONNECTION WITH THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"), THE COMPANY (AS DEFINED
BELOW) 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 ANNUAL REPORT ON FORM 10-K. 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 "WILL LIKELY 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.
PART I
ITEM 1. BUSINESS
General
French Fragrances, Inc. (the "Company") is a manufacturer and marketer of
prestige fragrances and related skin treatment and cosmetic products
predominantly in the United States and principally to mass-market retailers
and department stores. The Company has established itself as a source of
approximately 235 fragrance brands through brand ownership, brand licensing
and distribution arrangements. These brands include such brands as Halston,
Halston Z-14, Grey Flannel, PS Fine Cologne for Men, Design, Casual, Nautica
Classic, Nautica for Women, Nautica Competition, Wings by Giorgio Beverly
Hills, Colors of Benetton, Ombre Rose and Faconnable. In addition to
manufacturing many of the products the Company supplies to its retail
customers, the Company provides brand marketing and logistics and fulfillment
services to other fragrance and cosmetic product manufacturers for the United
States mid-tier department store and mass market channels.
The Company services more than 35,000 separate retail locations in the
United States, including traditional and mid-tier department stores such as
JCPenney, Sears, Kohl's, Macy's, Dayton's, Hudson's, Marshall Field's,
Dillard's, Robinsons-May, Proffitt's and Nordstrom, mass retailers such as
Wal-Mart, Target, T.J. Maxx and Kmart, drug stores such as Walgreens, Rite
Aid, CVS, Eckerd and American Stores and
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independent fragrance, cosmetic, gift and other stores. In addition, during
fiscal 2000, the Company initiated supply relationships with a number of
internet-based retailers, including Ashford.com, Beauty.com, Bluefly.com,
ibeauty.com and sephora.com, as well as with the Company's traditional
retailers' web-based operations, including JCPenney.com and Wal-Mart.com. In
fiscal 2000, sales to mass retailers, drug stores, independent fragrance,
cosmetic, gift and other stores and internet-based retailers (collectively,
"mass-market retailers") constituted approximately 70% of the Company's net
sales, sales to traditional and mid-tier department stores constituted
approximately 29% of net sales and the balance of the Company's sales was
comprised of international sales.
Over the past five years, the Company has emerged as a leading prestige
fragrance marketer by (i) providing retailers a wide selection and reliable
source of prestige products, (ii) increasing and diversifying the Company's
market penetration by growing its customer base to more than 35,000 separate
retail locations, (iii) consummating several acquisitions of prestige
fragrance brands, (iv) enhancing the overall performance of its brands through
the Company's marketing, logistics and fulfillment expertise, and (v)
providing various category and inventory management services through the
Company's e-commerce business-to-business platform. As a result, the
Company's net sales have grown to approximately $361.2 million for fiscal 2000
from approximately $88.0 million for fiscal 1996. Over the same period, the
Company has achieved a compounded annual growth rate of 40% in net sales, 57%
in EBITDA (as defined in Item 6 "Selected Financial Data") and 50% in net
income.
The Company was formerly known as Suave Shoe Corporation, which was
incorporated in 1960, and was the surviving corporation in a November 1995
reverse acquisition (the "Merger") by a privately-held fragrance distributor
named French Fragrances, Inc. ("FFI"). See Note 1 to the Notes to
Consolidated Financial Statements. FFI was organized in 1992 and has been a
source of prestige fragrances and related cosmetic products to the United
States mass market since its inception.
Business Strategy
The Company's primary objective is to maintain and enhance its position
as a leading manufacturer and marketer of prestige fragrances and related skin
treatment and cosmetic products. The Company's strategy to achieve this
objective includes the following:
Acquire Control of Additional Prestige Brands. The Company continues to
focus on acquiring ownership of, or exclusive licensing or distribution rights
to, classic prestige fragrance brands that enjoy established consumer loyalty.
These exclusive control positions allow the Company to actively manage the
brand so as to enhance the brand's prestige value in the market and at the
same time implement strategies intended to increase the brand's overall
long-term profit contribution. During the last five years, the Company
has made a number of acquisitions of prestige fragrance brands through
purchases or exclusive licensing or distribution arrangements, including the
Paul Sebastian brands PS Fine Cologne for Men, Design for Women, Design for
Men, Casual for Women and Casual for Men (the "PSI Brands"), the Geoffrey
Beene brands Grey Flannel and Bowling Green, the Halston brands Halston and
Z-14, Wings by Giorgio Beverly Hills, Nautica Classic, Nautica for Women and
Nautica Competition. See Note 2 to the Notes to Consolidated Financial
Statements. Management believes that the Company's strong market position and
reputation in the prestige fragrance industry, as well as its familiarity with
a number of the brands it has acquired through prior distribution
relationships, have assisted the Company in acquiring ownership or control of
prestige fragrance brands and resulted in higher gross margins for the
Company. Management also believes that its investment in a sales and
marketing infrastructure to service the department store customers of the PSI
Brands should better position the Company to acquire additional prestige
fragrance brands. Although the Company is currently exploring additional
acquisition opportunities for prestige fragrance brands, the Company has no
current agreements or commitments for any additional acquisitions of brands,
and there is, accordingly, no assurance that the Company will be able to
complete any such acquisitions in the future.
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Strengthen and Expand Relationships with Retailers by Providing Value
Added Services. The Company currently services more than 35,000 separate
retail locations and continues to strive to increase the number of retail
locations to which it supplies its products. The Company attributes its
extensive retailer network to its ability to provide retailers with a
consistent supply of product, as well as its ability to provide retailers,
especially mass-market retailers, with a level of service typically not
provided by its competitors. For example, in many cases, the Company's sales
and marketing professionals work closely with major retailers to act as
category managers by, among other things, providing the following services
("Category Management Services"): (i) the creation of regularly planned
promotional campaigns and in-store displays designed to increase sales; (ii)
the design of model stock assortments and planograms for the effective layout
of customers' fragrance departments; and (iii) comprehensive sales analysis
and active management of the prestige fragrance category for retailers. The
Company believes that the provision of Category Management Services both
creates a partnership between the Company and the retailer and increases the
amount of the Company's products ultimately sold through such retailers. Over
the past two years, the Company has been recognized for its level of service
to its retailers by its two largest retail customers, Wal-Mart and JCPenney.
The Company was named the Supplier of the Year for 1999 in the cosmetics,
skincare and fragrances category at Wal-Mart and the Supplier of the Year for
1998 in the women's accessories division at JCPenney.
Expand E-Commerce Business-to-Business Capabilities. In fiscal 2000, the
Company launched an aggressive expansion of its existing e-commerce
business-to-business capabilities to better serve its retailers and suppliers
and to gain operational efficiencies. The Company has engaged IBM Global
Services, a unit of IBM Corporation, American Software, Inc. ("American
Software") and Logility, Inc. ("Logility") to assist in the expansion of its
e-commerce business-to-business platform. In connection with this technology
project, the Company already has added vendor managed inventory capabilities
as a service to its key retailers. In addition, the Company expects to launch
an upgraded web site, which will have internet, intranet and extranet
capabilities, by the second quarter of fiscal 2001. Through this e-business
project, the Company expects to complete an upgrade of its existing enterprise
resource planning system to a fully-integrated, web-enabled forecasting,
purchasing, materials management, financial reporting and order processing
system by the third quarter of fiscal 2001. The Company already uses its
technology platform to process approximately 91% of its orders through
electronic data interchange ("EDI") transmissions, analyze point-of-sale data,
provide planogram support, allow for direct store deliveries and effect
electronic fund transfers. In the future, the Company expects to provide its
retailers with additional collaborative and supply chain planning and
forecasting tools designed to reduce transaction costs, increase market
efficiency, provide greater market intelligence, increase inventory turns and
decrease inventory levels. The Company believes that the expansion of its
e-commerce business-to-business capabilities will provide it with a
competitive advantage over other manufacturers and distributors and further
strengthen its relationship with its retailers.
Improve Brand Performance Through Focused Marketing. The Company seeks
to utilize its marketing expertise and extensive customer base to successfully
position, or reposition, its brands in the marketplace to enhance their value.
Such strategies involve merchandising, advertising and promoting the
Company's brands in a manner intended to best position the brand in each of
their different distribution channels. The Company also implements a policy
of product differentiation among distribution channels to enhance the brand's
prestige image.
Further Expand Logistics and Fulfillment Services. The Company intends
to continue to expand its logistics and fulfillment business and increase its
sales to retailers by: (i) increasing the number of prestige brands it
supplies to retailers; (ii) increasing the number of manufacturers for which
it provides logistics and fulfillment services; (iii) expanding its customer
base to include additional retailers not presently served by the Company; and
(iv) developing and implementing innovative marketing and merchandising
programs targeted to improve the product sell-through of its customers.
Management believes that the Company's ability to further expand its logistics
and fulfillment business is enhanced by the competitive position it has
already achieved.
In February 2000, the Company leased a 295,000 square foot facility (the
"Edison Facility") in Edison, New Jersey, which will serve as a promotional
set fulfillment and returns processing center. The Company believes that the
additional operating space provided by the Edison Facility, along with its
strategic location
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(near the Company's contract manufacturers), will allow the Company to reduce
its per product distribution cost and result in other operational
efficiencies. In addition, during fiscal 2000, the Company initiated an
e-commerce business-to-business web site designed to expand its supply
relationships to independent gift stores and other specialty retailers. The
Company does not currently intend to open retail stores or otherwise
engage in direct retail sales.
Industry Overview
According to the United States Department of Commerce, fragrance and
related product sales in the United States are in excess of $6.0 billion
annually. The United States market for fragrances and related products
continues to grow moderately. The growth is generally attributed to new
product introductions appealing to a broader segment of the market, population
growth, new retailing concepts, such as open-sell environments, price
increases and product innovation, such as special sizes and new product
formulations.
Fragrance products in the United States are generally distributed through
two channels of distribution: (i) the prestige channel, which includes
department stores; and (ii) the mass channel, which includes mass retailers,
food and drug stores, independent fragrance, cosmetic, gift and other stores,
and direct selling firms, including internet, house-to-house and home
television shopping companies. Management believes there are a number of
significant trends currently impacting the mass channel that it expects should
contribute to its continued growth, including: (i) an increased desire by
retailers to purchase more efficiently and to buy more products from fewer
vendors; (ii) sustained, and in some instances increasing, demand for classic
prestige fragrances; (iii) more upscale images communicated by retailers in
their advertising; (iv) the migration to an open-sell environment; (v)
internal growth of mass-market retailers; and (vi) consumers' desire to
purchase prestige products conveniently.
Manufacturers of prestige fragrances have historically restricted their
direct sales in the United States primarily to prestige department stores and
specialty stores. Supply sources available to the mass market have been
limited to (i) direct distributors such as the Company, which principally
receive products directly from fragrance manufacturers, and (ii) distributors
of prestige products manufactured by, or distributed to, foreign sources for
foreign distribution which are diverted to the United States market ("Diverted
Sources"). Under existing court decisions, there are variations in the extent
to which trademark and copyright laws or customs regulations may restrict the
importation of trademarked or copyrighted fragrance products through Diverted
Sources without the consent of the trademark or copyright owner. From time to
time, the Company may take advantage of favorable buying opportunities and
purchase fragrance products from sources which may purchase from Diverted
Sources. There can be no assurance that these sources of product will be
available in the future or that the Company may not become the subject of
legal action arising from its buying activities with respect to these
products. To date, the Company has not been the subject of any such legal
action.
Products
The Company sells prestige fragrances and related cosmetic products,
including perfume, cologne, eau de toilette, body spray, men's after-shave and
gift sets. Each fragrance is sold in a variety of sizes and packaging
arrangements. In addition, each fragrance line may be complemented by bath
and body products, such as soaps, deodorants, body lotions, gels, creams and
dusting powders. The Company's products generally retail at prices ranging
from $20 to $100 per item.
The Company's brand portfolio currently consists of more than 1,800 stock
keeping units. The Company continually seeks to expand its brand portfolio.
The Company uses third-party contract manufacturers in the United States
and Europe to obtain substantially all of the raw materials, components and
packaging products for the manufacture of finished products relating to the
Halston, Geoffrey Beene and Paul Sebastian, Inc. ("PSI") fragrance products.
The Company currently obtains its materials for these products from a limited
number of suppliers. Management of the Company believes that its
relationships with these suppliers are good, and that there are sufficient
alternatives should one or more of these suppliers become unavailable.
Products that the Company
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purchases directly from major fragrance manufacturers and other sources are
delivered to the Company in finished goods form.
