UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-K
(Mark one)
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended 31 December 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
551 Fifth Avenue, New York, New York 10176
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 212.983.2640.
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Securities registered pursuant to Section 12(b) of the Act: None.
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Securities registered pursuant
to Section 12(g) of the Act: Common Stock, $.001 par value per share.
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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 if disclosure of delinquent filers pursuant to Item
405 of Regulation SK is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any other
amendment to this Form 10K. / X /
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes /X/ No / /
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed second
fiscal quarter. $93,876,228 of voting equity and $-0- of non-voting equity.
Indicate the number of shares outstanding of the registrant's $.001 par
value common stock as of the close of business on the latest practicable date
(March 10, 2005): 20,175,160.
Documents Incorporated By Reference: None.
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 18
Item 3. Legal Proceedings 19
Item 4. Submissions of Matters to a Vote of Security Holders 19
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 20
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 33
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 35
Item 9A. Controls and Procedures 36
Part 9B. Other Information. 37
PART III
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners
and Management 48
Item 13. Certain Relationships and Related Transactions 51
Item 14. Principal Accounting Fees and Services 53
PART IV
Item 15. Exhibits and Financial Statement Schedules 56
FINANCIAL STATEMENTS F-1
SIGNATURES
ii
PART I
ITEM 1. BUSINESS
INTRODUCTION
We are Inter Parfums, Inc., a worldwide provider of prestige perfumes and
mass market perfumes, cosmetics and health and beauty aids. Organized under the
laws of the State of Delaware in May 1985 as Jean Philippe Fragrances, Inc., we
changed our name to Inter Parfums, Inc. on July 14, 1999, to better reflect our
image as a provider of prestige perfumes. We have also retained the brand name,
Jean Philippe Fragrances, for our mass-market products.
Our worldwide headquarters and the office of our three (3) wholly-owned
subsidiaries, Jean Philippe Fragrances, LLC and Inter Parfums USA, LLC, both New
York limited liability companies, and Nickel USA, Inc., a Delaware corporation,
are located at 551 Fifth Avenue, New York, New York 10176, and our telephone
number is 212.983.2640. Our consolidated wholly-owned subsidiary, Inter Parfums
Holdings, S.A., its majority-owned subsidiary, Inter Parfums, S.A., and its two
(2) wholly-owned subsidiaries, Inter Parfums Grand Public, S.A., and Inter
Parfums Trademark, S.A., and its majority-owned subsidiary, Nickel, S.A.,
maintain executive offices at 4, Rond Point des Champs Elysees, 75008 Paris,
France. Our telephone number in Paris is 331.5377.0000.
Our common stock is listed on The Nasdaq Stock Market (National Market
System) under the trading symbol "IPAR" and we are considered a "controlled
company" under the applicable rules of The Nasdaq Stock Market. The common
shares of our subsidiary, Inter Parfums S.A., are traded on the Paris Stock
Exchange.
We maintain our internet website at www.interparfumsinc.com which is
linked to the SEC Edgar database. You can obtain through our website, free of
charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange as soon as reasonably practicable
after we have electronically filed with or furnished them to the SEC.
We operate in the fragrance business, which primarily consists of
fragrances (both prestige and mass market), and a relatively small amount of
cosmetics (both skin care and color, and both mass and prestige markets), and
health and beauty aids. We have two operating segments, one French based, which
is predominantly in the prestige market, and one United States based, which is
predominantly in the mass market. Our French based operations consist of
approximately 99% prestige market sales and 1% mass market sales, and our United
States operations consist of approximately 95% mass market sales and 5% prestige
market sales.
o 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.
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o Mass market products - We design, market and distribute inexpensive
fragrances, including alternative designer fragrances, personal care
products, mass market cosmetics and health and beauty aids.
2004 IMPORTANT EVENTS
BURBERRY
Burberry is our leading prestige brand name, as net sales of Burberry
products accounted for 62%, 56% and 41% of net sales for the years ended
December 31, 2004, 2003 and 2002, respectively.
