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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, 2001
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
ELIZABETH ARDEN, INC.
(Exact name of registrant as specified in its charter)
Florida 59-0914138
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) 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 25, 2001 was approximately $212.1 million based on the
$17.72 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 25, 2001, the registrant had 16,902,060 shares of Common Stock
outstanding.
Documents incorporated by reference: None
Elizabeth Arden, Inc.
FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . 10
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . 11
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 17
Item 8. Financial Statements and Supplementary Data . . . . . . . . 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . 41
Part III
Item 10. Directors and Executive Officers of the Registrant. . . . . 41
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . 43
Item 12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . . 46
Item 13. Certain Relationships and Related Transactions. . . . . . . 48
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 49
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
2
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 SUBSTANTIAL INDEBTEDNESS
AND DEBT SERVICE OBLIGATIONS OF THE COMPANY; THE COMPANY'S ABILITY TO
SUCCESSFULLY AND COST-EFFECTIVELY INTEGRATE ACQUIRED BUSINESSES OR NEW BRANDS
INTO THE COMPANY; THE ABSENCE OF CONTRACTS WITH CUSTOMERS OR SUPPLIERS AND THE
COMPANY'S ABILITY TO MAINTAIN AND DEVELOP RELATIONSHIPS WITH CUSTOMERS AND
SUPPLIERS; THE RETENTION AND AVAILABILITY OF KEY PERSONNEL; CHANGES IN THE
RETAIL AND FRAGRANCE INDUSTRIES; THE COMPANY'S ABILITY TO LAUNCH NEW PRODUCTS
AND IMPLEMENT ITS GROWTH STRATEGY; GENERAL ECONOMIC AND BUSINESS CONDITIONS;
THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING; RISKS OF INTERNATIONAL
OPERATIONS; SUPPLY CONSTRAINTS OR DIFFICULTIES; AND OTHER RISKS AND
UNCERTAINTIES. 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
Elizabeth Arden, Inc., a corporation established in Florida in 1960, is a
leading global marketer and manufacturer of prestige beauty products. Our
portfolio of leading fragrance brands includes Elizabeth Arden's Red Door, 5th
Avenue, Elizabeth Arden green tea and Sunflowers, Elizabeth Taylor's White
Diamonds and Passion, White Shoulders, Geoffrey Beene's Grey Flannel, Halston,
Halston Z-14, PS Fine Cologne for Men, Design and Wings by Giorgio Beverly
Hills. Our skin care brands include Elizabeth Arden's Visible Difference,
Ceramides, and Millenium. Our cosmetics products include lipstick, foundation
and other color cosmetics products under the Elizabeth Arden brand name. In
addition to the brands we own and license, we also distribute more than 150
prestige fragrance brands to mass and mid-tier retailers in the United States,
providing us with a broader portfolio of brands.
3
We sell our fragrance products in more than 36,000 separate retail
locations in the United States, including mass retailers such as Wal-Mart,
Target, Walgreens, and CVS, mid-tier retailers such as JCPenney, Sears and
Kohl's and prestige department stores such as Dillard's, The May Company,
Federated Department Stores, Belk's and Nordstrom. In the United States, we
currently sell our skin care and cosmetic products primarily in prestige
department stores. We also sell our Elizabeth Arden brands of fragrances,
skin care and cosmetics products in over 90 other countries worldwide through
perfumeries, boutiques and department stores, and through travel retail
outlets such as duty free shops and airport boutiques. In fiscal 2001 sales to
United States mass retailers, drug stores independent fragrance, cosmetic,
gift and other stores constituted approximately 68% of the Company's net
sales, sales to traditional and mid-tier department stores in the United
States constituted approximately 30% of net sales and the balance of the
Company's sales was comprised of international sales. As a result of the
Arden acquisition described below, we anticipate that international sales will
approximate 25% of total sales during fiscal 2002.
We provide a portfolio of products and value-added services to our
customers among all distribution channels in the United States. We
distinguish ourselves from other prestige beauty companies by offering a large
selection of brands and tailoring the marketing, promotion, size and packaging
of our products to suit each of our targeted channels. We also provide our
customers with value-added services, including category and inventory
management and fulfillment services that our competitors do not typically
provide. We believe that the breadth of products and level of services we
provide has enabled us to gain a leading share of the mass and mid-tier retail
prestige beauty products markets in particular, and to become an important and
valued supplier for many of our customers. For example, each of JCPenney and
Wal-Mart designated us as their supplier of the year in our category for 1999.
The breadth of products and level of services has also contributed to strong
growth. For fiscal 2001, net sales totaled approximately $382.3 million as
compared to approximately $140.5 million in fiscal 1997. Similarly, EBITDA
(as defined in Item 6. "Selected Financial Data") and net income have grown at
compound annual growth rates of 46.9% and 47.2%, respectively, over the same
periods.
On January 23, 2001, we acquired the Elizabeth Arden business including,
the Elizabeth Arden line of fragrance skin care and cosmetic brands, the
Elizabeth Taylor fragrance brands and the White Shoulders fragrance brand from
affiliates of Unilever N.V. At the closing, we paid Unilever approximately
$190 million in cash and issued to Unilever $50 million face value of our
Series D Convertible Preferred Stock. As a result of receiving the preferred
stock, Unilever has become our largest shareholder with an approximate 18%
ownership stake on a fully diluted basis. We financed the Arden acquisition
in part by issuing $160 million of 11.75% Senior Secured Notes Due 2011. In
connection with the financing of the acquisition and for future working
capital purposes, we also obtained a new $175 million revolving credit
facility agented by Fleet National Bank, as administrative agent, and we
terminated our existing $60 million revolving credit facility. Following the
acquisition, we changed our name to Elizabeth Arden, Inc.
Business Strategy
We seek to continue our growth as a leading marketer and manufacturer of
prestige beauty products worldwide by implementing the following strategies:
ENHANCE BRAND PERFORMANCE. We intend to maximize the profitability of our
brands while building brand equity by utilizing our direct multi-channel
distribution capability and marketing expertise. Our brands are positioned in
multiple distribution channels and are promoted with consistent logos,
packaging and advertising designed to enhance their images and differentiate
them from other brands.
STRENGTHEN AND EXPAND RELATIONSHIPS WITH RETAILERS BY PROVIDING VALUE-
ADDED SERVICES. We intend to increase the sales volume of our products by
continuing to develop innovative services that help our customers to maximize
their sales of prestige beauty products. For example, we recently developed
an open sell program for selected mass retailers in which we package
individual pieces in a security-coded plastic envelope so that retailers can
place the products on open display counters and shelves rather than in locked
cases. Two of our largest customers have recently implemented open sell
programs and we believe that the open sell format will contribute to increases
in units sold by these retailers.
4
ACQUIRE CONTROL OF ADDITIONAL PRESTIGE BRANDS. We intend to continue to
opportunistically acquire control of additional brands that enjoy established
consumer loyalty but can be more profitably managed. We have previously
served as a distributor for several of the brands that we acquired and we
believe that our familiarity with these brands prior to their acquisition,
along with our strong market position, contributed significantly to our
ability to integrate them into our operations. We believe that our
acquisition of ownership or control of brands enables us to generate higher
gross margins and greater overall profits. While we continually review
acquisition opportunities for prestige fragrance brands, we have no
commitments or agreements for any acquisitions at the current time.
FURTHER EXPAND SELECTION OF DISTRIBUTED FRAGRANCE BRANDS. We intend to
continue to develop our distribution business by increasing the number of
prestige fragrance brands we distribute. Our market position as an established
distributor, our broad selection of fragrances and our relationships with
leading fragrance houses provides us with opportunities to expand our line of
distributed brands. We believe that increasing our line of distributed brands
also makes us a more attractive source of supply for our customers.
CAPITALIZE ON OPPORTUNITIES CREATED BY THE ARDEN ACQUISITION. We believe
that the Arden acquisition presents numerous opportunities for us, including:
* Improving brand performance. We have developed a strong knowledge of
the Elizabeth Arden and Elizabeth Taylor brands for which we served
as the primary fragrance distributor in the mid-tier and mass
channels in the United States prior to the Arden acquisition. We
believe we will be able to improve the performance of the acquired
brands by selectively investing in point of sale promotions, national
advertising and improved promotional gift sets.
* Leveraging international distribution capability. We intend to
leverage the international infrastructure of the Elizabeth Arden
business by expanding sales of our other brands abroad and by
supporting the international expansion of certain of our U.S.
customers.
* Improving business efficiencies. The combination of the Elizabeth
Arden business with our existing business significantly increases the
scale of our operations and provides us with opportunities to
increase our operating efficiency. We intend to rationalize our
distribution facilities and optimize capacity utilization. We will
also be able to eliminate duplicative shipping and handling charges
and generate incremental profit with respect to the Elizabeth Arden
products we previously purchased from the Elizabeth Arden business.
For the fiscal year ended January 31, 2001, we purchased $77.8
million of these products. In addition, we intend to outsource the
manufacturing of Elizabeth Arden products, reducing manufacturing
overhead as well as capital needs. We will also combine and optimize
our sales forces to meet the needs of our customers. As a result of
these actions, we believe that we will operate the Elizabeth Arden
business with fewer personnel than have historically been employed in
the business and that our distribution and fulfillment capacity will
be enhanced.
Products
FRAGRANCE. We offer a wide variety of fragrance products for both men and
women, including perfume, cologne, eau de toilette, body spray, men's cologne
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 powder, that are based on the particular fragrance. We tailor the
size and packaging of the fragrance to suit the particular target channel. Our
fragrance products generally retail at prices ranging from $20 to $100,
depending on the size of the product.
Our owned and licensed brands include Elizabeth Arden brands such as Red
Door, Splendor, 5th Avenue, Sunflowers and Elizabeth Arden green tea, the
Elizabeth Taylor brands such as White Diamonds and Passion, White Shoulders,
the Paul Sebastian brands such as PS Fine Cologne for Men, Design and Casual,
the Halston brands Halston and Halston Z-14, Geoffrey Beene's Grey Flannel,
and Wings by Giorgio Beverly Hills. In addition to the brands we own and
license, we also distribute fragrances under brands manufactured by others,
principally into the mass retail and mid-tier retail channels.
5
SKIN CARE. Our skin care line includes a broad range of products for both
men and women such as moisturizers, creams, lotions, cleansers and sunscreens.
Many of the products are designed for use on a particular part of the body
such as the face, or address a particular problem such as aging or dry skin.
We sell skin care products internationally and in the United States in
prestige department stores and, to a lesser extent, through Elizabeth Arden
salons and stores. Our skin care products generally retail at prices ranging
from $15 to $60. We frequently package skin care products with samples or
gifts. We market our skin care products under the Elizabeth Arden brand
including products such as Visible Difference, Ceramides and Millenium.
COSMETICS. Under the Elizabeth Arden name, we offer a variety of cosmetics
including foundations, lipsticks, mascaras, eye shadows and powders. We offer
these products in a wide array of shades and colors. We sell our cosmetics
internationally and in the United States in prestige department stores, and,
to a lesser extent, through independently operated Elizabeth Arden beauty
salons. Our cosmetics products generally retail at prices ranging from $10 to
$28.
We use third-party contract manufacturers in the United States and Europe
to obtain substantially all raw materials, components and packaging products
and for the manufacture of finished products relating to our owned and
licensed brands. In order to transition the manufacture of the brands acquired
as part of the Elizabeth Arden business, we entered into manufacturing
agreements with affiliates of Unilever to manufacture certain of our products
for a limited period of time. Under a manufacturing agreement for Unilever's
Roanoke plant, Unilever will manufacture certain skin care and cosmetic
products for us until May 31, 2001, subject to additional one-month
extensions. Pricing is based on a cost-sharing basis. Under a manufacturing
agreement for Unilever's Las Piedras plant, Unilever will manufacture
fragrance products for us until December 31, 2002. Pricing is based on a cost
per piece.
Except as to products for which we have exclusive marketing and
distribution rights, as is customary in our industry, we generally do not have
long-term or exclusive contracts with manufacturers of our owned brands or
fragrance manufacturers or suppliers of our distributed brands. We generally
make purchases through purchase orders. We believe that we have good
relationships with manufacturers of our owned brands and that there are
alternative sources should one or more of these manufacturers become
unavailable. We receive our distributed brands in finished goods form
directly from fragrance manufacturers as well as from other sources. Our ten
largest fragrance manufacturers or suppliers of brands that are distributed by
us on a non-exclusive basis accounted for approximately 68% of our cost of
sales for the fiscal year ending January 31, 2001. With the acquisition of
Elizabeth Arden, we expect this percentage to decrease to approximately 40% in
the next fiscal year. The loss of, or a significant adverse change in, the
relationship between us and any of our major fragrance manufacturers or
suppliers of distributed brands could have a material adverse effect on our
business, financial condition and results of operations.
Patents and Trademarks
We own or have rights to use all of the trademarks necessary for the
manufacturing, marketing, distribution and sale of numerous fragrance and skin
care brands including Elizabeth Arden's Red Door, 5th Avenue, Visible
Difference, Millenium and Sunflowers, Halston Z-14, Halston, PS Fine Cologne
for Men and Design. We have registered these trademarks, or have applications
pending, in the United States and in certain of the countries in which we sell
these product lines. We consider the protection of our trademarks to be
important to our business.
We also are the exclusive worldwide trademark licensee for both the
Elizabeth Taylor fragrance brands (including White Diamonds and Passion) and
the Geoffrey Beene fragrance brands (including Grey Flannel and Bowling
Green). The Taylor license agreement terminates on October 1, 2022 and is
renewable by us, at our sole option, for unlimited 20-year periods. The Beene
license terminates in March 2025 and is automatically renewable for additional
10-year terms.
We also have the right, under various exclusive distributor and license
agreements to distribute other fragrances in various territories and to use
the registered trademarks in connection with the sale of these products.
6
A number of our products incorporate patented or patent-pending
formulations. In addition, several of our packaging methods, components and
products are covered by design patents, patent applications and copyrights. As
part of the Arden acquisition, we entered into non-exclusive cross-license
agreements regarding certain of these patents with Unilever.
Sales and Distribution
In the United States, we sell our fragrance products to more than 36,000
separate retail locations primarily through three distribution channels:
* the mass retail channel, including retailers such as Wal-Mart,
Target, Walgreens and CVS;
* the mid-tier retail channel, including department stores such as
JCPenney, Sears and Kohl's; and
* the prestige department store channel, including traditional
department stores such as Dillard's, The May Company, Macy's and
Nordstrom.
We also sell products to independent fragrance, cosmetic, gift and other
stores. We currently sell our skin care and cosmetics products in the United
States primarily in prestige department stores. Our sales staff and marketing
support personnel are organized by customer account based upon channel of
distribution, with marketing resources tailored to the needs of each channel.
Our sales force routinely visits retailers to assist in the merchandising,
layout and stocking of selling areas. Our fulfillment capabilities enable us
to reliably process, assemble and ship small orders on a timely basis. We use
this ability to assist our customers in their retail distribution through
"drop ship" programs direct to stores and by supporting their sales of beauty
products over the Internet. We serve as a source of products for a number of
internet-based retailers, as well as for traditional retailers' web-based
operations. For example, in October of this year, we became the partner for
the internet fragrance department for JCPenny.com. Sales to Internet
retailers are not material to our results of operations.
