UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 27, 2002
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 of incorporation) (I.R.S. Employer Identification No.)
14100 N.W. 60th Avenue, Miami Lakes, Florida 33014
(Address of principal executive offices) (Zip Code)
(305) 818-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Outstanding at
Class September 10, 2002
----- ------------------
Common Stock, $.01 par value 18,815,427 shares
2
ELIZABETH ARDEN, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets - July 27, 2002
(Unaudited) and January 31, 2002. . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations -
Three and Six Months Ended July 27, 2002 and July 28, 2001. . . 4
Unaudited Consolidated Statement of Shareholders' Equity -
Six Months Ended July 27, 2002. . . . . . . . . . . . . . . . . 5
Unaudited Consolidated Statements of Cash Flow -
Six Months Ended July 27, 2002 and July 28, 2001. . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements. . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . .18
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . .24
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . .25
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .25
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Certifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
July 27, 2002 January 31, 2002
------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,750 $ 15,913
Accounts receivable, net 110,300 79,720
Inventories 245,027 192,736
Deferred income taxes 15,970 15,970
Prepaid expenses and other assets 30,241 24,372
-------- --------
Total current assets 417,288 328,711
-------- --------
Property and equipment, net 36,863 38,268
-------- --------
Other assets:
Exclusive brand licenses and trademarks, net 206,928 212,011
Debt financing costs 13,873 14,518
Other assets 6,264 3,257
-------- --------
Total other assets 227,065 229,786
-------- --------
Total assets $681,216 $596,765
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 74,000 $ 7,700
Accounts payable - trade 103,919 69,150
Other payables and accrued expenses 62,998 59,259
Current portion of long-term debt 2,312 2,312
-------- --------
Total current liabilities 243,229 138,421
-------- --------
Long-term debt 323,718 326,121
Deferred income taxes and other 8,176 8,309
-------- --------
Total long-term liabilities 331,894 334,430
-------- --------
Total liabilities 575,123 472,851
-------- --------
Commitments and contingencies (See Note 6)
Convertible, redeemable preferred stock,
Series D, $.01 par value (liquidation preference
of $50,000); 1,000,000 shares authorized;
416,667 shares issued and outstanding 13,807 11,980
-------- --------
Shareholders' equity:
Common stock, $.01 par value, 50,000,000
shares authorized; 18,738,610 and 18,575,708
shares issued, respectively 187 186
Additional paid-in capital 88,834 85,919
Retained earnings 13,301 35,191
Treasury stock (377,280 and 950,128 shares
at cost, respectively) (2,814) (6,541)
Accumulated other comprehensive loss (1,200) (2,348)
Unearned deferred compensation (6,022) (473)
-------- --------
Total shareholders' equity 92,286 111,934
-------- --------
Total liabilities and shareholders' equity $681,216 $596,765
======== ========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands except per share data)
Three Months Ended Six Months Ended
July 27, 2002 July 28, 2001 July 27, 2002 July 28, 2001
------------- ------------- ------------- -------------
Net sales $ 127,186 $ 114,858 $ 267,470 $ 237,695
Cost of sales 78,723 80,322 164,838 158,443
--------- --------- --------- ---------
Gross profit 48,463 34,536 102,632 79,252
Operating expenses:
Selling, general and
administrative 47,767 54,639 101,660 109,339
Depreciation and
amortization 6,038 7,703 11,406 15,136
--------- --------- --------- ---------
Total operating
expenses 53,805 62,342 113,066 124,475
--------- --------- --------- ---------
Loss from operations (5,342) (27,806) (10,434) (45,223)
--------- --------- --------- ---------
Other income (expense):
Interest expense, net (10,651) (11,549) (21,055) (22,681)
Other 160 9 141 28
--------- --------- --------- ---------
Other expense, net (10,491) (11,540) (20,914) (22,653)
--------- --------- --------- ---------
Loss before income taxes (15,833) (39,346) (31,348) (67,876)
Benefit from income taxes (5,699) (13,360) (11,285) (23,756)
--------- --------- --------- ---------
Net loss (10,134) (25,986) (20,063) (44,120)
Accretion and dividend on
preferred stock 914 833 1,827 1,667
--------- --------- --------- ---------
Net loss attributable to
common shareholders $ (11,048) $ (26,819) $ (21,890) $ (45,787)
========= ========= ========= =========
Loss per common share:
Basic $ (0.62) $ (1.53) $ (1.24) $ (2.70)
========= ========= ========= =========
Diluted $ (0.62) $ (1.53) $ (1.24) $ (2.70)
========= ========= ========= =========
Weighted average number
of common shares:
Basic 17,719,343 17,496,810 17,715,786 16,969,124
========== ========== ========== ==========
Diluted 23,356,226 23,324,863 23,001,221 22,762,269
========== ========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements.
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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Amounts in thousands)
Accumulated Total
Common Stock Additional Treasury Other Unearned Share-
------------ Paid-In Retained Common Comprehensive Deferred holders'
Shares Amount Capital Earnings Stock Loss Compensation Equity
--------------------------------------------------------------------------------------------
Balance at
January 31, 2002 18,576 $186 $85,919 $35,191 $(6,541) $(2,348) $ (473) $111,934
Issuance of common
stock upon exercise
of stock options 163 1 154 -- -- -- -- 155
Issuance of
restricted stock,
net -- -- 2,761 -- 3,727 -- (6,488) --
Amortization of
unearned deferred
compensation -- -- -- -- -- -- 939 939
Accretion and
dividend on Series D
preferred stock -- -- -- (1,827) -- -- -- (1,827)
Comprehensive loss:
Net loss -- -- -- (20,063) -- -- -- (20,063)
Foreign currency
translation -- -- -- -- -- 1,148 -- 1,148
--------------------------------------------------------------------------------------------
Total comprehensive
loss -- -- -- (20,063) -- 1,148 -- (18,915)
--------------------------------------------------------------------------------------------
Balance at
July 27, 2002 18,739 $187 $88,834 $13,301 $(2,814) $(1,200) $(6,022) $92,286
============================================================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements.
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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
July 27, 2002 July 28, 2001
------------- -------------
Cash Flow from Operating Activities:
Net loss $ (20,063) $ (44,120)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 11,406 15,136
Amortization of senior note offering
costs and note premium 1,308 1,253
Amortization of unearned deferred
compensation 939 --
Provision for write down of inventory -- 10,300
Changes in assets and liabilities:
Increase in accounts receivable (30,580) (48,920)
Increase in inventories (52,291) (68,158)
Increase in prepaid expenses and
other assets (9,955) (24,147)
Increase in accounts payable 34,770 63,257
Increase in other payables and
accrued expenses 3,605 33,492
Other 886 (2,386)
--------- ---------
Net cash used in operating activities (59,975) (64,293)
--------- ---------
Cash Flow from Investing Activities:
Additions to property and equipment,
net of disposals (4,639) (4,976)
--------- ---------
Net cash used in investing activities (4,639) (4,976)
--------- ---------
Cash Flow from Financing Activities:
Net proceeds from short-term debt 66,300 70,670
Payments on long-term debt (2,266) (1,091)
Proceeds from the exercise of stock options 155 998
Proceeds from the exercise of stock purchase
warrants -- 8,287
Repurchase of common stock -- (402)
--------- ---------
Net cash provided by financing activities 64,189 78,462
--------- ---------
Effect of exchange rate changes on cash and
cash equivalents 262 --
Net (decrease) increase in Cash and
Cash Equivalents (163) 9,193
Cash and Cash Equivalents at Beginning of Period 15,913 17,695
--------- ---------
Cash and Cash Equivalents at End of Period $ 15,750 $ 26,888
========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $ 9,417 $ 11,550
========= =========
Income taxes paid during the period $ 134 $ 8,606
========= =========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
6
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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
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 acquisition of
the Elizabeth Arden business on January 23, 2001.
The accompanying unaudited consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission (the "Commission") for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statement presentation
and should be read in conjunction with the financial statements and related
footnotes included in the Company's Annual Report on Form 10-K for the year
ended January 31, 2002, filed with the Commission.
