UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( MARK ONE )
/X/Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 2004.
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 Avenue, New York, New York 10176
(Address of Principal Executive Offices) (Zip Code)
(212) 983-2640
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes_X_No___
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes___ No_X_
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
At November 11, 2004 there were 19,346,417 shares of common stock, par value $.001 per share, outstanding.
INDEX
| ||
Page Number | ||
Part I. Financial Information | ||
Item 1. Financial Statements | 1 | |
| 2 | |
| 3 | |
| 4 | |
| 5 | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 10 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 19 | |
Item 4. Controls and Procedures | 20 | |
Part II. Other Information | 21 | |
Item 2. Changes in Securities and Use of Proceeds | 21 | |
Item 5. Other Information | 21 | |
Item 6. Exhibits and Reports on Form 8-K | 22 | |
Signatures | 23 | |
Certifications | 24 | |
Part I. Financial Information
Item 1. Financial Statements
In the opinion of management, 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. Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2003 included in our annual report filed on Form 10-K.
The results of operations for the nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the entire fiscal year.
INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
|
ASSETS |
September 30, 2004 | December 31, 2003 | |||
(unaudited) | ||||
Current assets: | ||||
Cash and cash equivalents | $ 34,747 | $ 58,958 | ||
Account receivable, net | 78,171 | 63,467 | ||
Inventories | 68,500 | 54,255 | ||
Receivables, other | 1,925 | 1,631 | ||
Other current assets | 2,413 | 1,638 | ||
Income tax receivable | 303 | 1,110 | ||
Deferred tax asset | 2,394 | 1,381 | ||
Total current assets | 188,453 | 182,440 | ||
Equipment and leasehold improvements, net | 5,896 | 4,967 | ||
Trademarks and licenses, net | 31,597 | 6,323 | ||
Goodwill | 4,670 | -- | ||
Other assets | 518 | 271 | ||
$ 231,134 | $ 194,001 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY |
Current liabilities: | ||||
Loans payable - banks | $ 7,845 | $ 121 | ||
Current portion of long-term debt | 3,945 | -- | ||
Accounts payable | 29,486 | 45,152 | ||
Accrued expenses | 29,401 | 17,403 | ||
Income taxes payable | 2,483 | 3,411 | ||
Dividends payable | 575 | 383 | ||
Total current liabilities | 73,735 | 66,470 | ||
Long-term debt, less current portion | 14,797 | -- | ||
Deferred tax liability | 2,403 | 1,417 | ||
Put options | 857 | -- | ||
Minority interest | 25,277 | 21,198 | ||
Shareholders' equity: | ||||
Preferred stock, $.001 par; authorized 1,000,000 shares; none issued | ||||
Common stock, $.001 par; authorized 100,000,000 shares; outstanding 19,175,249 and 19,164,186 shares at September 30, 2004 and December 31, 2003, respectively | 19 | 19 | ||
Additional paid-in capital | 34,412 | 34,363 | ||
Retained earnings | 97,868 | 87,376 | ||
Accumulated other comprehensive income | 8,012 | 9,404 | ||
Treasury stock, at cost, 7,180,579 common shares at September 30, 2004 and December 31, 2003 | (26,246) | (26,246) | ||
114,065 | 104,916 | |||
$ 231,134 | $ 194,001 | |||
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
| ||||
Three Months Ended September 30, | Nine Months Ended September 30, |
2004 | 2003 | 2004 | 2003 | |||||
Net sales | $ 67,090 | $ 57,401 | $ 172,215 | $ 136,358 | ||||
Cost of sales | 33,822 | 29,890 | 86,541 | 70,832 | ||||
Gross margin | 33,268 | 27,511 | 85,674 | 65,526 | ||||
Selling, general and administrative | 25,261 | 19,090 | 60,643 | 46,663 | ||||
Income from operations | 8,007 | 8,421 | 25,031 | 18,863 | ||||
Other expenses (income): | ||||||||
Interest expense | 239 | 56 | 448 | 223 | ||||
(Gain) loss on foreign currency | 19 | (489) | 503 | (344) | ||||
Interest and dividend income | (139) | (183) | (583) | (640) | ||||
Loss on subsidiary's issuance of stock | -- | -- | 25 | 155 | ||||
119 | (616) | 393 | (606) | |||||
Income before income taxes | 7,888 | 9,037 | 24,638 | 19,469 | ||||
Income taxes | 2,658 | 3,177 | 8,611 | 6,819 | ||||
Net income before minority interest | 5,230 | 5,860 | 16,027 | 12,650 | ||||
Minority interest in net income of consolidated subsidiary | 1,193 | 1,176 | 3,810 | 2,526 | ||||
Net income | $ 4,037 | $ 4,684 | $ 12,217 | $ 10,124 | ||||
Net income per share: | ||||||||
Basic | $0.21 | $0.25 | $0.64 | $0.53 | ||||
Diluted | $0.20 | $0.23 | $0.60 | $0.51 | ||||
Weighted average number of shares outstanding: | ||||||||
Basic | 19,171 | 19,024 | 19,170 | 19,000 | ||||
Diluted | 20,397 | 20,182 | 20,530 | 19,997 |
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| ||
Nine months ended September 30, |
2004 | 2003 | |||
Cash flows from operating activities: | ||||
Net income | $ 12,217 | $ 10,124 | ||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||
Depreciation and amortization | 2,484 | 2,088 | ||
Minority interest in net income of consolidated subsidiary | 3,810 | 2,526 | ||
Deferred tax (benefit) provision | (1) | 390 | ||
Loss on subsidiary's issuance of stock | 25 | 156 | ||
Change in fair value of put options | (74) | -- | ||