We also sell our prestige products in the Elizabeth Arden beauty salons,
which are owned and operated by an unrelated third party. We receive a
licensing fee of between 1% and 2% of the total net sales from each of the
salons for the use of the "Elizabeth Arden" name.
In addition to our United States distribution, our products are sold in
approximately 90 other countries worldwide through perfumeries, pharmacies,
department stores, specialty retailers, "duty free" shops and other retail
shops and travel retail locations. In certain countries, we maintain a
dedicated sales force that solicits orders and provides customer service. In
other countries and jurisdictions, we sell our products through selected local
distributors under contractual arrangements. We manage our worldwide
operations from our offices in Geneva, Switzerland.
As is customary in the beauty industry, we do not generally have long-term
or exclusive contracts with any of our retail customers. Sales to customers
are generally made pursuant to purchase orders. We believe that our
continuing relationships with our customers are based upon our ability to
provide a wide selection and reliable source of prestige beauty products, as
well as our ability to provide value-added services, including our category
management services, to mass-market and mid-tier retailers.
Our ten largest customers accounted for approximately 60% of net sales for
the fiscal year ended January 31, 2001. The only customers who accounted for
more than 10% of our net sales for that 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 any of our key customers and us
could have a material adverse effect on our business, financial condition and
results of operation. As a result of the Arden acquisition, we do not
anticipate that any customer will account for more than 10% of our net sales
during fiscal 2002.
The industry practice for businesses that market beauty products has been
to grant department stores the right to return merchandise. We typically
limit return rights to department stores and to certain promotional items
offered under our owned and licensed brands. We establish reserves and
provide allowances for returns of such products at the time of sale. To date,
our returns have not exceeded our returns reserves and allowances, although we
cannot assure you that such reserves and allowances will be adequate in the
future. We have, however, a sales organization to resell returned products.
7
Marketing
Our senior marketing personnel support the efforts of our sales
organizations worldwide by working with the merchandise managers, lead buyers
and marketing department of our major retailers to develop marketing and
merchandising plans tailored to these customers' retail needs. Our marketing
personnel frequently work with customers to:
* develop new products;
* develop new merchandising and promotional programs;
* design model schematic planograms for the customer's fragrance and
cosmetics departments;
* identify trends in consumer preferences and adapt products assortment
and promotion to reflect changing patterns;
* conduct training programs for the customer's sales personnel; and
* in certain cases, provide comprehensive sales analysis and active
management of the prestige fragrance category.
We advertise our products through cooperative advertising in association
with major retailers. We also utilize direct media such as TV and print
advertising, gift-with purchase programs, sales personnel incentive
commissions and value-added programs.
Seasonality
Our operations 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 2001, 65% 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.
Management Information Systems
Our key management information systems consist of:
* fully-integrated accounting, forecasting, purchasing and order-entry
software systems;
* electronic data interchange systems, which allow our customers to
order products electronically from us and to be invoiced
electronically for those orders; and
* warehouse management systems, which assist us 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 our sales, purchasing, warehouse and
financial departments. Our information systems form the basis of a number of
the value-added services that we provide to our customers, including vendor
managed inventory, inventory replenishment, customer billing, sales analysis,
product availability and pricing information, and expedited order processing.
Our information systems also support our customers' retail sales over the
Internet.
In order to transition the use of information systems relating to the
Arden business, we entered into an information technology services agreement
with affiliates of Unilever for information technology, software,
infrastructure, equipment and other services as part of the Arden acquisition.
The agreement terminates on December 31, 2001 and will be automatically
renewed for additional one-year terms, provided that, at our request, Unilever
will use reasonable efforts to provide these services for up to two years
after termination.
Competition The beauty industry is highly competitive and, at times,
subject to rapidly changing consumer preferences and industry trends.
Competition is generally a function of brand strength, assortment and
continuity of merchandise selection, reliable order fulfillment and delivery,
and level of in-store customer support.
8
We compete with a number of manufacturers and marketers of beauty products,
some of which have substantially more resources than we do.
We believe that we compete primarily on the basis of product recognition,
quality, performance, price, and our emphasis on providing value-added
customer services, including category management services, to our mass-market
retailers. There are products which are better-known and more popular than the
products manufactured or supplied by us. Many of our competitors are
substantially larger and more diversified, and have substantially greater
financial and marketing resources than we do, as well as have greater name
recognition and the ability to develop and market products similar to and
competitive with those manufactured by us.
Employees
As of April 15, 2001, Elizabeth Arden had approximately 2,250 full and
part-time employees in the United States and approximately 18 foreign
countries. None of our employees are covered by a collective bargaining
agreement. We believe that our relationship with our employees is
satisfactory. We also use the services of independent contractors in various
sales capacities. In connection with the Arden acquisition, we entered into
employee lease agreements to lease certain employees of Unilever through June
30, 2001.
ITEM 2. PROPERTIES
UNITED STATES. Our corporate headquarters and one of our principal
distribution facilities in the United States is located in Miami Lakes,
Florida in a building we own 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, we issued a mortgage on the Miami Lakes facility in
the amount of $6 million.
In connection with the Arden acquisition, we assumed a lease for a 265,000
square foot distribution facility located in Roanoke, Virginia whose term
expires April 2006 and for 62,000 square feet of general offices in Stamford,
Connecticut whose term expires October 2001. We are presently negotiating a
10-year extension of the Stamford lease. We also assumed leases for sales
offices in California, Georgia, Massachusetts, Minnesota, Missouri, North
Carolina and Texas.
In February 2000, we entered into a lease for a 295,000 square foot
distribution facility in Edison, New Jersey, which has been used as a
fulfillment center for our promotional set business and to process product
returns. The lease on the Edison facility expires March 2002. We anticipate
consolidating our United States fulfillment operations out of Miami Lakes and
Roanoke. Accordingly, we do not intend to extend the Edison lease.
In March 2001, we entered into a lease for 15,000 square feet of general
offices in New York City whose term expires April 2016.
INTERNATIONAL. Our European operations are headquartered in a leased
building in Geneva, Switzerland. We also lease sales offices in Australia,
Austria, Canada, Denmark, Italy, Korea, New Zealand, Puerto Rico, Singapore,
South Africa, Spain and the United Kingdom and a distribution facility in
Puerto Rico. We also have a small manufacturing facility in South Africa.
Our European fulfillment operations are conducted by Unilever under a
distribution agreement which ends on December 31, 2001, but is automatically
renewable for additional one-year terms unless either party elects to
terminate.
9
ITEM 3. LEGAL PROCEEDINGS In December 2000, we were named in a breach of
contract action filed in the Ontario, Canada Superior Court of Justice by
Adenat, Inc., a Canadian customer of Unilever. The action was filed against a
number of Unilever affiliates, our company and several individuals, including
officers of Unilever and our Company. The plaintiff claims that Unilever
breached contractual obligations owed to the plaintiff and further alleges
that we interfered in that relationship. The plaintiff seeks to enjoin the
termination of the alleged distribution agreement by Unilever and seeks
compensation and punitive damages of Canadian $90 million (approximately US
$60 million at January 31, 2001). We believe we would be entitled to
indemnification from Unilever to the extent we incur losses or expenses as a
result of actions taken by Unilever or its affiliates. We believe the claims
lack merit as to our company and we are vigorously defending the claims.
We are also a party to a number of other legal actions, proceedings or
claims. While any action, proceeding or claim contains an element of
uncertainty, management believes that the outcome of such actions, proceedings
or claims will not have a material adverse effect on our business, financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of shareholders was held on January 3, 2001, in Miami
Lakes, Florida to vote on the following matters:
* Approval of the issuance of our common stock in an amount greater
than 20% of the number of our outstanding common stock in connection
with the Arden acquisition.
* Approval of an amendment to our Amended and Restated Articles of
Incorporation to change our corporate name from "French Fragrances,
Inc." to "Elizabeth Arden, Inc.," following the Arden acquisition.
* Approval of our 2000 Stock Incentive Plan.
* Approval of an amendment to our Non-Employee Director Stock Option
Plan to increase (i) the number of shares of common stock which may
be issued pursuant to stock options granted under such plan from
200,000 to 500,000, and (ii) the number of shares of common stock
exercisable in connection with an eligible director being re-elected
to our board of directors at a subsequent annual meeting of
shareholders from 7,500 to 15,000.
The vote on the issuance of common stock in excess of 20% of our
outstanding common stock in connection with the Arden acquisition was
8,347,454 for and 4,646 against. The vote on the amendment to our Amended and
Restated Articles of Incorporation to change our name to Elizabeth Arden,
Inc., was 8,348,117 for and 3,983 against. The vote on the 2000 Incentive
Stock Option Plan was 7,260,834 for and 1,091,266 against. The vote on the
amendment to the Non-Employee Director Stock Option Plan was 7,685,796 for and
666,304 against. There were no broker non-votes.
10
PART III
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION. Our common stock, $.01 par value per share, has been
traded on The Nasdaq Stock Market under the symbol "RDEN" since January 25,
2001. From December 21, 1995, to January 25, 2001, our common stock traded on
The Nasdaq Stock Market under the symbol "FRAG". The following table sets
forth the high and low closing prices for the common stock, as reported on The
Nasdaq Stock Market for each of our fiscal quarters from February 1, 1999
through January 31, 2001.
High Low
---- ---
Quarter Ended 04/30/99 $9 1/16 $5 5/8
Quarter Ended 07/31/99 $8 23/32 $6 9/16
Quarter Ended 10/31/99 $8 $6 1/16
Quarter Ended 01/31/00 $7 13/16 $6 1/8
Quarter Ended 04/30/00 $9 9/16 $6 5/8
Quarter Ended 07/31/00 $8 3/4 $7 1/4
Quarter Ended 10/31/00 $11 1/2 $7 1/8
Quarter Ended 01/31/01 $15 1/2 $10 1/8
HOLDERS. As of April 17, 2001, there were 503 record holders of our
common stock.
DIVIDENDS. We have not declared any cash dividends on our common stock
since we became a fragrance company in 1995 and we currently have no plans to
declare dividends on our common stock in the foreseeable future. Any future
determination by our board of directors to pay dividends on our common stock
will be made only after considering our financial condition, results of
operations, capital requirements and other relevant factors. Additionally,
our new credit facility prohibits the payment of cash dividends by the
Company and the indentures relating to our 10 3/8% Senior Notes Due 2007 and
our 11 3/4% Senior Secured Notes Due 2011 restrict our ability to pay cash
dividends based upon our ability to satisfy certain financial and other
covenants. See Notes 7 and 8 to Notes to Consolidated Financial Statements.
SERIES D CONVERTIBLE PREFERRED STOCK. As part of the consideration for
the Arden business we acquired on January 23, 2001, we issued to an affiliate
of Unilever 416,667 shares of Series D convertible preferred stock with an
aggregate liquidation value of $50 million. Each share of Series D
convertible preferred stock is convertible into 10 shares of our common stock
at an initial conversion price of $12.00 per share of common stock. The
holder of the Series D convertible preferred stock will be entitled to
convert up to 33.3% of its shares after January 23, 2002, up to 66.6% after
January 23, 2003 and all of its shares after January 23, 2004. In addition,
cumulative dividends of 5% of the outstanding liquidation value of Series D
Convertible Preferred Stock will begin to accrue on January 23, 2003 and will
be payable in cash or in additional shares of Series D convertible preferred
stock. See Note 13 to Notes to Consolidated Financial Statements.
11
ITEM 6. SELECTED FINANCIAL DATA (in thousands, except earnings per share
data)
We derived the following selected financial data from our audited
consolidated financial statements. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes included elsewhere in this Annual Report.
Years Ended January 31,
1997 1998 1999 2000 2001
------------------------------------------------
SELECTED INCOME STATEMENT DATA:
Net sales $140,482 $215,487 $309,615 $361,243 $382,254
Gross profit 42,552 63,210 78,360 107,683 110,651
Income from operations 18,222 31,457 38,684 44,947 40,794
-------- -------- -------- -------- --------
Net income $ 8,248 $ 12,341 $ 12,006 $ 15,329 $ 13,436
======== ======== ======== ======== ========
SELECTED PER SHARE DATA:
Earnings per common share:
Basic: $0.71 $0.92 $0.87 $1.11 $0.99
===== ===== ===== ===== =====
Diluted: $0.60 $0.76 $0.73 $0.99 $0.87
===== ===== ===== ===== =====
Weighted average number of
Common share:
Basic: 11,647 13,394 13,775 13,801 13,555
Diluted: 13,831 16,492 16,729 15,577 15,620
OTHER DATA:
EBITDA $ 21,885 $ 36,195 $ 46,179 $ 56,113 $ 52,918
Net cash (used in) provided by
operating activities (23,221) (40,729) (36,948) 31,971 17,501
Net cash used in
investing activities (21,117) (7,392) (11,142) (3,699) (209,883)
Net cash provided by (used in)
financing activities 45,070 54,932 46,534 (12,239) 187,933
Years Ended January 31,
1997 1998 1999 2000 2001
------------------------------------------------
SELECTED BALANCE SHEET DATA:
Inventories $ 67,989 $ 90,426 $133,306 $127,022 $209,504
Working capital 17,734 122,177 157,457 173,005 180,588
Total assets 172,378 232,653 294,708 309,632 583,147
Short-term debt 37,631 -- 5,639 -- 22,945
Long-term debt, net 37,215 133,785 176,159 175,030 331,145
Convertible, redeemable preferred
stock -- -- -- -- 35,000
Shareholders' equity 44,680 58,626 71,480 82,287 108,429
Following the Arden acquisition, we reclassified warehouse and shipping expenses
in cost of goods sold to conform to the presentation of the Arden business. This
reclassification changes gross profit and selling general and administrative
expenses but has no effect on income from operations, EBITDA or net income.
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. We believe that EBITDA is a measure commonly reported
and widely used by investors and other interested parties as a measure of a
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 non operating factors (such as
historical cost). Accordingly, this information has been disclosed here to permit
a more complete comparative analysis of our operating performance relative to other
companies and of our debt servicing ability. EBITDA, may not, however, be
comparable in all instances to other similar types of measures.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We are a leading global marketer and manufacturer of prestige beauty
products. We have significant direct penetration in the mass retail, mid-tier
retail and prestige department store channels in the United States, as well as
a significant international presence in prestige department stores,
perfumeries, boutiques and travel retail locations. We have established
ourselves as a source of over 225 fragrance brands through brand ownership,
brand licensing and distribution arrangements. Our portfolio of leading owned
and licensed fragrance brands includes Elizabeth Arden's Red Door, 5th Avenue,
Elizabeth Arden green tea and Sunflowers, Elizabeth Taylor's White Diamonds
and Passion, White Shoulders, Geoffrey Beene's Grey Flannel, Halston, Halston
Z-14, PS Fine Cologne for Men, Design and Wings by Giorgio Beverly Hills. Our
skin care brands include Elizabeth Arden's Visible Difference, Ceramides, and
Millenium. Our cosmetics products include lipstick, foundation and other
color cosmetics products under the Elizabeth Arden brand name. In addition to
the brands we own and license, we also distribute more than 150 prestige
fragrance brands to mass and mid-tier retailers in the United States.