Except as to products for which the Company has exclusive marketing and
distribution rights, the Company, as is customary in the industry, generally
does not have long-term or exclusive contracts with suppliers or
manufacturers. On occasion, the Company has entered into supply contracts
with manufacturers which govern the terms under which the parties conduct
business. Purchases from manufacturers or suppliers that do not have
exclusive supply contracts with the Company are generally made pursuant to
purchase orders. The Company's ten largest manufacturers or suppliers of
brands that are distributed by the Company on a non-exclusive basis accounted
for approximately 64.7% of the Company's cost of sales for the fiscal year
ended January 31, 2000. The loss of, or a significant adverse change in, the
relationship between the Company and any of its major suppliers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Licensing and Exclusive Distribution Agreements
Except for its Halston, Geoffrey Beene, PSI and COFCI, S.A. ("COFCI")
fragrance products, substantially all of the Company's products are covered by
trademarks owned by others. Management does not believe that its business,
other than with respect to the Halston, Geoffrey Beene, PSI and COFCI
fragrance products, is dependent upon any particular trademark, license or
similar property. Management believes that the Halston trademarks, the
Geoffrey Beene license and trademarks, the PSI trademarks and the COFCI
license and trademarks are important to its business.
Geoffrey Beene. In March 1995, the Company acquired certain assets from
Sanofi Beaute, Inc., including an exclusive worldwide license with Geoffrey
Beene, Inc. to manufacture and sell Geoffrey Beene fragrance and related
products, including the Grey Flannel and Bowling Green brands. The Company
has trademark registrations and applications in the United States and in
numerous other countries for these brands. The license agreement has an
initial term of 30 years from February 1995, subject to automatic extensions
for successive ten-year periods unless earlier terminated by the Company in
accordance with the agreement.
Halston. In March 1996, the Company acquired from Halston Borghese,
Inc. and its affiliates certain assets, including the trademark registrations
in the United States and trademark registrations and applications in numerous
other countries for the Halston fragrance brands, including Halston, Catalyst,
Z-14 and 1-12 (the "Halston Acquisition").
PSI. In January 1999, the Company acquired from PSI trademarks or
licenses to manufacture and distribute the fragrance brands PS Fine Cologne
for Men, Design for Women, Design for Men, Casual for Women and Casual for Men
(the "PSI" Acquisition"). See Note 2 to the Notes to Consolidated Financial
Statements.
Wings. In November 1998, the Company entered into an exclusive license
agreement with an affiliate of The Procter & Gamble Company that grants the
Company the right to manufacture and distribute the fragrance brand Wings by
Giorgio Beverly Hills in the United States. The license agreement expires on
December 31, 2003.
COFCI. Since 1990, Fine Fragrances, Inc. ("Fine Fragrances") has had
agreements with COFCI for the exclusive distribution in the United States and
Canada of fragrances and related cosmetic products, including the Salvador
Dali, Laguna, Salvador, Dalissime, Dalimix, Cafe, Taxi and Watt brands. In
May 1997, in connection with the Company's acquisition of the remaining 50.01%
of the common stock of Fine Fragrances that it did not already own, these
agreements were assigned to the Company. The agreements expire in November
2006, subject to earlier termination by COFCI if the Company were to fail to
purchase certain minimum levels of product.
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Others. Over the past five fiscal years, the Company has also entered
into exclusive licensing and distribution agreements for other fragrance
brands and related skin treatment and cosmetic products, including Galenic
Elancyl, Colors of Benetton, Faconnable, Lapidus and Ombre Rose. These
agreements generally may be extended through 2003 to 2004 although they may be
terminated earlier under certain circumstances by the Company.
Marketing and Sales
In the United States and Canada, the Company has established its own
sales and marketing staff, and also utilizes independent sales
representatives. As a result of the PSI Acquisition, the Company
significantly increased its sales and marketing force to service the
department store customers of the PSI Brands. As of April 17, 2000, the
Company's sales and marketing force consisted of approximately 400 sales
and marketing full and part-time employees, including 289 primarily part-time
market specialists that focus on the retail sell-through of the Company's
brands in specific retail outlets in the United States and Canada, and
approximately 35 independent sales representatives. In general, each sales
employee and representative is assigned sales responsibility for a customer or
territory. The Company's sales and marketing employees and representatives
routinely visit retailers to assist in the merchandising, layout and stocking
of selling areas.
The Company's senior sales and marketing personnel support the efforts of
its sales employees and representatives by working with the merchandise
managers, lead buyers and marketing departments of its major retailers to
develop advertising and promotional plans tailored to these customers' retail
needs. The Company's sales and marketing personnel frequently work with
customers to (i) assist in the development of merchandising and promotional
programs and budgets for specific products or selling seasons, (ii) design
model schematic planograms for the customer's fragrance and cosmetics
departments, (iii) identify trends in consumer preferences, (iv) conduct
training programs for the customer's sales personnel, and, in certain
cases, (v) provide comprehensive sales analysis and active management of the
prestige fragrance category.
The Company advertises its products through cooperative advertising in
association with major retailers. The Company also promotes products through
the use of gift-with-purchase programs, sales personnel incentive commissions
and value-added programs.
The industry practice for businesses that market fragrances and cosmetics
has been to grant prestige department stores the right to return merchandise.
The Company typically limits return rights to department stores and to certain
promotional items offered in its Halston, Geoffrey Beene, PSI, Wings and
Nautica lines. The Company generally does not offer any other return rights
and seeks to limit sales of such promotional products to each retailer to
volumes that can be sold through to the retailer's customer base. The Company
establishes reserves and provides allowances for returns of such products at
the time of sale. As a percentage of gross sales, returns were approximately
2.6%, 2.5% and 3.4%, respectively, for the fiscal years ended January 31,
1998, 1999 and 2000. To date, the Company's returns have not exceeded its
returns reserves and allowances, though there can be no assurance that such
reserves and allowances will be adequate in the future. The Company has,
however, an active market to sell returns and generally recovers a portion of
the gross margin loss on its returns by reselling those returns.
The Company conducts limited marketing and sales activities outside the
United States and Canada, primarily relating to Halston, Geoffrey Beene and
PSI products. These activities are generally conducted through arrangements
with independent distributors. Revenues related to export sales were not
material during any of the last three fiscal years.
Logistics and Fulfillment Services
The Company supplies its products to more than 35,000 separate retail
locations in the United States, including traditional and mid-tier department
stores such as JCPenney, Sears, Kohl's, Macy's, Dayton's, Hudson's, Marshall
Field's, Robinsons-May, Proffitt's and Nordstrom, mass retailers such as
Wal-Mart, Target, T.J. Maxx and Kmart, drug stores such as Walgreens, Rite
Aid, CVS, Eckerd and American Stores and independent fragrance, cosmetic, gift
and other stores. In addition, the Company serves as a source of
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products for a number of internet-based retailers, including Ashford.com,
Beauty.com, Bluefly.com, ibeauty.com and sephora.com, as well as for
traditional retailers' web-based operations.
A majority of the Company's customers require rapid shipment of products.
Because the Company generally attempts to fill orders within three days from
the receipt of a purchase order, and because all orders are subject to
cancellation without penalty by the customer until shipment, management does
not consider backlog to be a significant indication of future sales
activities. All orders are packaged by the Company and most merchandise is
shipped to customers by common carriers. In addition, to expedite delivery,
the Company addresses its individual customer needs by offering its customers
U.P.C. coding, advance price ticketing, case packing, drop ship programs
(direct to store), shrink-wrap, electronic service/anti-theft tagging and EDI
capabilities. As an example of the importance of EDI services to retailers,
approximately 91% of the Company's customer orders in fiscal 2000 were
received by EDI.
As is customary in the fragrance industry, the Company does not generally
have long-term or exclusive contracts with any of its customers. Sales to
customers are generally made pursuant to purchase orders. The Company
believes that its continuing relationships with its customers are based upon
its ability to provide a wide selection and reliable source of prestige
fragrance products, as well as its ability to provide value-added services,
including its Category Management Services, to mass-market retailers and
mid-tier department stores. The Company's ten largest customers accounted for
approximately 58% of net sales for the fiscal year ended January 31, 2000.
The only customers of the Company that accounted for more than 10% of its net
sales for the same period were Wal-Mart and JCPenney (including Eckerd, which
is owned by JCPenney). The loss of, or a significant adverse change in, the
relationship between the Company and any of its key customers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Seasonality
The Company generally has significantly higher sales in the second half
of the calendar year as a result of increased demand by retailers in
anticipation of, and during, the holiday season. In fiscal 2000,
approximately 68% of the Company's net sales were made during the second half
of the fiscal year.
Management Information Systems
The Company's key management information systems consist of (i) a
fully-integrated accounting, forecasting, purchasing and order-entry software
system; (ii) an EDI system, which allows the Company's customers to order
products electronically from the Company and to be invoiced electronically for
those orders; and (iii) a warehouse management system, which assists the
Company in facilitating and managing the receipt and shipment of products. As
a whole, these management information systems provide on-line, real-time,
fully-integrated information for its sales, purchasing, warehouse and
financial departments. The Company's information systems form the basis of a
number of the value-added services that the Company provides to its customers,
including vendor managed inventory, inventory replenishment, customer billing,
sales analysis, product availability and pricing information, and expedited
order processing. During fiscal 2000, the Company added new features to its
existing warehouse management system that allow the Company to better manage
the receipt and control of its inventory. The Company intends to continue to
enhance its management information systems on an ongoing basis, to provide
improved service to the Company's customers through quicker response times in
shipments, customer service and sales information, and to provide the
Company's management the ability to identify opportunities for increased
efficiencies, cost savings and sales growth. During fiscal 2000, the Company
engaged IBM Global Services, American Software and Logility to upgrade the
Company's existing enterprise resource planning system to a fully-integrated,
web-enabled forecasting, purchasing, materials management, financial reporting
and order processing system and to develop a new web site for the Company.
The Company expects to complete these upgrades by the third quarter of fiscal
2001.
9
Competition
The fragrance industry is highly competitive and, at times, subject to
rapidly changing consumer preferences and industry trends. The Company
competes with distributors, Diverted Sources, manufacturers of mass-market
fragrances and other manufacturers of prestige fragrances. Competition is
generally a function of assortment and continuity of merchandise selection,
price, timely delivery and level of in-store customer support. The Company
believes that it competes primarily on the basis of (i) its established
relationships with its fragrance manufacturers and, in particular, its ability
to offer retailers a reliable, direct supply of prestige fragrances and
related skin treatment and cosmetic products at competitive prices, and (ii)
its emphasis on providing value-added customer services, including Category
Management Services, to its mass-market retailers. There are products which
are better known and more popular than the products produced for or supplied
by the Company. Many of the Company's competitors are substantially larger
and more diversified, and have substantially greater financial and marketing
resources, than the Company, as well as have greater name recognition and the
ability to develop and market products similar to and competitive with those
distributed by the Company.
Employees
As of April 14, 2000, the Company had approximately 415 full-time
employees and 400 part-time employees. None of the Company's employees are
covered by a collective bargaining agreement, and the Company believes that
its relationship with its employees is satisfactory. The Company also uses
the services of independent contractors in various sales capacities. The
Company also contracts with temporary personnel agencies for temporary or
seasonal labor. During the peak of the Company's sales season for fiscal
2000, the Company retained the services of approximately 260 temporary
employees, primarily in distribution, packaging and shipping functions.
Executive Officers of the Company
The following table sets forth information, as of April 17, 2000, with
respect to each person who is an executive officer of the Company, as
indicated below:
Name Age Position
- ------------------ --- ------------------------------------------------
E. Scott Beattie 41 Chairman, President and Chief Executive Officer
Gretchen Goslin 39 Executive Vice President - Marketing
Paul West 50 Executive Vice President - Sales Management and
Planning
William J. Mueller 53 Senior Vice President, Chief Financial Officer
and Treasurer
Oscar E. Marina 40 Senior Vice President, General Counsel and
Secretary
All executive officers are elected annually by the Board of Directors
(the "Board") of the Company and serve at the discretion of the Board. The
business experience, principal occupations, employment and educational
background as well as the periods of service of each of the executive officers
of the Company during the last five years are set forth below.
E. Scott Beattie has served as Chairman of the Board since April 2000, as
President and Chief Executive Officer since March 1998 and as a director of
the Company since the Merger. Mr. Beattie served as President and Chief
Operating Officer of the Company from April 1997 to March 1998 and as Vice
Chairman and Assistant Secretary of the Company from November 1995 to April
1997. Since the inception of FFI in 1992, Mr. Beattie has been actively
involved in the Company's management and development, including the
recruitment of members of senior management, brand acquisitions and
financings, business strategy development and implementation, customer and
supplier relationships and other operating activities.