The consolidated balance sheet of the Company as of January 31, 2002 is
audited. The other consolidated financial statements are unaudited, but
include all adjustments, which are of a normal recurring nature (except for
the $10.3 million inventory adjustment in the second quarter of fiscal 2002),
that management considers necessary to fairly present the results for the
interim periods. Results for interim periods are not necessarily indicative
of results for the full fiscal year ending January 31, 2003. In order to
conform to the current fiscal year presentation, certain reclassifications
were made to the prior periods' consolidated financial statements and the
accompanying footnotes.
NOTE 2. RECENTLY ADOPTED ACCOUNTING STANDARDS
ACCOUNTING FOR CERTAIN SALES INCENTIVES
Effective February 1, 2002, the Company adopted Emerging Issues Task
Force ("EITF") 01-09, "Accounting for Consideration Given by a Vendor to a
Customer," which codified and reconciled EITF No. 00-14, "Accounting for
Certain Sales Incentives." EITF No. 00-14 provides guidance on accounting for
discounts, coupons, rebates and free products, as well as the income statement
classification of these discounts, coupons, rebates and free products. Upon
adoption of this pronouncement, the Company classified gift-with-purchase
activities, which were previously reported as selling, general and
administrative expenses, as cost of sales. For comparison purposes, certain
amounts in the Consolidated Statement of Operations for the six months ended
July 28, 2001 were reclassified to reflect the adoption of EITF 01-09. The
adoption of EITF 01-09 had no impact on operating loss; however, for the three
months ended July 27, 2002 and July 28, 2001, gross profit decreased by
approximately $6.1 and $7.7 million, respectively, offset by an equal decrease
in selling, general and administrative expenses. For the six months ended
July 27, 2002 and July 28, 2001, gross profit decreased by approximately $15.5
and $17.4 million respectively, offset by an equal decrease in selling,
general and administrative expenses.
EITF 01-09 also codified and reconciled EITF No. 00-25, "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products." EITF No. 00-25 provides guidance on the
income statement classification of consideration from a vendor to a retailer
in connection with the retailer's purchase of the vendor's products or to
promote sales of the vendor's products. Upon adoption of this pronouncement,
the Company classified amounts paid to retailers for co-op advertising and
beauty consultant expenses as a reduction of net sales. These costs were
previously reported within selling, general and administrative expenses. For
comparison purposes, certain amounts in the Consolidated Statement of
Operations for the six months ended July 28, 2001 were reclassified to reflect
the adoption of EITF 01-09. The adoption of EITF 01-09 had no impact on
operating loss; however, for the three months ended July 27, 2002 and July 28,
2001, gross profit decreased by approximately $14.1 and $12.2 million,
respectively, offset by an equal decrease in selling, general and
administrative expenses. For the six months ended July 27, 2002 and July 28,
2001, gross profit decreased by approximately $27.4 and $31.4 million,
respectively, offset by an equal decrease in selling, general and
administrative expenses.
7
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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. RECENTLY ADOPTED ACCOUNTING STANDARDS - (Continued)
ACCOUNTING FOR BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS
Effective February 1, 2002, the Company adopted SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS
No. 141" and "SFAS No. 142", respectively). These standards establish
financial accounting and reporting standards for acquired goodwill and other
intangible assets. Specifically, the standards address how acquired intangible
assets should be accounted for both at the time of acquisition and after they
have been recognized in the financial statements. The provisions of SFAS No.
141 apply to all business combinations initiated after June 30, 2001. In
accordance with SFAS No. 142, intangible assets, including goodwill, must be
evaluated for impairment. Those intangible assets that will continue to be
classified as goodwill or as other intangibles with indefinite lives are no
longer amortized.
The Company's intangible assets generally consist of exclusive brand
licenses and trademarks. The Company does not carry any goodwill. The Company
evaluated which of its intangible assets were considered to have indefinite
lives and determined that the Elizabeth Arden trademarks have an indefinite
useful life. Thus the Company ceased amortizing these trademarks on February
1, 2002. In accordance with SFAS No. 142, the Company completed its
transitional impairment testing of this asset. That effort and assessments of
this asset with the assistance of a third party valuation firm indicated that
no impairment adjustment was required upon adoption of this pronouncement.
The following table presents pro forma net loss and loss per share data had
SFAS No. 142 been adopted at the beginning of fiscal 2002.
Three Months Ended Six Months Ended
(Dollars in thousands,
except per share data) July 28, 2001 July 28, 2001
------------- -------------
Reported net loss attributable
to common shareholders $(26,819) $(45,787)
Elizabeth Arden trademarks
amortization, net of tax 1,034 2,044
-------- --------
Adjusted net loss attributable
to common shareholders $(25,785) $(43,743)
======== ========
Basic and diluted net loss
per common share:
Reported net loss attributable
to common shareholders $ (1.53) $ (2.70)
Elizabeth Arden trademarks
amortization, net of tax 0.06 0.12
-------- --------
Adjusted net loss attributable
to common shareholders $ (1.47) $ (2.58)
======== ========
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
Effective February 1, 2002, the Company adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," which
addresses the accounting and reporting for the impairment and disposal of
long-lived assets. The adoption of SFAS No. 144 did not have an impact on the
financial statements of the Company.
NOTE 3. INVENTORIES
The components of inventory were as follows:
(Dollars in thousands) July 27, 2002 January 31, 2002
------------- ----------------
Finished goods $154,931 $137,478
Work in progress 41,810 20,067
Raw materials 48,286 35,191
-------- --------
$245,027 $192,736
======== ========
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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SHORT-TERM DEBT
The Company has a revolving credit facility with a syndicate of banks
for which Fleet National Bank is the administrative agent (the "Credit
Facility") and which provides for borrowings on a revolving basis of up to
$175 million, with a $25 million sub limit for letters of credit. The Credit
Facility is guaranteed by certain of the Company's U.S. subsidiaries and
matures in January 2006. On March 13, 2002, as a result of weaker than
expected financial performance in fiscal 2002, the Company negotiated an
amendment of certain terms in the Credit Facility. Under the amendment, the
Company received a waiver of non-compliance with certain financial covenants
for the fourth quarter of fiscal 2002, in particular, the debt to EBITDA
(operating income, plus depreciation and amortization) ratio and EBITDA to net
interest expense ratio, and an amendment of the related covenant levels for
each of fiscal 2003 and the first three quarters of fiscal 2004. The
amendment with the bank group also amends selected additional sections of the
Credit Facility. Loans under the revolving credit portion of the Credit
Facility, as amended, bear interest, at the option of the Company, at a
floating rate of the "Applicable Margin," which is based on the Company's
ratio of consolidated debt to EBITDA. For the three and six months ended July
27, 2002, the Applicable Margin was 3.50% for London InterBank Offered Rate
("LIBOR") loans and 2.25% for prime rate loans. Borrowings under the Credit
Facility are limited to eligible accounts receivable and inventories and are
collateralized by a first priority lien on all of the Company's U.S. accounts
receivable and inventory. The Company's obligations under the Credit Facility
rank pari passu in right of payment with the Company's 10 3/8% Senior Notes
due 2007 and the 11 3/4% Senior Secured Notes due 2011.
The 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; (iii) must maintain a minimum amount of shareholders'
equity; (iv) must maintain a minimum amount of EBITDA in each quarter of
fiscal 2003; (v) must maintain a minimum amount of availability under the
Credit Facility in the first and second quarters of fiscal 2003; and (vi)
cannot exceed certain limits on capital expenditures. Based upon the Company's
internal projections, the Company believes that the amended covenants provide
sufficient flexibility so that the Company can maintain compliance with the
covenants. If the actual results deviate significantly from projections,
however, the Company may not remain in compliance with the covenants and would
not be allowed to borrow under the revolving credit facility. In addition, a
default under the revolving credit facility which causes acceleration of the
debt under this facility could trigger a default on the Company's senior
notes. In the event the Company is not able to borrow under its credit
facility, the Company would be required to develop an alternative source of
liquidity. There is no assurance that the Company could obtain replacement
financing or what the terms of such financing, if available, would be. The
Credit Facility also includes a prohibition on the payment of dividends on the
Common Stock (as defined below) 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 par value per share ("Common Stock"). Based on the
Company's performance for the six months ended July 27, 2002, the Company is
in compliance with the revised covenants of the Credit Facility. At July 27,
2002, the Company had an outstanding balance under the Credit Facility of $74
million together with approximately $286,000 in outstanding letters of credit
issued. At July 27, 2002, the remaining availability under the Credit
Facility, based upon eligible receivables and inventories as of that date, was
approximately $51 million. At January 31, 2002, the Company had an outstanding
balance under the Credit Facility of approximately $7.7 million together with
$286,000 in outstanding letters of credit issued.