On January 23, 2001, we acquired the Elizabeth Arden business including
the Elizabeth Arden lines of fragrance, skin care and cosmetics; the Elizabeth
Taylor brands of fragrances and the White Shoulders fragrance brand, and
related assets and liabilities. Our results of operations include eight days
of financial results from the Elizabeth Arden business.
During the fourth quarter, the Company recorded integration charges of
approximately $5.6 million pre-tax and $3.4 million after-tax. These charges
represent costs related to the integration of the Arden business, including
the effect of conforming accounting policies related to accounting estimates
for accounts receivable and inventory reserves. In addition, the Company has
reclassified the results of the business owned prior to the Arden acquisition
to present warehouse and shipping costs in costs of goods sold. This
reclassification changes gross profit and selling, general and administrative
expenses, but has no effect on income from operations, EBITDA or net income.
Both of these changes were implemented to better conform the accounting
practices and estimates of the Company's business prior to the Arden
acquisition with the Elizabeth Arden business acquired and to present our
results in a comparable manner to those of other global beauty companies.
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,
1999 2000 2001
-------------------------
Income Statement Data:
Net sales 100.0% 100.0% 100.0%
Cost of sales 74.7 70.2 71.1
----- ----- -----
Gross profit 25.3 29.8 28.9
Selling, general and administrative expenses 10.4 14.3 15.0
Depreciation and amortization 2.4 3.1 3.2
----- ----- -----
Income from operations 12.5 12.4 10.7
Interest expense, net of interest income 6.0 5.4 5.3
Litigation settlement expense 0.5 -- --
Other income 0.4 -- 0.2
----- ----- -----
Income before income taxes 6.4 7.0 5.6
Provision for income taxes 2.5 2.8 2.1
----- ----- -----
Net income 3.9% 4.2% 3.5%
===== ===== =====
Other Data:
EBITDA margin 14.9% 15.5% 13.8%
EBITDA margin represents EBITDA (as defined in Note 2 under item 6.
"Selected
Financial Data") divided by net sales.
13
Fiscal Year Ended January 31, 2001 Compared to the Fiscal Year Ended January
31, 2000
- ----------------------------------------------------------------------------
Net Sales. Net sales increased $21.0 million, or 5.8%, to $382.3 million
for the fiscal year ended January 31, 2001, from $361.2 million for the fiscal
year ended January 31, 2000. The increase in net sales is primarily due to an
increase in the volume of products sold to existing customers. Sales to the
Company's top 20 retail accounts increased by 15.8% over the prior year.
Management believes that increased sales during the fiscal year ended January
31, 2001, have resulted from our ability to provide our customers with a
larger selection of products and a continuous, direct supply of products, and
growth in sales of customized gift sets.
Gross Profit. Gross profit increased $3.0 million, or 2.8%, to $110.7
million for the fiscal year ended January 31, 2001, from $107.7 million for
the fiscal year ended January 31, 2000. The gross profit margin declined from
29.8% in fiscal 2000 to 28.9% for fiscal 2001, as a result of higher warehouse
and shipping expenses, which were partially offset by an increase in product
sales of higher margin owned and licensed brands (including brands acquired in
connection with the Arden acquisition). The increase in warehouse and shipping
expenses resulted from costs associated with the operation of our promotional
set fulfillment center in Edison, New Jersey, the closing of a promotional set
fulfillment center in Pennsylvania in May 2000, as well as a $2.8 million
integration charge to increase reserves related to inventory to conform
accounting policies of the Company's business prior to the Arden acquisition
with the Elizabeth Arden business acquired. Excluding this integration
charge, gross profit would have totaled $113.5 million with a gross profit
margin of 29.7%.
SG&A. Selling, general and administrative expenses increased $6.2 million,
or 12.0% to $57.7 million for the fiscal year ended January 31, 2001, from
$51.6 million for the fiscal year ended January 31, 2000. As a percentage of
net sales, SG&A expenses increased from 14.3% for the fiscal year ended
January 31, 2000 to 15.0% for the fiscal year ended January 31, 2001. The
increase in SG&A expenses is primarily a result of $2.8 million in integration
charges for increases in reserves related to receivables to conform accounting
policies, as well as expenses related to the increase in sales. Excluding the
effect of the integration charges, SG&A expenses for the fiscal year ended
January 31, 2001, as a percentage of net sales is 14.4%, approximately the
same percentage of expenses to net sales as recorded in the fiscal year ended
January 31, 2000.
Depreciation and Amortization. Depreciation and amortization increased
$1.0 million, or 8.6% to $12.1 million for the fiscal year ended January 31,
2001, from $11.2 million for the fiscal year ended January 31, 2000. The
increase was primarily attributable to the depreciation and amortization
related to (i) additional investments in tools and molds developed for our
manufactured products; and (ii) intangibles and fixed assets acquired as part
of the Arden acquisition.
Interest Expense, Net. Interest expense, net of interest income,
increased approximately $755,000, or 3.9%, to $20.2 million for the fiscal
year ended January 31, 2001, from $19.4 million for the fiscal year ended
January 31, 2000. This increase was primarily due to an increase in average
debt outstanding under our credit facility to support working capital needs.
In addition, we incurred additional interest expense in conjunction with the
Arden acquisition from the closing date of January 23, 2001, including
interest expense on our 11 3/4% Senior Secured Notes due 2011 and borrowings
under our new credit facility. See Notes 7 and 8 to Notes to Consolidated
Financial Statements.
EBITDA. EBITDA (operating income, plus depreciation and amortization)
decreased $3.2 million or 5.7% to $52.9 million for the fiscal year ending
January 31, 2001, from $56.1 million for the fiscal year ended January 31,
2000, including the integration charges discussed above. The EBITDA margin
declined to 13.8% for the fiscal year ended January 31, 2001, from 15.5% for
the fiscal year ended January 31, 2000, including the integration charges.
Excluding the integration charges, EBITDA increased 4.3% to $58.5 million for
the fiscal year ended January 31, 2001, from $56.1 million for the fiscal year
ended January 31, 2000, primarily as a result of the increase in sales.
Excluding the integration charges, the EBITDA margin was relatively flat at
15.3% for the fiscal year ended January 31, 2001, as compared to 15.5% for the
fiscal year ended January 31, 2000.
Net Income. Net income decreased $1.9 million to $13.4 million for the
fiscal year ended January 31, 2001 from $15.3 million for the fiscal year
ended January 31, 2000, including the effects of the integration charges.
Excluding the effects of the integration charges, net income increased $1.5
million or 9.8% to $16.8
14
million for the fiscal year ended January 31, 2001, from $15.3 million for the
fiscal year ended January 31, 2000, primarily as a result of the increase in
net sales and gross margin.
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 Paul Sebastian acquisition in January 1999. 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, 2000
have resulted from our Company's ability to provide our 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 $29.3 million, or 37.4%, to $107.7
million for the fiscal year ended January 31, 2000, from $78.4 million for the
fiscal year ended January 31, 1999. The gross margin increased from 25.3% in
fiscal 1999 to 29.8% in fiscal 2000. The increase in gross profit and gross
margin was primarily attributable to the increase in product sales of the
higher margin brands acquired in connection with the Paul Sebastian
acquisition partially offset by 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 expenses increased $19.4
million, or 60.2%, to $51.6 million for the fiscal year ended January 31,
2000, from $32.2 million for the fiscal year ended January 31, 1999. As a
percentage of net sales, SG&A expenses increased from 10.4% for the fiscal
year ended January 31, 1999 to 14.3% 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 Paul Sebastian 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 Paul Sebastian 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 of $40 million
principal amount of 10 3/8% Series C Senior Notes. See Note 8 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 Paul
Sebastian 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
15
increase in net sales and gross profit, which was partially offset by the
increase in operating expenses associated with the addition of the Paul
Sebastian business.
Seasonality
Our fragrance operations 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 2001, 65% our 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, we expect to
experience variability in net sales and net income on a quarterly basis.
Our 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, 2001, we generated
$17.7 million of cash from operating activities. Of that amount, $24.0
million was generated from operating cash flows, offset by a $6.5 million
increase in working capital including increases in accounts receivable and
inventories and decreases in accounts payable partially offset by an increase
in other payables and accrued expenses. Net cash used in investing activities
totaled $209.9 million. We used $5.2 million of the cash generated to
purchase property and equipment. We also used $204.7 million in cash for the
Arden acquisition, including the cash portion of the purchase price plus cash
expenses due at the closing on January 23, 2001. Cash provided from financing
activities totaled $187.7 million and included $160 million from the senior
secured notes issued concurrent with the Arden acquisition and $22.9 million
borrowed under our new $175 million revolving credit facility with Fleet
National Bank, as administrative agent. Proceeds from conversion of our
convertible preferred stock, exercise of warrants and exercise of stock
options provided an additional $10.0 million, and share repurchases and
repayment of long-term debt used $5.2 million. Cash and cash equivalents
declined by $4.4 million to $17.7 million.
During the fiscal year ended January 31, 2000, we generated $32.0 million
in net cash from operating activities. Of that amount, $7.0 million was
generated from working capital, primarily from a reduction in inventory and an
increase in accounts payable, and the remaining $25.0 million from operating
cash flows. We used $3.7 million of the cash generated to purchase property
and equipment. We also used $12.2 million we generated from financing
activities, including for the repayment of $5.6 million outstanding under our
credit facility, for the retirement of $1.8 million of long-term debt, and for
the repurchase of $5.7 million of our common stock under our 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.
Share Repurchases. In fiscal 2000, our board of directors authorized a
share repurchase program that allows us to purchase up to an aggregate of $10
million of our common stock. Under the terms of the program, which has no
expiration date, we 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, 2001, we had repurchased an aggregate of 995,400
shares of our common stock under the share repurchase program at an average
price of $6.64. Our new credit facility restricts future share repurchases
under the share repurchase program to $4 million. In connection with our
repurchase in February 2000 of the 7.5% Subordinated Convertible Debenture due
2006 owned by our former 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. We have historically financed, and we
expect to continue to finance, our internal growth and acquisitions primarily
through internally generated funds, our credit facility and external
financing. Our principal future uses of funds are for working capital
requirements, debt service and, additional brand acquisitions or product
distribution arrangements. As a result of the Arden acquisition, our working
capital needs have increased significantly. As a result of the Arden
acquisition, net sales are
16
expected to more than double from fiscal 2001 to fiscal 2002. In addition, we
did not acquire accounts receivable in the Arden acquisition. Future
liquidity needs will be dependent upon the growth of current assets
(principally accounts receivable and inventory) and current liabilities
(principally accrued expenses and accounts payable). Additional inventory
requirements and accounts receivable may have a significant impact on our
liquidity. Our credit facility is secured by a first priority perfected lien
on all of our U.S. inventory and accounts receivable, and borrowing
availability under the credit facility is limited to eligible accounts
receivable and inventory. We believe that internally generated funds and
available financing under our credit facility will be sufficient to cover our
working capital and debt service requirements for the next twelve months other
than additional working capital requirements which may result from further
expansion of our operations through acquisitions of additional brands or new
product distribution arrangements.
We have discussions from time to time with manufacturers of prestige
fragrance brands and with distributors that hold exclusive distribution rights
regarding our possible acquisition of additional exclusive manufacturing
and/or distribution rights. We currently have no agreements or commitments
with respect to any such acquisition, although we periodically execute routine
agreements to maintain the confidentiality of information obtained during the
course of discussions with manufacturers and distributors. There is no
assurance that we will be able to negotiate successfully for any such future
acquisitions or that we will be able to obtain acquisition financing or
additional working capital financing on satisfactory terms for further
expansion of our operations.
The characteristics of our business do not generally require us to make
significant ongoing capital expenditures. During the fiscal year ended January
31, 2001, we incurred approximately $5.2 million in capital expenditures,
primarily relating to computer software and hardware costs and the purchase of
tools and molds and warehouse equipment. We anticipate that our capital
expenditures for the fiscal year ended January 31, 2002 will be approximately
$15.0 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK.
As of January 31, 2001, we had approximately $22.9 million outstanding
under our credit facility subject to variable rates. As a result of the Arden
acquisition, we replaced our $60 million credit facility with a $175 million
credit facility for working capital needs. Furthermore, our borrowings under
our credit facility are seasonal with peak borrowings in the third quarter of
our fiscal year. Accordingly, our January 31, 2001 earnings and cash flow
will be affected by changes in interest rates. Assuming the level of
borrowings at variable rates and assuming a two-percentage point change in the
average interest rate under these borrowings, it is estimated that our
interest expense for the year ended January 31, 2001, would increase by
approximately $440,000. To date, we have not engaged in derivative
transactions to mitigate interest rate risk as most of our debt bears a fixed
rate. In the event of an adverse change in interest rates, management may
take actions that would mitigate our exposure to interest rate risk; however,
due to the uncertainty of the actions that would be taken and their possible
effect, this analysis assumes no such action. Further, this analysis does not
consider the effects of the change in the level of the overall economic
activity that could exist in such an environment.