10
Mr. Beattie served as Executive Vice President of Bedford Capital
Corporation ("Bedford"), a Toronto, Canada-based merchant banking firm, from
March 1995 through March 1998 and as Vice President of Bedford from September
1989 to March 1995. Prior to co-founding Bedford, Mr. Beattie served as a
Vice President and Director of Mergers & Acquisitions of Merrill Lynch, Inc.,
where he specialized in management buyouts and divestitures. Mr. Beattie also
was a Manager of Andersen Consulting, specializing in the design and
implementation of enterprise resource planning systems. Mr. Beattie is a
director of Bedford and Janna Systems Inc., a customer relationship management
software company. Mr. Beattie earned a Master of Business Administration in
1986 and a Bachelor of Arts degree in Honors Business Administration in 1981,
both from the University of Western Ontario, Ivey School of Business.
Gretchen Goslin has served as Executive Vice President - Marketing of the
Company since March 2000, as Senior Vice President - Marketing of the Company
from June 1998 until March 2000, and as Vice President - Marketing of the
Company from the Merger until June 1998. Ms. Goslin served as Vice President
- - Marketing of FFI from May 1993 until the consummation of the Merger. Ms.
Goslin earned a Bachelor of Business Administration degree in Marketing from
the University of Miami in 1982.
Paul West has served as Executive Vice President - Sales Management and
Planning of the Company since March 2000 and as Senior Vice President - Sales
Management and Planning of the Company from April 1998 through March 2000.
Mr. West served as the President of J.P. Fragrances, Inc. ("JPF") from August
1997 until April 1998. From January 1997 through June 1997, Mr. West served
as a Vice President of Renaissance Solutions, Inc., a consulting company. Mr.
West served as the Project Director of Unilever N.V., an international
consumer products company, from May 1996 through December 1996. From
September 1989 through May 1996, Mr. West served as the Chief Financial
Officer of Elizabeth Arden Company, an international marketer and manufacturer
of prestige cosmetics and fragrances. Mr. West earned a Bachelor of Science
degree in Business Administration from Villanova University in 1971.
William J. Mueller has served as Senior Vice President, Chief Financial
Officer and Treasurer of the Company since March 2000 and as Vice President,
Chief Financial Officer and Treasurer of the Company from the Merger through
March 2000. Mr. Mueller served as Vice President - Operations, Chief
Financial Officer and Treasurer of FFI from April 1993 until the consummation
of the Merger. Mr. Mueller earned a Master of Business Administration with
distinction from Keller Graduate School of Management in 1982 and a Bachelor
of Science degree in Business Administration from Elmhurst College in 1974.
Mr. Mueller is a certified public accountant.
Oscar E. Marina has served as Senior Vice President, General Counsel and
Secretary of the Company since March 2000, and as Vice President, General
Counsel and Secretary of the Company from March 1996 through March 2000. From
October 1988 until March 1996, Mr. Marina was an attorney with the law firm of
Steel Hector & Davis LLP in Miami, becoming a partner of the firm in January
1995. Mr. Marina graduated cum laude with a Juris Doctor degree from Harvard
Law School in 1988 and earned a Bachelor of Science degree in Pharmacy with
highest honors from the University of Florida in 1982.
ITEM 2. PROPERTIES
The Company's corporate headquarters and principal distribution center
(the "Miami Lakes Facility") is located at 14100 N.W. 60th Avenue, Miami
Lakes, Florida 33014 in a building owned by the Company on a tract of land
comprising approximately 13 acres. The Miami Lakes Facility contains
approximately 200,000 square feet of distribution and warehouse space and
approximately 30,000 square feet of office space. In 1996, the Company issued
a mortgage on the Miami Lakes Facility in the amount of $6 million.
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"). The lease on the Miami Lakes Annex has an initial term of 30
months, with the Company having an option to extend for an additional term of
30 months. In February 2000, the Company entered into a lease with an
unaffiliated third party for the 295,000 square foot Edison Facility, which
will be used as a distribution center for the Company's promotional set
business and to process product returns. The lease on the Edison Facility has
a term of 26 months. In addition, in February 2000, the Company assumed a
lease for approximately 173,000 square feet of a
11
warehouse facility (the "Allentown 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. The lease extends through
June 30, 2002. The Company currently intends to consolidate its operations to
the Miami Lakes Facility and the Edison Facility. Accordingly, the Company
does not intend to exercise its option on the Miami Lakes Annex and intends to
seek to sublease or assign its lease on the Allentown Facility.
ITEM 3. LEGAL PROCEEDINGS
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, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 31, 2000.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market information. The Company's common stock, $.01 par value per
share ("Common Stock"), has been traded on The Nasdaq Stock Market(R) (the
"Nasdaq Market") under the symbol "FRAG" since December 21, 1995. The
following table sets forth the high and low closing prices for the Common
Stock, as reported on the Nasdaq Market for each of the Company's fiscal
quarters from February 1, 1998 through January 31, 2000. Over-the-counter
quotations reflect interdealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
High Low
-------- -------
Quarter Ended 4/30/98 $19 5/8 $10 3/8
Quarter Ended 7/31/98 $18 7/16 $13 1/4
Quarter Ended 10/31/98 $14 1/16 $5 1/4
Quarter Ended 1/31/99 $8 9/16 $5 1/16
Quarter Ended 4/30/99 $9 1/16 $5 5/8
Quarter Ended 7/31/99 $8 23/32 $6 9/16
Quarter Ended 10/31/99 $8 $6 1/16
Quarter Ended 1/31/00 $7 13/16 $6 1/8
Holders. As of April 17, 2000, there were approximately 524 record
holders of the Common Stock.
Dividends. The Company has not declared any cash dividends in its two
most recent fiscal years and currently has no plans to declare dividends in
the foreseeable future. Any future determination by the Company's Board to
pay dividends will be made only after consideration of the Company's financial
condition, results of operations, capital requirements and other relevant
factors. Additionally, the Company's credit facility (the "Credit Facility")
with Fleet National Bank ("Fleet") prohibits the payment of cash dividends by
the Company and the Indentures (the "Indentures") relating to the Company's 10
3/8% Series B Senior Notes due 2007 (the "Series B Senior Notes") and the
Company's 10 3/8% Series D Senior Notes due 2007 (the "Series D Senior Notes")
condition the Company's ability to pay cash dividends on the satisfaction of
certain financial and other covenants.
13
ITEM 6. SELECTED FINANCIAL DATA (In thousands, except earnings per share
data)
The following selected financial data represents the selected financial
data of FFI until the Merger and the selected financial data of the Company
following the Merger. The information has been derived from the audited
consolidated financial statements of the Company and FFI for the relevant
periods. The following data should be read in conjunction with the Financial
Statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information included elsewhere herein.
Selected Financial Data
Years Ended January 31,
1996 1997 1998 1999 2000
---------------------------------------------------
Selected Income
Statement Data:
Net sales $87,979 $140,482 $215,487 $309,615 $361,243
Gross profit 21,639 46,078 68,978 88,493 125,114
Income from operations 8,419 18,222 31,457 38,684 44,947
------- -------- -------- -------- --------
Net income $ 3,007 $ 8,248 $ 12,341 $ 12,006 $ 15,329
======= ======== ======== ======== ========
Selected Per
Share Data:
Earnings per
common share:
Basic $ 0.40 $ 0.71 $ 0.92 $ 0.87 $ 1.11
======= ======== ======== ======== ========
Diluted $ 0.35 $ 0.60 $ 0.76 $ 0.73 $ 0.99
======= ======== ======== ======== ========
Weighted average
number of common
shares:
Basic 7,548 11,647 13,394 13,775 13,801
Diluted 8,518 13,831 16,492 16,729 15,577
Other Data:
EBITDA $ 9,738 $ 21,885 $ 36,195 $ 46,179 $ 56,113
Net cash provided by
(used in) operating
activities 5,179 (23,221) (40,729) (36,948) 31,971
Net cash used in
investing activities (17,983) (21,117) (7,392) (11,142) (3,699)
Net cash provided by
(used in) financing
activities 12,282 45,070 54,932 46,534 (12,239)
Years Ended January 31,
1996 1997 1998 1999 2000
---------------------------------------------------
Selected Balance
Sheet Data:
Inventories $25,851 $ 67,989 $ 90,426 $133,306 $127,022
Working capital 8,022 17,734 122,177 157,457 173,005
Total assets 71,384 172,378 232,653 294,708 309,632
Short-term debt 16,713 37,631 -- 5,639 --
Long-term debt, net 17,285 37,215 133,785 176,159 175,030
Redeemable preferred
stock 2,000 -- -- -- --
Shareholders' equity 17,539 44,680 58,626 71,480 82,287
For the year ended January 31, 1996, earnings per share and the weighted
average number of shares outstanding are based on the 7,120,000 shares
received by the shareholders of FFI in the Merger through the date of the
Merger and thereafter are based on the actual number of shares of Common Stock
outstanding.
EBITDA is defined as income from operations, plus depreciation and
amortization. EBITDA should not be considered as an alternative to operating
income (loss) or net income (loss) (as determined in accordance with generally
accepted accounting principles) as a measure of the Company's operating
performance or to net cash provided by operating, investing and financing
activities (as determined in accordance with generally accepted accounting
principles) as a measure of its ability to meet cash needs. The Company
believes that EBITDA is a measure commonly reported and widely used by
investors and other interested parties in the fragrance industry as a measure
of a fragrance company's operating performance and debt servicing ability
because it assists in comparing performance on a consistent basis without
regard to depreciation and amortization, which can vary significantly
depending upon accounting methods (particularly when acquisitions are
involved) or nonoperating factors (such as historical cost). Accordingly,
this information has been disclosed herein to permit a more complete
comparative analysis of the Company's operating performance relative to other
companies in the fragrance industry and of the Company's debt servicing
ability. EBITDA, may not, however, be comparable in all instances to other
similar types of measures used in the fragrance industry.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company's business is the manufacturing and marketing of prestige
fragrances and related skin treatment and cosmetic products. The Company
markets its brands principally in the United States to both department stores
and mass-market retailers, including such brands as Halston, Halston Z-14,
Grey Flannel, PS Fine Cologne for Men, Design, Casual, Nautica Classic,
Nautica for Women, Nautica Competition, Wings by Giorgio Beverly Hills, Colors
of Benetton, Ombre Rose and Faconnable.
The following discussion of the Company's results of operations is
presented for the fiscal years ended January 31, 1998, 1999 and 2000.
RESULTS OF OPERATIONS
General
The following table sets forth, for the periods indicated, certain
information relating to the Company's operations expressed as percentages of
net sales for the period (percentages may not add due to rounding):
Years Ended January 31,
1998 1999 2000
--------------------------
INCOME STATEMENT DATA:
Net sales 100.0% 100.0% 100.0%
Cost of sales 68.0 71.4 65.3
----- ----- -----
Gross profit 32.0 28.6 34.6
Warehouse and shipping expenses 3.3 3.8 5.3
Selling, general and administrative
expenses 11.9 9.9 13.8
Depreciation and amortization 2.2 2.4 3.1
----- ----- -----
Income from operations 14.6 12.6 12.5
Interest expense, net of interest and
other income 5.5 5.6 5.4
Litigation settlement expense -- 0.5 --
----- ----- -----
Income before equity in earnings of
unconsolidated affiliate and income
taxes 9.1 6.5 7.0
Equity in earnings of unconsolidated
affiliate 0.1 0.0 0.0
----- ----- -----
Income before income taxes 9.2 6.5 7.0
Provision for income taxes 3.4 2.5 2.8
----- ----- -----
Net income 5.8% 4.0% 4.2%
===== ===== =====
OTHER DATA:
EBITDA margin 16.8% 14.9% 15.5%
EBITDA margin represents EBITDA (as defined in Note 2 under Item 6.
"Selected Financial Data") divided by net sales.
Fiscal Year Ended January 31, 2000 Compared to the Fiscal Year Ended
January 31, 1999
- --------------------------------------------------------------------
Net Sales. Net sales increased $51.6 million, or 16.7%, to $361.2
million for the fiscal year ended January 31, 2000, from $309.6 million for
the fiscal year ended January 31, 1999. The increase in net sales was
primarily attributable to an increase in net sales of the brands acquired in
connection with the PSI Acquisition. 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 during the fiscal year ended January
15
31, 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, and the growth in sales of customized gift sets.
