UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 20222023..

 

OR

 

Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___________to ________.

 

Commission File No. 0-16469

 

INTER PARFUMS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 13-3275609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

551 Fifth AvenueNew YorkNew York     10176
(Address of Principal Executive Offices)          (Zip Code)

(212) 983-2640
(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which
registered
 Common Stock, $.001 par value per share IPAR  The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes  No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act).

 

Large accelerated filerAccelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)Smaller reporting company
 Emerging Growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

At May 10, 2022,8, 2023, there were 31,844,86532,012,950 shares of common stock, par value $.001 per share, outstanding.

 

 

 

INTER PARFUMS, INC. AND SUBSIDIARIES

INDEX

 

Page Number
Part I.    Financial Information1
Item 1.Financial Statements
Consolidated Balance Sheets as of March 31, 20222023 and December 31, 202120222
Consolidated Statements of Income for the Three Months Ended March 31, 20222023 and March 31, 202120223
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 20222023 and March 31, 202120224
Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 20222023 and March 31, 202120225
Consolidated Statements of Cash Flows for the Three Months Ended  March 31, 20222023 and March 31, 202120226
Notes to Consolidated Financial Statements7
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1615
Item 3.Quantitative and Qualitative Disclosures About Market Risk24
Item 4.Controls and Procedures25
Part II.    Other Information25
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds25
Item 6.Exhibits26
Item 4. Controls and Procedures27
Part II. Other Information27
Item 6. Exhibits28
Signatures2827

 

 

 

INTER PARFUMS, INC. AND SUBSIDIARIES

Part I. Financial Information

Item 1.Financial Statements

Item 1. Financial Statements

 

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. We have condensed such financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued by filing with the SEC. These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2021,2022, included in our annual report filed on Form 10-K.

 

The results of operations for the three months ended March 31, 2022,2023, are not necessarily indicative of the results to be expected for the entire fiscal year.

Page 1

 

INTER PARFUMS, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(In thousands except share and per share data)

(Unaudited)

    
ASSETS    ASSETS
 March 31,
2022
 December 31,
2021
  March 31,  
2023
 December 31,
2022
 
Current assets:                
Cash and cash equivalents $110,122  $159,613  $149,055  $104,713 
Short-term investments  155,114   160,014   88,702   150,833 
Accounts receivable, net  206,258   159,281   241,948   197,584 
Inventories  227,108   198,914   323,700   289,984 
Receivables, other  12,527   10,308   27,779   28,803 
Other current assets  23,161   21,375   20,346   15,650 
Income taxes receivable  177   210   71   157 
        
Total current assets  734,467   709,715   851,601   787,724 
        
Property, equipment and leasehold improvements, net  157,729   149,352   169,036   166,722 
        
Right-of-use assets, net  31,510   33,728   26,901   27,964 
Trademarks, licenses and other intangible assets, net  208,960   214,047   294,300   290,853 
Deferred tax assets  7,664   7,936   12,543   11,159 
        
Other assets  21,878   30,586   25,825   24,120 
        
Total assets $1,162,208  $1,145,364  $1,380,206  $1,308,542 
                
LIABILITIES AND EQUITYLIABILITIES AND EQUITYLIABILITIES AND EQUITY 
Current liabilities:                
Loans payable - banks $18,000  $ 
Current portion of long-term debt $14,377  $15,911   29,092   28,547 
Current portion of lease liabilities  4,640   6,014   5,310   5,296 
Accounts payable – trade  72,568   81,980   93,053   88,388 
Accrued expenses  144,724   136,677   190,305   213,621 
Income taxes payable  13,920   4,328   26,409   8,715 
        
Total current liabilities  250,229   244,910   362,169   344,567 
                
Long–term debt, less current portion  125,164   132,902   145,128   151,494 
                
Lease liabilities, less current portion  28,574   29,220   23,302   24,335 
                
Equity:                
Inter Parfums, Inc. shareholders’ equity:                
Preferred stock, $.001 par; authorized 1,000,000 shares; NaN issued  --   -- 
Common stock, $.001 par; authorized 100,000,000 shares; outstanding 31,843,845 and 31,830,420 shares at March 31, 2022 and December 31, 2021, respectively  32   32 
Preferred stock, $.001 par; authorized 1,000,000 shares; none issued      

Common stock, $.001 par; authorized 100,000,000 shares; outstanding 32,012,950 and 31,967,300 shares at March 31, 2023 and December 31, 2022, respectively

  32   32 
Additional paid-in capital  88,181   87,132   95,429   90,186 
Retained earnings  580,094   560,663   654,440   620,095 
Accumulated other comprehensive loss  (46,273)  (38,432)  (48,440)  (56,056)
Treasury stock, at cost, 9,864,805 shares at March 31, 2022 and December 31, 2021  (37,475)  (37,475)
        
Treasury stock, at cost, 9,907,865 and 9,864,805 shares at March 31, 2023 and December 31, 2022, respectively  (43,055)  (37,475)
Total Inter Parfums, Inc. shareholders’ equity  584,559   571,920   658,406   616,782 
        
Noncontrolling interest  173,682   166,412   191,201   171,364 
        
Total equity  758,241   738,332   849,607   788,146 
        
Total liabilities and equity $1,162,208  $1,145,364  $1,380,206  $1,308,542 

 

See notes to consolidated financial statements.

Page 2

 

 

INTER PARFUMS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share data)

(Unaudited)

            
 Three Months Ended
March 31,
  Three Months Ended
March 31,
 
 2022 2021  2023 2022 
          
Net sales $250,678  $198,528  $311,723  $250,678 
                
Cost of sales  92,020   73,280   108,766   92,020 
                
Gross margin  158,658   125,248   202,957   158,658 
                
Selling, general and administrative expenses  97,441   74,896   112,678   97,441 
                
Impairment loss  --   2,393 
        
Income from operations  61,217   47,959   90,279   61,217 
                
Other expenses (income):                
Interest expense  883   377   2,357   883 
Gain on foreign currency  (2,239)  (1,866)
Loss (gain) on foreign currency  759   (2,239)
Interest and investment (income) loss  1,466   (386)  (5,382)  1,466 
Other income  (116)  (192)  (41)  (116)
                
  (6)  (2,067)
Nonoperating Income (Expense)  (2,307)  (6)
                
Income before income taxes  61,223   50,026   92,586   61,223 
                
Income taxes  14,932   13,400   21,678   14,932 
                
Net income  46,291   36,626   70,908   46,291 
                
Less: Net income attributable to the noncontrolling interest  10,992   8,964   16,840   10,992 
                
Net income attributable to Inter Parfums, Inc. $35,299  $27,662  $54,068  $35,299 
                
Earnings per share:                
                
Net income attributable to Inter Parfums, Inc. common shareholders:                
Basic $1.11  $0.87  $1.69  $1.11 
Diluted $1.10  $0.87  $1.68  $1.10 
                
Weighted average number of shares outstanding:                
Basic  31,840   31,631   32,018   31,840 
Diluted  32,010   31,772   32,159   32,010 
                
Dividends declared per share $0.50  $0.25  $0.625  $0.50 

 

See notes to consolidated financial statements.

Page 3

 

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

         
  Three Months Ended
March 31,
 
  2022  2021 
Comprehensive income:        
         
Net income $46,291  $36,626 
         
Other comprehensive income:        
         
Net derivative instrument gain (loss), net of tax  261   (600)
         
Transfer from OCI into earnings  992   -- 
         
Translation adjustments, net of tax  (12,441)  (26,119)
         
Comprehensive income  35,103   9,907 
         
Comprehensive income (loss) attributable to the noncontrolling interests:        
         
Net income  10,992   8,964 
         
Other comprehensive income (loss):        
         
Net derivative instrument gain (loss), net of tax  72   (164)
         
Translation adjustments, net of tax  (3,419)  (8,941)
         
Comprehensive income (loss) attributable to the noncontrolling interests  7,645   (141)
         
Comprehensive income attributable to Inter Parfums, Inc. $27,458  $10,048 

See notes to consolidated financial statements.