Changes in: | ||||
Accounts receivable, net | (15,126) | (21,572) | ||
Inventories | (14,025) | (5,144) | ||
Other assets | (1,044) | (93) | ||
Accounts payable and accrued expenses | (8,510) | 8,814 | ||
Income taxes payable, net | (47) | 2,052 | ||
Net cash used in operating activities | (20,291) | (659) | ||
Cash flows from investing activities: | ||||
Purchase of equipment and leasehold improvements | (2,171) | (1,599) | ||
Payment for licenses acquired | (20,258) | -- | ||
Acquisition of businesses, net of cash acquired | (4,416) | -- | ||
Net cash used in investing activities | (26,845) | (1,599) | ||
Cash flows from financing activities: | ||||
Increase in loans payable - bank | 7,316 | 4,180 | ||
Proceeds from long-term debt | 19,636 | -- | ||
Repayment of long-term debt | (982) | -- | ||
Proceeds from sale of stock of subsidiary | 168 | 356 | ||
Proceeds from exercise of options | 49 | 94 | ||
Dividends paid | (1,534) | (1,047) | ||
Dividends paid to minority interest | (776) | (409) | ||
Purchase of treasury stock | -- | (64) | ||
Net cash provided by financing activities | 23,877 | 3,110 | ||
Effect of exchange rate changes on cash | (952) | 2,781 | ||
Net (decrease) increase in cash and cash equivalents | (24,211) | 3,633 | ||
Cash and cash equivalents - beginning of period | 58,958 | 38,290 | ||
Cash and cash equivalents - end of period | $ 34,747 | $ 41,923 | ||
Supplemental disclosure of cash flow information | ||||
Cash paid for: | ||||
Interest | $ 412 | $ 561 | ||
Income taxes | $ 9,203 | $ 4,905 |
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
1.Significant Accounting Policies:
The accounting policies we follow are set forth in the notes to our financial statements included in our Form 10-K which was filed with the Securities and Exchange Commission for the year ended December 31, 2003. We also discuss such policies in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in this Form 10-Q.
2.Stock- based Compensation:
The Company accounts for stock-based employee compensation under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations ("APB 25"). The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", which was released in December 2002 as an amendment of SFAS No. 123.
The Company applies APB No. 25 and related interpretations in accounting for its stock option incentive plans. The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all awards.
(In thousands, except per share data) | Three months ended | Nine months ended September 30, |
2004 | 2003 | 2004 | 2003 | |
Reported net income | $ 4,037 | $ 4,684 | $ 12,217 | $ 10,124 |
Stock-based employee compensation expense included in reported net income, net of related tax effect | -- | -- | -- | -- |
Stock-based employee compensation determined under the fair value based method, net of tax effect | - -- | - -- | (93) | (22) |
Pro forma net income | $ 4,037 | $ 4,684 | $ 12,124 | $ 10,102 |
Income per share, as reported: | ||||
Basic | $ 0.21 | $ 0.25 | $ 0.64 | $ 0.53 |
Diluted | $ 0.20 | $ 0.23 | $ 0.60 | $ 0.51 |
Pro forma net income per share: | ||||
Basic | $ 0.21 | $ 0.25 | $ 0.63 | $ 0.53 |
Diluted | $ 0.20 | $ 0.23 | $ 0.59 | $ 0.51 |
The weighted average fair values of the options granted during the 2004 and 2003 periods are estimated as $6.89 and $2.07 per share, respectively, on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield 0.5% in 2004 and 1.0% in 2003; volatility of 50% in both 2004 and 2003; risk-free interest rates at the date of grant, 1.81% in 2004 and 1.70% in 2003; and an expected life of the option of two years.
Notes to Consolidated Financial Statements
3.Comprehensive Income:
(In thousands) | Three months ended | Nine months ended September 30, |
2004 | 2003 | 2004 | 2003 | |
Comprehensive income: | ||||
Net income | $ 4,037 | $ 4,684 | $ 12,217 | $ 10,124 |
Other comprehensive income, net of tax: | ||||
Foreign currency translation adjustment | 1,515 | 1,055 | (1,345) | 5,505 |
Change in fair value of derivatives used for hedging | (9) | 24 | (47) | 117 |
Comprehensive income | $ 5,543 | $ 5,763 | $ 10,825 | $ 15,746 |
4.Geographic Areas:
European operations are primarily conducted in France and primarily represent sales of prestige brand name fragrances. Information related to domestic and foreign operations is as follows:
(In thousands) | Three months ended | Nine months ended September 30, |
2004 | 2003 | 2004 | 2003 | |
Net Sales: | ||||
United States | $ 10,071 | $ 11,699 | $ 30,256 | $ 32,212 |
Europe | 57,835 | 45,887 | 142,960 | 104,429 |
Eliminations | (816) | (185) | (1,001) | (283) |
$ 67,090 | $ 57,401 | $ 172,215 | $ 136,358 | |
Net Income: | ||||
United States | $ 382 | $ 844 | $ 725 | $ 1,836 |
Europe | 3,773 | 3,851 | 11,620 | 8,296 |
Eliminations | (118) | (11) | (128) | (8) |
$ 4,037 | $ 4,684 | $ 12,217 | $ 10,124 |
5.Reclassifications:
Certain items in the accompanying Consolidated Statements of Income have been reclassified to conform to current period presentation.
6.Earnings Per Share:
Basic earnings per share are computed using the weighted average number of shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of shares outstanding during each period, plus the incremental shares outstanding assuming the exercise of dilutive stock options.