Gross Profit. Gross profit increased $36.6 million, or 41.4%, to $125.1
million for the fiscal year ended January 31, 2000, from $88.5 million for the
fiscal year ended January 31, 1999. The increase in gross profit and gross
margin (from 28.6% to 34.6%) 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 $7.4 million, or 62.2%, to $19.2 million for the fiscal year ended
January 31, 2000, from $11.8 million for the fiscal year ended January 31,
1999. The increase resulted primarily from increased labor and facility
expenses associated with the opening of a promotional set fulfillment center
in Pennsylvania in July 1999, the increased sales volume and an increase in
inventory reserves.
SG&A. Selling, general and administrative ("SG&A") expenses increased
$19.3 million, or 63.4%, to $49.8 million for the fiscal year ended January
31, 2000, from $30.5 million for the fiscal year ended January 31, 1999. As a
percentage of net sales, SG&A expenses increased from 9.9% for the fiscal year
ended January 31, 1999 to 13.8% for the fiscal year ended January 31, 2000.
Of the increase in SG&A expenses, $15.9 million represented an increase in
selling and marketing expenses (including advertising co-op, gifts with
purchase and salary support programs), primarily as a result of the additional
sales force and promotional and marketing expenses related to the prestige
fragrance lines added in connection with the PSI Acquisition. General and
administrative expenses for the fiscal year ended January 31, 2000 increased
$3.4 million primarily as a result of the addition of information systems and
financial personnel and an increase in the accounts receivable reserves.
Depreciation and Amortization. Depreciation and amortization increased
$3.7 million, or 49.0%, to $11.2 million for the fiscal year ended January 31,
2000, from $7.5 million for the fiscal year ended January 31, 1999. The
increase was primarily attributable to the amortization of intangibles
acquired in connection with the PSI Acquisition and the Company's acquisition
of the license for Wings by Giorgio Beverly Hills in November 1998. These
intangibles are being amortized over a five-year period.
Interest Expense, Net. Interest expense, net of interest income,
increased approximately $723,000, or 3.9%, to $19.4 million for the fiscal
year ended January 31, 2000, from $18.7 million for the fiscal year ended
January 31, 1999. This increase was primarily due to an increase in average
debt outstanding resulting from the April 1998 offering (the "April 1998 Note
Offering") of $40 million principal amount of 10 3/8% Series C Senior Notes
(the "Series C Senior Notes"). See Note 5 to the Notes to the Consolidated
Financial Statements.
EBITDA. EBITDA (operating income, plus depreciation and amortization)
increased $9.9 million, or 21.5%, to $56.1 million for the fiscal year ended
January 31, 2000, from $46.2 million for the fiscal year ended January 31,
1999. EBITDA margin increased to 15.5% for the fiscal year ended January 31,
2000, from 14.9% for the fiscal year ended January 31, 1999. The increase in
EBITDA and EBITDA margin was primarily attributable to the increase in product
sales of the higher margin brands acquired in connection with the PSI
Acquisition.
Net Income. Net income increased $3.3 million, or 27.7%, to $15.3
million for the fiscal year ended January 31, 2000, from $12.0 million for the
fiscal year ended January 31, 1999, primarily as a result of the increase in
net sales and gross profit, which was partially offset by the increase in
operating expenses associated with the addition of the PSI business.
Fiscal Year Ended January 31, 1999 Compared to the Fiscal Year Ended
January 31, 1998
- --------------------------------------------------------------------
Net Sales. Net sales increased $94.1 million, or 44%, to $309.6 million
for the fiscal year ended January 31, 1999, from $215.5 million for the fiscal
year ended January 31, 1998. The increase in net sales was primarily
attributable to an increase in net sales of brands distributed by the Company
on a non-exclusive basis. The proportion of the Company's net sales of such
brands increased significantly as a result of the
16
Company's acquisition of certain assets of JPF during the fiscal year ended
January 31, 1999 (the "JPF Acquisition"). 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 during the fiscal year ended January 31, 1999
resulted primarily from the Company's ability to provide its customers with a
larger selection of products and a continuous, direct supply of products, and
the growth in sales of customized gift sets.
Gross Profit. Gross profit increased $19.5 million, or 28%, to $88.5
million for the fiscal year ended January 31, 1999, from $69.0 million for the
fiscal year ended January 31, 1998. The increase in gross profit was
primarily attributable to the increase in net sales of the brands distributed
by the Company on a non-exclusive basis. Gross margins decreased from 32.0%
to 28.6%, primarily as a result of a proportionally larger increase in sales
of brands distributed by the Company on a non-exclusive basis, which typically
sell at lower margins than brands the Company manufactures or licenses.
Warehouse and Shipping Expense. Warehouse and shipping expenses
increased $4.6 million, or 63.5%, to $11.8 million for the fiscal year ended
January 31, 1999, from $7.2 million for the fiscal year ended January 31,
1998. The increase resulted primarily from an increase in freight and labor
costs, which were associated with the increase in net sales and the production
of customized gift sets, and an increase in inventory reserves.
SG&A. SG&A expenses increased $4.9 million, or 19.3%, to $30.5 million
for the fiscal year ended January 31, 1999, from $25.6 million for the fiscal
year ended January 31, 1998. Of the increase in SG&A expenses, approximately
$3.2 million represented an increase in selling expenses largely as a result
of steps taken by the Company to increase the sell-through of its products
through salary support programs with retailers and market specialists and to
shift advertising and promotional expenses into market and retailer-specific
advertising co-op and gift-with-purchase programs. General and administrative
expenses for the fiscal year ended January 31, 1999 increased by approximately
$1.7 million primarily as a result of the addition of administrative personnel
(including information systems personnel) and increased legal costs. As a
percentage of net sales, SG&A expenses decreased from 11.9% in fiscal 1998 to
9.9% in fiscal 1999.
Depreciation and Amortization. Depreciation and amortization increased
$2.8 million, or 58.2%, to $7.5 million for the fiscal year ended January 31,
1999, from $4.7 million for the fiscal year ended January 31, 1998. The
increase was primarily attributable to the amortization of intangibles
acquired in connection with the JPF Acquisition and of additional intangibles
and other assets acquired from Fragrance Marketing Group, Inc., and increased
depreciation from (i) computer software and equipment relating to the
Company's new information systems, and (ii) capital projects for improvement
of warehouse operations.
Interest Expense, Net. Interest expense, net of interest income,
increased $6.3 million, or 50.8%, to $18.7 million for the fiscal year ended
January 31, 1999, from $12.4 million for the fiscal year ended January 31,
1998. This increase was primarily due to an increase in average debt
outstanding resulting from the April 1998 Note Offering of $40 million
principal amount of 10 3/8% Series C Senior Notes, which were used to provide
long-term working capital financing and to finance the JPF Acquisition. See
Note 5 to the Notes to the Consolidated Financial Statements. The Company had
interest income of approximately $91,000 for fiscal 1999, compared to
approximately $424,000 for fiscal 1998.
Other Income and Expense. During the fiscal year ended January 31, 1999,
the Company had a one-time litigation settlement expense of $1.5 million,
partially offset by other income of $933,000 relating to the sale of a
purchase option on a warehouse and office facility that the Company formerly
leased and an intangible right acquired in connection with the Halston
Acquisition. See Notes 6 and 8 to the Notes to Consolidated Financial
Statements.
EBITDA. EBITDA (operating income, plus depreciation and amortization)
increased $10.0 million, or 28%, to $46.2 million for the fiscal year ended
January 31, 1999, from $36.2 million for the fiscal year ended January 31,
1998. EBITDA margin decreased to 14.9% for the fiscal year ended January 31,
1999, from 16.8% for the fiscal year ended January 31, 1998. The increase in
EBITDA was primarily the result of an increase in gross profit and a decrease
in SG&A expenses as a percentage of net sales. The decrease in
17
EBITDA margin was primarily attributable to a decrease in gross margin
resulting from the changing mix of sales following the JPF Acquisition and an
increase in warehouse and shipping expenses.
Net Income. Net income decreased $0.3 million, or 2.7%, to $12.0 million
for the fiscal year ended January 31, 1999, from $12.3 million for the fiscal
year ended January 31, 1998, primarily as a result of the increase in interest
expense, the one-time litigation settlement expense and the decrease in EBITDA
margin, partially offset by an increase in net sales.
Seasonality
The fragrance operations of the Company have historically been seasonal,
with higher sales generally occurring in the second half of the fiscal year as
a result of increased demand by retailers in anticipation of and during the
holiday season. In fiscal 2000, 68% of the Company's net sales were made
during the second half of the fiscal year. Due to the size and timing of
certain orders from its customers, sales and results of operations can vary
significantly between quarters of the same and different years. As a result,
the Company expects to experience variability in net sales and net income on a
quarterly basis.
The Company's working capital borrowings are also seasonal, and are
normally highest in the months of September, October and November. During the
fourth fiscal quarter ending January 31, significant cash is normally
generated as customer payments on holiday season orders are received.
Liquidity and Capital Resources
Cash Flows. During the fiscal year ended January 31, 2000, the Company
generated $32.0 million in net cash from operations. Of that amount, $7.0
million was generated primarily from a reduction in inventory and an increase
in accounts payable, and the remaining $25.0 million from operating cash
flows. The Company used $3.7 million of the cash it generated to purchase
property and equipment. The Company also used $12.2 million it generated for
financing activities, including the repayment of $5.6 million outstanding
under its Credit Facility, the retirement of $1.6 million of long-term debt,
and the repurchase of $5.7 million of its Common Stock under its share
repurchase program. The remaining $16.0 million was held in short-term
investments and increased the cash and cash equivalents on hand to $22.1
million at the end of the fiscal year ended January 31, 2000.
Excluding the effects of acquisitions, during the fiscal year ending
January 31, 1999, the Company generated $1.2 million in net cash from
operations. The Company generated $19.7 million from operating cash flows,
and used $5.0 million to increase inventories and an additional $13.5 million
primarily to reduce accounts payable. The remaining $1.2 million, coupled
with cash on hand, was used to make $2.6 million in property and equipment
purchases. The Company also received $46.5 million from financing activities,
including $41.5 million in proceeds from the April 1998 Note Offering, and
used those proceeds to fund the JPF Acquisition.
18
Set forth in the table below is an analysis of the sources and uses of
the Company's net cash flows during the fiscal years ended January 31, 1999
and 2000. For the fiscal year ended January 31, 1999, the net cash flows are
presented as follows: (i) exclusive of the cash flows to give effect to the
JPF Acquisition and the PSI Acquisition ("Operations Cash Flows"), (ii) to
give effect to the assets acquired and cash consideration paid in connection
with these acquisitions ("Acquisitions Cash Flows"), and (iii) of the
Company's entire business ("Total Cash Flows"):
Sources and Uses of Net Cash Flows
Sources and Uses of Net Cash Flows
(In millions)
Fiscal 1999 Fiscal 2000
------------------------------------- -----------
Operations Acquisitions Total Total
Cash Flows Cash Flows Cash Flows Cash Flows
------------------------------------- -----------
Net cash flows (EBITDA) $ 46.2 $ -- $ 46.2 $ 56.1
Working capital
Net (increase) decrease
in inventories (5.0) (27.9) (32.9) 10.0
Net decrease (increase) in
accounts receivable 10.0 (10.2) (0.2) (12.4)
Net (decrease) increase in
accounts payable - trade (16.2) -- (16.2) 9.7
Net decrease in other current
asset and liability accounts (2.7) -- (2.7) (8.7)
Increase in property and
equipment (2.6) (0.7) (3.3) (3.7)
Increase in licenses, trademarks
and intangibles -- (7.9) (7.9) --
Debt (payments) borrowings (0.2) 46.7 46.5 (7.3)
Interest payments (16.8) -- (16.8) (19.0)
Tax payments (12.4) -- (12.4) (1.4)
Common Stock repurchases -- -- -- (5.6)
Other payments, net (1.8) -- (1.8) (1.7)
------ ------ ------ ------
Net (decrease) increase
in cash $ (1.5) $ -- $ (1.5) $ 16.0
====== ====== ====== ======
Includes borrowings used for acquisition payables.