NOTE 5. LONG-TERM DEBT
The Company's long-term debt consisted of the following:
(Dollars in thousands)
Description July 27, 2002 January 31, 2002
- ----------- ------------- ----------------
10 3/8% Senior Notes due May 2007 $156,632 $156,769
11 3/4% Senior Secured Notes due May 2011 160,000 160,000
8.5% Subordinated Debenture due in
equal installments in May 2003 and 2004 4,313 6,480
8.84% Miami Lakes Facility Mortgage Note
due July 2004 5,085 5,184
-------- --------
Total long-term debt 326,030 328,433
Less current portion of long-term debt 2,312 2,312
-------- --------
Total long-term debt, net $323,718 $326,121
======== ========
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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. COMMITMENTS AND CONTINGENCIES
In May 2002, the Company entered into an agreement with two unaffiliated
third parties for order fulfillment and logistics services in a distribution
facility in Beville, France. The agreements terminate in May 2004, provided
that they automatically renew for one additional year unless notice of
non-renewal is given by August 2003. Pricing on the order fulfillment
agreement is based on the quantity of products shipped and the type of service
provided. The Company is required to make payments of approximately $2.0
million Euros (approximately US$2.0 million at July 27, 2002) annually under
the logistics services agreement. Except for the logistics services and order
fulfillment agreements for the Beville, France facility, the Company has not
entered into any new material commitments since January 31, 2002.
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 currently seeks compensatory damages of Canadian
$55 million (approximately US$35 million at July 27, 2002), against each of
Unilever and the Company plus punitive damages of Canadian $35 million
(approximately US$22 million at July 27, 2002). Management believes that the
Company would be entitled to indemnification from Unilever under our agreement
to acquire the Elizabeth Arden business 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 contesting the matter.
The Company is 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 of the Company believes that the outcome of
such actions, proceedings or claims will not have a material adverse effect on
the Company's business, financial position or results of operations.
NOTE 7. CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
At July 27, 2002 and January 31, 2002, 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 an affiliate of Unilever in connection with the Arden acquisition.
Each share of Series D Convertible Preferred Stock is convertible into 10
shares of 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 January 23, 2003 and will be payable, at the Company's
option, 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 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. Upon issuance, the Series D
Convertible Preferred Stock was recorded at its fair market value of $35
million, with an allocation of $26.5 million made for the beneficial
conversion feature and recorded as additional paid-in capital. The difference
between the liquidation value of $50 million and the balance recorded in the
Convertible, redeemable preferred stock account on the Company's Consolidated
Balance Sheet is being accreted over the life of the Series D Convertible
Preferred Stock. For the three months ended July 27, 2002 and July 28, 2001,
the aggregate accretion and dividend on the Series D Convertible Preferred
Stock was approximately $914,000 and $833,000, respectively. For the six
months ended July 27, 2002 and July 28, 2001, the aggregate accretion and
dividend on the Series D Convertible Preferred Stock was approximately $1.8
and $1.7 million, respectively.
10
11
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY - (Continued)
During the six months ended July 27, 2002, the Company granted 499,200
shares of performance-accelerated restricted stock (PARS) to certain key
employees. PARS are restricted stock awards with a pre-defined vesting period
of six years that also provide for accelerated vesting to three, four or five
years from the date of grant if the Company's total shareholder return exceeds
the total shareholder return of the median of the companies comprising the
Russell 2000 Index over the respective three, four or five-year period. A new
grant of PARS will occur when the initial grant vests. The PARS were recorded
as unearned deferred compensation in the amount of $5.7 million on the balance
sheet and are being amortized over the currently expected six-year vesting
period. In March 2002, the Company also granted 77,913 shares of restricted
stock to certain employees that vest one year from the date of grant. At
July 27, 2002, these restricted shares were recorded as unearned deferred
compensation in the amount of approximately $866,000 on the balance sheet and
are being amortized over the vesting period. Compensation expense for the
three and six months ended July 27, 2002, related to the PARS and the
restricted stock granted to employees, amounted to approximately $648,000 and
$939,000, respectively. At July 27, 2002 and January 31, 2002, the shares of
common stock outstanding included 637,029 shares and 64,181 shares,
respectively, of restricted stock that are subject to vesting requirements.
NOTE 8. EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing the net income
attributable 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,
and the imputed preferred dividend and accretion is added back to net income.
Diluted loss per share equals basic loss per share for the three and six
months ended July 27, 2002 and July 28,2001, as the assumed conversion of
convertible securities and the assumed exercise of outstanding options and
warrants would have an anti-dilutive effect.
11
12
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. EARNINGS (LOSS) PER SHARE - (Continued)
The following table represents the computation of loss per share (in
thousands except per share data):
Three Months Ended Six Months Ended
July 27, 2002 July 28, 2001 July 27, 2002 July 28, 2001
------------- ------------- ------------- -------------
Basic
Net loss attributable to
common shareholders $ (11,048) $ (26,819) $ (21,890) $ (45,787)
========= ========= ========= =========
Weighted average shares
outstanding 17,719 17,497 17,716 16,969
========= ========= ========= =========
Net loss per basic share $ (0.62) $ (1.53) $ (1.24) $ (2.70)
========= ========= ========= =========
Diluted
Net loss attributable to
common shareholders $ (11,048) $ (26,819) $ (21,890) $ (45,787)
Add: 7.5% Convertible
Subordinated Debentures
interest, net of tax -- -- -- 22
Add: Accretion and Dividend
on Series D Convertible
Preferred Stock 914 833 1,827 1,667
--------- --------- --------- ---------
Net loss as adjusted $ (10,134) $ (25,986) $ (20,063) $ (44,098)
========= ========= ========= =========
Weighted average shares
outstanding 17,719 17,497 17,716 16,969
Potential common shares -
treasury method 1,470 1,661 1,118 1,483
Assumed conversion of 7.5%
Convertible Subordinated
Debentures -- -- -- 143
Series D Convertible Preferred
Stock 4,167 4,167 4,167 4,167
--------- --------- --------- ---------
Weighted average shares and
potential dilutive shares 23,356 23,325 23,001 22,762
========= ========= ========= =========
Net loss per
diluted share $ (0.62) $ (1.53) $ (1.24) $ (2.70)
========= ========= ========= =========
The following table shows the options to purchase shares of common stock
that were outstanding during the three and six months ended July 27, 2002 and
July 28, 2001, but were not included in the computation of diluted loss per
share because the option exercise price was greater than the average market
price of the common shares over the applicable period:
Three Months Ended Six Months Ended
July 27, 2002 July 28, 2001 July 27, 2002 July 28, 2001
------------- ------------- ------------- -------------
Number of shares
under option 297,000 -- 1,976,374 --
Range of exercise $14.80 - $20.64 -- $12.50 - $20.64 --
12
13
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following condensed financial statements of the Company show in
separate columns those subsidiaries that are guarantors of the 11 3/4% Senior
Secured Notes due 2011 which were issued to finance a portion of the purchase
price for the acquisition of the Elizabeth Arden business in January 2001,
elimination adjustments and the consolidated total. The Company's direct
subsidiaries DF Enterprises, Inc., FD Management, Inc. and Elizabeth Arden
International Holding, Inc., are guarantors of the 11 3/4% Senior Secured
Notes. All information presented is in thousands.