Notes to Consolidated Financial Statements
6.Earnings Per Share (continued):
The following table sets forth the computation of basic and diluted earnings per share:
(In thousands) | Three months ended September 30, | Nine months ended September 30, |
2004 | 2003 | 2004 | 2003 | |
Numerator: | ||||
Net income | $ 4,037 | $ 4,684 | $ 12,217 | $ 10,124 |
Denominator: | ||||
Weighted average shares | 19,171 | 19,024 | 19,170 | 19,000 |
Effect of dilutive securities: | ||||
Stock options | 1,226 | 1,158 | 1,360 | 997 |
Denominator for diluted earnings per share | 20,397 | 20,182 | 20,530 | 19,997 |
Not included in the above computation is the effect of anti-dilutive potential common shares which consist of options to purchase 220,000 and 83,000 shares of common stock for the three and nine month periods ended September 30, 2004, respectively, and 0 and 271,000 for the three and nine months ended September 30, 2003, respectively.
7.Inventories:
Inventories consist of the following:
(In thousands) | September 30, 2004 | December 31, 2003 |
Raw materials and component parts | $ 23,042 | $ 19,776 |
Finished goods | 45,458 | 34,479 |
$ 68,500 | $ 54,255 |
8.Acquisition of Business:
In April 2004, the Company's French subsidiary, Inter Parfums, S.A., ("IPSA") acquired a 67.5% interest in Nickel S.A. ("Nickel") for approximately $8.3 million in cash including a capital infusion of $2.8 million made in June 2004, aggregating approximately $4.4 million, net of cash acquired. In accordance with the purchase agreement, each of the minority shareholders has an option to put their remaining interest in Nickel to IPSA from January 2007 through June 2007. Based on an independent valuation, management has valued the put options at $0.93 million as of the date of acquisition, revised from $1.92 million used in June based on a preliminary valuation, and has recorded a long-term liability and increased goodwill accordingly. These options are carried at fair value as determined by management as of September 30, 2004, which resulted in a gain of $74,000, which is included in selling, general and administrative expense in the accompanying consolidated statements of income.
Notes to Consolidated Financial Statements
8.Acquisition of Business (continued):
The purchase price for the minority shares will be based upon a formula applied to Nickel's sales for the year ending December 31, 2006, pro rated for the minority holders' equity in Nickel or at a price approximately 7% above the recent purchase price. In addition, the Company has the right to call the stock based on the same formula and price. The acquisition has been accounted for as a business combination and the results of Nickel have been included in the Company's consolidated financial statements from the date of the acquisition.
Net sales of Nickel products for the period April 1, 2004 through September 30, 2004 aggregated $2.2 million and net income for the same period was insignificant. For the year ended March 31, 2004, prior to the acquisition, Nickel generated net sales of approximately $6 million.
The Company has not yet completed the evaluation and allocation of the purchase price for the 2004 acquisition, as the appraisals associated with the valuations of certain intangible assets are preliminary. The Company does not believe that the final appraisals will materially modify the current preliminary purchase price allocation.
9.Acquisition of Licenses:
[1] In June 2004, IPSA entered into an exclusive, worldwide license agreement with Lanvin S.A. ("Lanvin") to create, develop and distribute fragrance lines under the Lanvin brand name. The fifteen-year license agreement took effect July 1, 2004 and provided for an upfront non-recoupable license fee of $19.2 million, the purchase of existing inventory of $7.6 million, and requires advertising expenditures and royalty payments in line with industry practice, as well as, the assumption of certain pre existing contractual obligations.
[2] In October 2004, IPSA entered into a new long-term fragrance license with Burberry. The agreement has a 12.5-year term with an option to extend the license by an additional 5-years subject to mutual agreement. This new agreement replaces the existing license and provides for an increase in the royalty rate effective as of July 1, 2004 and additional resources to be devoted to marketing commencing in 2005. In connection with the new license agreement IPSA agreed to pay to Burberry an upfront non-recoupable license fee of approximately $3.6 million, which amount is included in the accompanying balance sheet as of September 30, 2004.
10.Long-Term Debt:
In connection with the acquisition of the Lanvin license referred to above, IPSA initially financed the license fee by utilizing $18.0 million from one of its short-term credit facilities. In July, IPSA converted the loan into a $19.2 million five-year credit agreement. The long-term credit facility, which bears interest at 0.60% above the Eurobor rate, provides for principal to be repaid in 20 equal quarterly installments of $0.96 million and requires the maintenance of a debt equity ratio of less than one.
Notes to Consolidated Financial Statements
11.Shareholders' Equity:
In October 2004, both the Chief Executive Officer and the President exercised an aggregate of 65,400 and 97,600 outstanding stock options, respectively, of the Company's common stock. The exercise prices of $167,000 for the Chief Executive Officer and $249,000 for the President were paid by each of them tendering to the Company 13,055 and 19,482 shares, respectively, of the Company's common stock, previously owned by them, valued at $12.805 per share, the fair market value on the date of exercise. All shares issued pursuant to these option exercises were issued from our treasury stock. In addition, the Chief Executive Officer tendered an additional 14,395 shares for payment of withholding taxes resulting from his option exercise. As a result of this transaction, the Company expects to receive a tax benefit of approximately $600,000, which will be reflected as an increase to additional paid-in capital in the Company's consolidated financial statements for the year ended December 31, 2004.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Information
Statements in this document, which are not historical in nature, are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from projected results. Given these risks, uncertainties and other factors, you are cautioned not to place undue reliance on the forward-looking statements.
Such factors include renewal of existing license agreements, effectiveness of sales and marketing efforts and product acceptance by consumers, dependence upon management, competition, currency fluctuation and international tariff and trade barriers, governmental regulation and possible liability for improper comparative advertising or "Trade Dress".