Credit Facility. The Company's Credit Facility with Fleet 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, subject to certain borrowing
base limitations. The Credit Facility matures in May 2002. The Company's
borrowing availability under the Credit Facility is limited to the sum of
between 80% to 85% of eligible accounts receivable and 50% of eligible
inventory (up to a maximum of $25 million). The Company's existing collateral
base is more than adequate to cover the collateral requirements of the Credit
Facility and management believes, based on discussions with Fleet, that, if
necessary, the excess collateral could be used to increase the borrowing
availability under the Credit Facility to fund acquisitions or for additional
working capital requirements. The Credit Facility restricts the Company's
ability to incur additional non-trade debt (with certain exceptions, including
indebtedness not exceeding $50 million for a fiscal year issued in connection
with certain asset purchases), and to enter into certain acquisitions,
mergers, investments and affiliated transactions, and prohibits the payment of
dividends on the
19
Company's capital stock, certain payments on its subordinated debt and the
sale of the Company's interest in its subsidiaries. See Note 4 to the Notes
to Consolidated Financial Statements.
Long-Term Debt. At January 31, 2000, the Company had outstanding $155
million principal amount of 10 3/8% Series B and D Senior Notes due 2007. The
Series B and Series D Senior Notes require interest-only payments
semi-annually until maturity. The Indentures pursuant to which the Series B
Senior Notes and the Series D Senior Notes were issued generally permit the
Company (subject to the satisfaction of a fixed charge covenant ratio and, in
certain cases, also a net income test) to incur additional indebtedness, pay
dividends, purchase or redeem capital stock of the Company, or redeem
subordinated indebtedness. See Note 5 to the Notes to Consolidated Financial
Statements. In addition, the Indentures do not limit the amounts which can be
borrowed by the Company under any credit facility.
At January 31, 2000, the Company had outstanding $4.8 million aggregate
principal amount of 7.5% Convertible Subordinated Debentures due 2006 (the
"7.5% Convertible Debentures"). See Note 5 to the Notes to Consolidated
Financial Statements. The 7.5% Convertible Debentures are convertible at any
time at $7.20 per share into shares of Common Stock, and are redeemable at par
at any time commencing July 22, 1999 at the option of the Company, but only in
the event the Common Stock, at the time a redemption notice is delivered by
the Company, has been trading at not less than $14.40 for 20 consecutive
trading days. The 7.5% Convertible Debentures are due June 30, 2006 and
require interest-only payments semi-annually until maturity, at which time the
entire unpaid principal amount and any unpaid accrued interest is due and
payable. In February 2000, the Company repurchased $2.18 million principal
amount of 7.5% Convertible Debentures owned by its Chairman and a company he
controls. See Note 8 to the Notes to Consolidated Financial Statements. At
January 31, 2000, the Company also had outstanding $6.5 million aggregate
principal amount of 8.5% Subordinated Debenture (the "8.5% Debenture"). See
Note 5 to the Notes to Consolidated Financial Statements. The 8.5% Debenture
requires mandatory annual principal repayments in the aggregate amount of
$2.17 million on May 2002, 2003 and 2004.
Share Repurchases. In fiscal 2000, the Company's Board authorized a
share repurchase program that allows the Company to purchase up to an
aggregate of $10 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 or in privately-negotiated transactions, depending on market
conditions and other factors. As of January 31, 2000, the Company had
repurchased an aggregate of 870,500 shares of its Common Stock under the share
repurchase program at an average price of $6.52. In connection with the
Company's February 2000 repurchase of the 7.5% Convertible Debentures owned by
the Company's Chairman and a company he controls, the right to convert those
debentures into 303,333 shares of Common Stock was extinguished.
Future Liquidity and Capital Needs. The Company has historically
financed, and expects to continue to finance, its internal growth and
acquisitions primarily through internally generated funds, its Credit Facility
and external financing. The Company's principal future uses of funds are for
working capital requirements, debt service and additional brand acquisitions
or product distribution arrangements. As a result of several acquisitions
during the past five years, the growth in direct distribution relationships
for additional fragrance brands and certain favorable product buying
opportunities, the Company's working capital needs have increased
significantly. Nevertheless, the Company believes that internally generated
funds and available financing under the Credit Facility will be sufficient to
cover the Company's working capital and debt service requirements for at least
the next twelve months, other than any additional working capital requirements
which may result from further expansion of the Company's operations through
acquisitions of brands or new product distribution arrangements.
The Company has discussions from time to time with manufacturers of
prestige fragrance brands and with distributors that hold exclusive
distribution rights regarding possible acquisitions by the Company of
additional exclusive manufacturing and/or distribution rights. The Company
currently has no agreements or commitments with respect to any such
acquisition, although it periodically executes routine agreements to maintain
the confidentiality of information obtained during the course of discussions
with manufacturers and distributors. There is no assurance that the Company
will be able to negotiate successfully for any such future acquisitions or
that it will be able to obtain acquisition financing or additional working
capital financing on satisfactory terms for further expansion of its
operations.
20
The Company's future liquidity will continue to be dependent upon its
relative amounts of current assets (principally cash, accounts receivable and
inventories) and current liabilities (principally short-term debt, accrued
expenses and accounts payable). Additional inventory requirements and
accounts receivable can have a significant impact on the Company's liquidity,
particularly during expansion. To date, the Company generally has not
experienced any material adverse problems with the collection of accounts
receivable relating to its fragrance operations. There can be no assurance
that refusals to pay or delays in payment would not have a material adverse
effect on the Company's liquidity, results of operations and general financial
condition in the future. The Company establishes reserves and provides
allowances for returns at the time of sale based upon historical experience,
but there can be no assurance that such reserves and allowances will be
adequate.
The characteristics of the Company's business do not generally require it
to make significant ongoing capital expenditures. During the fiscal year
ended January 31, 2000, the Company incurred approximately $3.7 million in
capital expenditures, primarily relating to computer software and hardware
costs and the purchase of warehouse and manufacturing equipment. The Company
anticipates that its capital expenditures for the fiscal year ended January
31, 2001 will be approximately $4.0 million.
ITEM 7A. 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 fiscal year ended January 31, 2000.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . 23
Consolidated Balance Sheets as of January 31, 1999 and 2000. . . . 24
Consolidated Statements of Income for the Years Ended
January 31, 1998, 1999 and 2000. . . . . . . . . . . . . . . . . 25
Consolidated Statements of Shareholders' Equity for the Years Ended
January 31, 1998, 1999 and 2000. . . . . . . . . . . . . . . . . 26
Consolidated Statements of Cash Flow for the Years Ended
January 31, 1998, 1999 and 2000. . . . . . . . . . . . . . . . . 27
Notes to Consolidated Financial Statements . . . . . . . . . . . . 28
22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
French Fragrances, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of French
Fragrances, Inc. and subsidiaries (the "Company") as of January 31, 1999 and
2000, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended January 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 31,
1999 and 2000, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
April 7, 2000
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 1999 January 31, 2000
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,111,603 $ 22,144,314
Accounts receivable, net 51,796,247 63,485,136
Inventories 133,305,803 127,022,405
Advances on inventory purchases 7,553,560 2,785,475
Prepaid expenses and other assets 5,758,399 9,882,321
------------ ------------
Total current assets 204,525,612 225,319,651
------------ ------------
Property and equipment, net 19,020,630 20,232,312
------------ ------------
Other assets:
Exclusive brand licenses and trademarks, net 55,658,151 49,043,292
Senior note offering costs, net 4,491,073 3,949,009
Deferred income taxes, net 1,208,153 3,337,409
Other intangibles and other assets 9,804,560 7,749,982
------------ ------------
Total other assets 71,161,937 64,079,692
------------ ------------
Total assets $294,708,179 $309,631,655
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 5,639,369 $ --
Accounts payable - trade 21,698,507 31,436,903
Other payables and accrued expenses 15,869,404 19,102,919
Current portion of long-term debt 3,861,767 1,775,027
------------ ------------
Total current liabilities 47,069,047 52,314,849
------------ ------------
Long-term debt, net 176,158,756 175,030,227
------------ ------------
Total liabilities 223,227,803 227,345,076
------------ ------------
Shareholders' equity:
Convertible, redeemable preferred stock,
Series B, $.01 par value (liquidation
preference of $.01 per share); 350,000 shares
authorized; 271,596 and 265,801 shares issued
and outstanding, respectively 2,716 2,658
Convertible, redeemable preferred stock,
Series C, $.01 par value (liquidation
preference of $.01 per share); 571,429 shares
authorized; 511,355 and 502,520 shares issued
and outstanding, respectively 5,114 5,025
Common stock, $.01 par value, 50,000,000 shares
authorized; 13,812,704 and 14,186,399 shares
issued and outstanding, respectively 138,127 141,864
Additional paid-in capital 31,633,413 32,780,530
Treasury stock (870,500 shares at cost) -- (5,673,940)
Retained earnings 39,701,006 55,030,442
------------ ------------
Total shareholders' equity 71,480,376 82,286,579
------------ ------------
Total liabilities and shareholders' equity $294,708,179 $309,631,655
============ ============
See Notes to Consolidated Financial Statements.
24
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended January 31,
1998 1999 2000
------------------------------------------
Net sales $215,487,487 $309,614,611 $361,243,106
Cost of sales 146,509,086 221,121,582 236,128,990
------------ ------------ ------------
Gross profit 68,978,401 88,493,029 125,114,116
------------ ------------ ------------
Operating expenses:
Warehouse and shipping 7,225,319 11,816,762 19,173,614
Selling, general and
administrative 25,557,962 30,497,592 49,827,350
Depreciation and amortization 4,738,077 7,494,607 11,166,409
------------ ------------ ------------
Total operating expenses 37,521,358 49,808,961 80,167,373
------------ ------------ ------------
Income from operations 31,457,043 38,684,068 44,946,743
------------ ------------ ------------
Other income (expense):
Interest expense, net (12,390,622) (18,689,595) (19,412,229)
Litigation settlement expense -- (1,500,000) --
Income from sale of contract and
intangible rights -- 932,763 --
Other 562,866 265,655 (203,923)
------------ ------------ ------------
Other income (expense), net (11,827,756) (18,991,177) (19,616,152)
------------ ------------ ------------
Income before equity in earnings
of unconsolidated affiliate and
provisions for income taxes 19,629,287 19,692,891 25,330,591
Equity in earnings of
unconsolidated affiliate,
50% owned 134,508 -- --
------------ ------------ ------------
Income before income taxes 19,763,795 19,692,891 25,330,591
Provision for income taxes 7,422,426 7,686,871 10,001,155
------------ ------------ ------------
Net income $ 12,341,369 $ 12,006,020 $ 15,329,436
============ ============ ============
Earnings per common share:
Basic $0.92 $0.87 $1.11
===== ===== =====
Diluted $0.76 $0.73 $0.99
===== ===== =====
Weighted average number of common
shares:
Basic 13,394,385 13,774,993 13,801,196
========== ========== ==========
Diluted 16,492,041 16,728,798 15,577,422
========== ========== ==========
See Notes to Consolidated Financial Statements.
