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, 2005.
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_X_ No_ _
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes__ NoX
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
At November 7, 2005 there were 20,241,310 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 | 9 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 19 | |
Item 4. Controls and Procedures | 20 | |
Part II. Other Information | 21 | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 21 | |
Item 6. Exhibits | 21 | |
Signatures | 21 | |
Certifications | 22 | |
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, 2004 included in our annual report filed on Form 10-K/A.
The results of operations for the nine months ended September 30, 2005 are not necessarily indicative of the results to be expected for the entire fiscal year.
CONSOLIDATED BALANCE SHEETS | ||||
ASSETS | ||||
September 30, 2005 | December 31, 2004 | |||
(unaudited) | ||||
Current assets: | ||||
Cash and cash equivalents | $ 26,355 | $ 23,372 | ||
Short-term investments | 17,700 | 17,600 | ||
Account receivable, net | 91,281 | 75,382 | ||
Inventories | 52,198 | 61,066 | ||
Receivables, other | 2,780 | 2,703 | ||
Other current assets | 4,878 | 930 | ||
Income tax receivable | 428 | 544 | ||
Deferred tax assets | 3,462 | 2,605 | ||
Total current assets | 199,082 | 184,202 | ||
Equipment and leasehold improvements, net | 5,978 | 6,448 | ||
Trademarks, licenses and other intangible assets, net | 31,134 | 34,171 | ||
Goodwill | 4,565 | 5,143 | ||
Other assets | 580 | 521 | ||
$ 241,339 | $ 230,485 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
Current liabilities: | ||||
Loans payable - banks | $ 5,880 | $ 748 | ||
Current portion of long-term debt | 3,853 | 4,359 | ||
Accounts payable | 28,204 | 30,730 | ||
Accrued expenses | 30,498 | 15,385 | ||
Income taxes payable | 895 | 2,533 | ||
Dividends payable | 809 | 581 | ||
Total current liabilities | 70,139 | 54,336 | ||
Long-term debt, less current portion | 10,597 | 15,258 | ||
Deferred tax liability | 2,176 | 2,839 | ||
Put options | 915 | 838 | ||
Minority interest | 30,274 | 30,705 | ||
Shareholders' equity: | ||||
Preferred stock, $.001 par; authorized 1,000,000 shares; none issued | ||||
Common stock, $.001 par; authorized 100,000,000 shares; outstanding 20,232,560 and 19,379,917 shares at September 30, 2005 and December 31, 2004, respectively | 20 | 19 | ||
Additional paid-in capital | 37,353 | 35,538 | ||
Retained earnings | 109,720 | 100,772 | ||
Accumulated other comprehensive income | 5,454 | 16,431 | ||
Treasury stock, at cost, 6,302,768 and 7,064,511 shares at September 30, 2005 and December 31, 2004 | (25,309) | (26,251) | ||
127,238 | 126,509 | |||
$ 241,339 | $ 230,485 | |||
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
2005 | 2004 | 2005 | 2004 | |||||
Net sales | $ 75,446 | $ 67,090 | $ 207,875 | $ 172,215 | ||||
Cost of sales | 33,089 | 33,822 | 90,346 | 86,541 | ||||
Gross margin | 42,357 | 33,268 | 117,529 | 85,674 | ||||
Selling, general and administrative | 35,124 | 25,261 | 94,286 | 60,643 | ||||
Income from operations | 7,233 | 8,007 | 23,243 | 25,031 | ||||
Other expenses (income): | ||||||||
Interest expense | 92 | 239 | 692 | 448 | ||||
(Gain) loss on foreign currency | (107) | 19 | (104) | 503 | ||||
Interest and dividend income | (268) | (139) | (962) | (583) | ||||
(Gain) loss on subsidiary's issuanceof stock | (26) | -- | (11) | 25 | ||||
(309) | 119 | (385) | 393 | |||||
Income before income taxes and minority interest | 7,542 | 7,888 | 23,628 | 24,638 | ||||
Income taxes | 2,545 | 2,658 | 8,520 | 8,611 | ||||
Income before minority interest | 4,997 | 5,230 | 15,108 | 16,027 | ||||
Minority interest in net income of consolidated subsidiary | 1,243 | 1,193 | 3,737 | 3,810 | ||||
Net income | $ 3,754 | $ 4,037 | $ 11,371 | $ 12,217 | ||||
Net income per share: | ||||||||
Basic | $0.19 | $0.21 | $0.57 | $0.64 | ||||
Diluted | $0.18 | $0.20 | $0.56 | $0.60 | ||||
Weighted average number of shares outstanding: | ||||||||