BALANCE SHEET July 27, 2002
Company Guarantors Eliminations Consolidated
------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,251 $ 12,499 $ -- $ 15,750
Accounts receivable, net 69,225 41,075 -- 110,300
Inventories 187,903 57,124 -- 245,027
Intercompany receivable 864,429 166,562 (1,030,991) --
Deferred income taxes 15,970 -- 15,970
Prepaid expenses and
other assets 18,834 11,407 -- 30,241
---------- -------- ----------- --------
Total current assets 1,159,612 288,667 (1,030,991) 417,288
---------- -------- ----------- --------
Property and equipment, net 27,131 9,732 -- 36,863
---------- -------- ----------- --------
Other assets:
Exclusive brand licenses and
trademarks, net 34,242 172,686 -- 206,928
Other assets 16,805 3,332 -- 20,137
---------- -------- ----------- --------
Total other assets 51,047 176,018 -- 227,065
---------- -------- ----------- --------
Total assets $1,237,790 $474,417 $(1,030,991) $681,216
========== ======== =========== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term debt $ 74,000 $ -- $ -- $ 74,000
Accounts payable - trade 97,087 6,832 -- 103,919
Intercompany payable 579,255 451,736 (1,030,991) --
Other payables and accrued
expenses 43,891 19,107 -- 62,998
Current portion of long-term
debt 2,312 -- -- 2,312
---------- -------- ----------- --------
Total current liabilities 796,545 477,675 (1,030,991) 243,229
---------- -------- ----------- --------
Long-term debt, net 323,718 -- -- 323,718
Deferred income taxes and other 7,371 805 -- 8,176
---------- -------- ----------- --------
Total liabilities 1,127,634 478,480 (1,030,991) 575,123
---------- -------- ----------- --------
Convertible, redeemable
preferred stock 13,807 -- -- 13,807
---------- -------- ----------- --------
Shareholders' equity 96,349 (4,063) -- 92,286
---------- -------- ----------- --------
Total liabilities and
shareholders' equity $1,237,790 $474,417 $(1,030,991) $681,216
========== ======== =========== ========
13
14
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. CONDENSED CONSOLIDATING FINANCIAL INFORMATION - (Continued)
BALANCE SHEET January 31, 2002
Company Guarantors Eliminations Consolidated
------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,616 $ 12,297 $ -- $ 15,913
Accounts receivable, net 47,543 32,177 -- 79,720
Inventories 152,883 39,853 -- 192,736
Intercompany receivable 615,368 (388,272) (227,096) --
Deferred income taxes 15,970 -- -- 15,970
Prepaid expenses and
other assets 16,133 8,239 -- 24,372
-------- --------- --------- --------
Total current assets 851,513 (295,706) (227,096) 328,711
-------- --------- --------- --------
Property and equipment, net 29,403 8,865 -- 38,268
-------- --------- --------- --------
Other assets:
Exclusive brand licenses and
trademarks, net 38,624 173,387 -- 212,011
Other assets 22,771 (4,996) -- 17,775
-------- --------- --------- --------
Total other assets 61,395 168,391 -- 229,786
-------- --------- --------- --------
Total assets $942,311 $(118,450) $(227,096) $596,765
======== ========= ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term debt $ 7,700 $ -- $ -- $ 7,700
Accounts payable - trade 60,228 8,922 -- 69,150
Intercompany payable 357,972 (130,876) (227,096) --
Other payables and accrued
expenses 52,271 6,988 -- 59,259
Current portion of
long-term debt 2,312 -- -- 2,312
-------- --------- --------- --------
Total current liabilities 480,483 (114,966) (227,096) 138,421
-------- --------- --------- --------
Long-term debt 326,121 -- -- 326,121
Deferred income taxes and other 7,296 1,013 -- 8,309
-------- --------- --------- --------
Total liabilities 813,900 (113,953) (227,096) 472,851
-------- --------- --------- --------
Convertible, redeemable
preferred stock 11,980 -- -- 11,980
-------- --------- --------- --------
Shareholders' equity 116,431 (4,497) -- 111,934
-------- --------- --------- --------
Total liabilities and
shareholders' equity $942,311 $(118,450) $(227,096) $596,765
======== ========= ========= ========
For The Three Months Ended
Statement of Operations July 27, 2002
Company Guarantors Eliminations Consolidated
------------------------------------------------------
Net sales $84,032 $47,727 $(4,573) $127,186
Cost of sales 57,667 21,056 -- 78,723
------- ------- ------- --------
Gross profit 26,365 26,671 (4,573) 48,463
------- ------- ------- --------
Selling, general and
administrative expenses 33,456 18,884 (4,573) 47,767
Depreciation and amortization 3,911 2,127 -- 6,038
------- ------- ------- --------
(Loss) income from operations (11,002) 5,660 -- (5,342)
Interest and other expense, net (3,772) (6,719) -- (10,491)
------- ------- ------- --------
Loss before income taxes (14,774) (1,059) -- (15,833)
Benefit from income taxes (5,320) (379) -- (5,699)
------- ------- ------- --------
Net loss $(9,454) $ (680) $ -- $(10,134)
======= ======= ======= ========
14
15
For The Three Months Ended
Statement of Operations July 28, 2001
Company Guarantors Eliminations Consolidated
------------------------------------------------------
Net sales $ 71,278 $50,024 $(6,444) $114,858
Cost of sales 61,134 19,188 -- 80,322
-------- ------- ------- --------
Gross profit 10,144 30,836 (6,444) 34,536
-------- ------- ------- --------
Selling, general and
administrative expenses 31,973 29,110 (6,444) 54,639
Depreciation and amortization 4,383 3,320 -- 7,703
-------- ------- ------- --------
(Loss) income from operations (26,212) (1,594) -- (27,806)
Interest and other expense, net (5,259) (6,281) -- (11,540)
-------- ------- ------- --------
Loss before income taxes (31,471) (7,875) -- (39,346)
Benefit from income taxes (11,018) (2,342) -- (13,360)
-------- ------- ------- --------
Net loss $(20,453) $(5,533) $ -- $(25,986)
======== ======= ======= ========
For The Six Months Ended
Statement of Operations July 27, 2002
Company Guarantors Eliminations Consolidated
------------------------------------------------------
Net sales $170,020 $110,707 $(13,257) $267,470
Cost of sales 117,725 47,113 -- 164,838
-------- -------- -------- --------
Gross profit 52,295 63,594 (13,257) 102,632
-------- -------- -------- --------
Selling, general and
administrative expenses 64,774 50,143 (13,257) 101,660
Depreciation and amortization 7,975 3,431 -- 11,406
-------- -------- -------- --------
(Loss) income from operations (20,454) 10,020 -- (10,434)
Interest and other expense, net (9,444) (11,470) -- (20,914)
-------- -------- -------- --------
Loss before income taxes (29,898) (1,450) -- (31,348)
Benefit from income taxes (10,764) (521) -- (11,285)
-------- -------- -------- --------
Net loss $(19,134) $ (929) $ -- $(20,063)
======== ======== ======== ========
For The Six Months Ended
Statement of Operations July 28, 2001
Company Guarantors Eliminations Consolidated
------------------------------------------------------
Net sales $143,988 $107,030 $(13,323) $237,695
Cost of sales 121,963 36,480 -- 158,443
-------- -------- -------- --------
Gross profit 22,025 70,550 (13,323) 79,252
-------- -------- -------- --------
Selling, general and
administrative expenses 61,597 61,065 (13,323) 109,339
Depreciation and amortization 10,847 4,289 -- 15,136
-------- -------- -------- --------
(Loss) income from operations (50,419) 5,196 -- (45,223)
Interest and other expense, net (10,024) (12,629) -- (22,653)
-------- -------- -------- --------
Loss before income taxes (60,443) (7,433) -- (67,876)
Benefit from income taxes (21,083) (2,673) -- (23,756)
-------- -------- -------- --------
Net loss $(39,360) $ (4,760) $ -- $(44,120)
======== ======== ======== ========
16
17
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. CONDENSED CONSOLIDATING FINANCIAL INFORMATION - (Continued)
For The Six Months Ended
Statement of Cash Flow July 27, 2002
Company Guarantors Eliminations Consolidated
------------------------------------------------------
Cash Flow from Operating
Activities:
Net Cash (used in) provided
by operating activities $(63,234) $ 3,259 $ -- $(59,975)
-------- -------- -------- --------
Cash Flow used in Investing
Activities:
Additions to property and
equipment, net of disposals (1,320) (3,319) -- (4,639)
-------- -------- -------- --------
Net cash used in investing
activities (1,320) (3,319) -- (4,639)
-------- -------- -------- --------
Cash Flow from Financing
Activities:
Net proceeds from short-term
debt 66,300 -- -- 66,300
Payments on long-term debt (2,266) -- -- (2,266)
Proceeds from the exercise of
stock options 155 -- -- 155
-------- -------- -------- --------
Net cash provided by
financing activities 64,189 -- -- 64,189
Effects of exchange rate changes
on cash and cash equivalents -- 262 -- 262
Net (decrease) increase in cash
and cash equivalents (365) 202 -- (163)
Cash and cash equivalents at
beginning of period 3,616 12,297 -- 15,913
-------- -------- -------- --------
Cash and cash equivalents at
end of period $ 3,251 $ 12,499 $ -- $ 15,750
======== ======== ======== ========
For The Six Months Ended
Statement of Cash Flow July 28, 2001
Company Guarantors Eliminations Consolidated
------------------------------------------------------
Cash Flow from Operating
Activities:
Net Cash (used in) provided
by operating activities $(73,328) $ 9,035 $ -- $(64,293)
-------- -------- -------- --------
Cash Flor used in Investing
Activities:
Additions to property and
equipment, net of disposals (2,804) (2,172) -- (4,976)
-------- -------- -------- --------
Net cash used in investing
activities (2,804) (2,172) -- (4,976)
-------- -------- -------- --------
Cash Flow from Financing
Activities:
Net proceeds from short-term
debt 70,670 -- -- 70,670
Payments on long-term debt (1,091) -- -- (1,091)
Proceeds from the exercise of
stock options 998 -- -- 998
Proceeds from the exercise of
stock purchase warrants 8,287 -- -- 8,287
Repurchase of common stock (402) -- -- (402)
-------- -------- -------- --------
Net cash provided by
financing activities 78,462 -- -- 78,462
Net increase in cash and cash
equivalents 2,330 6,863 -- 9,193
Cash and cash equivalents at
beginning of period 4,004 13,691 -- 17,695
-------- -------- -------- --------
Cash and cash equivalents at
end of period $ 6,334 $ 20,554 $ -- $ 26,888
======== ======== ======== ========
16
17
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. RELATED PARTY TRANSACTIONS
In March 2002, the Company provided a loan to its president and chief
executive officer in the principal amount of $500,000 (the "Note"), which
matures on March 31, 2004 and bears quarterly interest at 5%. This loan
replaced earlier loans made by the Company to its president and chief
executive officer for payment of certain Canadian tax liabilities resulting
from his relocation to Florida during the fiscal year ended January 31, 1999.