25
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Preferred Stock Additional
Series B Series C Common Stock Paid-in
Shares Amount Shares Amount Shares Amount Capital
-----------------------------------------------------------------------------
Balance at
January 31, 1997 316,005 $3,160 571,429 $5,714 13,249,146 $132,492 $29,185,161
Issuance of
Common Stock
upon conversion
of Series B
convertible
preferred stock (36,128) (361) -- -- 257,230 2,572 846,660
Issuance of
Common Stock
upon conversion
of Series C
convertible
preferred stock -- -- (45,939) (459) 45,939 459 241,179
Issuance of
Common Stock
upon conversion
of 7.5%
subordinated
convertible
debentures -- -- -- -- 71,419 715 513,503
Net income
for the year -- -- -- -- -- -- --
-----------------------------------------------------------------------------
Balance at
January 31, 1998 279,877 2,799 525,490 5,255 13,623,734 136,238 30,786,503
Issuance of
Common Stock
upon conversion
of Series B
convertible
preferred stock (8,281) (83) -- -- 58,961 589 194,065
Issuance of
Common Stock
upon conversion
of Series C
convertible
preferred stock -- -- (14,135) (141) 14,135 141 74,209
Issuance of
Common Stock
upon conversion
of 7.5%
subordinated
convertible
debentures -- -- -- -- 26,016 260 187,055
Issuance of
Common Stock
upon exercise
of stock options -- -- -- -- 35,600 356 117,124
Issuance of
Common Stock
upon exercise
of warrants -- -- -- -- 54,258 543 274,457
Net income
for the year -- -- -- -- -- -- --
-----------------------------------------------------------------------------
Balance at
January 31, 1999 271,596 2,716 511,355 5,114 13,812,704 138,127 31,633,413
Issuance of
Common Stock
upon conversion
of Series B
convertible
preferred stock (5,795) (58) -- -- 41,259 412 135,800
Issuance of
Common Stock
upon conversion
of Series C
convertible
preferred stock -- -- (8,835) (89) 8,835 89 46,384
Issuance of
Common Stock
upon exercise
of stock
options -- -- -- -- 318,491 3,185 660,574
Issuance of
Common Stock
upon exercise
of warrants -- -- -- -- 5,110 51 (51)
Repurchase of
Common Stock -- -- -- -- -- -- --
Tax benefit from
exercise of
stock options -- -- -- -- -- -- 304,410
Net income
for the year -- -- -- -- -- -- --
-----------------------------------------------------------------------------
Balance at
January 31, 2000 265,801 $2,658 502,520 $5,025 14,186,399 $141,864 $32,780,530
=============================================================================
(RESTUBBED TABLE CONTINUED FROM ABOVE)
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Total
Retained Treasury Shareholders'
Earnings Stock Equity
---------------------------------------------------------------
Balance at
January 31, 1997 $15,353.617 $ -- $44,680,144
Issuance of
Common Stock
upon conversion
of Series B
convertible
preferred stock -- -- 848,871
Issuance of
Common Stock
upon conversion
of Series C
convertible
preferred stock -- -- 241,179
Issuance of
Common Stock
upon conversion
of 7.5%
subordinated
convertible
debentures -- -- 514,218
Net income
for the year 12,341,369 -- 12,341,369
---------------------------------------------------------------
Balance at
January 31, 1998 27,694,986 -- 58,625,781
Issuance of
Common Stock
upon conversion
of Series B
convertible
preferred stock -- -- 194,571
Issuance of
Common Stock
upon conversion
of Series C
convertible
preferred stock -- -- 74,209
Issuance of
Common Stock
upon conversion
of 7.5%
subordinated
convertible
debentures -- -- 187,315
Issuance of
Common Stock
upon exercise
of stock options -- -- 117,480
Issuance of
Common Stock
upon exercise
of warrants -- -- 275,000
Net income
for the year 12,006,020 -- 12,006,020
---------------------------------------------------------------
Balance at
January 31, 1999 39,701,006 -- 71,480,376
Issuance of
Common Stock
upon conversion
of Series B
convertible
preferred stock -- -- 136,154
Issuance of
Common Stock
upon conversion
of Series C
convertible
preferred stock -- -- 46,384
Issuance of
Common Stock
upon exercise
of stock
options -- -- 663,759
Issuance of
Common Stock
upon exercise
of warrants -- -- --
Repurchase of
Common Stock -- (5,673,940) (5,673,940)
Tax benefit from
exercise of
stock options -- -- 304,410
Net income
for the year 15,329,436 -- 15,329,436
---------------------------------------------------------------
Balance at
January 31, 2000 $55,030,442 $(5,673,940) $82,286,579
===============================================================
See Notes to Consolidated Financial Statements.
26
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended January 31,
1998 1999 2000
-----------------------------------------
Cash Flows from Operating Activities:
Net income $ 12,341,369 $ 12,006,020 $ 15,329,436
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 4,738,077 7,494,607 11,166,409
Amortization of senior note offering costs and
and note premium 286,301 556,084 569,487
Equity in earnings of unconsolidated affiliate (134,508) -- --
Deferred tax provision (benefit) 117,172 (369,520) (2,129,256)
Change in assets and liabilities, net of effects
from acquisitions:
Increase in accounts receivable (18,887,502) (249,999) (12,444,389)
(Increase) decrease in inventories and
advances on inventory purchases (19,630,950) (32,894,592) 10,078,532
Increase in prepaid expenses and
other assets (7,249,730) (2,288,307) (2,003,967)
(Decrease) increase in accounts payable (13,452,678) (16,171,948) 9,738,399
Increase (decrease) in other payables and
accrued expenses 1,157,859 (5,030,105) 1,666,189
Decrease in due to affiliate, net (14,508) -- --
------------ ------------ ------------
Net cash (used in) provided by
operating activities (40,729,098) (36,947,760) 31,970,840
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchase of exclusive brand licenses and
trademarks -- (2,732,381) --
Additions to property and equipment,
net of disposals (6,960,899) (3,259,481) (3,699,353)
Receipts of restricted cash for capital
improvements 1,314,602 -- --
Net cash portion of purchase of
intangible asset -- (5,150,000) --
Net cash portion of unconsolidated
affiliate purchase (1,745,768) -- --
------------ ------------ ------------
Net cash used in investing activities (7,392,065) (11,141,862) (3,699,353)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from the conversion of
preferred stock 1,049,487 268,780 182,538
Payments to retire subordinated
debentures (14,494,512) (500,000) --
Net proceeds from the issuance of
senior notes 111,550,000 41,500,000 --
Advances from unconsolidated
affiliate, net 798,894 -- --
Payments on term loans (4,333,333) (596,535) (1,615,359)
(Payments on) net proceeds from
short-term debt (39,367,096) 5,639,369 (5,639,369)
Payments on capital lease and
installment loans (141,144) (50,000) --
Proceeds from the exercise of stock
purchase warrants -- 275,000 --
Payments on facility mortgage note (129,983) (119,988) (156,405)
Repurchase of Common Stock -- -- (5,673,940)
Proceeds from the exercise of
stock options -- 117,480 663,759
------------ ------------ ------------
Net cash provided by (used in)
financing activities 54,932,313 46,534,106 (12,238,776)
------------ ------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents 6,811,150 (1,555,516) 16,032,711
Cash and Cash Equivalents at
Beginning of Year 855,969 7,667,119 6,111,603
------------ ------------ ------------
Cash and Cash Equivalents at
End of Year $ 7,667,119 $ 6,111,603 $ 22,144,314
============ ============ ============
Supplemental Disclosure of
Cash Flow Information:
Interest paid during the year $ 9,990,420 $ 16,766,085 $ 19,019,248
============ ============ ============
Income taxes paid during the year $ 8,064,127 $ 12,430,731 $ 1,445,481
============ ============ ============
See Notes to Consolidated Financial Statements.
27
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity. French Fragrances, Inc. (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 Company was formerly known as Suave Shoe Corporation and
was the surviving corporation in the reverse acquisition (the "Merger") by a
privately-held fragrance distributor named French Fragrances, Inc., which
occurred in November 1995.
Basis of Consolidation. The consolidated financial statements include
the accounts of the Company's wholly-owned subsidiaries G.B. Parfums, Inc.,
Halston Parfums, Inc., Fine Fragrances, Inc. ("Fine Fragrances") and FRM
Services, Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation. In January 2000, the Company's wholly-owned
subsidiaries were merged into the Company.
Use of Estimates. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Revenue Recognition. Sales are recognized upon shipment. During the
fiscal year ended January 31, 1998, no customer accounted for more than 10% of
total sales. During the fiscal year ended January 31, 1999, two customers
accounted for an aggregate of 28% of the Company's net sales. During the
fiscal year ended January 31, 2000, two customers accounted for an aggregate
of 29% of the Company's net sales.
Cash and Cash Equivalents. Cash and cash equivalents include cash and
interest-bearing deposits at banks with an original maturity date of three
months or less.
Inventories. Inventories are stated at the lower of cost or market.
Cost is determined on the weighted-average method. Inventory balances at
January 31, 1999 and 2000 were as follows:
January 31,
1999 2000
------------ ------------
Finished $116,071,991 $103,548,955
Work in progress 7,927,388 6,727,835
Raw materials 9,306,424 16,745,615
------------ ------------
$133,305,803 $127,022,405
============ ============
Accounts Receivable. A provision has been made and an allowance
established for potential losses from receivables and estimated sales returns
in the normal course of business. Because these allowances are based on
estimates, there is no assurance that such reserves and allowances will be
sufficient to cover losses or returns. The activity for these allowance
accounts are as follows:
28
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - (Continued)
Years Ended January 31,
1998 1999 2000
-----------------------------------------
Allowance for Bad Debt:
Beginning balance $ 489,937 $ 676,387 $ 533,696
Provision 570,000 401,626 1,138,800
Write offs, net of recoveries (383,550) (544,317) (506,826)
----------- ----------- ------------
Ending balance $ 676,387 $ 533,696 $ 1,165,670
=========== =========== ============
Allowance for Sales Returns:
Beginning balance $ 366,608 $ 558,651 $ 555,245
Provision 6,014,283 7,630,810 13,289,613
Actual returns (5,822,240) (7,634,216) (13,028,413)
----------- ----------- ------------
Ending balance $ 558,651 $ 555,245 $ 816,445
=========== =========== ==-=========
Property and Equipment, and Depreciation. Property and equipment are
stated at cost. Expenditures for major improvements and additions are recorded
to the asset accounts while replacements, maintenance and repairs which do not
improve or extend the lives of the respective assets are charged to expense.
Depreciation is provided over the estimated useful lives of the assets using
the straight-line method, as follows:
Category Years
---------------------------------------------
Building 40
Building improvements 20-40
Furniture and fixtures 8
Machinery, equipment and vehicles 3-8
Computer equipment and software 3-5
Tools and molds 1-3
Exclusive Brand Licenses and Trademarks, Customer Lists and Amortization.
These intangible assets are being amortized using the straight-line method, as
follows at January 31:
Accumulated Amortization
------------------------
Category Years Cost 1999 2000
-----------------------------------------------------------------------------
Exclusive brand licenses
and trademarks 5 and 15 $66,398,376 $10,691,367 $17,355,084
Contract rights and other
intangibles 3 and 5 11,179,593 2,395,020 4,395,020
Long-Lived Assets. Long-lived assets are reviewed on an ongoing basis
for impairment based on comparison of carrying value against undiscounted
future cash flows. If an impairment is identified, the assets carrying value
is adjusted to estimated fair value. No such adjustments were recorded for
the fiscal years ended January 31, 1998, 1999 and 2000.
Senior Note Offering Costs. Debt issuance costs and transaction fees
which are associated with the issuance of senior notes are being amortized
(and charged to interest expense) over the term of the related notes using a
method which approximates the level yield method. See Note 5.
29
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - (Continued)
Advertising and Promotional Costs. Advertising and promotional costs are
expensed as incurred. Advertising and promotional costs totaled approximately
$6.2 million, $4.8 million and $10.2 million during the fiscal years ended
January 31, 1998, 1999 and 2000, respectively.
Income Taxes. The provision for income taxes is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities. The Company provides for deferred taxes
under the liability method. Under such method, deferred taxes are adjusted
for tax rate changes as they occur. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statements and tax bases of assets and liabilities that will result in taxable
or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are recorded when necessary to reduce
deferred tax assets to the amount expected to be realized.
Fair Value of Financial Instruments. The Company's financial instruments
include accounts receivable, accounts payable, short-term debt, long-term debt
and convertible redeemable preferred stock. The fair value of such financial
instruments has been determined using available market information and
interest rates as of January 31, 1999 and 2000.
At January 31, 1999 and 2000, the estimated fair value of the Company's
subordinated debentures and senior notes was as follows:
January 31,
1999 2000
----------------------------
Subordinated debentures $ 9,875,000 $ 6,479,966
Convertible subordinated debentures 5,289,000 4,778,643
Senior notes 158,875,000 148,800,000
The fair value of all other financial instruments was not materially
different than their carrying value.
Reclassifications. Certain amounts in the prior period consolidated
financial statements have been reclassified to conform with fiscal 2000
presentations.
30
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - (Continued)
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 dilutive earnings per share
calculation, the interest incurred on the convertible securities, net of tax,
is added back to net income. The following table represents the computation
of earnings per share:
Years Ended January 31,
1998 1999 2000
----------------------------------------
Basic
Net income $12,341,369 $12,006,020 $15,329,436
=========== =========== ===========
Weighted average shares
outstanding 13,394,385 13,774,993 13,801,196
=========== =========== ===========
Net income per basic share $0.92 $0.87 $1.11
=========== =========== ===========
Diluted
Net income $12,341,369 $12,006,020 $15,329,436
Add: 7.5% convertible
subordinated debentures'
interest - net of tax 250,086 163,933 109,313
----------- ----------- -----------
Net income as adjusted $12,591,455 $12,169,953 $15,438,749
=========== =========== ===========
Weighted average shares
outstanding 13,394,385 13,774,993 13,801,196
Potential common shares -
treasury method 2,350,430 2,448,181 1,444,376
Assumed conversion of
7.5% convertible
subordinated debentures 747,226 505,624 331,850
----------- ----------- -----------
Weighted average shares and
potential dilutive shares 16,492,041 16,728,798 15,577,422
=========== =========== ===========
Net income per diluted share $0.76 $0.73 $0.99
=========== =========== ===========
Stock-Based Compensation. Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, encourages, but
does not require, companies to record compensation cost for stock-based
employee and non-employee members of the Board of Directors of the Company
(the "Board") compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation to employees and non-employee
members of the Board using the intrinsic value method as prescribed by
Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock
Issued to Employees, and related interpretations. Accordingly, compensation
cost for stock options issued to employees and non-employee members of the
Board are measured as the excess, if any, of the fair value of the Company's
stock at the date of grant over the amount an employee or non-employee member
of the Board must pay for the stock. See Note 11.