FOREIGN CURRENCY RISK. We conduct our business in various regions of the
world, and export and import products to and from several companies. As a
result of the Arden acquisition, we estimate that approximately 25% of our net
sales will be generated outside the United States in fiscal 2002, in a variety
of currencies including the euro, British pound, Swiss franc and Australian
dollar. Our operations may, therefore, be subject to volatility because of
currency fluctuations, inflation changes and changes in political and economic
conditions in these countries. Sales and expenses are frequently denominated
in local currencies, and results of operations may be affected adversely as
currency fluctuations affect our product prices and operating costs or those
of our competitors. We intend to engage in hedging operations, including
forward foreign exchange contracts, to reduce the exposure of our cash flows
to fluctuations in foreign currency rates. We will not engage in hedging for
speculative investment reasons. Our historical results do not reflect any
foreign exchange hedging activity. There can be no assurance that our hedging
operations will eliminate or substantially reduce risks associated with
fluctuating currencies. Our results of operations are reported in U.S.
dollars. A weakening of the currencies in which we generate sales relative to
the currencies in which our costs are denominated may decrease our operating
profits or cash flow. In all jurisdictions in which we operate, we are also
subject to laws and regulations that govern foreign investment, foreign trade
and currency exchange transactions. These laws and regulations may limit our
ability to repatriate cash as dividends or otherwise to the United States and
may limit our ability to convert foreign currency cash flows into U.S.
dollars.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . 19
Consolidated Balance Sheets as of January 31, 2000 and 2001 . . . . . 20
Consolidated Statements of Income for the Years Ended
January 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . 21
Consolidated Statements of Shareholders' Equity for the Years Ended
January 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Cash Flow for the Years Ended
January 31, 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . 23
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . 24
18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Elizabeth Arden, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Elizabeth
Arden, Inc. (formerly French Fragrances, Inc.) and subsidiaries (the
"Company") as of January 31, 2000 and 2001, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended January 31, 2001. 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,
2000 and 2001, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
April 6, 2001
19
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 2000 January 31, 2001
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 22,144,314 $ 17,695,306
Accounts receivable, net 63,485,136 48,381,654
Inventories 127,022,405 209,503,786
Advances on inventory purchases 2,785,475 992,917
Prepaid expenses and other assets 9,882,321 12,587,406
------------ ------------
Total current assets 225,319,651 289,161,069
------------ ------------
Property and equipment, net 20,232,312 40,729,679
------------ ------------
Other assets:
Exclusive brand licenses, trademarks and
intangibles, net 55,827,865 227,216,144
Debt financing costs 3,949,009 16,936,880
Deferred income taxes, net 3,337,409 5,126,180
Other assets 965,409 3,976,607
------------ ------------
Total other assets 64,079,692 253,255,811
------------ ------------
Total assets $309,631,655 $583,146,559
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ -- $ 22,945,472
Accounts payable - trade 31,436,903 40,251,481
Other payables and accrued expenses 19,102,919 44,230,217
Current portion of long-term debt 1,775,027 1,145,545
------------ ------------
Total current liabilities 52,314,849 108,572,715
------------ ------------
Long-term debt, net 175,030,227 331,144,936
------------ ------------
Total liabilities 227,345,076 439,717,651
------------ ------------
Commitments and contingencies (See Note 9)
Convertible, redeemable preferred stock, Series D,
$.01 par value (liquidation preference of $120
per share); 1,000,000 shares authorized; no shares
and 416,667 shares issued and outstanding,
respectively -- 35,000,000
------------ ------------
Shareholders' equity:
Convertible, redeemable preferred stock, Series B,
$.01 par value (liquidation preference of $.01
per share); 350,000 shares authorized; 265,801
and no shares issued and outstanding, respectively 2,658 --
Convertible, redeemable preferred stock, Series C,
$.01 par value (liquidation preference of $.01
per share); 571,429 shares authorized; 502,520
and no shares issued and outstanding, respectively 5,025 --
Common stock, $.01 par value, 50,000,000 shares
authorized; 14,186,399 and 16,779,186 shares
issued and outstanding, respectively 141,864 167,792
Additional paid-in capital 32,780,530 46,407,971
Retained earnings 55,030,442 68,466,185
Treasury stock (870,500 and 995,400 shares at cost) (5,673,940) (6,613,040)
------------ ------------
Total shareholders' equity 82,286,579 108,428,908
------------ ------------
Total liabilities and shareholders' equity $309,631,655 $583,146,559
============ ============
See Notes to Consolidated Financial Statements.
20
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended January 31,
1999 2000 2001
------------------------------------------
Net sales $309,614,611 $361,243,106 $382,254,230
Cost of sales 231,254,892 253,560,177 271,603,098
------------ ------------ ------------
Gross profit 78,359,719 107,682,929 110,651,132
------------ ------------ ------------
Operating expenses:
Selling, general and administrative 32,181,044 51,569,777 57,732,901
Depreciation and amortization 7,494,607 11,166,409 12,124,152
------------ ------------ ------------
Total operating expenses 39,675,651 62,736,186 69,857,053
------------ ------------ ------------
Income from operations 38,684,068 44,946,743 40,794,079
------------ ------------ ------------
Other income (expense):
Interest expense, net (18,689,595) (19,412,229) (20,166,804)
Litigation settlement expense (1,500,000) -- --
Income from sale of contract and
intangible rights 932,763 -- 425,000
Other 265,655 (203,923) 474,368
------------ ------------ ------------
Other income (expense), net (18,991,177) (19,616,152) (19,267,436)
------------ ------------ ------------
Income before income taxes 19,692,891 25,330,591 21,526,643
Provision for income taxes 7,686,871 10,001,155 8,090,900
------------ ------------ ------------
Net income $ 12,006,020 $ 15,329,436 $ 13,435,743
============ ============ ============
Earnings per common share:
Basic $0.87 $1.11 $0.99
===== ===== =====
Diluted $0.73 $0.99 $0.87
===== ===== =====
Weighted average number of common shares:
Basic 13,774,993 13,801,196 13,555,419
========== ========== ==========
Diluted 16,728,798 15,577,422 15,620,369
========== ========== ==========
See Notes to Consolidated Financial Statements.
21
ELIZABETH ARDEN, 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, 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
Issuance of Common Stock
upon conversion of Series B
convertible preferred stock (265,801) (2,658) -- -- 1,892,503 18,925 6,228,993
Issuance of Common Stock
upon conversion of Series C
convertible preferred stock -- -- (502,520) (5,025) 502,520 5,025 2,638,230
Issuance of Common Stock
upon conversion of 7.5%
subordinated convertible
debentures -- -- -- -- 25,595 256 184,028
Issuance of Common Stock
upon exercise of stock
options -- -- -- -- 82,169 822 485,817
Issuance of Common Stock
upon exercise of warrants -- -- -- -- 90,000 900 674,100
Issuance of warrants -- -- -- -- -- -- 3,043,000
Repurchase of Common Stock -- -- -- -- -- -- --
Tax benefit from exercise of
stock options -- -- -- -- -- -- 373,273
Net income for the year -- -- -- -- -- -- --
-------------------------------------------------------------------------------
Balance at January 31, 2001 0 $0 0 $0 16,779,186 $167,792 $46,407,971
=============================================================================
(RESTUBBED TABLE FROM ABOVE)
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Total
Retained Treasury Shareholders'
Earnings Stock Equity
------------------------------------------------------------
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 -- -- 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
Issuance of Common Stock
upon conversion of Series B
convertible preferred stock -- -- 6,245,260
Issuance of Common Stock
upon conversion of Series C
convertible preferred -- -- 2,638,230
Issuance of Common Stock
upon conversion of 7.5%
subordinated convertible
debentures -- -- 184,284
Issuance of Common Stock
upon exercise of stock
options -- -- 486,639
Issuance of Common Stock
upon exercise of warrants -- -- 675,000
Issuance of warrants -- -- 3,043,000
Repurchase of Common Stock -- (939,100) (939,100)
Tax benefit from exercise of
stock options -- -- 373,273
Net income for the year 13,435,743 -- 13,435,743
-----------------------------------------------------------
Balance at January 31, 2001 $68,466,185 $(6,613,040) $108,428,908
See Notes to Consolidated Financial Statements
22
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended January 31,
1999 2000 2001
----------------------------------------
Cash Flows from Operating Activities:
Net income $ 12,006,020 $ 15,329,436 $ 13,435,743
Adjustments to reconcile net income to cash
(used in) provided by operating activities:
Depreciation and amortization 7,494,607 11,166,409 12,124,152
Amortization of senior note offering
Costs and note premium 556,084 569,487 237,269
Deferred tax benefit (369,520) (2,129,256) (1,788,771)
Change in assets and liabilities, net of
effects from acquisitions:
Increase in accounts receivable (249,999) (12,444,389) (3,877,670)
(Increase) decrease in inventories and
advances on inventory purchases (32,894,592) 10,078,532 (3,258,823)
Increase in prepaid expenses and
other assets (2,288,307) (2,003,967) (70,915)
(Decrease) increase in accounts payable (16,171,948) 9,738,399 (3,742,115)
(Decrease) increase in other payables
and accrued expenses (5,030,105) 1,666,189 4,441,685
------------ ------------ ------------
Net cash (used in) provided by
operating activities (36,947,760) 31,970,840 17,500,555
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchase of licenses, trademarks and
intangibles (7,882,381) -- --
Additions to property and equipment,
net of disposals (3,259,481) (3,699,353) (5,206,921)
Acquisition of Elizabeth Arden business -- -- (204,676,000)
------------ ------------ ------------
Net cash used in investing activities (11,141,862) (3,699,353) (209,882,921)
------------ ------------ ------------
Cash Flows from Financing Activities:
Net proceeds from (payments on) short-term
debt 5,639,369 (5,639,369) 22,945,472
Payments on long-term debt (1,266,523) (1,771,764) (4,118,143)
Proceeds from the issuance of senior notes 41,500,000 -- 160,000,000
Proceeds from the exercise of stock options 117,480 663,759 486,639
Proceeds from the exercise of stock purchase
warrants 275,000 -- 675,000
Proceeds from the conversion of preferred
stock 268,780 182,538 8,883,490
Repurchase of common stock -- (5,673,940) (939,100)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 46,534,106 (12,238,776) 187,933,358
------------ ------------ ------------
Net (Decrease) increase in Cash and
Cash Equivalents (1,555,516) 16,032,711 (4,449,008)
Cash and Cash Equivalents at Beginning of Year 7,667,119 6,111,603 22,144,314
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 6,111,603 $ 22,144,314 $ 17,695,306
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Interest paid during the year $ 16,766,085 $ 19,019,248 $ 19,347,114
============ ============ ============
Income taxes paid during the year $ 12,430,731 $ 1,445,481 $ 13,604,276
============ ============ ============
See Notes to Consolidated Financial Statements.
23
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY.
Elizabeth Arden, Inc. (the "Company") is a manufacturer and marketer of
prestige designer fragrances, skin treatment and cosmetic products, to
retailers in the United States and over 90 countries internationally. The
Company was formerly known as French Fragrances, Inc. until the Arden
acquisition on January 23, 2001. See Note 2.
BASIS OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company's majority-owned domestic and international
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
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 when title and the risk of
loss transfers to the customer, generally upon shipment. Sales are recorded
net of returns and the accrued sales returns liability which represents
management's estimate of future returns based on historical experience and
considering current external factors and market conditions. During the
fiscal years ended January 31, 1999, 2000 and 2001, two customers accounted
for an aggregate of 28%, 29% and 30%, respectively, of the Company's net
sales. The Securities and Exchange Commission (the "SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 summarizes the SEC's views on the application of
generally accepted accounting principles to revenue recognition. The Company
has reviewed SAB No. 101 and believes that it is in compliance with the SEC's
interpretation of revenue recognition.
COST OF SALES. The Company has reclassified its results to present
warehouse and shipping costs in cost of sales in order to conform its
accounting practices and policies with those of the Elizabeth Arden business.
This reclassification changes gross profit, as well as selling general and
administrative expense, but has no effect on income from operations or net
income. Warehouse and shipping expenses reclassified as cost of sales were
$10,133,310, $17,431,187 and $27,040,106 in the fiscal years ended January
31, 1999, 2000 and 2001, respectively.
MARKET RISK. The Company is subject to fluctuations in interest rates
and foreign currency rates, as well as changes in worldwide economic and
political conditions. As a result of the Arden acquisition, the Company
expects that approximately 25% of net sales will be generated outside the
United States in a number of countries primarily located in Europe and Asia.
The Company's financial performance may be affected by changes in currency
exchange rates and regulations, duties and price controls, developments in
political, economic, and taxation policies of the countries in which it
operates. As the Arden acquisition was consummated on January 23, 2001, the
Company had not engaged in foreign currency hedging transactions.
Furthermore, as a significant amount of the Company's debt bears a fixed
rate, the Company does not engage in derivative transactions to hedge
interest rate risk. The adoption of Statement of Financial Accounting
Standard No. 133, Accounting for Derivative Instruments and hedging
Activities as of February 1, 2001, did not have a material impact on the
Company's consolidated financial statements.
FOREIGN CURRENCY TRANSLATION. The financial statements of the Company's
non-U.S. subsidiaries are translated in accordance with SFAS No. 52 Foreign
Currency Translation. The Company acquired the assets of its non-U.S.
subsidiaries on January 23, 2001, as part of the Arden acquisition.
Consequently, transaction and translation gains and losses were not material
to the Company's consolidated financial statements for the fiscal year ended
January 31, 2001.
24
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - (Continued)
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 principally determined on the weighted-average method. See Note 4.
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. See Note 3.
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. See Note 5.
EXCLUSIVE BRAND LICENSES AND TRADEMARKS, AND AMORTIZATION. These
intangible assets are being amortized using the straight-line method over
their estimated useful lives. See Note 6.
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 asset's carrying value
is adjusted to estimated fair value. No such adjustments were recorded for
the fiscal years ended January 31, 1999, 2000 and 2001.
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 8.
ADVERTISING AND PROMOTIONAL COSTS. Advertising and promotional costs
are expensed as incurred. Advertising and promotional costs totaled
approximately $4.8 million, $10.2 million and $8.2 million during the fiscal
years ended January 31, 1999, 2000 and 2001, 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. The
Company intends to reinvest its undistributed international earnings to
expand its international operations; therefore, no tax has been provided to
cover the repatriation of such undistributed earnings.
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. See Note 8 for
the fair value of the Company's debentures and notes. The fair value of all
other financial instruments was not materially different than their carrying
value as of January 31, 2000 and 2001. See Note 8.
25
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - (Continued)
SEGMENT INFORMATION. In June 1997, the FASB issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. As of
January 31, 2001, the Company operates solely in one segment, the marketing
and manufacture of prestige beauty products. Revenues from customers outside
the United States totaled $2.6 million, $3.0 million and $4.1 million, in
fiscal 1999, 2000 and 2001, respectively.
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. See Note 13.
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 14.
RECLASSIFICATIONS. Certain amounts in the prior period consolidated
financial statements have been reclassified to conform with fiscal 2001
presentations.
2. ACQUISITIONS
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 $10.6 million 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 $37.3 million in cash and a subordinated debenture of $3
million (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 due 2007. See Note 8. 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 two payments 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 $30.4
million of inventory, $12.1 million of accounts receivable, $263,000 of fixed
assets (consisting primarily of office and warehouse furniture and
equipment), and approximately $7.7 million of contract rights, intangible
rights (including non-compete agreements) and goodwill. The JPF Acquisition
was accounted for under the purchase method.
26
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. ACQUISITIONS - (Continued)
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 $9.7 million 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 was non-interest bearing and was paid in July 2000. The PSI
Acquisition was accounted for under the purchase method.
ELIZABETH ARDEN ACQUISITION. On January 23, 2001, the Company
completed the acquisition of the assets of the Elizabeth Arden business (the
"Arden acquisition") from Unilever N.V. and its affiliates ("Unilever"). The
assets included certain trademarks and patents for the Elizabeth Arden brands
of prestige fragrances, cosmetics and skin care lines including Red Door, 5th
Avenue, Sunflowers, Visible Difference, Millenium and Ceramides. The Company
also acquired the license for the Elizabeth Taylor fragrance brands including
White Diamonds and Passion, as well as the trademark for the White Shoulders
fragrance brand. In addition to the trademarks, patents and licenses, the
Company acquired inventory, returns, contract rights (including leases for
distribution and office facilities worldwide), fixed assets (including
equipment, tools and molds, furniture, and a manufacturing plant in South
Africa), books and records and goodwill. The Company also assumed certain
liabilities for product returns and demonstrator accruals. In addition to
the assumed liabilities, the Company paid $190 million in cash at the closing
(exclusive of fees and expenses of advisors), subject to final adjustment,
and $50 million in aggregate liquidation preference of our Series D
convertible preferred stock issued to Unilever. See Note 13.