Basic | 20,189 | 19,171 | 20,023 | 19,170 | ||||
Diluted | 20,556 | 20,397 | 20,485 | 20,530 |
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
Nine months ended September 30, | ||||
2005 | 2004 | |||
Cash flows from operating activities: | ||||
Net income | $ 11,371 | $ 12,217 | ||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||
Depreciation and amortization | 3,238 | 2,484 | ||
Provision for doubtful accounts | 66 | 580 | ||
Gain on sale of trademark | (150) | -- | ||
Minority interest in net income of consolidated subsidiary | 3,737 | 3,810 | ||
Deferred tax (benefit) | (625) | (1) | ||
(Gain) loss on subsidiary's issuance of stock | (11) | 25 | ||
Change in fair value of put options | 187 | (74) | ||
Changes in: | ||||
Accounts receivable | (25,290) | (15,706) | ||
Inventories | 2,991 | (14,025) | ||
Other assets | (4,711) | (1,044) | ||
Accounts payable and accrued expenses | 18,135 | (8,510) | ||
Income taxes payable, net | (1,231) | (47) | ||
Net cash provided by (used in) operating activities | 7,707 | (20,291) | ||
Cash flows from investing activities: | ||||
Purchases of short-term investments | (2,100) | (12,000) | ||
Proceeds from sale of short-term investments | 2,000 | 11,100 | ||
Purchase of equipment and leasehold improvements | (1,806) | (2,171) | ||
Payment for licenses, trademarks and other intangible assets | (343) | (20,258) | ||
Proceeds from sale of trademark | 185 | -- | ||
Acquisition of businesses, net of cash acquired | -- | (4,416) | ||
Net cash used in investing activities | (2,064) | (27,745) | ||
Cash flows from financing activities: | ||||
Increase in loans payable - bank | 5,467 | 7,316 | ||
Proceeds from long-term debt | -- | 19,636 | ||
Repayment of long-term debt | (3,027) | (982) | ||
Proceeds from sale of stock of subsidiary | 690 | 168 | ||
Proceeds from exercise of options | 391 | 49 | ||
Dividends paid | (2,196) | (1,534) | ||
Dividends paid to minority interest | (1,106) | (776) | ||
Purchase of treasury stock | (150) | -- | ||
Net cash provided by financing activities | 69 | 23,877 | ||
Effect of exchange rate changes on cash | (2,729) | (952) | ||
Net increase (decrease) in cash and cash equivalents | 2,983 | (25,111) | ||
Cash and cash equivalents - beginning of period | 23,372 | 41,658 | ||
Cash and cash equivalents - end of period | $ 26,355 | $ 16,547 | ||
Supplemental disclosure of cash flows information: | ||||
Cash paid for: | ||||
Interest | $ 462 | $ 211 | ||
Income taxes | $ 8,094 | $ 7,053 |
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/A which was filed with the Securities and Exchange Commission for the year ended December 31, 2004. 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 September 30, | Nine months ended September 30, | |||||
2005 | 2004 | 2005 | 2004 | ||||
Reported net income | $ 3,754 | $ 4,037 | $ 11,371 | $ 12,217 | |||
Stock-based employee compensation expense included in reported net income, net of tax effect | -- | -- | -- | -- | |||
Stock-based employee compensation determined under the fair value based method, net of tax effect | (92) | (46) | (1,013) | (440) | |||
Pro forma net income | $ 3,662 | $ 3,991 | $ 10,358 | $ 11,777 | |||
Income per share, as reported: | |||||||
Basic | $ 0.19 | $ 0.21 | $ 0.57 | $ 0.64 | |||
Diluted | $ 0.18 | $ 0.20 | $ 0.56 | $ 0.60 | |||
Pro forma net income per share: | |||||||
Basic | $ 0.18 | $ 0.21 | $ 0.52 | $ 0.61 | |||
Diluted | $ 0.18 | $ 0.20 | $ 0.51 | $ 0.57 |
In December 2004 (as amended in April 2005), the FASB issued SFAS No. 123(R), "Share-Based Payment" (SFAS No. 123(R)). This statement replaces SFAS No. 123 and supersedes APB 25. SFAS 123(R) requires all stock-based compensation to be recognized as an expense in the financial statements and that such cost be measured according to the fair value of stock options. SFAS 123(R) will be effective for annual periods beginning after June 15, 2005. While the Company currently provides the pro forma disclosures required by SFAS No. 148 on a quarterly basis, it is currently evaluating the impact this statement will have on its consolidated financial statements.