New Accounting Pronouncement. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments,
and Hedging Activities. Among other provisions, SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It also requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. SFAS No. 133 is effective for financial statements
for fiscal years beginning after June 15, 2000. Management has not determined
what effects, if any, the adoption of SFAS No. 133 will have on the Company's
financial statements.
31
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. ACQUISITIONS
Fine Fragrances Acquisition. In May 1997, the Company used approximately
$4,226,000 of the net proceeds from the May 1997 offering of $115,000,000
principal amount of 10 3/8% Series A Senior Notes due 2007 ("Series A Senior
Notes" ) to acquire the 50.01% interest of Fine Fragrances that the Company
did not own (the "Fine Fragrances Interest") from an unaffiliated third party
and to repay Fine Fragrances' credit line. The purchase price for the Fine
Fragrances Interest was $2,000,000, plus an additional $1,000,000 which was
paid based on 5% of the net sales of COFCI, S.A. ("COFCI") products sold by
the Company following this acquisition. The acquisition was accounted for
under the purchase method. As a result of this acquisition, Fine Fragrances
became a wholly-owned subsidiary of the Company and the operations of Fine
Fragrances have been consolidated with those of the Company. The brands
manufactured by COFCI are distributed by the Company under new agreements
expiring in 2006.
JPF Acquisition. In March 1998, the Company acquired (the "JPF
Acquisition") certain assets of J.P. Fragrances, Inc. ("JPF"), a distributor
of prestige fragrance products, including inventory, returns, contract rights,
accounts receivable, books and records, fixed assets (including furniture and
warehouse materials and equipment), claims, intangible rights (including
non-compete agreements) and goodwill (collectively, the "JPF Acquired
Assets"). The Company also assumed approximately $10,600,000 of certain trade
and other payables of JPF. In addition to the assumption of payables, the
purchase price for the JPF Acquired Assets consisted of approximately
$37,300,000 in cash and a subordinated debenture of $3,000,000 (the "JPF
Debenture"). The cash portion of the purchase price was financed from
available cash from operations and the Company's current revolving credit
facility, which financing was replaced by the offering of 10 3/8% Series C
Senior Notes (the "Series C Senior Notes"). See Note 5. The JPF Debenture is
non-interest bearing, with the principal amount being payable in three equal
installments on May 1999, 2000 and 2001 if, and only if, certain conditions
relating to the fragrance business of JPF (the "JPF Business") are achieved by
the Company, including achieving certain gross profit thresholds from the JPF
Business. To date, the Company has made one payment on the JPF Debenture.
The JPF Debenture has been recorded net of its discount of $485,528 and
calculated using an effective rate of 9.38%. The discount will be amortized
using the effective rate over the life of the JPF Debenture. As a result of
the JPF Acquisition, the Company acquired approximately $30,400,000 of
inventory, $12,100,000 of accounts receivable, $263,000 of fixed assets
(consisting primarily of office and warehouse furniture and equipment), and
approximately $7,700,000 of contract rights, intangible rights (including
non-compete agreements) and goodwill. The JPF Acquisition was accounted for
under the purchase method.
PSI Acquisition. In January 1999, the Company acquired certain assets
(the "PSI Acquisition") of Paul Sebastian, Inc. ("PSI"), a manufacturer,
marketer and distributor of prestige fragrance products, including trademarks
or licenses to manufacture and distribute the fragrance brands PS Fine Cologne
for Men, Design for Women, Design for Men, Casual for Women and Casual for
Men, inventory, returns, accounts receivable, books and records, fixed assets
(consisting of manufacturing tools, dyes and molds), claims and goodwill
(collectively, the "PSI Acquired Assets"). The purchase price for the PSI
Acquired Assets consisted of approximately $9,700,000 in cash and a
subordinated debenture of $500,000 (the "PSI Debenture"). The cash portion of
the purchase price was financed from available cash from operations. The PSI
Debenture is non-interest bearing, with the principal amount being payable in
July 2000, and is being held by the Company as security for PSI's
indemnification obligations under the asset purchase agreement between the
Company and PSI. The PSI Acquisition was accounted for under the purchase
method.
32
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
January 31,
1999 2000
--------------------------
Land $ 2,871,000 $ 2,871,000
Building 5,519,452 5,519,452
Building improvements 4,856,291 5,240,713
Furniture and fixtures 979,329 1,172,620
Machinery, equipment and vehicles 3,438,681 3,989,700
Computer equipment and software 4,226,532 5,567,043
Tools and molds 1,534,668 2,282,659
----------- -----------
23,425,953 26,643,187
Less accumulated depreciation (4,478,029) (6,965,700)
----------- -----------
18,947,924 19,677,487
Projects in progress 72,706 554,825
----------- -----------
Property and equipment, net $19,020,630 $20,232,312
=========== ===========
4. SHORT-TERM DEBT
At January 31, 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. Loans under the
revolving credit portion of the Credit Facility 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. 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
January 31, 1999, the outstanding balance under the Credit Facility was
approximately $5,639,000. At January 31, 2000, the Credit Facility did not
have an outstanding balance. As part of the Credit Facility, the Company had
approximately $1,661,000 and $2,543,000 in outstanding letters of credit at
January 31, 1999 and 2000, respectively.
33
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. LONG-TERM DEBT
The Company's long-term debt at January 31, 1999 and January 31, 2000
consisted of the following:
January 31,
Description 1999 2000
- ----------- ------------ ------------
10 3/8% Senior Notes due May 2007, net $157,453,466 $157,245,157
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 1,946,646
8.84% Miami Lakes Facility Mortgage Note
due July 2004 5,694,068 5,537,663
Other Indebtedness 2,903,465 817,179
------------ ------------
Total Long-Term Debt 180,020,523 176,805,254
Less Current Portion of Long-Term Debt 3,861,767 1,775,027
------------ ------------
Total Long-Term Debt, net $176,158,756 $175,030,227
============ ============
The scheduled maturities of long-term debt at January 31, 2000 are as
follows:
Fiscal Year Amount
----------- ------------
2001 $ 1,775,027
2002 3,477,128
2003 2,363,105
2004 7,166,194
2005 and thereafter 162,023,800
------------
Total $176,805,254
============
Senior Notes. In May 1997, the Company consummated the private placement
under Rule 144A pursuant to the Securities Act of 1933, as amended (the
"Act"), of $115.0 million principal amount of 10 3/8% Series A Senior Notes.
In July 1997, the Series A Senior Notes were exchanged for an equivalent
principal amount of Series B Senior Notes (the "Series B Senior Notes")
containing identical terms to the Series A Senior Notes but which have been
registered under the Act. In April 1998, the Company consummated the private
placement under Rule 144A of $40.0 million principal amount of Series C Senior
Notes. The Series C Senior Notes were sold at 106.5% of their principal amount
and had substantially similar terms to the Company's existing Series B Senior
Notes. The Series C Senior Notes were recorded net of a premium of $2.6
million. The premium is being amortized over the life of the notes using the
effective interest method. Through January 31, 2000, the Company has
amortized $208,309 of premium against interest expense. In August 1998, the
Series C Senior Notes were exchanged for an equivalent principal amount of 10
3/8% Series D Senior Notes (the "Series D Senior Notes") containing identical
terms to the Series C Senior Notes, but which have been registered under the
Act.
34
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. LONG-TERM DEBT - (Continued)
The Indentures pursuant to which the Series B Senior Notes and the Series
D Senior Notes were issued (the "Indentures") provide that such notes will be
senior unsecured obligations of the Company and will rank senior in payment to
all existing and future subordinated indebtedness of the Company and pari
passu in right of payment with all existing and future senior indebtedness of
the Company, including indebtedness under the Credit Facility. The Indentures
generally permit the Company (subject to the satisfaction of a fixed charge
covenant ratio and, in certain cases, also a net income test) to incur
additional indebtedness, pay dividends, purchase or redeem capital stock of
the Company, or redeem subordinated indebtedness. The Indentures generally
limit the ability of the Company to create liens, merge or transfer or sell
assets. The Indentures also provide that the holders of the Series B Senior
Notes and the Series D Senior Notes have the option to require the Company to
repurchase their notes in the event of a change of control in the Company (as
defined in the Indentures).
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.
In February 2000, the Company entered into a lease with an unaffiliated
third party for approximately 295,000 square feet of a warehouse facility (the
"Edison 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 (the "Allentown 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. The lease
extends through June 30, 2002. The Company currently intends to consolidate
its operations to its Miami Lakes facility, which contains approximately
200,000 square feet of distribution and warehouse space and approximately
30,000 square feet of office space, and the Edison Facility. Accordingly, the
Company does not intend to exercise its option on the Miami Lakes Annex and
intends to seek to sublease or assign its lease on the Allentown Facility.
The Company's aggregate minimum lease payments under these leases are as
follows:
Fiscal Year Amount
----------- ------------
2001 $1,470,280
2002 1,272,916
2003 726,165
2004 630,644
2005 and thereafter 265,769
----------
Total $4,365,774
==========
The Company has commitments to purchase products from fragrance
manufacturers in the amount of $63 million annually during the calendar years
ended December 31, 2000 and 2001.
35
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. COMMITMENTS AND CONTINGENCIES - (Continued)
In fiscal 1999, the Company paid $1.5 million to settle a lawsuit filed
against the Company in the United States Bankruptcy Court by the trustee of
the Model Imperial Liquidating Trust (the "Trust"). The lawsuit sought to
recover the value of certain unspecified sales of products by Model Imperial,
Inc. ("Model") to the Company during 1994 and 1995, which the Trust alleged
resulted in Model obtaining financing under Model's credit facility to which
Model was not entitled. The litigation settlement is reflected in litigation
settlement expense for the fiscal year ended January 31, 1999.
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 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 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.
7. INCOME TAXES
The components of the provision for income taxes for the years ended
January 31, 1998, 1999 and 2000 are as follows:
Years Ended January 31,
1998 1999 2000
-------------------------------------
Current income taxes:
Federal $6,555,997 $6,906,407 $10,776,790
State 749,257 1,149,984 1,353,621
---------- ---------- -----------
Total current 7,305,254 8,056,391 12,130,411
---------- ---------- -----------
Deferred income taxes:
Federal 105,155 (316,834) (1,954,835)
State 12,017 (52,686) (174,421)
---------- ---------- -----------
Total deferred 117,172 (369,520) (2,129,256)
---------- ---------- -----------
Total provision for
income taxes $7,422,426 $7,686,871 $10,001,155
========== ========== ===========
36
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. INCOME TAXES - (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes and
operating loss carryforwards. The tax effects of significant items comprising
the Company's net deferred tax asset are as follows:
January 31,
1999 2000
-------------------------
Deferred tax liabilities:
Property and equipment $ (365,105) $ (580,918)
Merger assets (222,008) (190,426)
---------- ----------
(587,113) (771,344)
---------- ----------
Deferred tax assets:
Excess of book bad debts reserve
over tax reserve 205,873 541,140
Intangibles 481,765 2,053,530
Accruals 95,087 223,121
Net operating loss carryforwards 790,335 790,335
Inventories related 1,012,541 865,590
Other -- 425,372
---------- ----------
Gross deferred tax assets 2,585,601 4,899,088
---------- ----------
Net deferred tax asset before
valuation allowance 1,998,488 4,127,744
Valuation allowance for deferred taxes (790,335) (790,335)
---------- ----------
Net deferred tax asset $1,208,153 $3,337,409
========== ==========
As of January 31, 1999 and 2000, the valuation allowance relates to the
net operating loss carryforwards available in connection with the Merger which
expire through 2009.