The Company funded the cash portion of the acquisition price for the
Arden acquisition and the related fees and expenses with $204.7 million in
cash from (1) the proceeds from the offering of $160 million of 11 3/4%
Senior Secured Notes due 2011 (the "2001 Note Offering") and (2) borrowings
under a new $175 million revolving credit facility with a bank syndicate of
which Fleet National Bank ("Fleet") is the administrative agent (the "New
Credit Facility"), which replaced the Company's existing $60 million
revolving credit facility with Fleet. See Notes 7 and 8. The Arden
acquisition was accounted for under the purchase method.
The following unaudited information presents the Company's pro forma
operating data for the year ended January 31, 1999, 2000, and 2001, as if the
Elizabeth Arden acquisition and the January 2001 offering of $160 million of
11 3/4% Senior Secured Notes due 2011 had been consummated at the beginning
of each of the periods presented and includes certain adjustments to the
historical consolidated statements of income of the Company to give effect to
the acquisition of the net assets of the Elizabeth Arden business, the
payment of the purchase price and the increased amortization of intangible
assets as a result of the Arden acquisition and the related issuance of
additional indebtedness. The unaudited pro forma financial data is not
necessarily indicative of the results of operations that would have been
achieved had the Arden acquisition and the 2001 Note Offering been
consummated prior to the period in which they were completed, or that might
be attained in the future. Note that the fiscal year end of the Elizabeth
Arden business is each December 31, preceding the January 31 year-end
presented below.
27
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. ACQUISITIONS - (Continued)
(Unaudited)
Years Ended January 31,
1999 2000 2001
-----------------------------------------
Net sales $794,968,000 $856,868,000 $869,829,000
Income from operations $54,967,000 $86,587,000 $104,687,000
Net income attributable to common
shareholders $9,149,000 $31,313,000 $35,379,000
Earnings per common share:
Basic $0.48 $1.78 $2.43
===== ===== =====
Diluted $0.41 $1.48 $1.79
===== ===== =====
3. ACCOUNTS RECEIVABLE, NET
The following table details the provisions and allowances established
for potential losses from receivables and estimated sales returns in the
normal course of business. Liabilities for product returns assumed in the
Arden acquisition are excluded.
Years Ended January 31,
1999 2000 2001
------------------------------------------
Allowance for Bad Debt:
Beginning balance $ 676,387 $ 533,696 $ 1,165,670
Provision 401,626 1,138,800 1,200,000
Write offs, net of recoveries (544,317) (506,826) (1,376,978)
----------- ------------ ------------
Ending balance $ 533,696 $ 1,165,670 $ 988,692
=========== ============ ============
Allowance for Sales Returns:
Beginning balance $ 558,651 $ 555,245 $ 816,445
Provision 7,630,810 13,289,613 18,214,837
Actual returns (7,634,216) (13,028,413) (16,999,837)
----------- ------------ ------------
Ending balance $ 555,245 $ 816,445 $ 2,031,445
=========== ============ ============
4. INVENTORIES
Inventory balances at January 31, 2000 and 2001 were as follows:
January 31,
2000 2001
-----------------------------
Finished $103,548,955 $151,490,901
Work in progress 6,727,835 15,226,977
Raw materials 16,745,615 42,785,908
------------ ------------
$127,022,405 $209,503,786
============ ============
28
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
January 31, Estimated
2000 2001 Useful Life
--------------------------------------
Land $ 2,871,000 $ 2,936,000 --
Building 5,519,452 5,578,452 40
Building improvements 5,240,713 6,817,945 20 - 40
Furniture and fixtures 1,172,620 1,431,173 8 - 14
Machinery, equipment and vehicles 3,989,700 10,891,312 3 - 14
Computer equipment and software 5,567,043 7,995,636 3 - 5
Counters and trade fixtures -- 8,393,000 3
Tools and molds 2,282,659 3,852,012 1 - 3
----------- -----------
26,643,187 47,895,530
Less accumulated depreciation (6,965,700) (8,947,817)
----------- -----------
19,677,487 38,947,713
Projects in progress 554,825 1,781,966
----------- -----------
Property and equipment, net $20,232,312 $40,729,679
=========== ===========
6. EXCLUSIVE BRAND LICENSES AND TRADEMARKS
The following summarizes the cost basis and amortization associated
with the Company's intangible assets at January 31:
2000 2001 Estimated Life
-------------------------------------------
Exclusive brand licenses and trademarks $ 66,398,376 $ 246,643,376 5 - 22
Contract rights and other intangibles 11,179,593 10,779,593 3 - 5
------------- -------------
$ 77,577,969 $ 257,422,969
Accumulated amortization (21,750,104) (30,206,825)
------------- -------------
$ 55,827,865 $ 227,216,144
============= =============
7. SHORT-TERM DEBT
In January 2001, the Company entered into the New Credit Facility with
a syndicate of banks for which Fleet is the administrative agent. The New
Credit Facility, which replaced the Company's existing $60 million revolving
credit facility with Fleet, provides for borrowings on a revolving basis of
up to $175 million, with a $25 million sublimit for letters of credit. The
New Credit Facility is guaranteed by all of the Company's U.S. subsidiaries
and matures in January 2006. 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) 2.25% to 3.00% over the London InterBank Offered
Rate ("LIBOR") or (ii) 1.00% to 1.75% over the Prime Rate as quoted by Fleet,
in each case depending on the ratio of the Company's funded total debt to
EBITDA (earnings before interest, taxes, depreciation and amortization).
Borrowings under the New Credit Facility are limited to eligible accounts
receivable and inventories and are secured by a first priority lien on all of
the Company's U.S. accounts receivable and inventory. The Company's
obligations under the New Credit Facility rank pari passu in right of payment
with the Company's 10 3/8% Senior Notes due 2007 and the 11 3/4% Senior
Secured Notes due 2011. The New Credit Facility contains several covenants,
the more significant of which are that the Company: (i) cannot exceed certain
levels of debt to EBITDA; (ii) must maintain certain levels of EBITDA to
consolidated net interest expense; and (iii) must maintain a minimum amount
of shareholders' equity. The New 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 $4
million of its common stock, $.01
29
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. SHORT-TERM DEBT - (Continued)
par value per share ("Common Stock"), and to incur certain acquisition
indebtedness. At January 31, 2001, the Company had an outstanding balance of
approximately $22.9 million under the New Credit Facility, together with $1.3
million outstanding letters of credit issued under the New Credit Facility.
At January 31, 2000, the Company did not have an outstanding balance under
its revolving credit facility and had $2.5 million outstanding letters of
credit issued.
8. LONG-TERM DEBT
The Company's long-term debt at January 31, 2000 and January 31, 2001
consisted of the following:
January 31,
Description 2000 2001
- ----------- ---------------------------
10 3/8% Senior Notes due May 2007 $157,245,157 $157,029,609
11 3/4% Senior Secured Notes due May 2011 -- 160,000,000
8.5% Subordinated Debenture due May 2004, net 6,479,966 6,479,966
7.5% Convertible Subordinated Debentures
due June 2006 4,778,643 2,410,360
J.P. Fragrances Debenture due May 2001 1,946,646 1,000,000
8.84% Miami Lakes Facility Mortgage Note
due July 2004 5,537,663 5,370,546
Other Indebtedness 817,179 --
------------ ------------
Total Long-term Debt 176,805,254 332,290,481
Less Current Portion of Long-Term Debt 1,775,027 1,145,545
------------ ------------
Total Long-term Debt, net $175,030,227 $331,144,936
============ ============
At January 31, 2000 and 2001, the estimated fair value of the
Company's subordinated debentures and senior notes using available market
information and interest rates was as follows:
January 31,
2000 2001
------------ ------------
Subordinated debentures $ 6,479,966 $ 6,479,966
Convertible subordinated debentures $ 4,778,643 $ 4,458,818
10 3/8% Senior Notes $148,800,000 $151,125,000
11 3/4% Senior Secured Notes $ -- $166,400,000
The scheduled maturities of long-term debt at January 31, 2001 were as
follows:
Fiscal Year Amount
----------- ------------
2002 $ 1,145,545
2003 170,311
2004 185,991
2005 11,292,095
2006 and thereafter 319,496,539
------------
Total $332,290,481
============
30
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. LONG-TERM DEBT -- (Continued)
7.5% Subordinated Convertible Debentures. At January 31, 2001, the
Company had outstanding approximately $2.4 million aggregate principal amount
of 7.5% Subordinated Convertible Debentures due 2006 (the "7.5% Convertible
Debentures"). The 7.5% Convertible Debentures are convertible into shares of
Common Stock of the Company at $7.20 per share. The Company can redeem the
7.5% Convertible Debentures when the Common Stock trades above $14.40 for 20
consecutive trading days. In April 2001, the Company called for redemption
the outstanding 7.5% Convertible Debentures. All debenture holders converted
their debentures into Common Stock prior to the redemption date.
Senior Notes. In connection with the financing of the Arden
acquisition in January 2001, the Company completed the private placement
under Rule 144A of the Securities Act of 1933, as amended (the "Act") of $160
million principal amount of 11 3/4% Series A Senior Secured Notes due 2011.
In March 2001, the 11 3/4% Series A Senior Secured Notes were exchanged for
an equivalent principal amount of 11 3/4% Series B Senior Secured Notes due
2011 (the "11 3/4% Senior Secured Notes") containing identical terms to
the 11 3/4% Series A Senior Secured Notes but which have been registered
under the Act. The 11 3/4% Senior Secured Notes are secured by a first
priority lien on certain intangible assets, consisting primarily of
trademarks and patents, of the Elizabeth Arden fragrance, skin care and
cosmetics lines.
In May 1997, the Company consummated the private placement under Rule
144A of the Act of $115.0 million principal amount of 10 3/8% Series A Senior
Notes due 2007. In July 1997, the Series A Senior Notes were exchanged for
an equivalent principal amount of 10 3/8% Series B Senior Note (the "10 3/8%
Series B Senior Notes") containing identical terms to the 10 3/8% 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 10 3/8% Series C Senior Notes
due 2007. The Series C Senior Notes were sold at 106.5% of their principal
amount and had substantially similar terms to the Company's existing 10 3/8%
Series B Senior Notes. The 10 3/8% 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, 2001,
the Company has amortized $570,391 of premium against interest expense. In
August 1998, the 10 3/8% Series C Senior Notes were exchanged for an
equivalent principal amount of 10 3/8% Series D Senior Notes due 2007 (the
"Series D Senior Notes") containing identical terms to the 10 3/8% Series C
Senior Notes, but which have been registered under the Act.
The Indentures pursuant to which the 11 3/4% Senior Secured Notes and
the 10 3/8% Series B and Series D Senior Notes were issued (the "Indentures")
provide that such notes will be senior 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
New 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 11 3/4% Senior Secured Notes and the 10 3/8% Series B and
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).
9. COMMITMENTS AND CONTINGENCIES
In February 2000, the Company entered into a lease with an
unaffiliated third party for approximately 295,000 square feet of a warehouse
facility (the "Edison Facility") in Edison, New Jersey, which has been used
primarily for the Company's promotional set business and to process its
product returns. The lease terminates on March 2002 and the Company does not
intend to extend the lease.
31
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. COMMITMENTS AND CONTINGENCIES - (Continued)
In connection with the Arden Acquisition, the Company assumed lease
obligations for a distribution facility in Roanoke, Virginia; office
facilities in Stamford, Connecticut and Geneva, Switzerland; sales offices in
the United States located in California, Connecticut, Georgia, Massachusetts,
Minnesota, Missouri, North Carolina and Texas; a distribution facility in
Puerto Rico; and sales offices in Australia, Austria, Canada, Denmark, Italy,
Korea, New Zealand, Puerto Rico, Singapore, Spain, South Africa and the
United Kingdom.
The Company's aggregate minimum lease payments under these leases at
January 31, 2001, are as follows:
Fiscal Year Amount
----------- -----------
2002 $ 4,976,844
2003 2,612,807
2004 1,800,000
2005 1,800,000
2006 and thereafter 2,200,000
-----------
Total $13,389,651
===========
In connection with the Arden acquisition, the Company entered into a
number of ancillary agreements with Unilever to facilitate the integration of
the Elizabeth Arden business with the Company's business existing prior to the
acquisition. Under an employee lease agreement, Unilever provides the
services of certain employees of the Elizabeth Arden business for a specified
transition period and the Company reimburses Unilever for any direct payroll
costs and out-of-pocket expenses related to those employees. The employee
lease agreement terminates on June 30, 2001. The Company also entered into a
transition services agreement under which Unilever provides the Company with
services relating to, among other things, finance and accounting, payroll
processing, research and development for which the Company pays direct costs.
The transition services agreement terminates on May 31, 2001, and may be
extended by mutual agreement. Under the information technology services
agreement, Unilever and its affiliates provide the Company with information
technology services, software, infrastructure, equipment and other services
for a fixed monthly fee, which approximates $1 million. The information
technology services agreement terminates on December 31, 2001 and is
automatically renewable for one-year terms unless either party elects to
terminate. The Company also entered into various manufacturing agreements
under which Unilever manufactures fragrance and cosmetics products for the
Company in plants located in Las Piedras (Puerto Rico), Roanoke (Virginia),
and Acton (England). The agreements terminate on various dates from March
31, 2001 (Acton), to December 31, 2002 (Las Piedras). Pricing is generally
based on a cost per piece with the exception of the Roanoke manufacturing
agreement where the pricing is based on a cost-sharing basis. The Company
also entered into a distribution agreement with Unilever's distribution
facility in Lille, France, to obtain order fulfillment services, for the
Company's products in Europe. Under the distribution agreement, the Company
pays a fixed fee per product shipped. The agreement terminates on December
31, 2001, and is automatically renewable for additional one-year terms unless
either party elects to terminate.
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 December 2000, the Company was named in a lawsuit by a Canadian
customer of Unilever who alleges that Unilever breached obligations owed to
the plaintiff and that the Company interfered with the contractual
relationship. The plaintiff seeks damages of Canadian $90 million
(approximately US$60 million
32
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. COMMITMENTS AND CONTINGENCIES - (Continued)
at January 31, 2001). Management believes that the Company would be entitled
to indemnification from Unilever to the extent the Company incurs losses as a
result of actions by Unilever. Management believes the claims as to the
Company lack merit and the Company is vigorously defending the action.
The Company is also a party to a number of 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.