Page 4 

INTER PARFUMS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYCOMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

  Three months ended
March 31,
 
  2022  2021 
       
Common stock, beginning and end of period $32  $32 
   -   - 
   32    32  
Additional paid-in capital, beginning of period  87,132   75,708 
Shares issued upon exercise of stock options  708   1,467 
Share-based compensation  341   391 
Additional paid-in capital, end of period  88,181   77,566 
         
Retained earnings, beginning of period  560,663   503,567 
Net income  35,299   27,662 
Dividends  (15,921)  (7,913)
Share-based compensation (adjustment)  53   284 
Retained earnings, end of period  580,094   523,600 
         
Accumulated other comprehensive loss, beginning of   period  (38,432)  (5,997)
Foreign currency translation adjustment, net of tax  (9,022)  (17,178)
Transfer from other comprehensive income into earnings  992   -- 
Net derivative instrument gain (loss), net of tax  189   (436)
Accumulated other comprehensive loss, end of period  (46,273)  (23,611)
   (37,475)    (37,475) 
   -   - 
Treasury stock, beginning and end of period  (37,475)  (37,475)
         
Noncontrolling interest, beginning of period  166,412   166,615 
Net income  10,992   8,964 
Foreign currency translation adjustment, net of tax  (3,419)  (8,941)
Net derivative instrument gain (loss), net of tax  72   (164)
Share-based compensation (adjustment)  11   (22)
Transfer of subsidiary shares purchased  54   99 
Dividends  (440)  -- 
Noncontrolling interest, end of period  173,682   166,551 
   738,332    702,450 
   46,291   36,626 
Total equity $758,241  $706,663 
        
  Three Months Ended
March 31,
 
  2023  2022 
Comprehensive income:        
         
Net income $70,908  $46,291 
         
Other comprehensive income:        
         
Net derivative instrument gain (loss), net of tax
  (4,166)  261 
         
Transfer from OCI into earnings
  1,709   992 
         
Translation adjustments, net of tax  13,489   (12,441)
         
Comprehensive income  81,940   35,103 
         
Comprehensive income attributable to the noncontrolling interests:        
         
Net income  16,840   10,992 
         
Other comprehensive income:        
         
Net derivative instrument gain (loss), net of tax
  (206)  72 
         
Translation adjustments, net of tax  3,622   (3,419)
         
Comprehensive income attributable to the noncontrolling interests  20,256   7,645 
         
Comprehensive income attributable to Inter Parfums, Inc. $61,684  $27,458 

See notes to consolidated financial statements.

Page 4

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands) 

(Unaudited)

        
  Three months ended
March 31,
 
  2023  2022 
       
Common stock, beginning and end of period $32  $32 
   -   - 
   32   32 
Additional paid-in capital, beginning of period  90,186   87,132 
Shares issued upon exercise of stock options  4,929   708 
Share-based compensation  314   341 
Additional paid-in capital, end of period  95,429   88,181 
         
Retained earnings, beginning of period  620,095   560,663 
Net income  54,068   35,299 
Dividends  (20,023)  (15,921)
Share-based compensation  300   53 
Retained earnings, end of period  654,440   580,094 
         
Accumulated other comprehensive loss, beginning of   period  (56,056)  (38,432)
Foreign currency translation adjustment, net of tax  9,867   (9,022)
Transfer from other comprehensive income into earnings  1,709   992 
Net derivative instrument gain (loss), net of tax  (3960)  189 
Accumulated other comprehensive loss, end of period  (48,440)  (46,273)
   -   - 
Treasury stock, beginning of period  (37,475)  (37,475)
Shares repurchased  (5,580)   
  Treasury stock, end of period  (43,055)  (37,475)
         
Noncontrolling interest, beginning of period  171,364   166,412 
Net income  16,840   10,992 
Foreign currency translation adjustment, net of tax  3,622   (3,419)
Net derivative instrument gain (loss), net of tax  (206)  72 
Share-based compensation (adjustment)  54   11 
Transfer of subsidiary shares purchased     54 
Dividends  (473)  (440)
Noncontrolling interest, end of period  191,201   173,682 
   \788,146   738,332 
   70,908   46,291 
Total equity $849,607  $758,241 

 

See notes to consolidated financial statements.

 

Page 5

 

 

INTER PARFUMS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

            
 Three months ended
March 31,
  Three months ended
March 31,
 
 2022 2021  2023 2022 
Cash flows from operating activities:                
Net income $46,291  $36,626  $70,908  $46,291 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:                
Depreciation and amortization  3,124   2,529   4,115   3,124 
Provision for doubtful accounts  1,048   1,354   220   1,048 
Noncash stock compensation  654   732   633   654 
Share of income of equity investment  (116)  (192)  (41)  (116)
Impairment loss  --   2,393 
Noncash lease expense  1,881   1,735   1,324   1,881 
Deferred tax provision  135   58   (1,188)  135 
Change in fair value of derivatives  (3,803)  1,699   1,518   (3,803)
Changes in:                
Accounts receivable  (50,316)  (32,566)  (42,670)  (50,316)
Inventories  (31,195)  4,951   (29,688)  (31,195)
Other assets  (2,869)  (3,819)  (5,640)  (2,869)
Operating lease liabilities  (1,671)  (1,499)  (1,293)  (1,671)
Accounts payable and accrued expenses  3,203   8,102   (23,327)  3,203 
Income taxes, net  9,690   10,413   17,771   9,690 
                
Net cash provided by (used in) operating activities  (23,944)  32,516 
Net cash used in operating activities  (7,358)  (23,944)
                
Cash flows from investing activities:                
Purchases of short-term investments  (2,243)  (30,367)  (42,835)  (2,243)
Proceeds from sale of short-term investments  3,982   --   107,045   3,982 
Purchases of property, equipment and leasehold improvements  (12,895)  (1,205)  (2,415)  (12,895)
Payment for intangible assets acquired  (647)  (302)  (151)  (647)
                
Net cash used in investing activities  (11,803)  (31,874)
Net cash provided by (used in) investing activities  61,644   (11,803)
                
Cash flows from financing activities:                
Proceeds from issuance of long-term debt  17,989    
Repayment of long-term debt  (4,379)  (14,324)  (9,397)  (4,379)
Proceeds from exercise of options  708   1,467   4,929   708 
Dividends paid  (15,921)  (7,913)  (20,023)  (15,921)
Dividends paid to noncontrolling interest  (440)  --   (473)  (440)
Purchase of treasury stock  (5,580)   
                
Net cash used in financing activities  (20,032)  (20,770)  (12,555)  (20,032)
                
Effect of exchange rate changes on cash  (2,486)  (6,240)  2,611   (2,486)
                
Net decrease in cash and cash equivalents  (58,265)  (26,368)
Net increase (decrease) in cash and cash equivalents  44,342   (58,265)
                
Cash and cash equivalents - beginning of period  168,387   169,681   104,713   168,387 
                
Cash and cash equivalents - end of period $110,122  $143,313  $149,055  $110,122 
                
Supplemental disclosure of cash flow information:                
Cash paid for:                
Interest $797  $375  $1,563  $797 
Income taxes  5,193   2,861   4,816   5,193 

See notes to consolidated financial statements.

 

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INTER PARFUMS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

1.Significant Accounting Policies:

The accounting policies we follow are set forth in the notes to our consolidated financial statements included in our Form 10-K, which was filed with the Securities and Exchange Commission for the year ended December 31, 2021.2022.

2.Impact of COVID-19 Pandemic:

A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and in March 2020, the World Health Organization declared COVID-19 a pandemic. In response, various national, state, and local governments issued decrees prohibiting certain businesses from operating and certain classes of workers from reporting to work.

Retail store closings, event cancellations and a shutdown of international air travel brought our sales to a virtual standstill and caused a significant unfavorable impact on our results of operations in 2020.

Business significantly improved in the second half of 2020 andOur business has continued to significantly improve throughout 20212022 and thus farthe first quarter of 2023 after the disastrous effects of the COVID-19 Pandemic starting in 2022,early 2020, as retail stores reopened, and consumers increased online purchasing. While we expect this trend to continue, theThe introduction of variants of COVID-19 in various parts of the world has causedcontinues to cause the temporary re-implementation of governmental restrictions to prevent further spread of the virus. In addition, international air travel remains curtailed in manyseveral jurisdictions due to both governmental restrictions and consumer health concerns. While COVID-19 hashad significantly restricted international travel, in the near-term, we continue to believe that global travel retail will once again be a growth opportunity for the long-term.business has picked up. Lastly, the improved economy has putwe have experienced significant strains on our supply chain causing disruptions affecting the procurement of components, the ability to transport goods, and related cost increases. These disruptions have come at a time when demand for our product lines has never been stronger or more sustained. We have been addressing this issue since the beginning of 2021, by ordering well in advance of need and in larger quantities. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold. We do not expect the supply chain bottlenecks to begin lifting until later in 2022.the second half of 2023. Therefore, despite recent business improvement, the impact of the COVID-19 pandemic maymight continue to have a material adverse effecteffects on our results of our operations, financial position and cash flows through at least the endfirst half of 2022.2023.

3.Recent Agreements:

Salvatore FerragamoLacoste

In October 2021,December 2022, we closed on a transaction agreement with Salvatore Ferragamo S.p.A.,Lacoste, whereby an exclusive and worldwide license was granted for the production and distribution of FerragamoLacoste brand perfumes.perfumes and cosmetics. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. The license becamebecomes effective in October 2021January 2024 and will last for 10 years with a 5-year optional term, subject15 years.