In July 2002, the president and chief executive officer repaid to the Company
$100,000 of the principal amount of the Note.
NOTE 11. SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES
The Company incurred the following non-cash financing and investing
activities:
(Dollars in thousands) Six Months Ended
July 27, 2002 July 28, 2001
------------- -------------
Accretion and dividend on
Series D Convertible
Preferred Stock $1,827 $1,667
====== ======
Conversion of 7.5% Convertible
Subordinated Debentures
(including accrued interest)
into Common Stock $2,410
======
Issuance of Restricted Stock and
PARS, net of forfeitures $6,488
======
NOTE 12. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board issued Financial
Accounting Statement No. 146 (SFAS No. 146), "Accounting for Costs Associated
with Exit or Disposal Activities." The objectives of SFAS No. 146 are to
address financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". The principal difference between SFAS No. 146 and Issue No.
94-3 relates to SFAS No. 146 requirements for recognition of a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under Issue No. 94-3 a liability for an exit cost as
defined in Issue No. 94-3 was recognized at the date of an entity's commitment
to an exit plan. The provisions of SFAS No. 146 will be effective for the
Company for exit or disposal activities that are initiated after
December 31, 2002.
17
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995, Elizabeth Arden, Inc., is hereby providing
cautionary statements identifying important factors that could cause our
actual results to differ materially from those projected in forward-looking
statements (as defined in such act) made in this Quarterly Report on Form
10-Q. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such
as "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 our results of operations: our
substantial indebtedness and debt service obligations; our ability to
successfully and cost-effectively integrate acquired businesses or new brands;
our absence of contracts with customers or suppliers and our ability to
maintain and develop relationships with customers and suppliers; the retention
and availability of key personnel; changes in the retail, fragrance and
cosmetic industries; our ability to launch new products and implement our
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. We caution
that the factors described herein could cause actual results to differ
materially from those expressed in any forward-looking statements we make 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 we undertake 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 us to predict all of such factors. Further, we
cannot assess the impact of each such factor on our results of operations or
the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.
GENERAL
This discussion should be read in conjunction with the Notes to
Unaudited Consolidated Financial Statements contained herein and Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing in our Annual Report on Form 10-K for the year ended January 31,
2002. The results of operations for an interim period may not give a true
indication of results for the year. In the following discussions, all
comparisons are with the corresponding items in the prior year.
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 2002, 64% of our net sales were made during the second half
of the fiscal year. Due to the size and timing of certain orders from our
customers, sales and results of operations can vary widely between quarters of
the same and different years. As a result we expect to experience variability
in net sales, gross margin and net income on a quarterly basis.
We experience seasonality in our working capital, with peak inventory
and receivable balances in the third quarter of our fiscal year. 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 of each year, significant cash is normally generated as customer
payments on holiday season orders are received.
In the first quarter of the current fiscal year, we adopted Emerging
Issues Task Force ("EITF") Issue No. 01-09, "Accounting for Consideration
given by a Vendor to a Customer" which codified and reconciled EITF 00-14,
"Accounting for Certain Sales Incentives," which provides guidance on
accounting for and the income statement classification of discounts, coupons,
rebates and free products, and EITF 00-25, "Accounting for Consideration from
a Vendor to a Retailer in Connection with the Purchase or Promotion of the
Vendor's Products," which provides guidance on the income statement
classification of consideration from a vendor to a retailer in connection with
the retailer's purchase of the vendor's products or to promote sales of the
vendor's products. The effects of these accounting pronouncements have been
incorporated into all periods presented. See "Recently Adopted Accounting
Standards" for a further discussion of these pronouncements.
18
19
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The SEC has issued Financial Reporting Release No. 60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policies" ("FRR 60"),
suggesting companies provide additional disclosure and commentary on those
accounting policies considered most critical. FRR 60 considers an accounting
policy to be critical if it is important to the Company's financial condition
and results, and requires significant judgment and estimates on the part of
management in its application. We believe the accounting policies below
represent our critical accounting policies as contemplated by FRR 60. See our
Annual Report on Form 10-K for a detailed discussion on the application of
these and other accounting policies.
ACCOUNTING FOR ACQUISITIONS. We have accounted for our acquisitions,
including the acquisition of the Elizabeth Arden business, under the purchase
method of accounting for business combinations. Under the purchase method of
accounting, the cost, including transaction costs, are allocated to the
underlying net assets, based on their respective estimated fair values. The
excess of the purchase price over the estimated fair values of the net assets
acquired is recorded as goodwill.
The judgments made in determining the estimated fair value and expected
useful lives assigned to each class of assets and liabilities acquired can
significantly affect net income. For example, different classes of assets
will have useful lives that differ-the useful life of property, plant, and
equipment acquired will differ substantially from the useful life of brand
licenses and trademarks. Consequently, to the extent a longer-lived asset is
ascribed greater value under the purchase method than a shorter-lived asset,
net income in a given period may be higher.
Determining the fair value of certain assets and liabilities acquired is
judgmental in nature and often involves the use of significant estimates and
assumptions. One of the areas that requires more judgment in determining fair
values and useful lives is intangible assets. To assist in this process, we
often obtain appraisals from independent valuation firms for certain
intangible assets.
The value of our intangible assets, including brand licenses, trademarks
and intangibles, is exposed to future adverse changes if we experience
declines in operating results or experience significant negative industry or
economic trends. We periodically review intangible assets for impairment
using the guidance of applicable accounting literature.
In the first quarter of our current fiscal year, we adopted Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
("SFAS No. 142"), new rules for measuring the impairment of brand licenses,
trademarks and intangibles. In accordance with SFAS No. 142, we completed our
transitional impairment testing of this asset. That effort and assessments of
this asset with the assistance of a third party valuation firm indicated that
no impairment adjustment was required upon adoption of this pronouncement.
ALLOWANCES FOR SALES RETURNS AND MARKDOWNS. As is customary in the
prestige beauty business, we grant certain of our customers the right, subject
to our authorization and approval, to either return product or to receive a
markdown allowance for product which does not "sell-through" to consumers.