3.Comprehensive Income:
(In thousands) | Three months ended September 30, | Nine months ended September 30, | |||||
2005 | 2004 | 2005 | 2004 | ||||
Comprehensive income: | |||||||
Net income | $ 3,754 | $ 4,037 | $ 11,371 | $ 12,217 | |||
Other comprehensive income, net of tax: | |||||||
Foreign currency translation adjustment | (182) | 1,515 | (10,843) | (1,345) | |||
Change in fair value of derivatives | 2 | (9) | (137) | (47) | |||
Comprehensive income | $ 3,574 | $ 5,543 | $ 391 | $ 10,825 |
4.Segment and Geographic Areas:
The Company manages its business in two segments, European based operations and United States based operations. The European assets are located, and operations are conducted, in France. European operations primarily represent the sales of the prestige brand name fragrances and United States operations primarily represent the sale of mass-market products. Information on the Company's operations by geographical areas is as follows.
(In thousands) | Three months ended September 30, | Nine months ended September 30, | |||||
2005 | 2004 | 2005 | 2004 | ||||
Net Sales: | |||||||
United States | $ 8,305 | $ 10,071 | $ 26,078 | $ 30,256 | |||
Europe | 67,159 | 57,835 | 184,380 | 142,960 | |||
Eliminations | (18) | (816) | (2,583) | (1,001) | |||
$ 75,446 | $ 67,090 | $ 207,875 | $ 172,215 | ||||
Net Income: | |||||||
United States | $ 115 | $ 382 | $ 270 | $ 725 | |||
Europe | 3,482 | 3,773 | 11,219 | 11,620 | |||
Eliminations | 157 | (118) | (118) | (128) | |||
$ 3,754 | $ 4,037 | $ 11,371 | $ 12,217 |
5.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.
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, | ||||||
2005 | 2004 | 2005 | 2004 | |||||
Numerator: | ||||||||
Net income | $ 3,754 | $ 4,037 | $ 11,371 | $ 12,217 | ||||
Denominator: | ||||||||
Weighted average shares | 20,189 | 19,171 | 20,023 | 19,170 | ||||
Effect of dilutive securities: | ||||||||
Stock options | 367 | 1,226 | 462 | 1,360 | ||||
20,556 | 20,397 | 20,485 | 20,530 |
6.Inventories:
Inventories consist of the following:
(In thousands) | September 30, 2005 | December 31, 2004 | |
Raw materials and component parts | $ 14,557 | $ 19,756 | |
Finished goods | 37,641 | 41,310 | |
$ 52,198 | $ 61,066 |
7.Long-term Debt:
In July 2004, Inter Parfums, S.A. entered into a 16 million euro five-year credit agreement. The long-term credit facility, which bears interest at 0.60% above the three month EURIBOR rate, provides for principal to be repaid in 20 equal quarterly installments and requires the maintenance of a debt equity ratio of less than one. At September 30, 2005 exchange rates, maturities of long-term debt subsequent to September 30, 2005 are $1.0 million in 2005, $3.9 million in 2006, 2007 and 2008, and $1.9 million in 2009.
In order to reduce exposure to rising variable interest rates, the Company entered into a swap transaction effectively exchanging the variable interest rate referred to above to a variable rate based on the 12 month EURIBOR rate with a floor of 3.25% and a ceiling of 3.85%. This derivative instrument is recorded at fair value and changes in fair value are reflected in the consolidated statements of income.
Notes to Consolidated Financial Statements
8.Entry into Material Definitive Agreements:
[1] On July 14, 2005, we entered into an exclusive agreement with The Gap, Inc. ("Gap") to develop, produce, manufacture and distribute personal care and home fragrance products for Gap and Banana Republic brand names to be sold in Gap and Banana Republic retail stores in the United States and Canada. Our exclusive rights under the agreement are subject to certain exceptions. The principal exceptions are that the agreement excludes any rights with respect to outlet stores, on-line, catalog and mail-order, and international stores outside Canada, although Gap has the right to expand the agreement to its outlet stores if it chooses.
The initial term of this agreement expires on August 31, 2009, and the agreement includes an additional two-year optional term that expires on August 31, 2011, as well as a further additional two-year term that expires August 31, 2013, in each case if certain retail sales targets are met or if Gap chooses to extend the term. In addition, if the agreement is extended for the first optional term, then Gap has the right to terminate our rights under the agreement before the end of that first optional term if Gap pays to us an amount specified in a formula, with such right to be exercised during the period beginning on September 1, 2010 and expiring on August 31, 2011.