Dunhill

In April 2022, we announced that the Dunhill fragrance license will expire on September 30, 2023 and will not be renewed. The Company will continue to certain conditions.

With respect to the managementproduce and coordination of activities related tosell Dunhill fragrances until the license agreement,expires and will maintain the Company operates throughright to sell-off remaining Dunhill fragrance inventory for a wholly-owned Italian subsidiary based in Florence, that was acquired from Salvatore Ferragamo on October 1, 2021. The acquisition together with the license agreement was accounted forlimited time as an asset acquisition.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on October 1, 2021. All amounts have been translated to U.S. dollars at the October 1, 2021 exchange rate.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed

(In thousands)

     
Inventories $17,805 
Trademarks and licenses  15,880 
Other assets  3,033 
Assets acquired  36,718 
     
Liabilities assumed  (958)
Total Consideration $35,760 

Emanuel Ungaro

In October 2021, we also entered into a 10-year exclusive global licensing agreement with a 5-year optional term subject to certain conditions, with Emanuel Ungaro Italia S.r.l, for the creation, development and distribution of fragrances and fragrance-related products, under the Emanuel Ungaro brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as areis customary in ourthe fragrance industry.

Donna Karan and DKNY

In September 2021, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under the Donna Karan and DKNY brands. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. With this agreement, we are gaininggained several well-established and valuable fragrance franchises, most notably Donna Karan Cashmere Mist and DKNY Be Delicious, as well as a significant loyal consumer base around the world. In connection with the grant of license, we issued 65,342 shares of Inter Parfums, Inc. common stock valued at $5.05.0 million to the licensor. The exclusive license isbecame effective July 1, 2022, and we are planning to launch new fragrances under these brands in 2023.2024.

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INTER PARFUMS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

Rochas Fashion

Effective January 1, 2021, we entered into a new license agreement modifying our Rochas fashion business model. The new agreement calls for a reduction in royalties to be received. As a result, in the first quarter of 2021, we took a $2.4 million impairment charge on our Rochas fashion trademark. In the fourth quarter of 2022, we again took a $6.8 million impairment charge on the Rochas fashion trademark after an independent expert concluded that the valuation of the trademark was $11.3 million. The new license also contains an option for the licensee to buy-out the Rochas fashion trademarks in June 2025 at its then fair market value.

Land and Building Acquisition - FutureNew Headquarters in Paris

In April 2021, Interparfums SA, our 7372% owned French subsidiary, completed the acquisition of its futurenew headquarters at 10 rue de Solférino in the 7th arrondissement of Paris from the property developer. This is an office complex combining three buildings connected by two inner courtyards, and consists of approximately 40,000 total sq. ft.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The purchase price includesincluded the complete renovation of the site. As of March 31, 2022,2023, $138.4151 million of the purchase price, including approximately $3.44.5 million of acquisition costs, is included in property, equipment and leasehold improvements on the accompanying balance sheet as of March 31, 2022.sheet. The purchase price has been allocated approximately $63.662.3 million to land and $74.888.7 million to the building. The building, which was delivered on February 28, 2022, includes the building structure, development of the property, façade waterproofing, general and technical installations and interior fittings that will be depreciated over a range of 7 to 50 years. The Company has elected to depreciate the building cost based on the useful lives of its components. Approximately $5.41.8 million of cash held in escrow is also included in property, equipment and leasehold improvements on the accompanying balance sheet as of March 31, 2022.2023.

The acquisition was financed by a 10-year €120 million (approximately $133130.5 million) bank loan which bears interest at one-month Euribor plus 0.75%. Approximately €80 million of the variable rate debt was swapped for variable interest rate debt with a maximum rate of 2%2% per annum. The swap effectively exchanges the variable interest rate to a fixed rate of approximately 1.1%.

 

4.Recent Accounting Pronouncements:

There are no recent accounting pronouncements issued but not yet adopted that would have a material effect on our consolidated financial statements.

5.Inventories:

Inventories consist of the following:

(In thousands)  March 31,
2022
 

 

December 31,

2021

  March 31, 
2023
 December 31,
2022
 
Raw materials and component parts $114,308  $111,312  $155,013  $146,772 
Finished goods  112,800   87,602   168,687   143,212 
        
Inventories         $323,700  $289,984 
 $227,108  $198,914 

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

6.Fair Value Measurement:

The following tables present our financial assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair valuevalue..

               
     Fair Value Measurements at March 31, 2023 
     Quoted Prices in  Significant Other  Significant 
     Active Markets for  Observable  Unobservable 
     Identical Assets  Inputs  Inputs 
  Total  (Level 1)  (Level 2)  (Level 3) 
Assets:           
Short-term investments $88,702  $681  $87,210  $811 
Interest rate swaps  6,429       6,429     
Foreign currency forward exchange contracts not accounted for using hedge accounting  1,539      1,539    
Foreign currency forward exchange contracts accounted for using hedge accounting  339  $   339    
                 
Total assets $97,010  $681  $95,517  $811 

                 
      Fair Value Measurements at December 31, 2022 
     Quoted Prices in  Significant Other  Significant 
     Active Markets for  Observable  Unobservable 
     Identical Assets  Inputs  Inputs 
  Total  (Level 1)  (Level 2)  (Level 3) 
Assets:            
Short-term investments $150,833  $19,861  $130,174  $798 
Interest rate swaps  6,758      6,758    
Foreign currency forward exchange contracts accounted for using hedge accounting  1,189      1,189    
                 
Total assets $158,780  $19,861  $138,122  $798 
Liabilities:                
Foreign currency forward exchange contracts not accounted for using hedge accounting  68      68    
                 
Total liabilities $68  $  $68  $ 

 

                 
     Fair Value Measurements at March 31, 2022 
     Quoted Prices in  Significant Other  Significant 
     Active Markets for  Observable  Unobservable 
     Identical Assets  Inputs  Inputs 
  Total  (Level 1)  (Level 2)  (Level 3) 
Assets:            
Short-term investments $155,114  $20,650  $134,464  $ 
Foreign currency forward exchange contracts not accounted for using hedge accounting  1,476      1,476    
Total Assets                
  $156,590  $20,650  $135,940  $ 
Liabilities:                
Foreign currency forward exchange contracts accounted for using hedge accounting $1,596  $  $1,596  $ 
Interest rate swaps  (2,579)     (2,579)   
Total Liabilities                
  $(983) $  $(983) $ 

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

                
     Fair Value Measurements at December 31, 2021 
     Quoted Prices in  Significant Other  Significant 
     Active Markets for  Observable  Unobservable 
     Identical Assets  Inputs  Inputs 
  Total  (Level 1)  (Level 2)  (Level 3) 
Assets:            
Short-term investments $160,014  $24,506  $135,508  $ 
Liabilities:                
Foreign currency forward exchange contracts accounted for using hedge accounting $1,982  $  $1,982  $ 
Foreign currency forward exchange contracts not accounted for using hedge accounting  63      63    
Interest rate swaps  (234)     (234)   
Total Liabilities                
. $1,811  $  $1,811  $ 

The carrying amount of cash and cash equivalents including money market funds, short-term investments, accounts receivable, other receivables, cash held in escrow, accounts payable and accrued expenses approximate fair value due to the short terms to maturity of these instruments.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The carrying amount of loans payable approximates fair value as the interest rates on the Company’s indebtedness approximate current market rates. The fair value of the Company’s long-term debt was estimated based on the current rates offered to companies for debt with the same remaining maturities and is approximately equal to its carrying value.

Foreign currency forward exchange contracts are valued based on quotations from financial institutions and the value of interest rate swaps are the discounted net present value of the swaps using third party quotes from financial institutions.

 

7.Derivative Financial Instruments:

The Company enters into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Before entering into a derivative transaction for hedging purposes, it is determined that a high degree of initial effectiveness exists between the change in value of the hedged item and the change in the value of the derivative instrument from movement in exchange rates. High effectiveness means that the change in the cash flows of the derivative instrument will effectively offset the change in the cash flows of the hedged item. The effectiveness of each hedged item is measured throughout the hedged period and is based on the dollar offset methodology and excludes the portion of the fair value of the foreign currency forward exchange contract attributable to the change in spot-forward difference which is reported in current period earnings. Any hedge ineffectiveness is also recognized as a gain or loss on foreign currency in the income statement. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued, and gains and losses accumulated in other comprehensive income are reclassified to earnings. If it is probable that the forecasted transaction will no longer occur, then any gains or losses accumulated in other comprehensive income are reclassified to current-period earnings. 