Overview
We operate in the fragrance and cosmetic industry, and manufacture, market and distribute a wide array of fragrances, cosmetics and health and beauty aids. We manage our business in two segments, French based operations and United States based operations. We specialize in prestige perfumes and mass-market perfumes, cosmetics and health and beauty aids. Most of our prestige products are produced and marketed by our 75% owned subsidiary in Paris, Inter Parfums, S.A., which is also a publicly traded company as 25% of Inter Parfums, S.A. shares trade on the Paris Bourse. Prestige cosmetics and prestige skin care products represent less than 5% of consolidated net sales. Our mass-market products are primarily produced and marketed by our United States operations.
- Prestige products - For each prestige brand, owned or licensed by us, we develop an original concept for the perfume or cosmetic line consistent with world market trends.
- Mass-market products - We design, market and distribute inexpensive fragrances and personal care products, including alternative designer fragrances, mass-market cosmetics and health and beauty aids.
Our prestige product lines, which are manufactured and distributed by us primarily under license agreements with brand owners, represented approximately 83% of net sales for the nine-month period ended September 30, 2004. Since 1992 we have built a portfolio of brands under licenses which include Burberry, S.T. Dupont, Paul Smith, Christian Lacroix, Celine, Diane von Furstenberg and Lanvin, which are distributed in over 120 countries around the world. In terms of sales, Burberry is our most significant license, and sales of Burberry products represented approximately 62% and 54% of net sales for the nine-month periods ended September 30, 2004 and 2003, respectively.
On October 12, 2004, we entered into a new long-term fragrance license with Burberry. The agreement has a 12.5-year term with an option to extend the license by an additional 5-years subject to mutual agreement. This new agreement replaces the existing license and provides for an increase in the royalty rate effective as of July 1, 2004 and additional resources to be devoted to marketing commencing in 2005. In anticipation of these new terms and to mitigate the associated expenses, we are fine-tuning our operating model. This new model is expected to include increased selling prices, modified cost sharing arrangements with suppliers and distributors, and involves the future formation of joint ventures or Company-owned subsidiaries within key markets. While we anticipate a continued short-term impact on our bottom line, particularly for the rest of 2004 and early 2005, the growth potential offered by this international luxury brand makes us confident about our future long-term prospects.
In April 2004, we acquired a 67.5% interest in Nickel S.A. ("Nickel") for approximately $8.3 million in cash, including a capital infusion of $2.8 million made in June 2004, aggregating approximately $4.4 million, net of cash acquired. Nickel produces a full line of high-end skin care products for men which are sold in prestige department and specialty stores throughout Western Europe and the United States, as well as through its men's spas in Paris, New York and its licensed spa in San Francisco.
In June 2004, IPSA entered into an exclusive, worldwide license agreement with Lanvin to create, develop and distribute fragrance lines under the Lanvin brand name. The fifteen-year license agreement takes effect July 1, 2004 and provided for an upfront license fee of $19.2 million and the purchase of existing inventory of $7.6 million.
We have two licenses with affiliates of our strategic partner, LV Capital, USA Inc. ("LV Capital"), a wholly-owned subsidiary of LVMH Moët Hennessy Louis Vuitton S.A. LV Capital owns approximately 18% of our outstanding common shares. In May 2000 we entered into an exclusive worldwide license for prestige fragrances for the Celine brand, and in March 1999 we entered into an exclusive worldwide license for Christian Lacroix fragrances. Both licenses are subject to certain minimum sales requirements, advertising expenditures and royalty payments as are customary in our industry. We believe that our association with LV Capital has enhanced our credibility in the cosmetic industry, which should lead us to additional opportunities in our industry that might not have been otherwise available to us.
Our United States operations, which primarily consists of mass market product lines, represented 17% of sales for the nine-month period ended September 30, 2004, and are comprised of alternative designer fragrances, cosmetics, health and beauty aids and personal care products. These lines are sold under trademarks owned by us or pursuant to license agreements we have for the trademarks Jordache and Tatiana.
We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses or out-right acquisition. Second, we grow through the creation of product line extensions within the existing brands in our portfolio. Every two to three years, we create a new family of fragrances for each brand in our portfolio.
Our business is not very capital intensive, and it is important to note that we do not own any manufacturing facilities. Rather, 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 outside fillers which manufacture the finished good for us and ship it back to our distribution center.
Discussion of Critical Accounting Policies
We make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations. These accounting policies generally require our management's most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The following is a brief discussion of the more critical accounting policies that we employ.
Revenue Recognition
We sell our products to department stores, perfumeries, mass market retailers, supermarkets and domestic and international wholesalers and distributors. Sales of such products by our domestic subsidiaries are denominated in U.S. dollars and sales of such products by our foreign subsidiaries are primarily denominated in either Euros or U.S. dollars. Accounts receivable reflect the granting of credit to these customers. We generally grant credit based upon our analysis of the customer's financial position as well as previously established buying patterns. Generally, we do not bill customers for shipping and handling costs and, accordingly, we classify such costs as selling and administrative expenses. We recognize revenues when merchandise is shipped and the risk of loss passes to the customer. Net sales are comprised of gross revenues less returns, and trade discounts and allowances.
Sales Returns
Generally, we do not permit customers to return their unsold products. However, on a case-by-case basis we occasionally allow customer returns. We regularly review and revise, as deemed necessary, our estimate of reserves for future sales returns based primarily upon historic trends and relevant current data. We record estimated reserves for sales returns as a reduction of sales, cost of sales and accounts receivable. Returned products are recorded as inventories and are valued based upon estimated realizable value. The physical condition and marketability of returned products are the major factors we consider in estimating realizable value. Actual returns, as well as estimated realizable values of returned products, may differ significantly, either favorably or unfavorably, from our estimates, if factors such as economic conditions, inventory levels or competitive conditions differ from our expectations.