As an inducement to enter into this agreement, we have granted warrants to purchase 100,000 shares of our common stock to Gap exercisable for five yearsat $25.195, 125% of the market price on the date of grant, and have agreed to register with the Securities and Exchange Commission the shares purchasable thereunder for resale after January 1, 2007. In addition, we have agreed to grant up to three (3) additional warrants to Gap. The first additional warrant will be issued in September 2006 and will be exercisable for 100,000 shares of our common stock at 100% of the market price on the date of grant. In addition, if the term of our agreement with Gap is extended as discussed above, we will grant to Gap the two remaining warrants. Each such warrant would be exercisable for 50,000 shares of our common stock at 100% of the market price on the date of grant. The fair market value of the 100,000 warrants granted on July 14, 2005 and the 100,000 warrants to be granted in September 2006 aggregating approximately $1.7 million, has been capitalized as an intangible asset and is being amortized over the initial term of the agreement.
[2] On October 25, 2005 the Company entered into an agreement with Citigroup Global Markets Inc., Oppenheimer & Co. Inc. and SG Cowen & Co., LLC, as representatives of the several underwriters, for the public sale by one of its stockholders, LV Capital USA, Inc., of 3,436,050 shares of its common stock at $15.50 per share, before underwriting discounts, commissions and expenses, all of which will be paid by the selling stockholders. On October 31, 2005, LV Capital USA, Inc. consummated the public sale of 3,436,050 of our shares. We did not receive any proceeds from such sale. In addition, our Chairman and CEO and our Vice Chairman and President have granted to the underwriters a 30-day option to purchase up to an additional 515,408 shares of our common stock owned by them, to cover over-allotments, if any. The Company will not receive any proceeds of such sale if the over-allotment is exercised. The Company and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
9.Reclassification:
The Company reclassified investments in auction rate securities that were previously classified as cash and cash equivalents to short-term investments. The consolidated statement of cash flows for the nine months ended September 30, 2004 was adjusted to reflect the impact of the reclassification. Auction rate securities are comprised of preferred stock, which pay a variable dividend rate that is reset every 49 days through an auction process. No realized or unrealized gains or losses have been incurred in connection with our investments in these securities.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Information
Statements in this document, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this document, the words "anticipate," "believe," "estimate," "will," "should," "could," "may," "intend," "expect," "plan," "predict," "potential," or "continue" or similar expressions identify certain of such 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.
Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained in this document. Important factors that could cause actual results to differ materially from our forward-looking statements include dependence upon Burberry for a significant portion of our sales, continuation and renewal of existing license agreements, protection of our intellectual property rights, effectiveness of sales and marketing efforts and product acceptance by consumers, dependence upon third party manufacturers and distributors, dependence upon management, competition, currency fluctuation and international tariff and trade barriers, governmental regulation and possible liability for improper comparative advertising or "Trade Dress". In addition and with respect to our recently reported agreement with The Gap, Inc. (Gap), such factors include approval of new products by Gap and sales and marketing efforts of Gap.
These factors are not intended to represent a complete list of the general or specific factors that may affect us. It should be recognized that other factors, including general economic factors and business strategies, may be significant, presently or in the future, and the factors set forth herein may affect us to a greater extent than indicated. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this document. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
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 74% owned subsidiary in Paris, Inter Parfums, S.A., which is also a publicly traded company as 26% of Inter Parfums, S.A. shares trade on the Euro Next. 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, cosmetic or skin care 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 89% of net sales for the nine-month period ended September 30, 2005. Since 1992 we have built a portfolio of brands under license, which include Burberry, S.T. Dupont, Paul Smith, Christian Lacroix, Celine, Diane von Furstenberg and Lanvin whose products are distributed in over 120 countries around the world. Burberry is our most significant license, sales of Burberry products represented 61% and 63% of net sales for the nine months ended September 30, 2005 and 2004, respectively.
We have acquired two licenses with affiliates of LV Capital, USA Inc. (LV Capital), a wholly-owned subsidiary of LVMH Moët Hennessy Louis Vuitton S.A. (LVMH). Until October 31,2005, LV Capital owned approximately 18% of our outstanding common shares (see "Recent Important Events" following.) 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. In January 2005, LVMH sold the Christian Lacroix company to an unaffiliated third party, subject to the existing license. Both licenses are subject to certain minimum sales requirements, advertising expenditures and royalty payments as are customary in our industry.
Our mass-market product lines, which are primarily marketed through our United States operations represented 11% of sales for the nine month period ended September 30, 2005, 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 by adding new brands to our portfolio, either through new licenses or out-right acquisitions of brands. We also 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.