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INTER PARFUMS, INC. AND SUBSIDIARIES

NotesIn December 2022, to Consolidated Financial Statementsfinance the acquisition of the Lacoste trademark, the Company entered into a €50 million ($54.4 million) 4-year term loan with a variable interest rate. This variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. This swap is a hedged derivative instrument and is therefore recorded at fair value and changes in fair value are reflected in other comprehensive income.

In connection with the April 2021 acquisition of the office building complex in Paris, €120 million (approximately $133130.5 million) of the purchase price was financed through a 10-year term loan. The Company entered into interest rate swap contracts related to €80 million of the loan, effectively exchanging the variable interest rate to a fixed rate of approximately 1.1%1.1%. This derivative instrument is recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income.

Gains and losses in derivatives designated as hedges are accumulated in other comprehensive income and gains and losses in derivatives not designated as hedges are included in (gain) loss on foreign currency on the accompanying income statements. Such gains and losses were immaterial for both the three months ended March 31, 20222023 and 2021.2022.

All derivative instruments are reported as either assets or liabilities on the balance sheet measured at fair value. The valuation of interest rate swaps is included in long-term debt on the accompanying balance sheets. The valuation of foreign currency forward exchange contracts at March 31, 2022,2023, resulted in a net liabilityasset and is included in accrued expensesother current assets on the accompanying balance sheet.

At March 31, 2022,2023, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $153.0 million, GB £1.0 million and JPY ¥150.037 million which all have maturities of less than one year.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

8.Leases:

The Company leases its offices and warehouses, vehicles, and certain office equipment, substantially all of which are classified as operating leases. The Company currently has no material financing leases. The Company determines if an arrangement is a lease at inception. Operating lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term.

In determining lease asset value, the Company considers fixed or variable payment terms, prepayments, incentives, and options to extend or terminate, depending on the lease. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. The Company generally uses its incremental borrowing rate based on information available at the lease commencement date for the location in which the lease is held in determining the present value of lease payments.

As of March 31, 2022,2023, the weighted average remaining lease term was 6.75.5 years and the weighted average discount rate used to determine the operating lease liability was 2.6%. Rental expense related to operating leases was $1.81.4 million and $1.41.8 million for the three months ended March 31, 20222023 and 2021,2022, respectively. Operating lease payments included in operating cash flows totaled $1.71.3 million and $1.51.7 million for the three months ended March 31, 20222023 and 2021,2022, respectively, and there were no noncash additions to operating lease assets for the three months ended March 31, 20222023 and 2021.

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INTER PARFUMS, INC. AND SUBSIDIARIES2022.

 

Notes to Consolidated Financial Statements

9.Share-Based Payments:

 

The Company maintains a stock option program for key employees, executives and directors. The plans, all of which have been approved by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans typically have a six-year term and vest over a four to five-year period. The fair value of shares vested during the three months ended March 31, 20222023 and 20212022 aggregated $0.100.09 million and $0.090.10 million,, respectively. Compensation cost, net of forfeitures, is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures are estimated based on historic trends. It is generally our policy to issue new shares upon exercise of stock options.

 

The following table sets forth information with respect to nonvested options for the three months ended March 31, 2022:2023:

 

 Number of Shares Weighted Average Grant-Date Fair Value  Number of Shares Weighted Average
Grant-Date Fair Value
 
Nonvested options – beginning of period  209,510  $13.45   168,730  $16.31 
Nonvested options granted  --   --       
Nonvested options vested or forfeited  (9,780) $12.18   (23,080) $13.58 
Nonvested options – end of period  199,730  $13.51   145,650  $16.74 

Share-based payment expense decreased income before income taxes by $0.650.63 million and $0.730.65 million for the three months ended March 31, 20222023 and 2021,2022, respectively, and decreased income attributable to Inter Parfums, Inc. by $0.440.43 million and $0.490.44 million for the three months ended March 31, 2023 and 2022, and 2021, respectively.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table summarizes stock option information as of March 31, 2022:2023:

 

 Shares Weighted Average Exercise Price  Shares Weighted Average
Exercise Price
 
          
Outstanding at January 1, 2022  524,900  $57.58 
Outstanding at January 1, 2023  441,580  $67.30 
Options forfeited  (1,180)  65.96   (15,480)  70.48 
Options exercised  (13,425)  52.73   (88,710)  55.57 
                
Outstanding at March 31, 2022  510,295  $57.69 
Outstanding at March 31, 2023  337,390  $70.24 
                
Options exercisable  310,565  $52.42   191,740  $61.38 
Options available for future grants  613,715       574,455     

As of March 31, 2022,2023, the weighted average remaining contractual life of options outstanding is 2.513.56 years (2.121.75 years for options exercisable); the aggregate intrinsic value of options outstanding and options exercisable is $15.524.3 million and $11.115.5 million,, respectively; and unrecognized compensation cost related to stock options outstanding aggregated $2.5 million2.4.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements million.

 

Cash proceeds, tax benefits and intrinsic value related to stock options exercised during the three months ended March 31, 2023 and 2022 and 2021werewere as follows:

 

(In thousands) March 31,
2022
 March 31,
2021
  March 31,  
2023
 March 31,  
2022
 
          
Cash proceeds from stock options exercised $708  $1,467  $4,929  $708 
Tax benefits  75   200   780   75 
Intrinsic value of stock options exercised  635   1,457   5,403   635 

 

The weighted average fair values of the options granted by Inter Parfums, Inc. during the three months ended March 31, 2021 were $11.35 per share on the date of grant using the Black-Scholes option pricing model to calculate the fair value of options granted. There were no options granted during the three months ended March 31, 2022. The assumptions used in the Black-Scholes pricing model for the period ended2023 and March 31, 2021 is set forth in the following table:2022.

March 31,
2021
Weighted average expected stock-price volatility25%
Weighted average expected option life5 years
Weighted average risk-free interest rate0.4%
Weighted average dividend yield1.6%

 

Expected volatility is estimated based on historic volatility of the Company’s common stock. The expected term of the option is estimated based on historic data. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option and the dividend yield reflects the assumption that the dividend payout as authorized by the Board of Directors would increase as the earnings of the Company and its stock price continue to increase.

 

In December 2018, Interparfums SA approved a plan to grant an aggregate of 26,600 shares of its stock to employees with no performance condition requirement, and an aggregate of 133,000 shares to officers and managers, subject to certain corporate performance conditions. The corporate performance conditions were met and therefore in June 2022, 211,955 shares, adjusted for stock splits, were distributed. The aggregate cost of the grant of approximately $4.8 million was recognized as compensation cost on a straight-line basis over the requisite three-year service period.

In March 2022, Interparfums SA approved an additional plan to grant an aggregate of 88,400 shares to all Interparfums SA employees and corporate officers having more than six months of employment at grant date, subject to certain corporate performance conditions. The shares, subject to adjustment for stock splits, will be distributed in June 2022. In order2025 and will follow the same guidelines as the December 2018 plan.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to avoid dilution of the Company’s ownership of Interparfums SA, all shares to be distributed pursuant to the plan will be pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA in prior years.Consolidated Financial Statements

 

The fair value of the grant had been determined based on the quoted stock price of Interparfums SA shares as reported by the NYSE Euronext on the date of grant. As of March 31, 2022, theThe estimated number of shares to be distributed after forfeited shares, wasof 172,34385,107 resulting from modifications and stock splits.has been determined taking into account employee turnover. The increase in shares anticipated to be distributed were transferred from treasury shares at the Interparfums SA level. The revisedaggregate cost of the grant wasof approximately $4.4$4.1 million. will be recognized as compensation cost on a straight-line basis over the requisite three and a quarter year service period.

 

Similar to the December 2018 plan, in order to avoid dilution of the Company’s ownership of Interparfums SA, all shares distributed or to be distributed pursuant to these plans will be pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA. During the year ended December 31, 2022, the Company acquired 63,281 shares at an aggregate cost of $3.0 million.

In the first quarter of 2023, the Company initiated a small share repurchase program, and over the course the course of the first quarter of 2023, the Company repurchased 43,060 shares at a cost of $5.58 million. These shares are classified as treasury shares on the accompanying balance sheet. The Company plans to continue repurchasing shares throughout 2023.

All share purchases and issuances have been classified as equity transactions on the accompanying balance sheet.

10.Net Income Attributable to Inter Parfums, Inc. Common Shareholders:

 

Net income attributable to Inter Parfums, Inc. per common share (“basic EPS”) is computed by dividing net income attributable to Inter Parfums, Inc. by the weighted average number of shares outstanding. Net income attributable to Inter Parfums, Inc. per share assuming dilution (“diluted EPS”), is computed using the weighted average number of shares outstanding, plus the incremental shares outstanding assuming the exercise of dilutive stock options using the treasury stock method.