10. INCOME TAXES
The components of the provision for income taxes for the years ended
January 31, 1999, 2000 and 2001 are as follows:
Years Ended January 31,
1999 2000 2001
----------------------------------------
Current income taxes:
Federal $6,906,407 $10,776,790 $ 7,495,908
State 1,149,984 1,353,621 1,901,615
Foreign -- -- 482,148
---------- ----------- -----------
Total current 8,056,391 12,130,411 9,879,671
---------- ----------- -----------
Deferred income taxes:
Federal (316,834) (1,954,835) (1,470,425)
State (52,686) (174,421) (337,199)
Foreign -- -- 18,853
---------- ----------- -----------
Total deferred (369,520) (2,129,256) (1,788,771)
---------- ----------- -----------
Total provision for
income taxes $7,686,871 $10,001,155 $ 8,090,900
========== =========== ===========
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,
2000 2001
-------------------------
Deferred tax liabilities:
Property and equipment $ (580,918) $ (920,369)
Merger assets (190,426) (185,132)
---------- -----------
(771,344) (1,105,501)
---------- -----------
Deferred tax assets:
Excess of book bad debts
reserve over tax reserve 541,140 386,272
Intangibles 2,053,530 3,147,652
Accruals 223,121 195,345
Net operating loss carryforwards 790,335 790,335
Inventories 865,590 1,673,125
Other 425,372 829,287
---------- -----------
Gross deferred tax assets 4,899,088 7,022,016
---------- -----------
Net deferred tax asset before
valuation allowance 4,127,744 5,916,515
Valuation allowance for deferred
taxes (790,335) (790,335)
---------- -----------
Net deferred tax asset $3,337,409 $ 5,126,180
========== ===========
33
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. INCOME TAXES - (Continued)
As of January 31, 2000 and 2001, the valuation allowance relates to
the net operating loss carryforwards available in connection with a previous
business combination in November 1995 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,
1999 2000 2001
------------------ ------------------- ------------------
Amount Rate Amount Rate Amount Rate
---------- ------ ----------- ------ ---------- ------
Income at statutory rates $6,892,512 35.00% $ 8,865,707 35.00% $7,534,325 35.00%
State taxes, net of
federal benefit 712,887 3.62 767,517 3.03 1,016,058 4.72
Varying tax rates in foreign
jurisdictions -- -- -- -- (363,800) (1.69)
Other 81,472 .41 367,931 1.45 (95,683) (0.44)
---------- ----- ----------- ----- ---------- -----
Total income taxes $7,686,871 39.03% $10,001,155 39.48% $8,090,900 37.59%
========== ===== =========== ===== ========== =====
11. RELATED PARTY TRANSACTIONS
Prior to August 1998, the Company leased from National Trading
Manufacturing, Inc. ("National Trading"), a company controlled by the former
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
year ended January 31, 1999, the Company made lease payments to National
Trading of $144,500. 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, 2001, the
principal amount and accrued interest on the demand note due to the Company
was $124,500 and is reflected in the Company's Consolidated Balance Sheet in
Prepaid expenses and other assets. The demand note plus accrued interest was
repaid in April 2001.
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, 2001,
the principal amount of loans outstanding and accrued interest was $598,175
and is 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 March 2002.
In February 2000, the Company repurchased the 7.5% Debenture held by
its former chairman and National Trading. The Company paid $2.652 million to
acquire $2.184 million 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.
34
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES
January 31,
1999 2000 2001
----------- ---------- -----------
Conversion of 7.5% Convertible Debentures
into Common Stock $187,315 $184,284
======== ========
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 11):
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 $373,273
======== ========
Transactions in connection with the
Arden acquisition (See Notes 2 and 13):
Inventories acquired $77,430,000
===========
Other assets acquired $21,329,000
===========
Accounts payable to Unilever $12,578,000
===========
Other liabilities assumed $13,592,000
===========
Provisions for returns and store closures $26,724,000
===========
Warrants issued $ 3,043,000
===========
Issuance of convertible preferred stock $35,000,000
===========
13. CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Convertible Preferred Stock. At January 31, 2001, the Company had
outstanding 416,667 shares, $120 per share liquidation preference, of Series
D Convertible Preferred Stock, $.01 par value (the "Series D Convertible
Preferred Stock") issued to Unilever in connection with the Arden
acquisition. Each share of Series D Convertible Preferred Stock is
convertible into 10 shares of the Company's Common Stock, subject to certain
restrictions, at a conversion price of $12 per share of Common Stock. The
holder of the Series D Convertible Preferred Stock will be entitled to
convert up to 33.33% of its shares after January 23, 2002, up to 66.66% after
January 23, 2003 and all of its shares after January 23, 2004. In addition,
cumulative dividends of 5% of the outstanding liquidation preference of the
Series D Convertible Preferred Stock will begin to accrue on the January 23,
2003 and will be payable in cash or in additional shares of Series D
Convertible Preferred Stock. The Company is required to redeem the Series D
Convertible Preferred Stock on January 23, 2013 at the aggregate liquidation
value of all of the then outstanding shares plus accrued and unpaid
dividends. In addition, the Company may redeem all or part of the Series D
Convertible Preferred Stock plus accrued and unpaid dividends at any time
after February 2, 2002, subject to the waiver of certain restrictions under
its bank credit facility and compliance with certain limitations under the
Indentures
35
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY - (Continued)
governing its senior notes, at a redemption price of $25.00 multiplied by the
number of shares of Common Stock into which the shares of Series D
Convertible Preferred Stock can be converted plus accrued and unpaid
dividends. The Series D Convertible Preferred Stock was recorded at its fair
market value of $35 million and the difference between the fair market value
and the liquidation value of $50 million is being accreted over the life of
the Series D 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 was convertible, at the option of the
holder, into 7.12 shares of Common Stock upon payment of $3.30 per share of
Common Stock. Each share of Series C Convertible Preferred was convertible,
at the option of the holder, into one share of Common Stock upon payment of
$5.25 per share of Common Stock. The Series B Convertible Preferred and the
Series C Convertible Preferred could be redeemed by January 31, 2005. In
connection with the Arden Acquisition, an irrevocable notice of redemption
was sent to holders of the Series B and Series C Convertible Preferred.
Substantially all of the holders of Series B and Series C Convertible
Preferred converted their shares into Common Stock. As a result of this
conversion, the outstanding Common Stock increased by approximately 2.4
million shares and the Company received $8.8 million in cash.
Warrants. In conjunction with the issuance of the 11 3/4% Senior
Secured Notes and the placement of the New Credit Facility related to the
cash financing for the Arden acquisition, the Company issued warrants for
209,653 shares of Common Stock. The warrants can be exercised into Common
Stock at an exercise price of $.01 per common share and were recorded at fair
market value of $3,043,000.
Earnings Per Share. The following table represents the computation
of earnings per share:
Years Ended January 31,
1999 2000 2001
----------- ----------- -----------
Basic
Net income $12,006,020 $15,329,436 $13,435,743
=========== =========== ===========
Weighted average shares outstanding 13,774,993 13,801,196 13,554,419
========== ========== ==========
Net income per basic share $0.87 $1.11 $0.99
===== ===== =====
Diluted
Net income $12,006,020 $15,329,436 $13,435,743
Add: 7.5% Convertible Subordinated
Debentures
Interest, net of tax 163,933 109,313 110,179
----------- ----------- -----------
Net income as adjusted $12,169,953 $15,438,749 $13,545,922
=========== =========== ===========
Weighted average shares outstanding 13,774,993 13,801,196 13,554,419
Potential common shares -
treasury method 2,448,181 1,444,376 1,598,463
Assumed conversion of 7.5%
Convertible Subordinated
Debentures 505,624 331,850 365,585
Series D Convertible Preferred Stock -- -- 101,902
---------- ---------- ----------
Weighted average shares and potential
dilutive shares 16,728,798 15,577,422 15,620,369
========== ========== ==========
Net income per diluted share $0.73 $0.99 $0.87
===== ===== =====
36
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. STOCK OPTION PLANS
At January 31, 2001, the Company had three stock option plans, one
for the benefit of non-employee directors (the "Non-Employee Director Plan")
and two for the benefit of directors, officers and employees: (i) the 1995
Stock Option Plan, and (ii) the 2000 Stock Incentive Plan. The 2000 Stock
Incentive Plan was adopted by the Board and approved by the Company's
shareholders in January 2001.
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 500,000.
The stock options awarded under the 1995 Stock Option Plan and the
2000 Stock Incentive Plan are exercisable at any time or in any installments
as determined by the Compensation Committee of the Board at the time of
grant. The options granted under the 1995 Stock Option Plan and the 2000
Stock Incentive 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. Stock options for
all such shares have been granted. The maximum number of shares of common
stock authorized under the 2000 Stock Incentive Plan is 3,000,000.
The option activities of all plans are as follows:
Years Ended January 31,
1999 2000 2001
---------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ------ --------- ------ --------- ------
Beginning outstanding 806,540 $ 4.80 1,300,940 $ 8.06 1,093,000 $ 9.42
Granted 530,000 12.72 265,000 6.11 2,174,376 11.21
Exercised (35,600) 3.30 (441,440) 3.38 (82,169) 5.92
Canceled -- -- (31,500) 10.32 (34,666) 9.10
--------- ------ --------- ------ --------- ------
Ending outstanding 1,300,940 $ 8.06 1,093,000 $ 9.42 3,150,541 $10.75
========= ====== ========= ====== ========= ======
Exercisable as of
January 31, 1999,
2000 and 2001 1,190,585 885,682 924,841
========= ======= =======
Weighted average fair
value of options
granted during the year 530,000 $ 9.33 265,000 $ 3.54 2,174,376 $ 7.03
======= ====== ======= ====== ========= ======
37
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. STOCK OPTION PLANS - (Continued)
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 2001 Life Price 2001 Price
- -------------- ------------ ----------- -------- ----------- --------
$ 5.25 - 6.00 235,665 2.9 $ 5.94 164,341 $ 5.91
$ 6.50 - 9.38 1,134,126 5.3 7.98 262,500 7.29
$12.50 - 16.38 1,780,750 9.0 13.15 498,000 12.73
- -------------- --------- ------ ------- ------
$ 5.25 - 16.38 3,150,541 7.2 $10.75 924,841 $ 9.98
============== ========= ====== ======= ======
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, 1999, 2000 and 2001 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 1999, 2000
and 2001 been recognized as compensation expense as prescribed by SFAS No.
123:
Years Ended January 31,
1999 2000 2001
--------------------------------------
Pro forma net income $9,254,000 $14,747,000 $12,139,473
========== =========== ===========
Pro forma net income per
common share:
Basic $0.67 $1.07 $0.90
===== ===== =====
Diluted $0.56 $0.95 $0.78
===== ===== =====
The fair value of each option granted is estimated on the grant date
using the Black-Scholes option pricing model with the following assumptions:
Years Ended January 31,
1999 2000 2001
----------------------------------
Expected dividend yield 0.00% 0.00% 0.00%
Expected price volatility 74.42% 67.46% 66.00%
Risk-free interest rate 5.50% 6.00% 5.50%
Expected life of options in years 4 - 8 4 - 8 4 - 8
15. QUARTERLY DATA (Unaudited)
Condensed consolidated quarterly information as follows:
April 30, July 31, October 31, January 31,
2000 2000 2000 2001
----------- ----------- ------------ -----------
Net sales $65,708,707 $66,909,358 $163,427,548 $86,208,617
Gross profit $17,074,170 $20,851,554 $ 46,833,832 $25,891,576
Income from operations $ 3,806,574 $ 5,313,057 $ 25,782,011 $ 5,892,437
Net (loss) income $ (323,962) $ 637,286 $ 12,522,425 $ 599,994
Earnings per common shares:
Basic $(.02) $.05 $.95 $.04
===== ==== ==== ====
Diluted $(.02) $.04 $.83 $.04
===== ==== ==== ====
38
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. QUARTERLY DATA (Unaudited)
April 30, July 31, October 31, January 31,
1999 1999 1999 2000
----------- ----------- ------------ -----------
Net sales $57,532,267 $59,711,563 $153,719,284 $90,279,992
Gross profit $14,698,901 $21,879,271 $ 47,107,410 $23,997,347
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
====== ===== ===== =====
16. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following financial statements of the Company show in separate
columns those subsidiaries that are guarantors of the 11 3/4% Senior Secured
Notes, elimination adjustments and the consolidated total. All of the
Company's direct subsidiaries, DF Enterprises, Inc., FD Management, Inc. and
Elizabeth Arden International Holding Co., are guarantors of the 11 3/4%
Senior Secured Notes. All information presented is in thousands.
Balance Sheet January 31, 2001
Company Guarantors Eliminations Consolidated
----------------------------------------------------
Assets
Cash and cash equivalents $ 4,004 $ 13,691 $ -- $ 17,695
Accounts receivable, net 50,212 (1,830) -- 48,382
Inventories and advances 188,535 21,961 -- 210,497
Intercompany receivable 211,216 -- (211,216) --
Prepaid expenses 8,043 4,544 -- 12,587
-------- -------- --------- --------
Total current assets 462,010 38,366 (211,216) 289,161
-------- -------- --------- --------
Property plant and equipment, net 34,147 6,583 -- 40,730
-------- -------- --------- --------
Other assets
Exclusive brand licenses and
trademarks, net 47,146 180,070 -- 227,216
Other assets 26,038 1 -- 26,039
-------- -------- --------- --------
Total other assets 73,184 180,071 -- 253,255
Total assets $569,342 $225,020 $(211,216) $583,146
======== ======== ========= ========
Current liabilities
Short-term debt $ 22,945 $ -- $ -- $ 22,945
Accounts payable - trade 39,223 1,028 -- 40,251
Intercompany payable -- 211,216 (211,216) --
Other payables and accrued
expenses 33,197 11,034 -- 44,231
Current portion of long-term
debt 1,145 -- -- 1,145
-------- -------- --------- --------
Total current liabilities 96,510 223,278 (211,216) 108,572
-------- -------- --------- --------
Long-term liabilities
10 3/8% senior notes 157,030 -- -- 157,030
11 3/4% senior secured notes 160,000 -- -- 160,000
Other debt 14,115 -- -- 14,115
-------- -------- --------- --------
Total long-term liabilities 331,145 -- -- 331,145
-------- -------- --------- --------
Convertible redeemable preferred
stock 35,000 -- -- 35,000
-------- -------- --------- --------
Shareholders' equity 106,686 1,742 -- 108,429
-------- -------- --------- --------
Total liabilities and
shareholders' equity $569,342 $225,020 $(211,216) $583,146
======== ======== ========= ========
39
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (Continued)
Statement of Income For the Year Ended
January 31, 2001
Company Guarantors Eliminations Consolidated
------------------------------------------------------
Net Sales $378,229 $4,025 $-- $382,254
Cost of sales 270,641 962 -- 271,603
-------- ------ --------- --------
Gross profit 107,588 3,063 -- 110,651
-------- ------ --------- --------
Operating expenses 56,983 750 -- 57,733
Depreciation and amortization 11,950 174 -- 12,124
Income from operations 38,656 2,139 -- 40,795
Interest and other income (expense) (19,372) 104 -- (19,268)
-------- ------ --------- --------
Income before income taxes 19,284 2,243 -- 21,527
Income taxes 7,590 501 -- 8,091
-------- ------ --------- --------
Net income $ 11,694 $1,742 $-- $ 13,436
======== ====== ========= ========
40
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 following sets forth the names and ages of each of our directors
and executive officers and the positions they hold:
Name Age Position with the Company
- ---- --- -------------------------
E. Scott Beattie 42 Chairman, President and Chief Executive Officer
Paul West 51 Executive Vice President and Chief Operating Officer
Gretchen Goslin 40 Executive Vice President, Business Development
Oscar E. Marina 41 Senior Vice President, General Counsel and Secretary
Elizabeth Tuttle 44 Senior Vice President, Finance and Treasurer
Rafael Kravec 69 Director
J. W. Nevil Thomas 63 Director
Fred Berens 58 Director
Richard C.W. Mauran 67 Director
George Dooley 68 Director
Each of our directors and executive officers will serve until the next
annual meeting of shareholders or until their death, resignation or removal,
whichever is earlier. Directors are elected annually and executive officers
hold office for such terms as may be determined by our board of
directors.