In October 2004, our Paris-based subsidiary, Inter Parfums, S.A., entered
into a 12.5-year, exclusive world-wide fragrance license with Burberry Limited,
effective as of July 1, 2004, which replaced the existing 1993 license. This
license includes an additional 5-year optional term that requires the consent of
both Burberry and Inter Parfums, S.A. 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. Further, Inter Parfums, S.A. has paid approximately $3.6 million
to Burberry as an inducement to enter into this 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 changes and to mitigate the
associated expenses, Inter Parfums, S.A. is fine-tuning its operating model.
This new model includes increased selling prices to distributors, modification
of cost-sharing arrangements with suppliers and distributors, and involves the
future formation of joint ventures or company-owned subsidiaries within key
markets.
LANVIN
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 and provided for an upfront non-recoupable license fee of
$19.2 million and the purchase of existing inventory of $7.6 million.
NICKEL
In April 2004 Inter Parfums, S.A. acquired a 67.5% interest in Nickel
S.A. 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. This marked our official entree into prestige skin care products. We
also own and operate men's spas in Paris and New York, which sell our Nickel
products.
PRODUCTION AND SUPPLY
The stages of the development and production process for all fragrances
are as follows:
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o Simultaneous discussions with perfume designers and creators (includes
analysis of esthetic and olfactory trends, target clientele and market
communication approach);
o Concept choice;
o Produce mock-ups for final acceptance of bottles and packaging;
o Receive bids from component suppliers (glass makers, plastic processors,
printers, etc.) and packaging companies;
o Choose our suppliers;
o Schedule production and packaging;
o Issue component purchase orders;
o Follow quality control procedures for incoming components; and
o Follow packaging and inventory control procedures.
Suppliers who assist us with product development include:
o Independent perfumery design companies (Federico Restrepo, Fabien Baron,
Aesthete, Ateliers Dinand);
o Perfumers (IFF, Firmenich, Robertet, Quest, Givaudan,Wessel Fragrances)
which create a fragrance consistent with our expectations and, that of
the fragrance designers and creators;
o Contract manufacturers of components such as glassware (Saint Gobain,
Saverglass, Pochet, Nouvelles Verreries de Momignie), caps (MT Packaging,
Codiplas, Risdon, Newburgh) or boxes (Printor Packaging, Draeger, Dannex
Manufacturing);
o Production specialists who carry out packaging (MF Production, Brand,
CCI, IKI Manufacturing) or logistics (SAGA for storage, order preparation
and shipment).
For our prestige product lines, approximately 80% of component and
production needs are purchased from approximately 20 suppliers out of a total of
over 120 active suppliers. The suppliers' accounts for our French operations are
primarily settled in Euros, and for our United States operations, suppliers'
accounts are primarily settled in U.S. dollars.
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MARKETING AND DISTRIBUTION
PRESTIGE PRODUCTS
For our international distribution of prestige products, we contract with
independent distribution companies specializing in luxury goods. In each
country, we designate anywhere from one to three distributors with the status of
"exclusive representative" for one or more of our name brands. We also
distribute our prestige products through a variety of duty-free operators, such
as airports and airlines and select vacation destinations.
Approximately 30% of our prestige fragrance net sales are denominated in
U.S. dollars. In an effort to reduce our exposure to foreign currency exchange
fluctuations, we engage in a program of cautious hedging of foreign currencies
to minimize the risk arising from operations. Our sales are not subject to
material seasonal fluctuations.
Distribution in France of our prestige products is carried out by a sales
team who oversee some 1,200 points of sale including, retail perfumers (chain
stores) such as
o Sephora
o Marionnaud
o Nocibe
o Galeries Lafayette
o Printemps
or specialized independent points of sale. Approximately 80% of prestige product
sales in France are made to approximately 200 customers out of a total of over
1,200 active accounts.
Our distributors vary in size depending on the number of competing brands
they represent. This extensive and diverse network provides us with a
significant presence in over 120 countries around the world. Approximately 50
distributors out of a total of over 250 active accounts represent 80% of
international prestige fragrance sales. No one customer represents more than 10%
of sales.