 

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:

 

         
  Three months ended 
(In thousands) March 31, 
  2022  2021 
Numerator:      
Net income attributable to Inter Parfums, Inc. $35,299  $27,662 
Denominator:        
Weighted average shares  31,840   31,631 
Effect of dilutive securities:        
Stock options  170   141 
Denominator for diluted earnings per share  32,010   31,772 
         
Earnings per share:        
Net income attributable to Inter        
Parfums, Inc. common shareholders:        
Basic $1.11  $0.87 
Diluted  1.10   0.87 

        
  Three months ended 
(In thousands) March 31, 
  2023  2022 
Numerator:      
Net income attributable to Inter Parfums, Inc. $54,068  $35,299 
Denominator:        
Weighted average shares  32,018   31,840 
Effect of dilutive securities:        
Stock options  141   170 
Denominator for diluted earnings per share  32,159   32,010 
         
Earnings per share:        
Net income attributable to Inter Parfums, Inc. common shareholders:        
Basic $1.69  $1.11 
Diluted  1.68   1.10 

 

Not included in the above computations are the effect of antidilutive potential common shares which consist of outstanding options to purchase 0.35 million shares of common stock for the three months ended March 31, 2021. There were 0no antidilutive potential common shares outstanding for the three months ended March 31, 2023 and March 31, 2022.

 

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

11.Segment and Geographic Areas:

 

The Company manufactures and distributes one product line, fragrances and fragrance related products. The Company manages its business in two segments, European based operations and United States based operations. The European assets are located, and operations are primarily conducted, in France. Both European operations and United States operations primarily represent the sale of prestige brand name fragrances. Information on our operations by geographical areas is as follows:

 Information on the Company’s operations by segments is as follows:

   
(In thousands) Three months ended
March 31,
  Three months ended
March 31,
 
 2022 2021  2023 2022 
Net sales:                
United States $68,502  $39,196  $81,454  $68,502 
Europe  182,182   159,766   230,269   182,182 
Eliminations  (6)  (434)     (6)
                
 $250,678  $198,528  $311,723  $250,678 
                
Net income attributable to Inter Parfums, Inc.:                
United States $6,514  $4,187  $10,343  $6,514 
Europe  28,785   23,475   43,725   28,785 
                
 $35,299  $27,662  $54,068  $35,299 

 

 March 31, December 31,  March 31,  December 31, 
 2022 2021  2023  2022 
Total Assets:                
United States $239,559  $247,703  $288,927  $278,090 
Europe  950,036   931,735   1,110,902   1,052,004 
Eliminations  (27,387)  (34,074)  (19,623)  (21,522)
 $1,162,208  $1,145,364  $1,380,206  $1,308,542 

 

12.Reclassifications:

Certain prior year’s amounts in the accompanying consolidated statements of cash flows have been reclassified to conform to current period presentation.

 

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INTER PARFUMS, INC. AND SUBSIDIARIES

Item 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Information

 

Statements in this report which are not historical in nature are forward-looking statements. Although we believe that our plans, intentions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. In some cases, you can identify forward-looking statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and “would” or similar words. You should not rely on forward-looking statements because actual events or results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. These factors include, but are not limited to, the risks and uncertainties discussed under the headings “Forward Looking Statements” and “Risk Factors” in Inter Parfums’ annual report on Form 10-K for the fiscal year ended December 31, 2021,2022, and the reports Inter Parfums files from time to time with the Securities and Exchange Commission. Inter Parfums does not intend to and undertakes no duty to update the information contained in this report.

Overview

 

We operate in the fragrance business, and manufacture, market and distribute a wide array of fragrances and fragrance related products. We manage our business in two segments, European based operations and United States based operations. Certain prestige fragrance products are produced and marketed by our European operations through our 73%72% owned subsidiary in Paris, IPSA,Interparfums SA, which is also a publicly traded company as 27%28% of IPSAInterparfums SA shares trade on the NYSE Euronext.

 

We produce and distribute through our European basedoperations, fragrance products primarily under license agreements with brand owners, and European based fragrance product sales represented approximately 73%74% and 80%73% of net sales for the three months ended March 31, 20222023 and 2021,2022, respectively. We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade, Lanvin, Moncler, Montblanc, S.T. Dupont, Rochas and Van Cleef & Arpels, whose products are distributed in over 120 countries around the world. In addition, our exclusive and worldwide license for the production and distribution of Lacoste brand perfumes and cosmetics becomes effective in January 2024.

 

Through our United States operations, we also market fragrance and fragrance related products. United States operations represented 27%26% and 20%27% of net sales for the three months ended March 31, 20222023 and 2021,2022, respectively. These fragrance products are sold primarily pursuant to license or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, Donna Karan, DKNY, Ferragamo, Graff, GUESS, Hollister, MCM, Oscar de la Renta and Ungaro brands.

 

Substantially all of our prestige fragrance brands are licensed from unaffiliated third parties, and our business is dependent upon the continuation and renewal of such licenses. With respect to the Company’s largest brands, we license the Montblanc, Coach, Jimmy Choo and GUESS brand names.

 

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INTER PARFUMS, INC. AND SUBSIDIARIES

 

As a percentage of net sales, product sales for the Company’s largest brands were as follows:

 

 

Three Months Ended

March 31,

  

Three Months Ended  

March 31, 

 
 2022  2021  2023  2022 
          
Montblanc  19%   20%   20%  19%
Jimmy Choo  15%   18%   20%  15%
Coach  15%   16%   15%  15%
GUESS  11%   10%   9%  11%

Quarterly sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season. In certain markets where we sell directly to retailers, seasonality is more evident. We primarily sell directly to retailers in France and the United States.

 

We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses or other arrangements or out-right acquisitions of brands. Second, we grow through the introduction of new products and by supporting new and established products through advertising, merchandising and sampling as well as phasing out underperforming products so we can devote greater resources to those products with greater potential. The economics of developing, producing, launching and supporting products influence our sales and operating performance each year. Our introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.

 

Our business is not capital intensive, and it is important to note that we do not own manufacturing facilities. We act as a general contractor and source our needed components from our suppliers. These components are received at one of our distribution centers and then, based upon production needs, the components are sent to one of several third party fillers, which manufacture the finished product for us and then deliver them to one of our distribution centers.

 

As with any global business, many aspects of our operations are subject to influences outside our control. We believe we have a strong brand portfolio with global reach and potential. As part of our strategy, we plan to continue to make investments behind fast-growing markets and channels to grow market share. 

 

Our reported net sales are impacted by changes in foreign currency exchange rates. A strong U.S. dollar has a negative impact on our net sales. However, earnings are positively affected by a strong dollar, because almostabove 50% of net sales of our European operations are denominated in U.S. dollars, while almost all costs of our European operations are incurred in euro. Conversely, a weak U.S. dollar has a favorable impact on our net sales while gross margins are negatively affected. We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments and primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates.

 

The Russian invasion of Ukraine has negatively impacted our operations in both Russia and Ukraine. Since the invasion of Ukraine by Russia, we have been following regulations and sanctions which vary by country. In fiscal 2021, our operations in Ukraine and Russia accounted for approximately 4% of consolidated net sales. Future impacts on our business, including sanctions and counter-sanctions, are difficult to predict due to the high level of uncertainty as to how these developments will evolve.

We are monitoring the effects of this conflict, including the risks that may affect our business, and expect that we will adjust our plans accordingly as the situation progresses. We do not expect any material credit losses as most of our receivables on sales to Russia and Ukraine are covered by insurance or are being paid in advance.

For the three months ended March 31, 2022, the activities related to Russia and Ukraine did not have a material impact on our consolidated financial statements.

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Impact of COVID-19 Pandemic

 

A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and in March 2020, the World Health Organization declared COVID-19 a pandemic. In response, various national, state, and local governments issued decrees prohibiting certain businesses from operating and certain classes of workers from reporting to work.

Retail store closings, event cancellations and a shutdown of international air travel broughtPlease see our sales to a virtual standstill and caused a significant unfavorable impact on our results of operations in 2020.

Business significantly improved in the second half of 2020 and continued to improve throughout 2021 and thus far in 2022, as retail stores reopened, and consumers increased online purchasing. While we expect this trend to continue, the introduction of variants of COVID-19 in various partsdiscussion of the world has caused the temporary re-implementation of governmental restrictions to prevent further spread of the virus. In addition, international air travel remains curtailed in many jurisdictions due to both governmental restrictions and consumer health concerns. While COVID-19 has significantly restricted international travel in the near-term, we continue to believe that global travel retail will once again be a growth opportunity for the long-term. Lastly, the improved economy has put significant strains on our supply chain causing disruptions affecting the procurement of components, the ability to transport goods, and related cost increases. These disruptions have come at a time when demand for our product lines has never been stronger or more sustained. We have been addressing this issue since the beginning of 2021, by ordering well in advance of need and in larger quantities. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold. We do not expect the supply chain bottlenecks to begin lifting until later in 2022. Therefore, despite recent business improvement, the impactImpact of the COVID-19 pandemic may have a material adverse effectPandemic, which is incorporated by reference to note 2 to the Consolidated Financial Statements contained in this Quarterly Report on our results of our operations, financial position and cash flows through at leastForm 10-Q for the end of 2022.quarter ended March 31, 2023.