E. SCOTT BEATTIE has served as Chairman of the Board since April
2000, as President and Chief Executive Officer since March 1998 and as one of
our directors since November 1995. Mr. Beattie served as our President and
Chief Operating Officer from March 1997 to March 1998 and as the Vice
Chairman of the Board and Assistant Secretary from January 1995 to March
1997. Mr. Beattie served as Executive Vice President of Bedford Capital
Corporation, a Toronto, Canada-based merchant banking firm, from March 1995
through March 1998 and as President of ESB Consultants, Inc. from September
1989 to September 1997. Prior to co-founding Bedford Capital Corporation,
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 has been a director of Bedford Capital Corporation
since 1988 and was a director of Janna Systems, Inc. from 1995 until its sale
to Siebel Systems, Inc. in October 2000. Mr. Beattie has also been a
director of FRI Corporation, a Toronto, Canada-based data management
corporation, since November 2000. 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.
PAUL WEST has served as our Executive Vice President and Chief
Operating Officer since November 2000, as our Executive Vice President, Sales
Management and Planning since March 2000 and as our Senior Vice President,
Sales Management and Planning from April 1998 through March 2000. Mr. West
served as the President of J.P. Fragrances, Inc. 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. from May 1996 through
December 1996. From September 1989 through May 1996, Mr. West served as the
Chief Financial Officer of the Elizabeth Arden Company. Mr. West earned a
Bachelor of Science degree in Business Administration from Villanova
University in 1971.
41
GRETCHEN GOSLIN has served as our Executive Vice President, Business
Development since November 2000, as our Executive Vice President, Marketing
since March 2000, as Senior Vice President, Marketing from June 1998 until
March 2000, and as Vice President, Marketing from November 1995 until June
1998. Ms. Goslin earned a Bachelor of Business Administration degree in
Marketing from the University of Miami in 1982.
OSCAR E. MARINA has served as our Senior Vice President, General
Counsel and Secretary since March 2000, and as our Vice President General
Counsel and Secretary 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 earned a juris doctor degree from Harvard Law School in 1988 and
earned a Bachelor of Science in Pharmacy from the University of Florida in
1982.
ELIZABETH A. TUTTLE has served as our Senior Vice President, Finance
and Treasurer, since November 2000. Ms. Tuttle provided consulting services
to the Company from May 2000 to November 2000. From January 1998 through
February 2000, Ms. Tuttle was the Chief Financial Officer of Long Distance
International, Inc., a telecommunications company. From 1991 to December
1997, Ms. Tuttle served as a financial executive at ITT Corporation, a multi-
industry corporation, most recently as Senior Vice President and Treasurer.
Ms. Tuttle earned a Bachelor of Art from Cornell University in 1978 and a
Master of Business Administration from Dartmouth College in 1982.
RAFAEL KRAVEC has served as one of our directors since July 1992 and
served as Chairman of the Board from April 1997 to April 2000. Mr. Kravec
served as our Chief Executive Officer from July 1992 until March 1998 and as
the President of our predecessor company from July 1992 to November 1995.
J. W. NEVIL THOMAS has served as our Vice Chairman of the Board since
April 1997 and served as Chairman of the Board from July 1992 until April
1997. Since 1970, Mr. Thomas has served as President of Nevcorp, a financial
and management consulting firm controlled by Mr. Thomas. Mr. Thomas is an
officer and director of Bedford Capital Corporation and a director of Pet
Valu, Inc., a pet food retailer.
FRED BERENS has served as one of our directors since July 1992. Mr.
Berens has served as Senior Vice President, Investments of Prudential
Securities, Inc., an investment banking firm, since March 1965.
RICHARD C.W. MAURAN has served as one of our directors since July
1992. Mr. Mauran is a private investor and director Bedford Capital
Corporation, and a director of Microbix Biosystems, Inc., a biotechnology
company, Pet Valu, Inc., and US Physical Therapy, Inc., which owns and
operates physiotherapy centers.
GEORGE DOOLEY has served as one of our directors since March 1996.
Mr. Dooley has served as President and Chief Executive Officer of Community
Television Foundation of South Florida, Inc., a not-for-profit corporation
supporting, and a licensee of, public television station WPBT Channel 2,
since 1972; WPBT Communications Foundation, Inc., a not-for-profit
corporation supporting public television station WPBT channel 2, since 1981;
and Comtel, Inc., a company providing television facilities to television
producers, since 1981.
Section 16(a) Beneficial Ownership Reporting Compliance
Federal securities laws require our directors, executive officers,
and persons who beneficially own more than 10 percent of our common stock to
file reports of initial ownership and reports of subsequent changes in
ownership with the Securities and Exchange Commission and to provide us
copies of these reports. Specific due dates have been established and we are
required to disclose any failure of these persons to file timely those
reports during our fiscal year ended January 31, 2001. To the best of our
knowledge, based solely upon a review of copies of reports furnished to us
and written representations that no other reports were required, all of our
directors, executive officers and 10 percent or greater beneficial owners of
common stock made all such filings timely, with the exception of one report
reporting one transaction for each of director and officer E. Scott Beattie
and officer Paul West, and one report reporting two transactions for each of
director Rafael Kravec and director J. W. Nevil Thomas, which were
inadvertently filed late.
42
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual
compensation for services in all capacities to us for the twelve months ended
January 31, 2001, January 31, 2000 and January 31, 1999 of the Chief
Executive Officer and each of our four other most highly compensated
executive officers:
Annual Compensation Long-Term Compensation
-------------------------------------------------- -----------------------------------
Other Common
Annual Stock
Name and Compensation Underlying All Other
Principal Position Year Salary($) Bonus($) ($) Options(#) Compensation($)
- -------------------------- ------- --------- ----------- ------------ ----------- -------------------
E. Scott Beattie 1/31/01 375,000 220,313 3,984 550,000 9,499
Chairman, President and 1/31/00 375,000 200,000 3,961 100,000 4,164
Chief Executive Officer 1/31/99 367,790 100,000 3,745 400,000 204
Paul West
Executive Vice President 1/31/01 250,000 126,563 2,686 220,750 7,433
and Chief Operating 1/31/00 250,000 100,000 269 50,000 3,631
Officer 1/31/99 198,000 15,000 -- -- 1,502
Gretchen Goslin 1/31/01 222,115 91,406 1,828 130,750 6,884
Executive Vice President, 1/31/00 197,116 100,000 207 10,000 3,517
Business Development 1/31/99 175,000 80,000 -- 10,000 1,113
Oscar E. Marina 1/31/01 187,693 83,600 1,941 110,750 6,880
Senior Vice President, 1/31/00 170,000 75,000 296 10,000 3,424
General Counsel and 1/31/99 168,077 70,000 -- 10,000 1,332
Secretary
Elizabeth A. Tuttle 1/31/01 130,000 45,000 -- 55,750 564
Senior Vice President,
Finance and Treasurer
The amounts shown for "1/31/01," "1/31/00" and "1/31/99" are for the fiscal years ended January 31, 2001,
2000 and 1999, respectively.
On an annual basis, we, in conjunction with the compensation committee of our board of directors,
establish an annual bonus program for members of our management and other key personnel and set certain
company objectives and individual key performance indicators that must be achieved in order to receive
bonus awards.
During the fiscal years ended January 31, 2001 and 2000, respectively, the named executives were
reimbursed for the following amounts of taxes incurred as a result of the payment of executive disability
insurance premiums: (a) E. Scott Beattie $3,984 and $216; (b) Paul West - $2,686 and $269; (c) Gretchen
Goslin - $1,828 and $207; and (d) Oscar E. Marina - $1,941 and $296. The amounts shown for Mr. Beattie
also include $3,745 for fiscal 2000 and 1999 that were reimbursed by us for the payment of taxes on the
value received by him from a company-provided automobile. The amounts reflected in the above table do not
include any amounts for perquisites and other personal benefits. The aggregate amount of such compensation
for each named executive did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
and, accordingly, has been omitted from the table as permitted by the rules of the Securities and Exchange
Commission.
Option grants awarded during the fiscal year ended January 31, 2001, include options to purchase 150,000,
100,000, 75,000 and 50,000 shares of common stock which were granted in March 2000 to Mr. Beattie, Mr.
West, Ms. Goslin and Mr. Marina, respectively, for fiscal year ended January 31, 2001 performance.
Consists of matching payments made by us under our 401(k) plan, term life insurance premiums and
disability insurance premiums paid or reimbursed by us, as follows:
401(k) Life Disability
Name Year Match ($) Insurance($) Insurance($)
------------------- ------- --------- ------------ ------------
E. Scott Beattie 1/31/01 2,595 1,110 5,794
1/31/00 2,889 131 1,144
1/31/99 -- 28 176
Paul West 1/31/01 2,262 850 4,321
1/31/00 2,400 94 1,137
1/31/99 1,298 28 176
Gretchen Goslin 1/31/01 2,597 788 3,499
1/31/00 2,429 97 991
1/31/99 909 28 176
Oscar E. Marina 1/31/01 2,590 644 3,646
1/31/00 2,400 89 935
1/31/99 1,128 28 176
Elizabeth A. Tuttle 1/31/01 231 144 189
Mr. West was appointed an executive officer in the capacity of Senior Vice President, Sales
Management and Planning in March 1999. Mr. West joined us in April 1998.
Ms. Tuttle was appointed to the position of Senior Vice President, Finance and Treasurer in
October 2000. Salary for 1/31/01 represents $50,000 in salary paid to Ms. Tuttle following
her becoming an employee in October 2000, and $80,000 in consulting fees paid to Ms. Tuttle
prior to her joining us as a full-time employee during the fiscal year ended January 31, 2001.
43
Options Granted In Last Fiscal Year
The following table sets forth information concerning stock options
granted during the twelve months ended January 31, 2001 to the named
executives.
% of Total
Options Potential Realizable Value at
Common Granted to Assumed Annual Rates of Stock
Stock Employees Price Appreciation
Underlying In Exercise or For Option Term ($)
Options Fiscal Base Price Expiration -----------------------------
Name Granted Year ($/Share) Date 5% 10%
- ------------------- ---------- ---------- ------------ ---------- -----------------------------
E. Scott Beattie 150,000 8.125 3/6/05 336,718 744,059
400,000 26.0% 13.3125 1/31/11 3,348,864 8,486,679
Paul West 100,000 8.125 3/6/05 224,479 496,039
60,750 8.4375 10/6/10 322,358 816,918
60,000 10.5% 13.3125 1/31/11 502,330 1,273,002
Gretchen Goslin 75,000 8.125 3/6/05 168,359 372,030
30,750 8.4375 10/6/10 163,169 413,501
25,000 6.2% 13.3125 1/31/11 209,304 530,417
Oscar E. Marina 50,000 8.125 3/6/05 112,239 248,020
30,750 8.4375 10/6/10 163,169 413,501
30,000 5.2% 13.3125 1/31/11 251,165 636,501
Elizabeth A. Tuttle 30,750 8.4375 10/6/10 163,169 413,501
25,000 2.6% 13.3125 1/31/11 209,304 530,417
The exercise price of the options granted was based upon the market price of the common stock
on the date of the respective grants.
Amounts represent hypothetical gains that could be achieved for the respective options if
exercised at the end of the option term. These gains are based on assumed rates of stock price
appreciation of 5% and 10% compounded annually from the date the respective options were granted
to their expiration dates. Hypothetical gains are calculated based on rules promulgated by the
Securities and Exchange Commission and do not represent an estimate by us of our future stock
price growth. This table does not take into account any appreciation in the price of our common
stock to date. Actual gains, if any, on option exercises and common stock holdings are dependent
on the timing of such exercises and the future performance of the common stock. There can be no
assurances that the rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the named executives.
These options vest in full three years from the date of grant. These options differ from our
typical option grants, which vest in thirds over three years from the anniversary date of the
grant.
44
Fiscal Year-End Option Values
The following table sets forth certain information concerning options
exercised by the named executives during the fiscal year ended January 31,
2001 and unexercised options held by the named executives at January 31,
2001:
Number Value of
of Securities Unexercised
Underlying In-the-Money
Unexercised Options Options
Shares at Fiscal Year End at Fiscal Year End($)
Acquired on Value Exercisable / Exercisable /
Name Exercise(#) Realized($) Unexercisable Unexercisable(U)
- ------------------- ----------- -------------- ------------------- ---------------------
E. Scott Beattie 50,000 350,000 574,168 / 583,332 1,519,504 / 1,021,865
Paul West -- -- 33,334 / 237,416 243,755 / 936,776
Gretchen Goslin -- -- 26,667 / 134,083 125,002 / 563,341
Oscar E. Marina -- -- 46,667 / 114,083 267,452 / 433,654
Elizabeth A. Tuttle -- -- 0 / 55,750 0 / 149,906
Value is based on the difference between the option exercise price and the fair market value per
share of common stock on the date of exercise multiplied by the number of shares underlying the
option.
Value is based on the difference between the option exercise price and the fair market value of
the common stock on January 31, 2001, multiplied by the number of shares underlying the option.
Director Compensation
Directors who are our employees receive no additional monetary
compensation for serving on our board of directors or any of its committees.
Directors who are not our employees (currently Messrs. Thomas, Berens, Dooley
and Mauran) receive an annual retainer of $3,000 and a fee of $500 for each
meeting of the board of directors or a committee of the board of directors
attended. The board of directors also reimburses all directors for all
expenses incurred in connection with their activities as directors. Under
the terms of our Non-Employee Directors Plan, non-employee directors will
receive stock options for 7,000 shares of common stock upon their initial
election to the board of directors and stock options for 15,000 shares of
common stock (which was increased from 7,500 by an amendment to the plan
approved by our shareholders in January 2001) annually upon reelection to the
board of directors at the annual meeting of shareholders. All options
granted under the Non-Employee Directors Plan are exercisable one year from
the date of grant. During the fiscal year ended January 31, 2001, upon their
reelection to the board of directors at the annual meeting of shareholders in
June 2000, Messrs. Thomas, Berens, Dooley and Mauran were each granted stock
options under the Non-Employee Directors Plan for 7,500 shares.
45
Compensation Committee Interlocks and Insider Participation
Mr. Fred Berens served as a member of the compensation committee of
our board of directors for the fiscal year ended January 31, 2001. Mr.
Berens owned $546,000 principal amount of our 7.5% Convertible Debentures due
2006, which were converted by Mr. Berens into common stock in April 2001.