The total income tax provision differs from the amount obtained by
applying the statutory federal income tax rate to pretax income as follows:
Years Ended January 31,
1998 1999 2000
------------------ ------------------ -------------------
Amount Rate Amount Rate Amount Rate
Income tax at
statutory rates $6,917,329 35.00% $6,892,512 35.00% $ 8,865,707 35.00%
State tax, net of
federal benefit 494,828 2.50 712,887 3.62 767,517 3.03
Undistributed earnings
in affiliate (47,078) (.24) -- -- -- --
Other 57,347 .30 81,472 .41 367,931 1.45
---------- ----- ---------- ----- ----------- -----
Total income taxes $7,422,426 37.56% $7,686,871 39.03% $10,001,155 39.48%
========== ===== ========== ===== =========== =====
37
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. RELATED PARTY TRANSACTIONS
Prior to August 1998, the Company leased from National Trading
Manufacturing, Inc. ("National Trading"), a company controlled by the Chairman
of the Company, a warehouse and office facility (the "National Trading
Facility"), which had housed the Company's executive offices prior to May 1997
and which the Company had an option to purchase. During the fiscal years
ended January 31, 1998 and 1999, the Company made lease payments to National
Trading of $256,000 and $144,500, respectively. In connection with National
Trading's sale of the National Trading Facility, the Company agreed to
terminate the lease and its option to purchase the National Trading Facility
(the "Contract Rights"). As part of the consideration for the Contract
Rights, the Company's outstanding loan from National Trading in the principal
amount of $294,000 was canceled and the Company received from National Trading
a cash payment of approximately $416,000 and a promissory note payable upon
demand in the principal amount of $300,000 and bearing interest at 8.5% per
annum. Approximately $633,000, representing the income from the Contract
Rights less the difference between the consideration received for the Contract
Rights and the fixed asset, is reflected in Income from sale of contract and
intangible rights for the fiscal year ended January 31, 1999. At January 31,
2000, the principal amount and accrued interest on the demand note due to the
Company was $116,000 and is reflected in the Company's Consolidated Balance
Sheet at January 31, 2000 in Prepaid expenses and other assets.
During the fiscal year ended January 31, 1999, the Company provided loans
to the President and Chief Executive Officer of the Company in the aggregate
principal amount of $500,000 for payment of certain Canadian tax liabilities
resulting from his relocation to Florida. At January 31, 2000, the principal
amount of loans outstanding and accrued interest were $556,000 cumulatively
and are reflected in the Company's Consolidated Balance Sheet in Prepaid
expenses and other assets. The loans accrue interest at 8.5% per annum and
mature in August and November 2000.
In February 2000, the Company repurchased the 7.5% Convertible
Subordinated Debentures due 2006 (the "7.5% Convertible Debentures") held by
its Chairman and National Trading. The Company paid $2,652,000 to acquire
$2,184,000 principal amount of 7.5% Convertible Debentures. 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 Chairman could have recognized upon a
conversion and sale of the 7.5% Convertible Debentures into Common Stock. As
a result of the repurchase, the Company recognized a loss of $468,000 in
February 2000.
38
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES
Years Ended January 31,
1998 1999 2000
-------------------------------------
Redemption of 8% Debentures used to pay
for conversion of preferred stock $ 40,563
==========
Conversion of 7.5% Convertible Debentures
into Common Stock $ 514,223 $ 187,315
========== ===========
Acquisition of Fine Fragrances Interest
(See Note 2):
Book value of assets acquired,
excluding inventory $2,296,051
==========
Liabilities assumed $3,156,895
==========
Inventory acquired $2,805,638
==========
Note issued $1,000,000
==========
Transactions in connection with the
JPF Acquisition (See Note 2):
Issuance of JPF Debenture, net $ 2,514,472
===========
Assumption of accounts payable $10,560,577
===========
Transactions in connection with the
sale of the Contract Rights for the
National Trading Facility (See Note 8):
Disposition of fixed asset in
capital lease, net of accumulated
depreciation and cash received $ 1,024,806
===========
Termination of capital lease and of
note payable to related party $ 1,374,136
===========
Note receivable from related party $ 300,000
===========
Transactions in connection with the
PSI Acquisition (See Note 2):
Issuance of PSI Debenture, net $ 458,000
===========
Tax benefit from exercise of stock options $ 304,410
==========
10. CONVERTIBLE PREFERRED STOCK
At January 31, 2000, the Company had outstanding 265,801 shares of
Series B Convertible Preferred Stock, $.01 par value per share ("Series B
Convertible Preferred"), and 502,520 shares of Series C Convertible Preferred
Stock, $.01 par value per share ("Series C Convertible Preferred"). Each
share of Series B Convertible Preferred is convertible, at the option of the
holder, into 7.12 shares of the Company's Common Stock upon payment of $3.30
per share of Common Stock. Each share of Series C Convertible Preferred is
convertible, at the option of the holder, into one share of the Company's
Common Stock upon payment of $5.25 per share of Common Stock. The Series B
Convertible Preferred and the Series C Convertible Preferred must be redeemed
by January 31, 2005.
39
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. STOCK OPTION PLANS
The Company has two stock option plans, one for the benefit of
non-employee directors (the "Non-Employee Director Plan") and another for
directors, officers and employees (the "1995 Stock Option Plan").
The stock options under the Non-Employee Director Plan are generally
exercisable within a year after grant provided the grantee remains a director
of the Company. The options granted under the Non-Employee Director Plan are
non-qualified under the Internal Revenue Code. The option exercise price
cannot be less than the fair value of the underlying Common Stock as of the
date of the option grant, and the maximum option term cannot exceed ten years.
The number of shares of Common Stock authorized under the Non-Employee
Director Plan is 200,000.
The stock options awarded under the 1995 Stock Option Plan are
exercisable at any time or in any installments as determined by the
Compensation Committee of the Board at the time of grant, provided that no
stock options shall be exercisable prior to six months from the date of grant.
The options granted under the 1995 Stock Option Plan may be either incentive
and/or non-qualified stock options under the Internal Revenue Code as
determined by the Compensation Committee. For incentive stock options, the
aggregate fair market value (determined at the grant date) of Common Stock
with respect to which such options first become exercisable by a participant
of the plan during any calendar year may not exceed $100,000. The number of
shares of Common Stock authorized under the 1995 Stock Option Plan is
2,200,000.
The option activities of all plans are as follows:
Years Ended January 31,
1998 1999 2000
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------- ------------------ -------------------
Beginning outstanding 729,040 $4.36 806,540 $ 4.80 1,300,940 $ 8.06
Granted 77,500 8.93 530,000 12.72 265,000 6.11
Exercised -- -- (35,600) 3.30 (441,440) 3.38
Canceled -- -- -- -- (31,500) 10.32
------- ----- --------- ------ --------- ------
Ending outstanding 806,540 $4.80 1,300,940 $ 8.06 1,093,000 $ 9.42
======= ===== ========= ====== ========= ======
Exercisable as of
January 31, 1998,
1999 and 2000 686,548 1,190,585 885,682
======= ========= =======
Weighted average fair
value of options
granted during the
year 77,500 $5.17 530,000 $ 9.33 265,000 $ 3.54
====== ===== ======= ====== ======= ======
Options Outstanding Options Exercisable
------------------------------------------------------- ----------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of as of Remaining Average as of Average
Exercise January 31, Contractual Exercise January 31, Exercise
Price 2000 Life Price 2000 Price
------------ ----------- ----------- -------- ----------- --------
$5.25-$6.00 303,000 3.4 $ 5.83 152,343 $ 5.66
$6.50-$9.38 280,000 3.8 7.28 250,000 7.31
$12.50-16.38 510,000 7.3 12.73 483,339 12.74
------------ --------- --- ------ ------- ------
$5.25-16.38 1,093,000 5.3 $ 9.42 885,682 $ 9.99
============ ========= === ====== ======= ======
40
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. STOCK OPTION PLANS - (Continued)
The Company applies APB No. 25 and related interpretations in accounting
for its stock options to employees and non-employee members of the Board as
described in Note 1. Accordingly, no compensation expense has been recognized
during the years ended January 31, 1998, 1999 and 2000 related to the stock
options. Net income and net income per common share would have been as
follows had the fair value of stock options granted during 1998, 1999 and 2000
been recognized as compensation expense as prescribed by SFAS No. 123:
Years Ended January 31,
1998 1999 2000
-------------------------------------------
Pro forma net income $12,188,000 $9,254,000 $14,747,000
=========== ========== ===========
Pro forma net income
per common share:
Basic $0.91 $0.67 $1.07
===== ===== =====
Diluted $0.75 $0.56 $0.95
===== ===== =====
The fair value of each option granted is estimated on the grant date
using the Black-Sholes option pricing model with the following assumptions:
Years Ended January 31,
1998 1999 2000
---------------------------
Expected dividend yield 0.00% 0.00% 0.00%
Expected price volatility 55.60% 74.42% 67.46%
Risk-free interest rate 6.50% 5.50% 6.00%
Expected life of options in years 4 - 8 4 - 8 4 - 8
12. QUARTERLY DATA (Unaudited)
Condensed consolidated quarterly information as follows:
April 30, 1999 July 31, 1999 October 31, 1999 January 31, 2000
-------------- ------------- ---------------- ----------------
Net sales $57,532,267 $59,711,563 $153,719,284 $90,279,992
Gross profit $17,213,964 $25,291,988 $ 53,127,517 $29,480,647
Income from operations $ 2,309,074 $ 7,872,817 $ 22,744,921 $12,019,931
Net (loss) income $(1,372,014) $ 2,020,860 $ 10,642,698 $ 4,037,892
Earnings per common
shares:
Basic $(0.10) $0.15 $0.77 $0.29
Diluted $(0.10) $0.13 $0.67 $0.27
April 30, 1998 July 31, 1998 October 31, 1998 January 31, 1999
-------------- ------------- ---------------- ----------------
Net sales $46,546,294 $61,899,682 $112,506,135 $88,662,500
Gross profit $13,317,164 $18,417,979 $ 33,605,314 $23,152,572
Income from operations $ 3,975,619 $ 7,737,424 $ 16,744,567 $10,226,458
Net income $ 303,742 $ 1,710,476 $ 6,801,860 $ 3,189,942
Earnings per common
shares:
Basic $0.02 $0.12 $0.49 $0.23
Diluted $0.02 $0.10 $0.42 $0.21
41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be contained in the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders (the
"Proxy Statement"), and is incorporated herein by this reference, or is
included in Part I under "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the Proxy
Statement and is incorporated herein by this reference, provided that the
Compensation Committee Report and Performance Graph which is contained in the
Proxy Statement shall not be deemed to be incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the Proxy
Statement and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Proxy
Statement and is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - The consolidated financial statements and
independent auditors' report are listed in the "Index to Financial
Statements and Schedules" on page 22 and included on pages 23
through 41.
2. Financial Statement Schedules - All schedules for which provision is
made in the applicable accounting regulations of the Securities and
Exchange Commission (the "Commission") are either not required under
the related instructions, are not applicable (and therefore have
been omitted), or the required disclosures are contained in the
financial statements included herein.
3. Exhibits including those incorporated by reference.
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)).
42
Exhibit
Number Description
- ------- --------------------------------------------------------------------
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)).
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)).
43
Exhibit
Number Description
- ------- --------------------------------------------------------------------
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)).
12.1 Ratio of Earnings to Fixed Charges.
23.1 Independent Auditors' Consent.
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 Commission upon request.
(b) Reports on Form 8-K.
A Current Report on Form 8-K dated January 20, 2000 was filed on
January 27, 2000 announcing, under Item 5. Other Events, that the
Company's Board of Directors had approved an increase in the amount
of the Company's Common Stock to be repurchased under the Company's
share repurchase program from $5 million to $10 million.
(c) Exhibits to Form 10-K.
See Item 14(a)3.
(d) Financial Statement Schedules.
See Item 14(a)2.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of the 28th
day of April, 2000.
FRENCH FRAGRANCES, INC.
By: /s/ E. Scott Beattie
------------------------------------
E. Scott Beattie
Chairman, President, Chief Executive
Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ E. Scott Beattie Chairman, President, Chief April 28, 2000
- ----------------------- Executive Officer and Director
E. Scott Beattie (Principal Executive Officer)
/s/ William J. Mueller Senior Vice President, Chief April 28, 2000
- ----------------------- Financial Officer and Treasurer
William J. Mueller (Principal Financial and
Accounting Officer)
/s/ Fred Berens Director April 28, 2000
- -----------------------
Fred Berens
/s/ George Dooley Director April 28, 2000
- -----------------------
George Dooley
/s/ Rafael Kravec Director April 28, 2000
- -----------------------
Rafael Kravec
/s/ Richard C.W. Mauran Director April 28, 2000
- -----------------------
Richard C.W. Mauran
/s/ J.W. Nevil Thomas Director April 28, 2000
- -----------------------
J.W. Nevil Thomas
45