 

Recent Important Events

 

Please see our discussion of Recent Important Events, which is incorporated by reference to note 3 to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

Salvatore FerragamoDiscussion of Critical Accounting Policies

 

In October 2021, we closed on a transaction agreement with Salvatore Ferragamo S.p.A., whereby an exclusive and worldwide license was granted for the production and distribution of Ferragamo brand perfumes. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. The license became effective in October 2021 and will last for 10 years with a 5-year optional term, subject to certain conditions.

With respect to the management and coordination of activities related to the license agreement, the Company operates through a wholly-owned Italian subsidiary based in Florence, that was acquired from Salvatore Ferragamo on October 1, 2021. The acquisition together with the license agreement was accounted for as an asset acquisition.

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INTER PARFUMS, INC. AND SUBSIDIARIES

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on October 1, 2021. All amounts have been translated to U.S. dollars at the October 1, 2021 exchange rate. 

(In thousands)    
     
Inventories $17,805 
Trademarks and licenses  15,880 
Other assets  3,033 
     
Assets acquired  36,718 
     
Liabilities assumed  (958)
Total Consideration $35,760 

Emanuel Ungaro

In October 2021, we also entered into a 10-year exclusive global licensing agreement a with a 5-year optional term subject to certain conditions, with Emanuel Ungaro Italia S.r.l, for the creation, development and distribution of fragrances and fragrance-related products, under the Emanuel Ungaro brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry.

Donna Karan and DKNY

In September 2021, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under the Donna Karan and DKNY brands. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. With this agreement, we are gaining several well-established and valuable fragrance franchises, most notably Donna Karan Cashmere Mist and DKNY Be Delicious, as well as a significant loyal consumer base around the world. In connection with the grant of license, we issued 65,342 shares of Inter Parfums, Inc. common stock valued at $5.0 million to the licensor. The exclusive license is effective July 1, 2022, and we are planning to launch new fragrances under these brands in 2023.

Land and Building Acquisition - Future Headquarters in Paris

In April 2021, Interparfums SA, our 73% owned French Subsidiary, completed the acquisition of its future headquarters at 10 rue de Solférino in the 7th arrondissement of Paris from the property developer. This is an office complex combining three buildings connected by two inner courtyards, and consists of approximately 40,000 total sq. ft.

The purchase price includes the complete renovation of the site. As of March 31, 2022, $138.4 million of the purchase price, including approximately $3.4 million of acquisition costs, is included in property, equipment and leasehold improvements on the accompanying balance sheet as of March 31, 2022. The purchase price has been allocated approximately $63.6 million to land and $74.8 million to the building. The building, which was delivered on February 28, 2022, includes the building structure, development of the property, façade waterproofing, general and technical installations and interior fittings that will be depreciated over a range of 7 to 50 years. The Company has elected to depreciate the building cost based on the useful lives of its components. Approximately $5.4 million of cash held in escrow is included in property, equipment and leasehold improvements on the accompanying balance sheet as of March 31, 2022.

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INTER PARFUMS, INC. AND SUBSIDIARIES

The acquisition was financed by a 10-year €120 million (approximately $133 million) bank loan which bears interest at one-month Euribor plus 0.75%. Approximately €80 million of the variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum.

Discussion of Critical Accounting Policies

Information regarding our critical accounting policies can be found in our 20212022 Annual Report on Form 10-K filed with the SEC.

Results of Operations

Three Months Ended March 31, 20222023 as Compared to the Three Months Ended March 31, 20212022

Net Sales:

  Three months ended March 31, 
(in millions) 2023  2022  % Change 
    
European based product sales $230.3  $182.2   26.4%
United States based product sales  81.4   68.5   18.9%
  $311.7  $250.7   24.4%

 

Net Sales:

  Three months ended March 31, 
(in millions) 2022  2021  % Change 
    
European based product sales $182.2  $159.7   14.0%
United States based product sales  68.5   38.8   76.7%
  $250.7  $198.5   26.3%
             

Net sales for the three months ended March 31, 2022,2023 increased 26%24% from March 31, 2021.2022. At comparable foreign currency exchange rates, net sales increased 30%29% from the first quarter of 2021.2022. The average dollar/euro exchange rate for the current first quarter was 1.121.07 compared to 1.201.12 in the first quarter of 2021.2022.

The current first quarter was exceptionally strong for both European and United States based operations, as net sales increased 14%26% and 77%19%, respectively, as compared to the corresponding period of the prior year.

For European based operations, our largest brands, Jimmy Choo, Montblanc and Coach sales rose 63%, 28% and 24%, respectively, as compared to the corresponding period of the prior year. Although the results are exceptional, the strength of theOur U.S. dollar versus the euro muted the reported sales achieved by European brands. In addition, our U.S. distribution subsidiary for European based products encountered shipping related issues followingoperations also had a change in the distribution software by its logistics partner. Although those issues are now largely resolved, U.S. sales of European brands were negatively impacted in the first quarter.

For European based operations, our largest brands, Montblanc, Jimmy Choo and Coach grewstrong start growing 19% off a high 2022 base when first quarter 2022 sales had expanded 77%. This increase was driven by 22%, 7%the addition and 22%, respectively, as comparedextension of Donna Karan and DKNY to the corresponding period of the prior year. For U.S. operations, GUESS was the most significant contributor with first quarter 2022our portfolio and double-digit growth for Ferragamo and Oscar de la Renta, following successful brand sales 36% ahead of last year’s first quarter.extensions.

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INTER PARFUMS, INC. AND SUBSIDIARIES

During the first quarter of 2022,2023, we debuted Jimmy Choo Rose Passion and Montblanc Legend Red,Signature Absolue, a new Coach signature scent and Coach Dreams Sunset extensions, and GUESS Uomowhich contributed to the double digit brand sales gains. Many of our mid-sized brands, including Abercrombie & Fitch, Kate Spade, Boucheron, Ferragamo, Karl Lagerfeld, and Oscar de la Renta,, and Van Cleef & Arpels, also achieved double digit sales gains. The increaseAdditionally, we introduced brand extensions within established lines for Abercrombie & Fitch, and MCM. After the challenging lockdowns, the progressive reopening of China buoyed the Ferragamo and Anna Sui brands.

As expected, the implementation of our enterprise resource planning software weighed on our quarterly results, impacting GUESS disproportionately, which was flat off a high base in 2022, but we have strong orders that we will be fulfilling during the second quarter. However, overall our first quarter sales also reflects incremental sales generated by MCM and Moncler, two newer brands whose initial products debuted instarted the second and fourth quarters of 2021, respectively. Similarly, initial sales of Ferragamo and Ungaro legacy scents contributed to the first quarter sales increase.

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INTER PARFUMS, INC. AND SUBSIDIARIES

The first quarter startedyear on a strong note, and we look forward to executing our plans for the remainder of the year. Our brands are in high demand in a robust environment for the fragrance industry. We have a large number of brand extensions across many of our brands launching throughout the year, plus Montblanc Boucheron SingulierExplorer Platinum, Coach Green and Coach Open RoadLove, entirely new men’s pillars,later in the second half. Our new Paris headquarters are now staffed and operational as is our new Italian subsidiary. Plus, in July Donna Karan and DKNY fragrances will join our brand portfolio.year. In sum, 20222023 has all the earmarks of another superb year as the growth catalysts currently far outweigh the headwinds, most notably limited travel retail business and supply chain disruptions.

Net Sales to Customers by Region Three months ended March 31,  Three months ended March 31, 
(In millions) 2022  2021  2023  2022 
          
North America $81.5  $72.6  $111.2  $81.5 
Western Europe  63.6   45.2   77.2   63.6 
Asia  42.5   30.1   46.0   42.5 
Middle East  24.1   18.9   25.4   24.1 
Central and South America  18.3   13.3   26.2   18.3 
Eastern Europe  18.0   15.9   22.5   18.0 
Other  2.7   2.5   3.1   2.7 
 $250.7  $198.5  $311.7  $250.7 

 

First quarter sales in our largest market, North America, rose 12%36%, followed by Western Europe and Asia/Pacific where comparable quarter sales in both regions increased 41%.21% and 8%, respectively. Our sales in the Middle East, Central and South America, and Eastern Europe and the Middle East were also robust, up 27%43%, 38%25% and 13%5%, respectively. Additionally, our travel retail business is beginning to show signs of renewed life.