Recent Important Events
Secondary Offering
On October 25, 2005 the Company entered into an agreement with Citigroup Global Markets Inc., Oppenheimer & Co. Inc. and SG Cowen & Co., LLC, as representatives of the several underwriters, for the public sale by one of its stockholders, LV Capital USA, Inc., of 3,436,050 shares of its common stock at $15.50 per share, before underwriting discounts, commissions and expenses, all of which will be paid by the selling stockholders. On October 31, 2005, LV Capital USA, Inc. consummated the public sale of 3,436,050 of our shares. We did not receive any proceeds from such sale. In addition, our Chairman and CEO and our Vice Chairman and President have granted to the underwriters a 30-day option to purchase up to an additional 515,408 shares of our common stock owned by them, to cover over-allotments, if any. The Company will not receive any proceeds of such sale if the over-allotment is exercised. The Company and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
Gap and Banana Republic
On July 14, 2005, we entered into an exclusive agreement with The Gap, Inc. ("Gap"), to develop, produce, manufacture and distribute personal care and home fragrance products for Gap and Banana Republic brand names to be sold in Gap and Banana Republic retail stores in the United States and Canada. This agreement marks our entrée into the specialty retail store fragrance business.
Our exclusive rights under the agreement are subject to certain exceptions. The principal exceptions are that the agreement excludes any rights with respect to outlet stores, on-line, catalog and mail-order, and international stores outside Canada, although Gap has the right to expand the agreement to its outlet stores if it chooses.
The initial term of this agreement expires on August 31, 2009, and the agreement includes an additional two-year optional term that expires on August 31, 2011, as well as a further additional two-year term that expires August 31, 2013, in each case if certain retail sales targets are met or Gap chooses to extend the term. In addition, if the agreement is extended for the first optional term, then Gap has the right to terminate our rights under the agreement before the end of that first optional term if Gap pays an amount specified in a formula, with the right to be exercised during the period beginning on September 1, 2010 and expiring on August 31, 2011.
Although the initial line has not been finalized, potential products include fragrance and related personal care products. The new products are expected to launch at Banana Republic in the fall of 2006 and at Gap in 2007. We have agreed to establish a dedicated operating unit to carry out our obligations under the agreement with Gap. We envision incurring staffing, product development and other start-up expenses, including those of a third-party design and marketing firm, which were estimated at $1.5 million to $2.5 million for the second half of 2005 of which $0.6 million has been expensed during the three months ended September 30, 2005. To propel these programs forward, these expenses are expected to continue in 2006. In addition, we are currently transitioning component sourcing and production of Gap's existing fragrance and personal care product lines to suppliers and contract fillers of the Company. Margins on initial sales to Gap of their existing product lines are expected to be minimal, as we plan to honor existing purchase commitments.
Burberry
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. In addition, Burberry has the right on December 31, 2009 and December 31, 2011 to buy back the license at its then fair market value. This new agreement replaces the existing 1993 license. The new royalty rates, which are approximately double the rates under the prior license, commenced as of July 1, 2004. The new advertising and promotional expenditures, which commenced on January 1, 2005, are substantially higher than under the prior license. In anticipation of these new terms and to mitigate the associated expenses, we are fine-tuning our operating model. The new model includes increased selling prices to distributors, modified cost sharing arrangements with suppliers and distributors, and the future formation of joint ventures or Company-owned subsidiaries within key markets to handle future distribution. While we have experienced, and continue to experience a negative impact on our bottom line, the growth potential offered by this international luxury brand makes us confident about our future long-term prospects.
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 all shipping and handling costs, which aggregated $3.2 million and $2.9 million for the nine month periods ended September 30, 2005 and 2004, respectively, are included in selling and administrative expense in the consolidated statements of income. 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, 2005 as Compared to the Three and Nine Months Ended September 30, 2004
Net Sales
Three months ended September 30, | Nine months ended September 30, | ||||||||||
2005 | 2004 | % Change | 2005 | 2004 | % Change | ||||||
(in millions) | |||||||||||
Prestige product sales | $ 67.7 | $ 58.4 | 16% | $ 184.2 | $ 143.3 | 29% | |||||
Mass market product sales | 7.7 | 8.7 | (11%) | 23.7 | 28.9 | (18%) | |||||
$ 75.4 | $ 67.1 | 12% | $ 207.9 | $ 172.2 | 21% | ||||||
Net sales for the three months ended September 30, 2005 increased 12% to $75.4 million, as compared to $67.1 million for the corresponding period of the prior year. Net sales for the nine months ended September 30, 2005 increased 21% to $207.9 million, as compared to $172.2 million for the corresponding period of the prior year. There were no discernable effects of changes in foreign currency exchange rates for the three and nine-month periods ended September 30, 2005.