MASS MARKET PRODUCTS
In the United States, mass merchandisers and supermarket chains, are the
target customers for our mass market products. Our current customer list
includes
o Wal-Mart
o Fred's
o Meijer's
o Albertson's
o Family Dollar
o Dollar General
o Dollar Tree Distributors
o Consolidated Stores (Big Lot Stores)
o 99 Cent Only
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In addition, our mass market products are sold to wholesale distributors,
such as Variety Wholesalers, specialty store chains, and to multiple locations
of accessory, jewelry and clothing outlets, such as Charming Shoppes.
These products are sold through a highly efficient and dedicated in-house
sales team and reach approximately 15,000 retail outlets throughout the United
States. Our 140,000 square foot distribution center has provided us with the
opportunity and resources to meet our customers' delivery requirements. The
entrepreneurial spirit of our management enables us, and challenges us, to seek
out and master new technologies to better serve our customers.
International distribution of our mass market product lines operate
through the use of exclusive and nonexclusive distribution agreements in such
major territories such as
o Brazil
o Mexico
o Argentina
o Chile
o Columbia
o Canada
o Hong Kong
o Australia
THE MARKET
The fragrance and cosmetic market can be broken down into two (2) types
of retail distribution:
o Selective distribution - perfumeries and specialty sections of department
stores, who sell brand name products with a luxury image, and
o Mass distribution - Mass merchandisers, discount stores and supermarkets,
who sell low to moderately-priced mass market products for a broad
customer base with limited purchasing power.
SELECTIVE DISTRIBUTION
The following information is based on information from the Federation des
Industries de la Parfumerie.
During 2004, the French perfume industry, which accounts for about
approximately 30% of the world market, reported a 2.6% growth rate, as compared
to a 1.6% growth rate in 2003 and a 4.5% growth rate in 2002.
Net sales in 2004 for the French domestic market was unchanged as
compared to 2003, while the French export market increased by 4.8% as compared
to 2003:
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o The European Union: Sales increased overall by 4% in this the largest
market for French exports. Sales were strongest in the United Kingdom
(+11%), Italy (+7%) and Spain (+5%).
o Europe (excluding the European Union countries): Net sales increased by
5%, with substantial growth in Russia (+27%).
o Asia: Net sales increased by 12%. Asia is the second largest market for
French cosmetics and perfumes and there were sharp increases in China
(+64%) and Hong Kong (+15%).
o North America: Net sales in the United States increased 2.3% with a 3.4%
increase in value and 0.5% increase in volume.
o South America: Net sales to South America (+4.2%) were good after several
declining years as the result of the financial crises in Argentina and
Brazil.
While our market share, based on our internal data, is less than 1% in
France, in other countries such as the United Kingdom, United States, Italy,
Portugal, Saudi Arabia and South Korea, we estimate that our market share is
between 1% and 4% of French perfumery imports.
MASS DISTRIBUTION
Our mass market products, which consist of low to moderately-priced
fragrances, cosmetics and health and beauty aids are designed for a broad
customer base with limited purchasing power. We sell our products both in the
United States and abroad. Mass merchandisers, discount stores and supermarkets
continued to perform very well during the slowdown of the economy. Our Aziza
line of cosmetics has achieved widespread acceptance with distribution in over
15,000 doors in the US and growing. Our line of health and beauty aids, which
consist of shampoos, conditioners and lotions, under our Intimate brand, is
currently distributed in over 10,000 US doors. We expect sales of our health and
beauty aids to continue to grow as our high volume, discount store customers
open more stores, and we continue to develop new products for them.
COMPETITION
The market for fragrances and beauty related products is highly
competitive and sensitive to changing mass market preferences and demands. The
prestige fragrance industry is highly concentrated around certain major players
with resources far greater than ours. We compete with an original strategy--
regular and methodical development of quality fragrances for a growing portfolio
of internationally renowned brand names.
Our closest competitors in the prestige market typically do not have mass
market products departments. However, they may develop, market and sell prestige
cosmetics. The market for prestige cosmetics is dominated by large companies,
with resources far greater than ours, such as L'Oreal, Shiseido and Clarins.
During late 2003, we entered the prestige color
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cosmetic market with the launch of our Diane von Furstenberg Beauty cosmetic
line. Also as previously discussed, we acquired a controlling interest in Nickel
SA, a men's prestige skin care products company. We intend to compete on the
basis of our products' brand recognition and quality.