Upon sale, we record a provision for product returns and markdowns estimated
based on our historical experience, "sell-through" levels, economic trends and
changes in customer demand. Based upon this information, we provide an
allowance for sales returns and markdown allowances. There is considerable
judgment used in evaluating the factors influencing the allowance for returns
and markdowns and additional allowances in any particular period may be
needed, reducing net income or increasing net loss.
ALLOWANCES FOR DOUBTFUL ACCOUNTS RECEIVABLE. We maintain allowances for
doubtful accounts to cover uncollectible accounts receivable, and we evaluate
our accounts receivable to determine if they will ultimately be collected.
This evaluation includes significant judgments and estimates, including an
analysis of receivables aging and a customer-by-customer review for large
accounts. If, for example, the financial condition of our customers
deteriorates resulting in an impairment of their ability to pay, additional
allowances may be required.
PROVISIONS FOR INVENTORY OBSOLESCENCE. We record a provision for
estimated obsolescence and shrinkage of inventory. Our estimates consider the
cost of inventory, the estimated market value, the shelf life of the
inventory, our historical experience and alternate methods of sale. If there
are changes to these estimates, additional provisions for inventory
obsolescence may be necessary.
19
20
INCOME TAXES AND VALUATION RESERVES. We record a valuation allowance to
reduce deferred tax assets to the amount that is more likely than not
anticipated to be realized. We consider projected future taxable income and
ongoing tax planning strategies in assessing the valuation allowance. In the
event we determine that we may not be able to realize all or part of our
deferred tax asset in the future, an adjustment to the deferred tax asset
would be charged to earnings in the period of such determination.
RESULTS OF OPERATIONS
Three Months Ended July 27, 2002 Compared to the Three Months Ended
July 28, 2001
- -------------------------------------------------------------------
NET SALES. Net sales increased approximately 11% to $127.2 million for
the three months ended July 27, 2002, from $114.9 million for the three months
ended July 28, 2001, primarily due to the performance of the "open sell"
program with certain customers, the addition of certain popular distribution
brands and sales generated by new product launches, partially offset by lower
Mother's and Father's Day sell-through and by reduced sales associated with
fewer U.S. prestige department store doors resulting from closings previously
announced. The "open sell" program allows retailers to display fragrances on
open counters and shelves rather than in locked cases, giving consumers easier
access to our products.
GROSS PROFIT. Gross profit increased approximately 40% to $48.5 million
for the three months ended July 27, 2002, from $34.5 million for the three
months ended July 28, 2001. The gross margin increased to 38.1% for the second
quarter of fiscal 2003 from 30.1% for the second quarter of fiscal 2002. The
increase in gross profit was due to an inventory write down of $10.3 million
recorded in fiscal 2002, higher sales, and a reduction in the effect of the
"high cost" Elizabeth Arden inventory purchased prior to the acquisition of
the Elizabeth Arden business which affected fiscal 2002 results, partially
offset by increased sales of certain distributed brands, which have lower
gross margins than owned and licensed brands, and the effect of lower Mother's
and Father's Day sell-through. For the three months ended July 28, 2001, the
Company's gross profit was reduced by approximately $3.2 million, with gross
margin reduced by approximately 2.8%, due to sales of Elizabeth Arden product
purchased prior to the Elizabeth Arden acquisition. Our gross margin is
expected to increase on an annualized basis this fiscal year.
SG&A. Selling, general and administrative expenses decreased
approximately $6.9 million, or 13%, to $47.8 million for the three months
ended July 27, 2002, from $54.6 million for the three months ended July 28,
2001. As a percentage of net sales, selling, general and administrative
expenses declined to 37.6% for the three months ended July 27, 2002, as
compared with 47.6% in the prior year quarter. The decline in selling,
general and administrative expenses reflects the leveraging of our cost
structure and improvements due to management initiatives, including the
restructuring of certain international operations and the reduction in
overhead expenses, as well as the effects of favorable foreign currency rates,
partially offset by increased incentive compensation awards associated with
improved company performance. On an annualized basis this fiscal year,
selling, general and administrative expenses as a percentage of sales is
expected to decrease.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
approximately $1.7 million to $6.0 million in the three months ended July 27,
2002, as compared to $7.7 million for the three months ended July 28, 2001,
principally as a result of the adoption of SFAS 142. In adopting SFAS 142, it
was concluded that the Elizabeth Arden trademarks are considered
indefinite-lived assets and will no longer be amortized. Amortization relating
to these trademarks amounted to $1.6 million for the three months ended July
28, 2001. See "Recently Adopted Accounting Standards."
INTEREST EXPENSE. Interest expense, net of interest income, decreased
by approximately $900,000 to $10.7 million for the three months ended July 27,
2002, as compared to $11.5 million for the three months ended July 28, 2001,
as a result of a reduction in short-term debt outstanding and a reduction in
interest rates.
BENEFIT FROM INCOME TAXES. The benefit from income taxes was
approximately $5.7 million for the three months ended July 27, 2002, as
compared with $13.4 million for the three months ended July 28, 2001, due to
the reduction in loss before income taxes, and the effective tax rate
calculated as a percentage of loss before income taxes was 36% and 34% for the
respective periods.
NET LOSS. Net loss decreased approximately $15.9 million, or 61%, to a
loss of $10.1 million for the three months ended July 27, 2002 as compared
with a loss of $26.0 million in the prior year period. The decrease in net
loss was a result of higher net sales and gross profit, together with lower
selling, general and administrative expenses and lower
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depreciation and amortization.
ACCRETION AND DIVIDEND ON PREFERRED STOCK. As part of the purchase
price for the acquisition of the Elizabeth Arden business, we issued to
Unilever 416,667 shares of Series D convertible preferred stock. The Series D
convertible preferred stock was recorded at a $35 million fair value with an
allocation of $26.5 million made for the beneficial conversion feature and
recorded as additional paid-in capital. The Series D convertible preferred
stock has a $50 million liquidation preference, and carries a 5% annual
dividend yield, which begins accruing in January 2003. The accretion and
dividend on preferred stock, which is a non-cash charge to net loss
attributable to common shareholders, of $914,000 for the three months ended
July 27, 2002 and $833,000 for the three months ended July 28, 2001,
represents accretion on the fair value of the preferred stock and the imputed
dividends on the preferred stock.
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS. Net loss attributable to
common shareholders decreased by approximately $15.8 million, or 59%, to a
loss of $11.0 million for the three months ended July 27, 2002 as compared
with a loss of $26.8 million for the three months ended July 28, 2001. The
reduction in net loss attributable to common shareholders was due to the
decrease in net loss.
EBITDA. EBITDA (operating income, plus depreciation and amortization)
increased approximately $20.8 million, or 103%, to $697,000 for the three
months ended July 27, 2002 as compared to a loss of $20.1 million for the
three months ended July 28, 2001. The increase in EBITDA was the result of
higher net sales, gross profit and lower selling, general and administrative
expenses.
Six Months Ended July 27, 2002 Compared to the Six Months Ended July 28, 2001
- -----------------------------------------------------------------------------
NET SALES. Net sales increased approximately 13% to $267.5 million for
the six months ended July 27, 2002, from $237.7 million for the six months
ended July 28, 2001, primarily due to the expansion of the "open sell" program
with certain customers, the addition of certain popular distribution brands,
sales generated by new product launches and reduced co-op advertising and
beauty consultant costs paid to retailers, partially offset by lower Mother's
and Father's Day sell-through and by reduced sales associated with fewer U.S.
prestige department store doors resulting from closings previously announced.
GROSS PROFIT. Gross profit increased approximately 30% to $102.6
million for the six months ended July 27, 2002, from $79.3 million for the six
months ended July 28, 2001. The gross margin increased to 38.4% for the year
ending in fiscal 2003 from 33.3% for the year ending in fiscal 2002. The
increase in gross profit was due to higher sales, a $10.3 million inventory
write down recorded in fiscal 2002, a reduction in the effect of the "high
cost" Elizabeth Arden inventory purchased prior to the acquisition of the
Elizabeth Arden business which impacted fiscal 2002 results, a reduced co-op
advertising and beauty consultant costs paid to retailers, partially offset by
increased sales of certain distributed brands, which have lower gross margins
than owned brands, to certain retailers and the effect of lower Mother's and
Father's Day sell-through. For the six months ended July 28, 2001, the
Company's gross profit was reduced by approximately $8.2 million, with gross
margin reduced by approximately 3.4%, due to sales of Elizabeth Arden product
purchased prior to the Elizabeth Arden acquisition.