Prestige product sales increased 16% for the three months ended September 30, 2005 and 29% for the nine months ended September 30, 2005, as compared to the corresponding periods of the prior year. Burberry Fragrance sales generated a 17% increase for the nine-month period ended September 30, 2005 as compared to the corresponding period of the prior year. This growth was fueled by the continued geographic rollout of theBurberry Brit men's line andBurberryBrit Redand the launch of the limited edition Burberry Brit Gold. The September 2005 period also includes initial sales ofCeline Feverand Christian Lacroix Tumult, our newest fragrance families under those brand names.
In June 2004, Inter Parfums, S.A. entered into an exclusive, worldwide license agreement with Lanvin S.A. to create, develop and distribute fragrance lines under the Lanvin brand name. The fifteen-year license agreement took effect July 1, 2004. For the three and nine-month periods ended September 30, 2005, net sales of Lanvin products aggregated approximately $8.4 million and $25.2 million, respectively. Solid sales gains were seen in this third quarter from theEclat d'Arpège line and our first new Lanvin fragrance,Arpege Pour Homme, was recently launched for the 2005 holiday season.
We are currently working on our 2006 new product calendar and we are also formulating products and marketing strategies for an expanded cosmetics and skin care business drawing upon our existing brands.
With respect to our mass-market product lines, net sales were down 11% and 18% for the three and nine-month periods ended September 30, 2005, as compared to the corresponding periods of the prior year. The sales decline experienced in 2004 has continued into 2005 and is again equally distributed between domestic and export customers. We continue to believe that oil and gas prices are a significant cause for declining sales in the dollar store markets, as dollar store customers have less disposable cash. In addition, sluggish economies in Mexico and Central and South America continue to affect our customers in those territories and we continue to closely monitor credit risk.
On July 14, 2005, we entered into an exclusive agreement with The Gap, Inc. ("Gap"), to develop, produce, manufacture and distribute personal care and home fragrance products for Gap and Banana Republic brand names to be sold in Gap and Banana Republic retail stores in the United States and Canada. This agreement marks our entrée into the specialty retail store fragrance business.
Although the initial line has not been finalized, potential products include fragrance and related personal care products. The new products are expected to launch at Banana Republic in the fall of 2006 and at Gap in 2007. We envision incurring staffing, product development and other start-up expenses, including those of a third-party design and marketing firm, which were estimated at $1.5 million to $2.5 million for the second half of 2005. To propel these programs forward, these expenses are expected to continue in 2006. In addition, we are currently transitioning component sourcing and production of Gap's existing fragrance and personal care product lines to suppliers and contract fillers of the Company. Margins on initial sales to Gap of their existing product lines are expected to be minimal, as we plan to honor existing purchase commitments.
Our new product development program for all of our product groups is well under way, and we have an aggressive plan of new products rolling out throughout 2006. In addition, we are actively pursuing other new business opportunities. However, we cannot assure you that any new license or acquisitions will be consummated.
Gross Margins
Three months ended September 30, | Nine months ended September 30, | ||||||
2005 | 2004 | 2005 | 2004 | ||||
(in millions) | |||||||
Net sales | $ 75.4 | $ 67.1 | $ 207.9 | $ 172.2 | |||
Cost of sales | 33.0 | 33.8 | 90.4 | 86.5 | |||
Gross margin | $ 42.4 | $ 33.3 | $ 117.5 | $ 85.7 | |||
Gross margin as a percent of net sales | 56% | 50% | 57% | 50% |
Gross profit margin was 56% and 57% for the three and nine-month periods ended September 30, 2005, respectively, as compared to 50% for the corresponding periods of the prior year. The margin improvement is attributable to sales of products from our primarily French based prestige fragrance lines. As previously discussed, in anticipation of the new terms of the Burberry license, and to mitigate the associated expenses, we are fine-tuning our operating model. This new model includes increased selling prices to distributors, modified cost sharing arrangements with suppliers and distributors, and the future formation of joint ventures or Company-owned subsidiaries within key markets to handle future distribution. We increased our selling prices to distributors and modified our cost sharing arrangements with them in late 2004 and early 2005. The effect of these changes is reflected in the results for the three and nine-month periods ended September 30, 2005.
Selling, General & Administrative Expense
Three months ended September 30, | Nine months ended September 30, | ||||||
2005 | 2004 | 2005 | 2004 | ||||
(in millions) | |||||||
Selling, general & administrative | $ 35.1 | $ 25.3 | $ 94.3 | $ 60.6 | |||
Selling, general & administrative as a percent of net sales | 47% | 38% | 45% | 35% | |||
Selling, general and administrative expense increased 39% and 56% for the three and nine-month periods ended September 30, 2005, respectively, as compared to the corresponding periods of the prior year. As a percentage of sales selling, general and administrative was 47% and 45% of sales for the three and nine-month periods ended September 30, 2005, respectively, as compared to 38% and 35% for the corresponding periods of the prior year.