At the present time, we are aware of approximately four established
companies which market alternative designer fragrances similar to ours. This
market is characterized by competition primarily based upon price. We feel the
quality of our fragrance products, competitive pricing, and our ability to
quickly and efficiently develop and distribute new products, will enable us to
continue to effectively compete with these companies.
The market for mass market color cosmetics is highly competitive, with
several major cosmetic companies marketing similar products. Many of these
companies, such as L'Oreal and Revlon, have substantial financial resources and
national marketing campaigns. However, we believe that brand recognition of the
Aziza name, together with the quality and competitive pricing of our products,
enables us to compete with these companies in the mass market.
The market for health and beauty aids is also highly competitive, and is
dominated by large multi-national companies such as Unilever and Proctor and
Gamble. We compete primarily with a low price point coupled with the recognition
of our brand name, Intimate.
FRAGRANCE AND COSMETIC PRODUCTS
PRESTIGE PERFUMES
Since 1992, primarily through our 74% owned subsidiary in Paris, Inter
Parfums S.A., we have sought to build a portfolio of luxury brand names,
primarily through licensing agreements, or through direct acquisition of brand
names. Under license agreements we obtain the right to use the brand name,
create new fragrances and packaging, determine positioning and distribution, and
market and sell the licensed products, in exchange for the payment of royalties.
Our rights under license agreements are also generally subject to certain
minimum sales requirements and advertising expenditures.
The creation and marketing of each product line are intimately linked
with the brand's name, its past and present positioning, customer base and, more
generally, the prevailing market atmosphere. Accordingly, we generally study the
market for each proposed product line for almost a full year before we introduce
any new product into the market. This study is intended to define the general
position of the line and more particularly its fragrance, bottle, packaging and
appeal to the buyer. In our opinion, the unity of these four elements of the
marketing mix makes for a successful product.
Overall spending on marketing and point of sale support aggregated
approximately $40.8 million in 2004 with approximately $19.0 million in point of
sale support, which is included in cost of sales and $21.8 million in other
marketing costs, included in selling expenses. Generally, distributors of our
product lines contribute a similar amount for additional marketing support.
7
The cost of launching a new product (molds and tools, start-up costs and
communication costs, media, etc.) generally varies from $0.2 million to $2.0
million.
The smooth and consistent operation of our prestige perfume operations
requires a thorough knowledge of the market, detailed analysis of the image and
potential of each brand name, a "good dose" of creativity, as well as a highly
professional approach to international distribution channels. Our prestige
fragrances have an average life expectancy of five to ten years, and retail at
prices of $30 to $80.
Our brand name portfolio, which has been steadily increasing since 1988,
is now made up essentially of nine brand names, each of which has a variety of
product lines. Burberry is our leading prestige brand name, as sales of Burberry
products represented 62%, 56% and 41% of net sales for the years ended December
31, 2004, 2003 and 2002, respectively.
The following is a description of our major, prestige fragrance brands.
BURBERRY
(BURBERRY LONDON, BURBERRY WEEK END, BURBERRY TOUCH, BURBERRY BRIT )
Burberry is our leading prestige brand name, and we operate under an
exclusive world-wide license with Burberry Limited. Sales of the Burberry brand
experienced strong growth in 2004, and gains were achieved in all markets. The
year 2004 was marked by the continued rollout of the BURBERRY BRIT women's line
in Asia, South America and the Middle East, as well as the successful launch of
the BURBERRY BRIT for men line in selected markets. In addition, we experienced
solid performances from BURBERRY LONDON, BURBERRY WEEK END AND BURBERRY TOUCH
lines. For 2005, we have scheduled the worldwide launch of a new fragrance,
BURBERRY BRIT RED.
S.T. DUPONT
(S.T. DUPONT PARIS, S.T. DUPONT ESSENCE PURE, L'EAU DE S.T. DUPONT)
In June 1997 we signed an exclusive license agreement with S.T. Dupont
for the creation, manufacture and worldwide distribution of S.T. Dupont
perfumes. Two lines launched in September 1998 made a promising start with a
good sell-through based on a strong international luxury image.