Promotional Allowances
We have various performance-based arrangements with certain retailers to reimburse them for all or a portion of their promotional activities related to our products. These arrangements primarily allow customers to take deductions against amounts owed to us for product purchases. Estimated accruals for promotions and co-operative advertising programs are recorded in the period in which the related revenue is recognized. We review and revise the estimated accruals for the projected costs for these promotions. Actual costs incurred may differ significantly, either favorably or unfavorably, from estimates if factors such as the level and success of the retailers' programs or other conditions differ from our expectations.
Inventories
Inventories are stated at the lower of cost or market value. Cost is principally determined by the first-in, first-out method. We record adjustments to the cost of inventories based upon our sales forecast and the physical condition of the inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions or competitive conditions differ from our expectations.
Equipment and Other Long-Lived Assets
Equipment, which includes tools and molds, is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets. Changes in circumstances such as technological advances, changes to our business model or changes in our capital spending strategy can result in the actual useful lives differing from our estimates. In those cases where we determine that the useful life of equipment should be shortened, we would depreciate the net book value in excess of the salvage value, over its revised remaining useful life, thereby increasing depreciation expense. Factors such as changes in the planned use of equipment, or market acceptance of products, could result in shortened useful lives.
Long-lived assets, including trademarks, licenses and goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, then we recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. The estimate of undiscounted cash flow is based upon, among other things, certain assumptions about expected future operating performance. Our estimates of undiscounted cash flow may differ from actual cash flow due to, among other things, economic conditions, changes to our business model or changes in consumer acceptance of our products. In those cases where we determine that the useful life of other long-lived assets should be shortened, we would depreciate the net book value in excess of the salvage value (after testing for impairment as described above), over the revised remaining useful life of such asset thereby increasing amortization expense.
Results of Operations
Three and Nine Months Ended September 30, 2004 as Compared to the Three
and Nine Months Ended September 30, 2003
Net sales | Three months ended September 30, | Nine months ended September 30, |
(In millions) | 2004 | % Change |
| 2004 | % Change | 2003 | ||
Prestige product sales | $ 58.4 | 26% | $ 46.3 | $ 143.3 | 38% | $ 103.7 | ||
Mass market product sales | 8.7 | ( 22% ) | 11.1 | 28.9 | ( 12% ) | 32.7 | ||
Total net sales | $ 67.1 | 17% | $ 57.4 | $ 172.2 | 26% | $ 136.4 |
Net sales for the three months ended September 30, 2004 increased 17% to $67.1 million, as compared to $57.4 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 11% for the period.
Net sales for the nine months ended September 30, 2004 increased 26% to $172.2 million, as compared to $136.4 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 21% for the period.
Prestige product sales increased 26% for the three months ended September 30, 2004 and 38% for the nine months ended September 30, 2004, as compared to the corresponding periods of the prior year. The excellent performance ofBurberry London,Burberry Weekend,Burberry Touch, as well as theBurberry Brit women's collection all contributed to the growth in prestige product sales. In addition, during the third quarter of 2004, theBurberry Brit men's line was launched in the UK, select countries in Western Europe and in the US and will continue to be rolled out over the coming months in South America and the Middle East.
The year 2004 also included several brand extensions. During the second quarter of 2004, we launched a limited edition warm weather seasonal fragrance for our Celine and Christian Lacroix brands. In July, we unveiled new fragrance families for both S.T. Dupont and Paul Smith and began distribution for Lanvin products, our newest brand under license. In early 2005, we plan to introduce new Christian Lacroix and Celine fragrance families. In addition, our first new Lanvin fragrance is under development in preparation for a late 2005 or early 2006 launch.
With respect to our mass-market product lines, net sales were off 22% for the three months ended September 30, 2004 and 12% for the nine months ended September 30, 2004, as compared to the corresponding periods of the prior year. The decline in mass-market product sales is primarily the result of a decline in export sales to customers in Mexico and Central and South America. The economic environment in that area has been weak throughout 2004 and we have continued to closely monitor our credit risk in those territories and are willing to forego sales volume to minimize our overall credit exposure.
Our new product development program for all of our product groups is well under way, and as previously mentioned, we have rolled out new products throughout 2004 and have several new product launches planned for 2005. In addition, we are actively pursuing other new business opportunities. However, we cannot assure you that any new license or acquisitions will be consummated.
In April 2004, the Company's French subsidiary, Inter Parfums, S.A., ("IPSA") acquired a 67.5% interest in Nickel S.A. ("Nickel") for approximately $8.3 million in cash including an additional capital infusion of $2.8 million made in June 2004, aggregating approximately $4.4 million, net of cash acquired.
Established in 1996 by Philippe Dumont, Nickel has developed two innovative concepts in the world of cosmetics: spas exclusively for male customers and skin care product lines for men. The Nickel range of some fifteen skin care products for the face and body is sold through prestige department and specialty stores primarily in France (500 outlets), the balance of Western Europe (900 outlets) and in the United States (300 outlets), as well as through its men's spas in Paris, New York and, most recently, its licensed spa in San Francisco.
Net sales of Nickel products for the period April 1, 2004 through September 30, 2004 aggregated $2.2 million and net income for the same period was insignificant. For the year ended March 31, 2004, prior to the acquisition, Nickel generated net sales of approximately $6 million.
In June 2004, IPSA entered into an exclusive, worldwide license agreement with Lanvin S.A. ("Lanvin") to create, develop and distribute fragrance lines under the Lanvin brand name. The fifteen-year license agreement took effect July 1, 2004.