The increase in selling, general and administrative expenses as a percentage of sales for 2005 is primarily the result of increased royalties and increased advertising expenditure requirements under our new license with Burberry. Increased royalties took effect July 1, 2004 while increased advertising requirements took effect January 1, 2005. Total royalty expense for the third quarter increased 19% to $8.8 million, as compared to $7.4 million for the corresponding period of the prior year. For the first nine months of 2005, royalties increased 76% to $23.6 million, as compared to $13.4 million for the corresponding period of the prior year. Promotion and advertising included in selling, general and administrative expenses aggregated $12.9 million and $31.9 million for the three and nine-month periods ended September 30, 2005, respectively, as compared to $6.3 million and $16.6 million, respectively, for the corresponding periods of the prior year.
As a result of the details discussed above regarding gross margins and selling, general and administrative expenses, income from operations decreased 7% or $1.8 million for the nine-month period ended September 30, 2005, as compared to the corresponding period of the prior year. Operating margins were 11.2% of net sales in the current nine-month period as compared to 14.5% in the corresponding period of the prior year.
Interest expense aggregated $0.1 million and $0.7 million for the three and nine-month periods ended September 30, 2005, as compared to $0.2 million and $0.4 million for the corresponding periods of the prior year.In July 2004, Inter Parfums, S.A. entered into a 16 million euro, five-year credit agreement. In order to reduce exposure to rising variable interest rates, Inter Parfums, S.A. entered into a swap transaction effectively exchanging a three-month variable interest rate to a variable rate based on the 12 month EURIBOR rate with a floor of 3.25% and a ceiling of 3.85%. This derivative instrument is recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income.
Foreign currency gains aggregated $0.1 million for the nine-month period ended September 30, 2005, as compared to a loss of $0.5 million for corresponding period of the prior year. 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 both three-month periods ended September 30, 2005 and 2004. Our effective income tax rate was 36% for the nine-month period ended September 30, 2005 as compared to 35% for the corresponding period of the prior year. Our effective tax rate ordinarily differs from statutory rates due to the effect of state and local taxes and tax rates in foreign jurisdictions. The three-month periods ended September 30 2005 and 2004 reflect a small benefit resulting from adjusting estimates to actual. No significant changes in tax rates were experienced nor were any expected in jurisdictions where we operate.
Net income was $3.8 million for the three months ended September 30, 2005, as compared to $4.0 million for the corresponding period of the prior year. Net income was $11.4 million for the nine-months ended September 30, 2005, as compared to $12.2 million for the corresponding period of the prior year. As we have stated above, we have incurred increased selling, general and administrative expenses, which are primarily the result of increased royalties and increased advertising expenditure requirements under our new license with Burberry. These increased expenses have been partially mitigated by improvements in our gross margin. We believe these are the most significant factors affecting net income for the nine months ended September 30, 2005.
Diluted earnings per share were $0.18 for the three months ended September 30, 2005, as compared to $0.20 for the corresponding period of the prior year. Diluted earnings per share were $0.56 for the nine months ended September 30, 2005, as compared to $0.60 for the corresponding period of the prior year.
Weighted average shares outstanding aggregated 20.2 million and 20.0 million for the three and nine-month periods ended September 30, 2005, respectively, as compared to 19.2 million for both corresponding periods of the prior year. On a diluted basis, average shares outstanding were 20.6 million and 20.5 million, respectively, for the three and nine-month periods ended September 30, 2005, as compared to 20.4 million 20.5 million for the corresponding periods of the prior year, respectively. The increase in the weighted average shares outstanding is the result of employees exercising stock options. The dilutive effect of outstanding stock options was already included in diluted shares outstanding and many employee stock options were paid for by the tender of shares, therefore, the exercise of stock options had a minimal impact on diluted shares outstanding.
Liquidity and Capital Resources
Our financial position remains strong. At September 30, 2005, working capital aggregated $129 million and we had a working capital ratio of 2.8 to 1. Cash and cash equivalents and short-term investments aggregated $44.1 million.
The Company reclassified investments in auction rate securities that were previously classified as cash and cash equivalents to short-term investments. The consolidated statements of cash flows for the nine months ended September 30, 2004, was adjusted to reflect the impact of the reclassification. Auction rate securities are comprised of preferred stock, which pay a variable dividend rate that is reset every 49 days through an auction process. No realized or unrealized gains or losses have been incurred in connection with our investments in these securities.