SG&A. Selling, general and administrative expenses decreased
approximately $7.7 million, or approximately 7%, to $101.7 million for the six
months ended July 27, 2002, from $109.3 million for the six months ended July
28, 2001. As a percentage of net sales, selling, general and administrative
expenses declined to 38.0% for the six months ended July 27, 2002, as compared
with 46.0% in the prior year quarter. The decline in selling, general and
administrative expenses reflects the leveraging of our cost structure and
improvements due to management initiatives, including the restructuring of
certain international operations and the reduction in overhead expenses , as
well as the effects of favorable foreign currency rates, partially offset by
increased incentive compensation awards associated with improved company
performance. On an annualized basis this fiscal year, selling, general and
administrative expenses as a percentage of sales is expected to decrease.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
approximately $3.7 million to $11.4 million in the six months ended July 27,
2002, as compared to $15.1 million for the six months ended July 28, 2001,
principally as a result of the adoption of SFAS 142. In adopting SFAS 142, it
was concluded that the Elizabeth Arden trademarks are considered
indefinite-lived assets and will no longer be amortized. Amortization relating
to these trademarks amounted to $3.2 million for the six months ended July 27,
2001. See "Recently Adopted Accounting Standards."
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INTEREST EXPENSE. Interest expense, net of interest income, decreased
by approximately $1.6 to $21.1 million for the six months ended July 27, 2002,
as compared to $22.7 million for the six months ended July 28, 2001, as a
result of a reduction in short-term debt outstanding and a reduction in
interest rates.
BENEFIT FROM INCOME TAXES. The benefit from income taxes was
approximately $11.3 million for the six months ended July 27, 2002, as
compared with $23.8 million for the six months ended July 28, 2001, due to the
reduction in loss before income taxes. The effective tax rate calculated as a
percentage of loss before income taxes was 36% and 35% for the respective
periods.
NET LOSS. Net loss decreased approximately $24.0 million, or 55%,
million to a loss of $20.1 million for the six months ended July 27, 2002 as
compared with a loss of $44.1 million in the prior year period. The decrease
in net loss was a result of higher net sales and gross profit, together with
lower selling, general and administrative expenses and lower depreciation and
amortization.
ACCRETION AND DIVIDEND ON PREFERRED STOCK. The accretion and dividend
on preferred stock, which is a non-cash charge to net loss attributable to
common shareholders, of $1.8 million for the six months ended July 27, 2002
and $1.7 million for the six months ended July 28, 2001, represents accretion
on the fair value of, and the imputed dividends on, the Series D convertible
preferred stock issued to Unilever as part of the purchase price for the
acquisition of the Elizabeth Arden business. See Note 1 to the Notes to the
Unaudited Consolidated Financial Statements.
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS. Net loss attributable to
common shareholders decreased by approximately $24.0 million, or 52%, to a
loss of $21.9 million for the six months ended July 27, 2002 as compared with
a loss of $45.8 million for the six months ended July 28, 2001. The reduction
in net loss attributable to common shareholders was due to the decrease in net
loss.
EBITDA. EBITDA (operating income, plus depreciation and amortization)
increased approximately $31.1 million, or 103%, to $973,000 for the six months
ended July 27, 2002 as compared to a loss of $30.1 million for the six months
ended July 28, 2001. The increase in EBITDA was the result of higher net
sales, gross profit and lower selling, general and administrative expenses.
FINANCIAL CONDITION
We used $60.0 million of cash in operating activities for the six months
ended July 27, 2002, as compared with using $64.3 million of cash in operating
activities for the six months ended July 28, 2001. The decrease in cash used
by operating activities in the second quarter of fiscal 2003 as compared with
the second quarter of fiscal 2002 was a result of the reduction in net loss,
somewhat offset by slightly higher working capital use. We acquired certain
assets of the Elizabeth Arden business in January 2001, and the six months
ended July 28, 2001, reflects the build-up of receivables and payables related
to operating the business, as receivables and payables were not included in
the acquired assets. Accounts receivable of $110.3 million as of July 27,2002
exceeded accounts receivable of $97.3 million as of July 28, 2001 as a result
of higher net sales. At July 27, 2002, inventories were $23.3 million lower
than at July 28, 2001 as a result of the reduction of "high cost" Arden
inventory and management initiatives undertaken to reduce inventory levels.
Net cash used in investing activities decreased to $4.6 million for the
six months ended July 27, 2002 as compared with $5.0 million for the six
months ended July 28, 2001 resulting from lower capital expenditures. Net cash
provided by financing activities declined to $64.2 million for the six months
ended July 27, 2002 from $78.5 million for the six months ended July 28, 2001,
primarily as a result of decreased borrowings required to fund our working
capital needs. Additionally, the Company generated proceeds from stock
purchase warrants exercised during the six months ended July 28, 2001.
We have a credit facility with a syndicate of banks for which Fleet
National Bank is administrative agent, which provides borrowings of up to $175
million on a revolving basis with a $25 million sub limit for letters of
credit. Borrowings under the credit facility are limited to eligible accounts
receivable and inventories and are collateralized by a first priority lien on
all of our U.S. accounts receivable and inventory. On March 13, 2002, as a
result of weaker than expected performance in fiscal 2002, we entered into an
amendment of our credit facility with the bank group which
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included the bank group's waiver of non-compliance with certain financial
ratios for the fourth quarter of fiscal 2002, in particular the debt to EBITDA
ratio and the EBITDA to net interest expense ratio, and an amendment of the
related covenant levels for each quarter of fiscal 2003 and the first three
quarters of fiscal 2004. The amendment with the bank group also amends
selected additional sections of the credit facility. Based on performance for
the three months ended April 27, 2002, and the three months ended July 27,
2002, we are in compliance with the revised covenants of the credit facility.
At July 27, 2002, we had an outstanding balance under the credit facility of
$74 million and the remaining availability based upon eligible receivables and
inventories as of that date, was approximately $51 million. At July 28, 2001,
we had an outstanding balance under the credit facility of approximately $94
million. We believe that cash from operations and the availability under our
credit facility should be adequate to support currently planned business
operations and capital expenditures. If our actual operating results deviate
significantly from our projections, however, we may not remain in compliance
with the covenants of the credit facility and would not be allowed to borrow
under the credit facility. In the event that we were not able to borrow
under our credit facility, we would be required to develop an alternative
source of liquidity. There can be no assurance that we could obtain
replacement financing or what the terms of such financing, if available, would
be.
RECENTLY ADOPTED ACCOUNTING STANDARDS
Effective February 1, 2002, we adopted Emerging Issues Task Force
("EITF") 01-09, "Accounting for Consideration Given by a Vendor to a
Customer," which codified and reconciled EITF No. 00-14, "Accounting for
Certain Sales Incentives." EITF No. 00-14 provides guidance on accounting for
discounts, coupons, rebates and free products, as well as the income statement
classification of these discounts, coupons, rebates and free products. Upon
adoption of this pronouncement, we classified gift-with-purchase activities,
which were previously reported as selling, general and administrative
expenses, as cost of sales. For comparison purposes, certain amounts in the
Consolidated Statement of Operations for the six months ended July 28, 2001
were reclassified to reflect the adoption of EITF 01-09. The adoption of EITF
01-09 had no impact on operating loss; however, for the three months ended
July 27, 2002 and July 28, 2001, gross profit decreased by approximately $6.1
and $7.7 million, respectively, offset by an equal decrease in selling,
general and administrative expenses. For the six months ended July 28, 2002
and July 28, 2001, gross profit decreased by approximately $15.5 and $17.4
million respectively, offset by an equal decrease in selling, general and
administrative expenses.