A synonym of luxury and elegance, the Lanvin fashion house, founded in 1889 by Jeanne Lanvin, expanded into fragrances in the 1920s. Today, Lanvin fragrances occupy important positions in the selective distribution market in France, Europe and Asia particularly with the lines Arpège (created in 1927), Lanvin L'Homme (1997), Oxygène (2000), Eclat d'Arpège (2002) and Vetyver (2003).
In October 2004, we entered into a new long-term fragrance license with Burberry. This new agreement replaces the existing license and provides for an increase in the royalty rate effective as of July 1, 2004 and additional resources to be devoted to marketing commencing in 2005. In anticipation of these new terms and to mitigate the associated expenses, we are fine-tuning our operating model. This new model is expected to include increased selling prices, modified cost sharing arrangements with suppliers and distributors, and involves the future formation of joint ventures or Company-owned subsidiaries within key markets. While we anticipate a continued short-term impact on our bottom line, particularly for the rest of 2004 and early 2005, the growth potential offered by this international luxury brand makes us confident about our future long-term prospects.
Gross margins | Three months ended September 30, | Nine months ended September 30, |
(In millions) | 2004 | 2003 | 2004 | 2003 | ||||
Net sales | $ 67.1 | $ 57.4 | $ 172.2 | $ 136.4 | ||||
Cost of sales | 33.8 | 29.9 | 86.5 | 70.8 | ||||
Gross margin | $ 33.3 | $ 27.5 | $ 85.7 | $ 65.6 | ||||
Gross margin as a percent of net sales | 50% | 48% | 50% | 48% |
Gross profit margin was 50% for both the three and nine-month periods ended September 30, 2004, as compared to 48% for both of the corresponding periods of the prior year. Sales of products from our primarily French based prestige fragrance lines generate a higher gross profit margin than sales of our primarily United States based mass-market product lines. A decline of between 2% and 3% in gross margin as a percentage of sales for United States operations was mitigated by the gross margin improvement resulting the net sales growth rate achieved in prestige product lines for both the three and nine-month periods ended September 30, 2004, as compared to the corresponding periods of the prior year.
Selling, general & administrative | Three months ended September 30, | Nine months ended September 30, |
(In millions) | 2004 | 2003 | 2004 | 2003 | ||||
Selling, general & administrative | $ 25.3 | $ 19.1 | $ 60.6 | $ 46.7 | ||||
Selling, general & administrative as a % of net sales | 38% | 33% | 35% | 34% |
Selling, general and administrative expense increased 32% and 30% for the three and nine-month periods ended September 30, 2004, respectively, as compared to the corresponding periods of the prior year. As a percentage of sales selling, general and administrative was 38% and 35% of sales for the three and nine-month periods ended September 30, 2004, respectively, as compared to 33% and 34% for the corresponding periods of the prior year. The increase in selling, general and administrative expenses as a percentage of sales for the three-month period ended September 30, 2004, as compared to the corresponding period of the prior year is primarily the result of increased royalties required under our new license with Burberry.
In addition, growth in our prestige product lines require higher selling, general and administrative expenses because promotion and advertising are prerequisites for sales of designer prestige products. We develop a complete marketing and promotional plan to support our growing portfolio of prestige brands and to build upon each brand's awareness. Promotion and advertising included in selling, general and administrative expenses was approximately 10% and 11% of prestige product sales for the three and nine-month periods ended September 30, 2004, as compared to 11% and 12% for the three and nine-month periods ended September 30, 2003. Our mass-market product lines do not require extensive advertising and therefore, more of our selling, general and administrative expenses are fixed rather than variable.
As previously reported, IPSA was a party to litigation with Jean Charles Brosseau, S.A. ("Brosseau"), the owner of the Ombre Rose trademark. In October 1999, IPSA received notice of a judgment in favor of Brosseau, which awarded damages of approximately $0.85 million (at current exchange rates). On appeal, in February 2001, the Court required IPSA to pay $0.14 million as an advance for damages claimed by Brosseau.
In February 2004, the Court of Appeal ordered IPSA to pay total damages of $0.39 million of which $0.14 million has already been advanced. Brosseau had until the end of May 2004 to appeal this decision. No appeal has been filed, and therefore, in May 2004, IPSA reversed its remaining litigation reserve aggregating approximately $0.46 million. This reversal is included as a reduction of administrative expenses in the accompanying consolidated statement of income.
Interest expense aggregated $0.2 million and $0.4 million for the three and nine-month periods ended September 30, 2004, as compared to $0.1 million and $0.2 million for the corresponding periods of the prior year. We use the credit lines available to us, as needed, to finance our working capital needs and short-term financing for acquisitions. In connection with the acquisition of the Lanvin license referred to above, IPSA financed the license fee by utilizing one of its short-term credit facilities which in July 2004 was converted into a $19.2 million five-year credit agreement.
Foreign currency gains and (losses) aggregated $0.5 million and ($0.3) million for the nine-month periods ended September 30, 2004 and September 30, 2003, respectively. Occasionally, we enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments.
Our effective income tax rate was 34% for the three months ended September 30, 2004, as compared to 35% for the corresponding period of the prior year. Our effective income tax rate was 35% for both the nine months ended September 30, 2004 and September 30, 2003. These rates differ from statutory rates due to the effect of state and local taxes and tax rates in foreign jurisdictions. No significant changes in tax rates were experienced nor were any expected in jurisdictions where we operate.
Net income was $4.0 million for the three months ended September 30, 2004, as compared to $4.7 million for the corresponding period of the prior year. Net income was $12.2 million for the nine months ended September 30, 2004, as compared to $10.1 million for the corresponding period of the prior year.