In April 2004, Inter Parfums, S.A. acquired a 67.5% interest in Nickel for approximately $4.5 million, net of cash acquired. We funded this acquisition with cash on hand. In accordance with the purchase agreement, each of the minority shareholders has an option to put their remaining interest in Nickel to Inter Parfums, S.A. from January 2007 through June 2007. Based on an independent valuation, management has valued the put options as of the date of acquisition. These options are carried at fair value as determined by management.
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 July 2004, Inter Parfums, S.A. entered into a 16 million euro, five-year credit agreement. In order to reduce exposure to rising variable interest rates, Inter Parfums, S.A. entered into a swap transaction effectively exchanging a three-month variable interest rate to a variable rate based on the 12 month EURIBOR rate with a floor of 3.25% and a ceiling of 3.85%. This derivative instrument is recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income.
Cash provided by (used in) operating activities aggregated $7.7 million and ($20.3) million for the nine-month periods ended September 30, 2005 and 2004, respectively. For the nine months ended September 30, 2005, cash flows from operating activities shows that accounts receivable increased 34% from the December 31, 2004 balance while sales were up 21% during the same period. Our holiday selling season begins in June and runs through October, it is not atypical to see a significant increase as of the end of the third quarter and its reversal during the fourth quarter.
Cash flows used in investing activities, reflects purchases of short-term investments and capital expenditures. Capital expenditures aggregated $1.8 million and $2.2 million for the nine-month periods ended September 30, 2005 and 2004, respectively. Our business is not capital intensive and we do not own any manufacturing facilities. We typically spend between $2.0 and $3.0 million per year on tools and molds, depending on our new product development calendar. The balance of capital expenditures is for office furnishings, computer equipment and industrial equipment needed at our distribution centers.
In March 2005, our board of directors increased the cash dividend to $.16 per share, approximately $3.2 million per annum, payable $.04 per share on a quarterly basis. Our next cash dividend of $.04 per share will be paid on January 16, 2006 to shareholders of record on December 30, 2005. Dividends paid, including dividends paid once per year to minority shareholders of Inter Parfums, S.A., aggregated $3.3 million and $2.3 million for the nine-month periods ended September 30, 2005 and 2004, respectively. This increased cash dividend in 2005 represents a small part of our cash position and is not expected to have any significant impact on our financial position.
Our short-term financing requirements are expected to be met by available cash and short-term investments on hand at September 30, 2005, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2005 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. Actual borrowings under these facilities have been minimal as we typically use our working capital to finance all of our cash needs.
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.
Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the period ended September 30, 2005.
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, 2005, 2006, 2007, 2008, 2009 and thereafter are $5.1 million, $5.6 million, $5.6 million, $5.7 million, $5.7 million and $10.5 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 for the years ended December 31, 2005, 2006, 2007, 2008, 2009 and thereafter are $25.7 million, $27.8 million, $30.8 million, $32.0 million, $33.3 million and $247.3 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, 2005, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $37.2 million and GB Pounds 7.0 million.
Interest Rate Risk Management
We mitigate interest rate risk by continually 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. We have entered into one (1) interest rate swap to reduce exposure to rising variable interest rates, by effectively exchanging the variable interest rate of 0.6% above the three month EURIBOR rate on our long-term to a variable rate based on the 12 month EURIBOR rate with a floor of 3.25% and a ceiling of 3.85%. This derivative instrument is recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income.
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 Company's 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, and that no changes were required at this time.
Changes in Internal Controls
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) 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
Items 1, 3, 4 and 5 are omitted as they are either not applicable or have been included in Part I.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On September 12, 2005, we granted options to purchase 2,000shares for a five-year period at the exercise price of $19.65per share, the fair market value at the time of grant, to an employee under our 2004 Stock Option Plan.
Item 6. Exhibits
(a) Exhibits:
The following documents are filed herewith:
Exhibit No. | Description |
31.1 | Certification required by Rule 13a-14(a) |
31.2 | Certification required by Rule 13a-14(a) |
32 | Certification Required by Section 906 of the Sarbanes-Oxley Act |
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 7th day of November 2005.
INTER PARFUMS, INC. | ||
By: | /s/ Russell Greenberg Executive Vice President and Chief Financial Officer |
Exhibit 31.1
CERTIFICATION
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 quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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 7, 2005
/s/ Jean Madar
Jean Madar,
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
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 quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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 7, 2005
/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, 2005, 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 7, 2005 | By: | /s/ Jean Madar Jean Madar Chief Executive Officer |
Date: November 7, 2005 | 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.