Gross Profit margin Three months ended March 31, 
(in millions) 2023  2022 
       
European operations        
Net sales $230.3  $182.2 
Cost of sales  74.3   60.5 
Gross margin $156.0  $121.7 
Gross margin as a % of net sales  67.8%  66.8%
         
United States operations        
Net sales $81,4  $68.5 
Cost of sales  34.5   31.6 
Gross margin $46.9  $36.9 
Gross margin as a % of net sales  57.6%  53.9%

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INTER PARFUMS, INC. AND SUBSIDIARIES

 

Gross Profit margin Three months ended March 31, 
(in millions) 2022  2021 
       
European operations        
Net sales $182.2  $159.8 
Cost of sales  60.5   55.2 
Gross margin $121.7  $104.6 
Gross margin as a % of net sales  66.8%  65.5%
         
United States operations        
Net sales $68.5  $38.8 
Cost of sales  31.6   18.2 
Gross margin $36.9  $20.6 
Gross margin as a % of net sales  53.9%  53.2%

For European based operations, gross profit margin as a percentage of net sales was 66.8%67.8% and 65.5%66.8% in the first quarters of 2023 and 2022, respectively as we have benefited from our pricing actions and 2021, respectively.favorable exchange rate. We carefully monitor movements in foreign currency exchange rates as almostmore than 50% of our European based operations net sales isare denominated in U.S. dollars, while most of our costs are incurred in euro. From a gross margin standpoint, a strong U.S. dollar has a positive effect on our gross margin while a weak U.S. dollar has a negative effect. The average dollar/euro exchange rate was 1.121.07 in the 20222023 first quarter as compared to 1.201.12 in the first quarter of 2021. The margin gains in 2022 is primarily the result of the stronger U.S. dollar in 2022.

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INTER PARFUMS, INC. AND SUBSIDIARIES

For United States operations, gross profit margin was 53.9%57.6% and 53.2%53.9% in the first quarters of 20222023 and 2021,2022, respectively. The significant margin expansion stems from a number of factors. Firstly, for the most part, the price increases we took early 2023 weren’t offset by a higher cost of goods given our inventory coverage and FIFO accounting. Secondly, we are seeing favorable brand and channel mix, as a higher portion of our sales are being sold directly to retailers as opposed to third-party distributors. Lastly, the significant increase in sales in the first quarter of 20222023 allowed us to better absorb fixed expenses such as depreciation and point of sale expenses, as compared to the corresponding period of the prior year.

As previously mentioned, supply chain disruptions affecting the procurement of components, the ability to transport goods, and related cost increases have and are expected to continue to have a negative impact on sales and gross margin. While we have been addressing these issues and have implemented processes to mitigate the impact, prolonged disruption could have a material negative effect on our sales and gross margin.

Generally, we do not bill customers for shipping and handling costs, and such costs, which aggregated $2.7$3.9 million and $1.7$2.7 million for the three months ended March 31, 20222023 and 2021,2022, respectively, are included in selling, general and administrative expenses in the consolidated statements of income. As such, our Company’s gross profit may not be comparable to other companies, which may include these expenses as a component of cost of goods sold.

Selling, general and administrative expenses 

Three months ended

March 31,

  

Three months ended 

March 31, 

 
(In millions) 2022  2021  2023  2022 
          
European Operations                
Selling, general and administrative expenses $69.0  $59.4  $77.3  $69.0 
Selling, general and administrative expenses as a percent of net sales  37.9%  37.2%  33.6%  37.9%
                
United States Operations                
Selling, general and administrative expenses $28.4  $15.5  $35.4  $28.4 
Selling, general and administrative expenses as a percent of net sales  41.5%  39.9%  43.5%  41.5%

 

For European operations, selling, general and administrative expenses increased 16.2%12.0% in the 20222023 first quarter, as compared to the corresponding period of the prior year, and represented 37.9%33.6% and 37.2%37.9% of net sales in the 20222023 and 20212022 periods, respectively. For United States operations, selling, general and administrative expenses increased 83.7%24.7% in the 20222023 first quarter, as compared to the corresponding period of the prior year, and represented 41.5%43.5% and 39.9%41.5% of net sales in the 20222023 and 20212022 periods, respectively. As discussed in more detail below, the increased selling, general and administrative expenses as a percent of net sales are primarily the result of increases in promotion and advertising expenditures.expenditures as well as the annualization impact of the structural investments in our US operations that we made throughout 2022 in order to support the new licenses of $4.0 million.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Promotion and advertising included in selling, general and administrative expenses aggregated $34.2$35.2 million and $21.8$34.2 million in the first quarters of 20222023 and 2021,2022, respectively, and represented 13.6%11.3% and 11.0%13.6% of net sales in the 20222023 and 20212022 periods, respectively. Throughout 2021, sales rebounded far more rapidly than originally anticipated causing us to play catchup with promotional and adverting programs throughout the year. Promotion and advertising are integral parts of our industry, and we continue to invest heavily to support new product launches and to build brand awareness. We believe that our promotion and advertising efforts have had a beneficial effect on online net sales. All of our brands have benefitted from newly launched and enhanced e-commerce sites in existing markets in collaboration with our retail customers on their e-commerce sites. We also continue to develop and implement omnichannel concepts and compelling content to deliver an integrated consumer experience. We anticipate that on a full year basis, future promotion and advertising expenditures will aggregate approximately 21% of net sales, which is in line with pre-COVID historical averages.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Royalty expense included in selling, general and administrative expenses aggregated $19.4$24.1 million for the three months ended March 31, 2022,2023, as compared to $15.4$19.4 million for the corresponding periods of the prior year. Royalty expense represented 7.7% of net sales for both the three months ended March 31, 20222023 and 2021.2022.

Income from Operations

As a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, our operating margins aggregated 24.4%29.0% and 24.2%24.4% for the three months ended March 31, 2023 and 2022, and 2021, respectively.

Other Income and Expense

Traditionally, interest expense was primarily related to the financing of brand and licensing acquisitions. However, in April 2021, we completed the acquisition of the headquarters of Interparfums SA. The acquisition was financed by a 10-year €120 million (approximately $133$130.5 million) bank loan which bears interest at one-month Euribor plus 0.75%. Also in 2021, approximately €80 million of the variable rate debt was swapped for fixedvariable rate debt with a maximum interest rate debt.of 2%. The swap effectively exchanges the variable interest rate to a fixed rate of approximately 1.1%.

We enter into foreign currency forward exchange contracts to manage exposure related to receivables from unaffiliated third parties denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Gains and losses on foreign currency transactions have not been significant. AlmostAbove 50% of net sales of our European operations are denominated in U.S. dollars.

Interest and investment (income) loss represents interest earned on cash and cash equivalents and short-term investments. As of March 31, 2022, short-term investments include approximately $20.7 million of marketable equity securities of other companies in the luxury goods sector. In the first quarter of 2023, the Company sold these marketable securities which generated a gain of $3.1 million. Interest and investment (income) loss for the three months ended March 31, 2022,2023, includes approximately $3.4 million of losses on such marketable equity securities.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Income Taxes

Our consolidated effective tax rate was 24.4%23.4% and 26.8%24.4% for the three months ended March 31, 2023 and 2022, and 2021, respectively.

The effective tax rate for European operations was 25% and 28% for both the three months ended March 31, 20222023 and 2021, respectively. The decline is primarily the result of a decrease in the French corporate income tax rate.

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2022.

INTER PARFUMS, INC. AND SUBSIDIARIES

Our effective tax rate for U.S. operations was 20.7%12.7% for the three months ended March 31, 2022,2023, as compared to 17.0%20.7% for the corresponding period of the prior year. Our effective tax rate differs from the 21% statutory rate due to benefits received from the exercise of stock options as well as deductions we are allowed for a portion of our foreign derived intangible income, slightly offset by state and local taxes. The lower effective tax rate in 2021 is a result of discrete tax items related to benefits received from the exercise of stock options.

Other than as discussed above, we did not experience any significant changes in tax rates, and none were expected in jurisdictions where we operate.

Net Income

 Three Months Ended
    March 31,
  Three Months Ended
    March 31,
 
 2022 2021  2023 2022 
 (In thousands)  (In thousands) 
          
Net income attributable to European operations $39,776  $32,439  $60,565  $39,776 
Net income attributable to United States operations  6,515   4,187   10,343   6,515 
Net income  46,291   36,626   70,908   46,291 
Less: Net income attributable to the noncontrolling interest  10,992   8,964   16,840   10,992 
Net income attributable to Inter Parfums, Inc. $35,299  $27,662  $54,068  $35,299 

 

Net income attributable to European operations was $39.8$60.6 million and $32.4$39.8 million for the three months ended March 31, 20222023 and 2021,2022, respectively, while net income attributable to United States operations was $6.5$10.3 million and $4.2$6.5 million for the three months ended March 31, 20222023 and 2021,2022, respectively. The significant fluctuations in net income for both European operations and United States operations are directly related to the previous discussions relatingpertaining to changes in sales, gross margin, and selling, general and administrative expenses.