Diluted earnings per share was $0.20 for the three months ended September 30, 2004, as compared to $0.23 for the corresponding period of the prior year. Diluted earnings per share was $0.60 for the nine months ended September 30, 2004, as compared to $0.51 for the corresponding period of the prior year.
Weighted average shares outstanding aggregated 19.2 million for both the three and nine-month periods ended September 30, 2004, as compared to 19.0 million for the corresponding periods of the prior year. On a diluted basis, average shares outstanding were 20.4 million and 20.5 million, respectively, for the three and nine-month periods ended September 30, 2004, as compared to 20.2 million and 20.0 million, respectively, for the corresponding periods of the prior year. The increase in the average diluted shares outstanding is the result of the effect of dilutive securities resulting from an increase in our average stock price. The average stock price of our common shares was $20.87 per share for the nine-month period ended September 30, 2004, as compared to $8.16 per share for the corresponding period of the prior year.
Liquidity and Capital Resources
Our financial position remains strong. At September 30, 2004, working capital aggregated $115 million and we had a working capital ratio of 2.6 to 1. Cash and cash equivalents aggregated $34.7 million.
In April 2004, IPSA acquired a 67.5% interest in Nickel for approximately $8.3 million in cash including an additional capital infusion of $2.8 million made in June 2004, aggregating approximately $4.4 million, net of cash acquired. We funded this acquisition with cash on hand and do not expect it to have any further significant effect on our financial position.
In June 2004, IPSA entered into an exclusive, worldwide license agreement with Lanvin to create, develop and distribute fragrance lines under the Lanvin brand name. The fifteen-year license agreement takes effect July 1, 2004 and provided for an upfront license fee of $19.2 million and the purchase of existing inventory of $7.6 million. IPSA initially financed the license fee by utilizing $18.0 million from one of its short-term credit facilities. In July, IPSA converted the loan into a $19.2 million five-year credit agreement. This long-term credit facility, which bears interest at 0.60% above the Eurobor rate, provides for principal to be repaid in 20 equal quarterly installments of $0.96 million and requires the maintenance of certain financial covenants.
In October 2004, IPSA entered into a new long-term fragrance license with Burberry. This new agreement replaces the existing license and provides for an increase in the royalty rate effective as of July 1, 2004 and additional resources to be devoted to marketing commencing in 2005. In connection with the new license agreement IPSA agreed to pay to Burberry an upfront license fee of approximately $3.6 million.
Our short-term cash requirements are expected to be met by available cash at September 30, 2004, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities consist of a $12.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $45.0 million in credit lines provided by a consortium of international financial institutions. Historically, borrowings under these facilities have been minimal as we typically use our cash to finance all of our working capital needs. However, as of September 30, 2004 we drew down approximately $7.8 million on our credit lines to help finance our working capital needs.
Cash used in operating activities aggregated $20.3 million for the nine-month period ended September 30, 2004, as compared to cash used in operating activities of $0.7 million for the corresponding period of the prior year. We finance our growth primarily with working capital and to a lesser extent our available credit lines. Cash used in operating activities for 2004 reflects a significant increase in inventory and accounts receivable (approximately $14.0 million and $15.1 million, respectively). The increase in accounts receivable, which represents a 23% increase from the December 31, 2003 accounts receivable balance, is not unusual considering the Company's sales growth of 17% and 26% for the three and nine month periods ended September 30, 2004, respectively, as compared to the corresponding periods of the prior year. The increase in inventories, which represents a 26% increase from the December 31, 2003 inventory balance, includes most of the $7.2 million acquired at the end of June 2004 from Lanvin in connection with our new license agreement. Factoring out the Lanvin inventory, the increase is also not unusual considering the Company's sales growth in 2004.
Cash flows used in investing activities normally consists of approximately $1.0 to $2.0 million per year spent on tools and molds, depending on our new product development calendar, with the balance of capital expenditures representing office fixtures, computer equipment and industrial equipment needed at our distribution centers. For the nine-month period ended September 30, 2004, cash flows used in investing activities aggregated $26.8 million. Included in this amount is approximately $20.3 million paid for the purchase of the Lanvin license (including legal expenses and fees) and approximately $4.4 million paid for the Nickel acquisition, net of cash acquired.
In March 2004, our board of directors increased our cash dividend to $.12 per share, approximately $2.3 million per annum, payable $.03 per share on a quarterly basis. This increased cash dividend in 2004 represents a small part of our cash position and is not expected to have any significant impact on our financial position.
We believe that funds generated from operations, supplemented by our present cash position and available credit facilities, will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.
Contractual Obligations
We lease our office and warehouse facilities under operating leases expiring through 2013. Obligations pursuant to these leases for the years ended December 31, 2004, 2005, 2006, 2007, 2008 and thereafter are $3.6 million, $2.9 million, $1.8 million, $1.7 million, $1.6 million and $4.2 million, respectively.
We are obligated under a number of license agreements for the use of trademarks and rights in connection with the manufacture and sale of our products. Obligations pursuant to these license agreements has increased significantly as a result of the recent signing of a new license with Burberry and the acquisition of the Lanvin license. Obligations pursuant to all license agreements for the years ended December 31, 2004, 2005, 2006, 2007, 2008 and thereafter are $5.2 million, $23.1 million, $25.0 million, $27.7 million, $28.6 million and $252.1 million, respectively.
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. Our French subsidiary primarily enters 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 foreign 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 Inter Parfums, S.A., our French subsidiary, whose functional currency is the Euro. All foreign currency contracts are denominated in currencies of majorindustrialcountriesand are with largefinancial institutions, which are ratedasstronginvestmentgrade.