See Item 13. "Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 25, 2001, (i) the
ownership of common stock by all persons known by us to own beneficially more
than 5% of the outstanding shares of our common stock, and (ii) the
beneficial ownership of common stock by (a) our directors, (b) the chief
executive officer and the four other most highly compensated executive
officers for the fiscal year ended January 31, 2001, and (c) all of our
directors and executive officers as a group, without naming them:
Common Stock
-----------------------------
Amount and
Nature of Percentage
Name and Address Beneficial of the
of Beneficial Owner Ownership Class
- ---------------------- ------------ ----------
E. Scott Beattie 1,108,323 6.3%
Paul West 88,599 *
Gretchen Goslin 67,567 *
Oscar E. Marina 69,889 *
Elizabeth A. Tuttle -- *
J.W. Nevil Thomas 461,868 2.7
Rafael Kravec 1,469,890 8.7
Fred Berens 850,253 5.0
Richard C.W. Mauran 1,885,096 11.1
George Dooley 53,500 *
SAFECO Corporation 1,176,700 7.0
All directors and
executive officers as a
group (10 persons) 5,929,985 33.1
____________________
* Less than one percent of the class.
The address of each of the persons shown in the above table other than
Messrs. Thomas and Mauran and SAFECO Corporation is c/o Elizabeth Arden,
Inc., 14100 N.W. 60th Avenue, Miami Lakes, Florida 33014. The address
of Mr. Thomas is Scotia Plaza, 40 King Street W., Suite 4712, Toronto,
Canada M5H 3Y2. The address of Mr. Mauran is 31 Burton Court, Franklins
Row, London SW3, England. The address of SAFECO Corporation is SAFECO
Plaza, Seattle, Washington 98185.
46
Includes, where applicable, shares of common stock issuable upon the
exercise of options to acquire common stock held by such persons which
may be exercised within 60 days after April 25, 2001. Unless otherwise
indicated, we believe that all persons named in the table above have
sole voting power and investment power with respect to all shares of
common stock beneficially owned by them.
Common stock includes (i) 261,622 shares of Common Stock owned by Mr.
Beattie, (ii) 657,500 shares of common stock issuable upon the exercise
of stock options and (iii) the shares of common stock referred to in
Note (9). The common stock also includes 64,201 shares of common stock
owned by E.S.B. Consultants, Inc., a company that, until September 1997
was controlled by Mr. Beattie and as to which he disclaims beneficial
ownership.
The common stock includes (i) 5,265 shares of common stock owned
individually by Mr. West and (ii) 83,334 shares of common stock issuable
upon the exercise of stock options.
The common stock includes (i) 12,567 shares of common stock owned
individually by Ms. Goslin and (ii) 55,000 shares of common stock
issuable upon the exercise of stock options.
The common stock includes (i) 23,222 shares of common stock owned
individually by Mr. Marina and (ii) 46,667 shares of common stock
issuable upon the exercise of stock options.
The Common Stock includes 37,865, 26,181, 4,772, 225,768 and 129,782
shares of common stock owned by Mr. Thomas, his spouse, four trusts for
the benefit of his children and for which he serves as a trustee, Exeter
Investments Holding, Inc., a subsidiary of a trust for which Mr. Thomas
and his family are sole beneficiaries (as to which Mr. Thomas disclaims
beneficial ownership), and Nevcorp, Inc., a corporation controlled by
Mr. Thomas, respectively. The common stock also includes 37,500 shares
of common stock issuable upon the exercise of stock options owned by Mr.
Thomas. Mr. Thomas disclaims beneficial ownership as to the shares of
common stock owned by Mr. Thomas' spouse and the four trusts.
The common stock includes (i) 1,433,365 shares of common stock owned by
Mr. Kravec, including 1,000 shares owned by Mr. Kravec's daughter and as
to which he disclaims beneficial ownership and (ii) 36,525 shares of
common stock owned by National Trading Manufacturing, Inc., a company
controlled by Mr. Kravec.
The common stock includes 125,000 shares of common stock for which Mr.
Beattie has an option to purchase.
The common stock includes (i) 812,753 shares of common stock and (ii)
37,500 shares of common stock issuable upon the exercise of stock
options.
The common stock includes 109,114, 1,637,976, and 100,506 shares of
common stock owned by Mr. Mauran, Euro Credit Investments Limited, a
company controlled by Mr. Mauran; and Bed B.V.I. Corp., a company
controlled by Mr. Mauran, respectively. The common stock also includes
37,500 shares of common stock issuable upon the exercise of stock
options owned by Mr. Mauran.
The common stock includes 44,500 shares of common stock issuable upon
the exercise of stock options. The remaining 9,000 shares of common
stock are owned by Mr. Dooley together with his spouse as joint tenants
with right of survivorship.
Based on a Schedule 13G dated December 31, 2000, SAFECO Corporation has
shared voting and dispositive power over 1,176,700 shares of Common
Stock, including 1,127,500 shares which are owned beneficially by
registered investment companies for which SAFECO Corporation's
subsidiary, SAFECO Asset Management Company, is an advisor.
The common stock includes 999,501 shares of common stock issuable upon
the exercise of stock options.
47
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have, and may continue to be, engaged in transactions with our
directors or officers or beneficial owners of more than 5% of our common
stock. Our policy with regard to transactions with directors, officers or
these owners is to require that such transactions be on terms no less
favorable to us than those that would have been obtained in a comparable
transaction by us with an unrelated third party.
In August 1998, National Trading Manufacturing, Inc., a corporation
controlled by Mr. Kravec, one of our directors, sold a facility that formerly
served as our executive offices to an unaffiliated third party. We had an
option to purchase that facility. As part of the consideration for
relinquishing our option to purchase the facility, National Trading
Manufacturing issued to us a promissory note in the aggregate principal
amount of $300,000. The note was payable upon demand and bore interest at
8.5% per annum. At January 31, 2001, $100,000 principal amount of the note,
plus accrued interest of $24,500, was outstanding, which represented the
highest amount outstanding during the fiscal year ended January 31, 2001. In
April 2001, National Trading Manufacturing paid off the outstanding note plus
accrued interest.
At January 31, 2001, we had outstanding approximately $2,410,000
aggregate principal amount of our 7.5% Convertible Debentures, of which:
* $546,000 in aggregate principal amount were owned by Mr. Berens,
one of our directors,
* $798,942 in aggregate principal amount were owned by Mr. Mauran,
one of our directors, and Devonshire Trust, a trust of which Mr.
Mauran is a trustee, and
* $8,374 in aggregate principal amount were owned by Mr. Beattie, our
Chairman, President and Chief Executive Officer.
In April 2001, Messrs. Berens, Beattie and Mauran and Devonshire
Trust converted their 7.5% Convertible Debentures into an aggregate of
187,960 shares of common stock.
In February 2000, we repurchased $2,184,000 aggregate principal
amount of the 7.5% Convertible Debentures owned by Mr. Kravec and National
Trading for an aggregate purchase price of $2,652,000.
During the fiscal year ended January 31, 1999, we provided loans to
Mr. Beattie in the aggregate principal amount of $500,000 for payment of
certain Canadian tax liabilities resulting from his relocation to Florida. At
January 31, 2001, the principal amount of loans outstanding and accrued
interest were approximately $598,000 cumulatively, which represents the
highest amount outstanding during the fiscal year ended January 31, 2001. The
loans accrue interest at 8.5% per annum and mature in March 2002.
48
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 18 and included on
pages 19 through 40.
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 January 24, 2001 (incorporated herein by reference to
Exhibit 3.1 filed as part of the Company's Form 8-K dated
February 7, 2001 (Commission File No. 1-6370)).
3.2 Amended and Restated By-laws of the Company (incorporated herein
by reference to Exhibit 3.3 filed as part of the Company's Form
10-Q for the quarter ended October 31, 2000 (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 part of the Company's
Form 8-K dated May 13, 1997 (Commission File No. 1-6370)).
4.2 Second Supplemental Indenture, dated as of January 23, 2001, to
Indenture dated as of May 13, 1997, by and among the Company, the
guarantors signatory thereto and HSBC Bank USA, as trustee
(incorporated herein by reference to Exhibit 4.2 filed as part of
the Company's Registration Statement on Form S-4 on February 21,
2001 (Registration No. 333-55310)).
4.3 Indenture, dated as of April 27, 1998, between the Company and
HSBC Bank USA, as trustee (incorporated herein by reference to
Exhibit 4.1 filed as part of the Company's Form 8-K dated April
27, 1998 (Commission File No. 1-6370)).
4.4 Second Supplemental Indenture, dated as of January 23, 2001, to
Indenture dated as of April 27, 1998, by and among the Company,
the guarantors signatory thereto and HSBC Bank USA, as trustee
(incorporated herein by reference to Exhibit 4.4 filed as part of
the Company's Registration Statement on Form S-4 on February 21,
2001 (Registration No. 333-55310)).
4.5 Indenture, dated as of January 23, 2001, among the Company, FD
Management, Inc., DF Enterprises, Inc., FFI International, Inc.,
Elizabeth Arden GmbH, as guarantors, and HSBC Bank USA, as
trustee (incorporated herein by reference to Exhibit 4.1 filed as
part of the Company's Form 8-K dated February 7, 2001
((Commission File No. 1-6370)).
4.6 Amended and Restated Credit Agreement dated as of January 29,
2001 among the Company, the banks listed on the signature pages
thereto, Fleet National Bank, as administrative agent, issuing
bank and swingline lender, Credit Suisse First Boston, as
syndication agent, and Fleet Securities, Inc. and Credit Suisse
First Boston, as joint lead arrangers and joint book managers
(incorporated herein by reference to Exhibit 4.3 filed as part of
the Company's Form 8-K dated February 7, 2001 (Commission File
No. 1-6370)).
49
Exhibit
Number Description
- ------- -----------------------------------------------------------------
4.7 Amended and Restated Security Agreement dated as of January 29,
2001, made by the Company and certain of its subsidiaries in
favor of Fleet National Bank, as administrative agent
(incorporated herein by reference to Exhibit 4.5 filed as part of
the Company's Form 8-K dated February 7, 2001 (Commission File
No. 1-6370)).
4.8 Warrant Agreement, dated as of January 23, 2001, between the
Company and Mellon Investor Services, Inc. (incorporated herein
by reference to Exhibit 4.8 filed as part of Amendment No. 1 to
the Company's Registration Statement on Form S-4 on February 21,
2001 (Registration No. 333-55310)).
4.9 Warrant Registration Rights Agreement, dated as of January 23,
2001, among the Company, Credit Suisse First Boston, Cayman
Islands Branch, and Fleet Corporate Finance, Inc. (incorporated
herein by reference to Exhibit 4.9 filed as part of Amendment No.
1 to the Company's Registration Statement on Form S-4 on February
21, 2001 (Registration No. 333-55310)).
4.10 Security Agreement, dated as of January 23, 2001, made by the
Company and certain of its subsidiaries in favor of HSBC Bank
USA, as collateral agent (incorporated herein by reference to
Exhibit 4.4 of the Company's Form 8-K on February 7, 2001
(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 2000 Stock Incentive Plan (incorporated herein by reference to
Exhibit E filed as a part of the Company's Proxy Statement on
December 12, 2000 (Commission File No. 1-6370)).
10.5 Amended Non-Employee Director Stock Option Plan (incorporated
herein by reference to Exhibit F filed as a part of the Company's
Proxy Statement on December 12, 2000 (Commission File No. 1-
6370)).
10.6 Amended 1995 Stock Option Plan (incorporated herein by reference
to Exhibit 4.12 filed as a part of the Company's Registration
Statement on Form S-8 dated July 7, 1999 (Commission File No. 1-
6370)).
10.7 Asset Purchase Agreement, dated as of October 30, 2000, between
the Company and Conopco, Inc. (incorporated herein by reference
to Exhibit 10.6 of the Company's Form 10-Q for the quarter ended
October 31, 2000 (Commission File No. 1-6370)).
50
Exhibit
Number Description
- ------- -----------------------------------------------------------------
10.8 Amendment dated as of December 11, 2000 to the Asset Purchase
Agreement dated as of October 30, 2000, between the Company and
Conopco, Inc. (incorporated herein by reference to Exhibit 2.2
filed as part of the Company's Form 8-K dated February 7, 2001
(Commission File No. 1-6370)).
10.9 Second Amendment dated as of January 23, 2001 to the Asset
Purchase Agreement dated as of October 30, 2000, between the
Company and Conopco, Inc. (incorporated herein by reference to
Exhibit 2.3 filed as part of the Company's Form 8-K dated
February 7, 2001 (Commission File No. 1-6370)).
10.10 Third Amendment dated as of February 7, 2001, to the Asset
Purchase Agreement dated as of October 30, 2000, between the
Company and Conopco, Inc. (incorporated herein by reference to
Exhibit 10.11 filed as part of Amendment No. 1 to the Company's
Registration Statement on Form S-4 on February 21, 2001
(Registration No. 333-55310)).
10.11 Fourth Amendment dated as of February 21, 2001, to the Asset
Purchase Agreement dated as of October 30, 2000, between the
Company and Conopco, Inc. (incorporated herein by reference to
Exhibit 10.12 filed as part of Amendment No. 1 to the Company's
Registration Statement on Form S-4 on February 21, 2001
(Registration No. 333-55310)).
10.12 Fifth Amendment dated as of April 19, 2001, to the Asset Purchase
Agreement dated as of October 30, 2000, between the Company and
Conopco, Inc.
12.1 Ratio of earnings to fixed charges.
21.1 Subsidiaries of the Company.
23.1 Independent Auditors' Consent.
- ------------------------------
The foregoing list omits instruments defining the rights of holders
of our long-term debt where the total amount of securities authorized
thereunder does not exceed 10% of our total assets. We hereby agree 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 3, 2001, was filed on
January 9, 2001 announcing under Item 5, Other Events, that (i) our
shareholders had approved all four proposals at a special meeting including
(a) the issuance of common stock to Unilever in connection with the
acquisition of the Arden business, (b) an amendment to our articles of
incorporation to change our name to Elizabeth Arden, Inc., (c) the adoption
of the 2000 stock incentive plan, and (d) the amendment of the non-employee
director stock option plan; and (ii) we were proposing to make an offering of
$160 million principal amount of senior secured notes in connection with the
acquisition of the Arden business.
(c) Exhibits to Form 10-K.
See Item 14(a)3.
(d) Financial Statement Schedules.
See Item 14(a)2.
51
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 27th
day of April, 2001.
ELIZABETH ARDEN, 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 Executive Officer April 27, 2001
- ----------------------- and Director
E. Scott Beattie (Principal Executive Officer)
/s/ Elizabeth A. Tuttle Senior Vice President, Finance and Treasurer April 27, 2001
- ----------------------- (Principal Financial and Accounting Officer)
Elizabeth A. Tuttle
/s/ Fred Berens Director April 27, 2001
- -----------------------
Fred Berens
/s/ George Dooley Director April 27, 2001
- -----------------------
George Dooley
/s/ Rafael Kravec Director April 27, 2001
- -----------------------
Rafael Kravec
/s/ Richard C.W. Mauran Director April 27, 2001
- -----------------------
Richard C.W. Mauran
/s. J.W. Nevil Thomas Director April 27, 2001
- -----------------------
J.W. Nevil Thomas
52