The noncontrolling interest arises from our 73%72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 27%28% of Interparfums SA shares trade on the NYSE Euronext. Net income attributable to the noncontrolling interest is directly related to the profitability of our European operations and aggregated 27.8% and 27.6% of European operations net income for both the three months ended March 31, 2023 and 2022, and 2021.respectively. Net margins attributable to Inter Parfums, Inc. as of March 31, 2023 and 2022 aggregated 17.3% and 2021 aggregated 14.1% and 13.9%, respectively.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Liquidity and Capital Resources

Our conservative financial tradition has enabled us to amass significant cash balances. As of March 31, 2022,2023, we had $265$238 million in cash, cash equivalents and short-term investments, most of which is held in euro by our European operations and is readily convertible into U.S. dollars. We have not had any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments. As of March 31, 2022,2023, short-term investments include approximately $20.7$0.7 million of marketable equity securities.

As of March 31, 2022,2023, working capital aggregated $484$489 million and we had a working capital ratio of 2.92.4 to 1. Approximately 82%80% of the Company’s total assets are held by European operations, and approximately $167$253 million of trademarks, licenses and other intangible assets are also held by European operations.

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INTER PARFUMS, INC. AND SUBSIDIARIES

The Company is party to a number of license and other agreements for the use of trademarks and rights in connection with the manufacture and sale of its products expiring at various dates through 2033.2039. In connection with certain of these license agreements, the Company is subject to minimum annual advertising commitments, minimum annual royalties and other commitments. See Item 8. Financial Statements and Supplementary Data – Note 12 – Commitments in our 20212022 annual report on Form 10-K.10-K, which is incorporated by reference herein. Future advertising commitments are estimated based on planned future sales for the license terms that were in effect at December 31, 2021,2022, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.

The Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a proprietary basis or as a licensee. As we recently reported,In December 2022, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under the Donna Karan and DKNY brands.Lacoste brand. This license is expected to take effect on July 1, 2022. Opportunities for external growth are regularly examined, with the priority of maintaining the quality and homogeneous nature of our portfolio. However, we cannot assure you that any new license or acquisition agreements will be consummated.takes effect January 2024.

Cash used in operating activities aggregated $7.4 million and $23.9 million for the three months ended March 31, 2023 and 2022, as compared to cash provided by operating activities of $32.5 million for the corresponding period of the prior year.respectively. For the three months ended March 31, 2022,2023, working capital items used $73.2$84.8 million in cash from operating activities, as compared to $14.4$73.2 million in the 20212022 period. Although from a cash flow perspective accounts receivable is up 32%22% from year end 2021,2022, the balance is reasonable based on first quarter 20222023 record sales levels and reflects reasonable collection activity as day’s sales outstanding was 7569 days, updown slightly from 7175 days in the corresponding period of the prior year. From a cash flow perspective, inventory levels as of March 31, 2022,2023, increased 16%10% from year end 2021.2022. Although inventories include productcomponents needed to support new product launches, the overall balance is lower than historic levels due primarily to supply chain disruptions. We have been addressing this issue since the beginning of 2021, by ordering well in advance of need and in larger quantities. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold.

Cash flows used inprovided by investing activities in 20222023 reflect purchases and sales of short-term investments. These investments include certificates of deposit with maturities greater than three months. Approximately $47$40 million of such certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Our business is not capital intensive as we do not own any manufacturing facilities. On a full year basis, we typically spend approximately $5.0 million on tools and molds, depending on our new product development calendar. During the three months ended March 31, 2022, approximately $4.9 million was added to property costs relating to our new Paris corporate headquarters. Capital expenditures also include amounts for office fixtures, computer equipment and industrial equipment needed at our distribution centers.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Our short-term financing requirements are expected to be met by available cash on hand at March 31, 2022,2023, and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 20222023 consist of a $20.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $28 million in credit lines provided by a consortium of international financial institutions. There were nowas $18 million of short-term borrowings outstanding pursuant to these facilities as of both March 31, 20222023 and 2021.no short-term borrowings outstanding as of March 31, 2022.

In April 2020, as a result of the uncertainties raised by the COVID-19 pandemic, the Board of Directors authorized a temporary suspension of the quarterly cash dividend. In February 2021, our Board of Directors authorized a reinstatement of an annual dividend of $1.00, payable quarterly. Inquarterly and in February 2022, our Board authorized a 100% increase in the annual dividend to $2.00 per share. In February 2023 the Board of Directors further increased the annual dividend to $2.50 per share. The next quarterly cash dividend of $0.50$0.625 per share is payable on June 30, 2022,2023, to shareholders of record on June 15, 2022.2023.

We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.

Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the three months ended March 31, 2022.2023.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Item 3:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

We address certain financial exposures through a controlled program of risk management that primarily consists of the use of derivative financial instruments. We primarily enter into foreign currency forward exchange contracts in order to reduce the effects of fluctuating foreign currency exchange rates. We do not engage in the trading of foreign currency forward exchange contracts or interest rate swaps.

Foreign Exchange Risk Management

We periodically enter into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and to manage risks related to future sales expected to be denominated in a currency other than our functional currency. We enter into these exchange contracts for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the receivables and cash flows of Interparfums SA, whose functional currency is the euro. All foreign currency contracts are denominated in currencies of major industrial countries and are with large financial institutions, which are rated as strong investment grade.

All derivative instruments are required to be reflected as either assets or liabilities in the balance sheet measured at fair value. Generally, increases or decreases in fair value of derivative instruments will be recognized as gains or losses in earnings in the period of change. If the derivative is designated and qualifies as a cash flow hedge, then the changes in fair value of the derivative instrument will be recorded in other comprehensive income.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Before entering into a derivative transaction for hedging purposes, we determine that the change in the value of the derivative will effectively offset the change in the fair value of the hedged item from a movement in foreign currency rates. Then, we measure the effectiveness of each hedge throughout the hedged period. Any hedge ineffectiveness is recognized in the income statement.

At March 31, 2022,2023, we had foreign currency contracts in the form of forward exchange contracts of approximately U.S. $153.0 million and GB £1.0 million and JPY ¥150$37.0 million with maturities of less than one year. We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote.

Interest Rate Risk Management

We mitigate interest rate risk by monitoring interest rates, and then determining whether fixed interest rates should be swapped for floating rate debt, or if floating rate debt should be swapped for fixed rate debt.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Item 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based on their review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the quarterly period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

Item (c).

Inter Parfums, Inc. Purchase of Common Stock1
Period Total Number of Shares Purchased  Average price paid per share  Total number of shares purchased as part of publicly announced plans or programs  Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
January 1-31  16,060  $110.63   16,060  150,000 shares
February 1-28  0   n/a   16,060  150,000 shares
March 1-31  27,000  $140.87   43,060  123,000 shares
Total  43,060  $129.59   43,060  123,000 shares

 

Items 1. Legal Proceedings, 1A. Risk Factors, 2. Unregistered Sales of Equity Securities and Use of Proceeds, 3. Defaults Upon Senior Securities, 4. Mine Safety Disclosures and 5. Other Information, are omitted as they are either not applicable or have been included in Part I.

 

1 All shares were purchased in open market transactions.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Item 6. Exhibits.

The following documents are filed herewith:

Exhibit No.DescriptionPage Number
   
31.1Certifications required by Rule 13a-14(a) of Chief Executive Officer28
   
31.2Certifications required by Rule 13a-14(a) of Chief Financial Officer and Principal Accounting Officer29
   
32.1Certification required by Section 906 of the Sarbanes-Oxley Act of Chief Executive Officer30
   
32.2Certification required by Section 906 of the Sarbanes-Oxley Act of Chief Financial Officer and Principal Accounting Officer31
   
101Interactive data files 

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INTER PARFUMS, INC. AND SUBSIDIARIES

 

Exhibit No.DescriptionPage Number
   
31.1Certifications required by Rule 13a-14(a) of Chief Executive Officer29
   
31.2Certifications required by Rule 13a-14(a) of Chief Financial Officer and Principal Accounting Officer30
   
32.1Certification required by Section 906 of the Sarbanes-Oxley Act of Chief Executive Officer31
   
32.2Certification required by Section 906 of the Sarbanes-Oxley Act of Chief Financial Officer and Principal Accounting Officer32
   
101Interactive data files 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 10th8th day of May 2022.2023.

INTER PARFUMS, INC.
By:/s/ Russell GreenbergMichel Atwood
Executive Vice President and Chief Financial Officer

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