EITF 01-09 also codified and reconciled EITF No. 00-25, "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products." EITF No. 00-25 provides guidance on the
income statement classification of consideration from a vendor to a retailer
in connection with the retailer's purchase of the vendor's products or to
promote sales of the vendor's products. Upon adoption of this pronouncement,
we classified amounts paid to retailers for co-op advertising and beauty
consultant expenses as a reduction of net sales. These costs were previously
reported within selling, general and administrative expenses. For comparison
purposes, certain amounts in the Consolidated Statement of Operations for the
six months ended July 28, 2001 were reclassified to reflect the adoption of
EITF 01-09. The adoption of EITF 01-09 had no impact on operating loss;
however, for the three months ended July 27, 2002 and July 28, 2001, gross
profit decreased by approximately $14.1 and $12.2 million, respectively,
offset by an equal decrease in selling, general and administrative expenses.
The adoption of EITF 01-09 had no impact on operating loss. For the six months
ended July 27, 2002 and July 28, 2001, gross profit decreased by approximately
$27.4 and $31.4 million, respectively, offset by an equal decrease in selling,
general and administrative expenses.
Effective February 1, 2002, we adopted SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS
No. 141" and "SFAS No. 142", respectively). These standards establish
financial accounting and reporting standards for acquired goodwill and other
intangible assets. Specifically, the standards address how acquired intangible
assets should be accounted for both at the time of acquisition and after they
have been recognized in the financial statements. The provisions of SFAS No.
141 apply to all business combinations initiated after June 30, 2001. In
accordance with SFAS No. 142, intangible assets, including goodwill, must be
evaluated for impairment. Those intangible assets that will continue to be
classified as goodwill or as other intangibles with indefinite lives are no
longer amortized.
Our intangible assets generally consist of exclusive brand licenses and
trademarks. We do not carry any goodwill. We evaluated which of our
intangible assets were considered to have indefinite lives and determined that
the Elizabeth Arden trademarks have an indefinite useful life. Thus we ceased
amortizing these trademarks on February 1, 2002. In accordance with SFAS No.
142, we completed our transitional impairment testing of this asset. That
effort and assessments of this asset with the assistance of a third party
valuation firm indicated that no impairment
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adjustment was required. On a pro forma basis, if SFAS 142 had been adopted
for the second quarter of fiscal 2002 net loss attributable to common
shareholders would have been $1.0 million lower for the three months ended
July 28, 2001 and $2.0 million lower for the six months ended July 28, 2001.
Effective February 1, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses the accounting
and reporting for the impairment and disposal of long-lived assets. The
adoption of SFAS No. 144 did not have an impact on our financial statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board issued Financial
Accounting Statement No. 146 (SFAS No. 146), "Accounting for Costs Associated
with Exit or Disposal Activities." The objectives of SFAS No. 146 are to
address financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". The principal difference between SFAS No. 146 and Issue No.
94-3 relates to SFAS No. 146 requirements for recognition of a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under Issue No. 94-3 a liability for an exit cost as
defined in Issue No. 94-3 was recognized at the date of an entity's commitment
to an exit plan. The provisions of SFAS No. 146 will be effective for us for
exit or disposal activities that are initiated after December 31, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. As of July 27, 2002, we had $74 million outstanding
under our credit facility subject to variable interest rates. Our borrowings
under our credit facility are seasonal with peak borrowings in the third
quarter of our fiscal year. To date, we have not engaged in derivative
transactions to mitigate interest rate risk as most of our debt bears a fixed
rate.
FOREIGN CURRENCY RISK. We conduct our business in various regions of
the world and export and import products to and from several countries.
Approximately 30% of our sales are derived internationally in a variety of
currencies, principally the Euro, British pound, U.S. dollar and Australian
dollar. With respect to our international operations, our cost of sales is
denominated in U.S. dollars and local currency, and selling, general and
administrative expenses are typically denominated in local currency.
Currently, substantially all of our skin care products are produced in the
United States. Fluctuations in currency rates can adversely affect our
product prices, margins and operating costs as well as our reported results.
A weakening of the currencies in which we generate sales relative to the
currencies in which our costs are denominated, particularly the U.S. dollar,
may decrease our cash flow and profits. Changes in currency rates favorably
impacted our results of operations by approximately $3.0 million pre-tax for
the three and six months ended July 27, 2002. There can be no assurance that
this trend will continue.
While we periodically engage in currency hedging operations, primarily
forward exchange contracts, to reduce the exposure of our cash flows to
fluctuations in currency rates, we did not have any open contracts as of July
27, 2002. The impact of foreign currency hedging activities was not material
to our results in fiscal 2002. There can be no assurance that our hedging
operations, if any, will eliminate or substantially reduce risks associated
with fluctuating exchange rates.
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PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders (the "Annual Meeting") of the
Company was held on June 25, 2002, in Miami Lakes, Florida.
(b) The following directors were elected at the Annual Meeting effective
June 25, 2002: E. Scott Beattie, J. W. Nevil Thomas, Fred Berens,
Richard C. W. Mauran, George Dooley and William M. Tatham.
(c) The shareholders voted at the Annual Meeting on the matters set
forth below.
1. The vote on the election of directors to serve until the next
annual meeting of shareholders or until their successors are duly
elected and qualified was as follows:
Votes Cast
----------
Against or
For Withheld
---------- ----------
E. Scott Beattie 15,660,022 416,944
J. W. Nevil Thomas 16,070,509 6,457
Fred Berens 16,070,431 6,535
Richard C. W. Mauran 16,070,531 6,435
George Dooley 16,055,469 21,497
William M. Tatham 16,055,269 21,697
2. The vote on the ratification of the appointment of
PricewaterhouseCoopers LLP as independent auditors of the Company
for the fiscal year ending January 31, 2003, was 16,008,766 for,
64,911 against and 2,156 withheld.
3. The vote on the ratification of the approval of the 2002 Employee
Stock Purchase Plan was 12,574,350 for, 491,648 against and
32,481 withheld. There were 2,976,174 broker non-votes.
(d) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------- --------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the Company dated
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 three months 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)).
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Exhibit
Number Description
- ------- --------------------------------------------------------------------
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)).
4.7 First Amendment to Amended and Restated Credit Agreement dated as of
July 20, 2001, between Fleet National Bank, as administrative agent,
the banks listed on the signature pages thereto and the Company
(incorporated herein by reference to Exhibit 4.7 filed as part of the
Company's Form 10-Q for the three months ended July 28, 2001
(Commission File No. 1 - 6370)).
4.8 Second Amendment to Amended and Restated Credit Agreement dated as of
March 13, 2002, between Fleet National Bank, as administrative agent,
the banks listed on the signature pages thereto and the Company
(incorporated herein by reference to Exhibit 4.1 filed as part of the
Company's Form 8-K dated March 13, 2002 (Commission File No.
1-6370)).
4.9 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)).
4.10 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)).
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Exhibit
Number Description
- ------- --------------------------------------------------------------------
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 three months 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 three months ended
October 31, 2000 (Commission File No. 1-6370)).
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. (incorporated herein by reference to Exhibit 10.12 of
the Company's Form 10-K for the year ended January 31, 2001
(Commission File No. 1-6370)).
10.13 Sixth Amendment dated as of July 13, 2001, to the Asset Purchase
Agreement dated as of October 30, 2000, between the Company and
Conopco, Inc. (incorporated herein by reference to Exhibit 10.13 of
the Company's Form 10-Q for the three months ended July 28, 2001
(Commission File No. 1-6370)).
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
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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 June 4, 2002 was filed on June 7,
2002, reporting the Company's adoption of Emerging Issues Task Force (EITF)
Issue No. 01-09 under Item 5. Other events and attaching consolidated income
statement data under Item 7 for the fiscal year ended January 31, 2002 to give
effect to the adoption of the accounting standard.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELIZABETH ARDEN, INC.
Date: September 10, 2002 By: /s/ E. Scott Beattie
------------------ --------------------
E. Scott Beattie
Chairman, President, Chief
Executive Officer and
Director
(Principal Executive Officer)
Date: September 10, 2002 By: /s/ Stephen J. Smith
------------------ --------------------
Stephen J. Smith
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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CERTIFICATION
I, E. Scott Beattie, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Elizabeth Arden,
Inc. (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report.
Date: September 10, 2002 /s/ E. Scott Beattie
------------------ --------------------
E. Scott Beattie
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
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CERTIFICATION
I, Stephen J. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Elizabeth Arden,
Inc. (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report.
Date: September 10, 2002 /s/ Stephen J. Smith
------------------ --------------------
Stephen J. Smith
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
31