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, the changes in fair value of the derivative instrument will be recorded in other comprehensive income.
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.
We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote and in any event would not be material. The contracts have varying maturities with none exceeding one year. Costs associated with entering into such contracts have not been material to our financial results. At September 30, 2004, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $22.3 million and GB Pounds 9.1 million.
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-14(c)) 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 disclosure controls and procedures were adequate and effective to ensure that material information relating to our Company and its consolidated subsidiaries would be made known to them by others within those entities, so that such material information is recorded, processed and reported in a timely manner, particularly during the period in which this quarterly report on Form 10-Q was being prepared. Accordingly, no changes were required at this time.
Changes in Internal Controls
There were no significant changes in our Company's internal controls or in other factors that could significantly affect our internal controls after the Evaluation Date, or any significant deficiencies or material weaknesses in such internal controls requiring corrective actions. As a result, no corrective actions were taken.
Part II. Other Information
Items 1, 3 and 4 are omitted as they are either not applicable or have been included in Part I.
Item 2. Changes in Securities and Use of Proceeds
The information contained in note 11 at page 8 relating to the exercise of outstanding stock options by the Chief Executive Officer and the President is incorporated by reference herein. The transactions were exempt from the registration requirements of Section 5 of the Securities Act under Sections 4(2) and 4(6) of the Securities Act.
In addition, a former executive officer exercised a stock option to purchase 18,000 shares of or common stock in a transaction exempt from the registration requirements of Section 5 of the Securities Act under Sections 4(2) of the Securities Act. All of such persons agreed to purchase our common stock for investment and not for resale to the public.
Item 5. Other Information
In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, our company is responsible for disclosing the "non-audit services" to be performed by our auditors that were approved by our company's audit committee during the quarterly period covered by this report. Non-audit services are defined in the law as services other than those provided in connection with an audit or a review of the financial statements of the company.
During the quarterly period covered by this report, the audit committee authorized the following non-audit services to be performed by our auditors.
1. We authorized the engagement of Mazars LLP if deemed necessary to provide tax consultation in the ordinary course of business for fiscal year ending 31 December 2004.
2. We authorized the engagement of Mazars LLP if deemed necessary to provide tax consultation as may be required on a project by project basis that would not be considered in the ordinary course of business, of up to a $5,000 fee limit per project, subject to an aggregate fee limit of $25,000 for fiscal year ending 31 December 2004. If we require further tax services from Mazars LLP, then the approval of the audit committee must be obtained.
3. If we require other services by Mazars LLP on an expedited basis such that obtaining pre-approval of the audit committee is not practicable, then Francois Heilbronn, the Chairman of the Committee, has authority to grant the required pre-approvals for all such services.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
The following documents are filed herewith:
Exhibit No. | Description |
10.109 | Lease For Asnieres (92600) -- 107, Quai Du Docteur Dervaux, (French Original) |
10.109.1 | Lease For Asnieres (92600) -- 107, Quai Du Docteur Dervaux, (English Translation) |
10.110 | Lease For 48 Rue Des Francs-Bourgeois, In Paris, 3rdDistrict (French Original) |
10.110.1 | Lease For 48 Rue Des Francs-Bourgeois, In Paris,, 3rdDistrict (English Translation) |
10.111 | Licence Agreement among Burberry Ltd., Inter Parfums, S.A. and Inter Parfums, Inc. dated 12 October 2004 (Filed in Excised Form - Certain disclosure schedules and other attachments are omitted, but will be furnished supplementally to the Commission upon request.) |
10.112 | Confidential Treatment Agreement among Burberry Ltd., Inter Parfums, S.A., Inter Parfums, Inc. and LV Capital USA, Inc., et al., dated 12 October 2004 |
10.113 | Indemnity Agreement among Burberry Ltd., Inter Parfums, S.A. and Inter Parfums, Inc. dated 12 October 2004 |
31 | Certifications required by Rule 13a-14(a) |
32 | Certification Required by Section 906 of the Sarbanes-Oxley Act |
(b) We filed or furnished the following Current Reports on Form 8-K:
(1) Date of event - 13 September 2004, reporting Items 4.01 and 9.01;
(2) Date of event - 12 October 2004, reporting Items 1.01 and 1.02;
(3) Date of event - 13 October 2004, reporting Items 2.02, 7.01 and 9.01; and
(4) Date of event - 15 October 2004, reporting Item 4.01.
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 12th day of November 2004.
INTER PARFUMS, INC.
By:/s/ Russell Greenberg
Executive Vice President and
Chief Financial Officer
Exhibit 31
CERTIFICATIONS
I, Jean Madar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Inter Parfums, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [omitted]
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based upon such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 12, 2004
/s/ Jean Madar
Jean Madar, Chief Executive Officer
CERTIFICATIONS
I, Russell Greenberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Inter Parfums, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [omitted]
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based upon such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 12, 2004
/s/ Russell Greenberg
Russell Greenberg
Chief Financial Officer and Principal Accounting Officer
Exhibit 32
CERTIFICATION
Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Inter Parfums, Inc., that the Quarterly Report of Inter Parfums, Inc. on Form 10-Q for the period ended September 30, 2004, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of Inter Parfums, Inc.
Date: November 12, 2004
By:/s/ Jean Madar
Jean Madar
Chief Executive Officer
Date: November 12, 2004
By:/s/ Russell Greenberg
Russell Greenberg
Executive Vice President,
Chief Financial Officer and Principal Accounting Officer
A signed original of this written statement required by Section 906 has been provided to Inter Parfums, Inc. and will be retained by Inter Parfums, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.