In March 2000 we launched a new S.T. Dupont Signature line of two new
highly selective perfumes. The Signature line did not meet our overall
expectations and it was discontinued in 2002. In late 2002, we launched S.T.
Dupont Essence Pure, a new line for men and women. In April 2004, we unveiled
another fragrance family for S.T. Dupont, L'EAU DE S.T. DUPONT in select markets
in Europe and the Middle East. We are also developing a new fragrance line for
men, which has been tentatively scheduled for launch in 2006.
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PAUL SMITH
(PAUL SMITH, PAUL SMITH EXTREME, PAUL SMITH LONDON)
We signed an exclusive license agreement with Paul Smith in December
1998, our first designer fragrance, for the creation, manufacture and worldwide
distribution of Paul Smith perfumes and cosmetics.
Paul Smith is an internationally renowned British designer who creates
fashion with a clear identity. Paul Smith has a modern style which combines
elegance, inventiveness and a sense of humor. These images, in conjunction with
a growing audience, provided the justification for the creation of a perfume and
possibly a cosmetics line. We launched our first line of Paul Smith perfumes in
certain international markets beginning in July 2000.
In October 2002, we commenced the launch of our Paul Smith Extreme line,
and sales of Paul Smith fragrances continue to be strong in the United Kingdom
and Japan. During the third quarter of 2004, our third Paul Smith fragrance
family for men and women called PAUL SMITH LONDON, was launched in the U.K.,
France and the U.S. The geographic rollout continued to the balance of Western
Europe during the fourth quarter of 2004, and in early 2005, Japan, where the
designer is very popular.
CHRISTIAN LACROIX
(EAU FLORALE, BAZAR, BAZAR SUMMER FRAGRANCE)
In March 1999, we entered into an exclusive license agreement with the
Christian Lacroix Company, a division of LVMH Moet Hennessy Louis Vuitton S.A.,
for the worldwide development, manufacture and distribution of perfumes. For us,
this association with a prestigious fashion label is another key area for growth
which we expect will further strengthen our position in the prestige fragrance
market. Our first Christian Lacroix line, Eau de Parfum, was launched in 1999
and in 2001, we launched a lighter eau de toilette fragrance, EAU FLORALE.
In 2002, we developed and launched two completely new lines for Christian
Lacroix: BAZAR POUR FEMME and BAZAR POUR HOMME. BAZAR POUR FEMME comes in an eau
de parfum spray as well as an Eau Deodorante Natural Spray, Perfumed Body Lotion
and Perfumed bath and shower gel. BAZAR POUR HOMME comes in an eau de toilette
spray a Deodorant Stick, All Over Shampoo, After-Shave balm and After-Shave.
In 2003, we launched a limited edition, warm weather seasonal fragrance,
BAZAR SUMMER FRAGRANCE, which had a good showing in France. Therefore, in 2004,
we launched another limited edition, seasonal fragrance for our Christian
Lacroix brand. For the summer of 2005, we have scheduled the launch of new
fragrance family for the Christian Lacroix brand for both men and women.
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CELINE
(CELINE, ORIENTAL SUMMER, FEVER)
In May 2000 we entered into an exclusive worldwide license agreement for
the development, manufacturing and distribution of fragrance lines under the
Celine brand name with Celine, a division of LVMH Moet Hennessy Louis Vuitton
S.A. We launched two new fragrance lines the fourth quarter of 2001. We also
introduced a Celine bath line in the third quarter of 2002.
Celine, a French luxury fashion and accessory company, and part of LVMH,
is known throughout the world for its luxury and quality products. This
agreement is an important part of Celine's strategy to develop dynamic brand
recognition and to offer a varied range of luxury items to an international
clientele. Our association with this prestigious fashion label was an important
step in the development and expansion of our prestige business.
During 2003, we launched a limited edition, seasonal fragrance, ORIENTAL
SUMMER, and in 2004, we launched another limited edition, warm weather, seasonal
fragrance for the Celine brand. We are planning to bring a new Celine fragrance
line, CELINE FEVER, to the market in Spring 2005.
LANVIN
(ARPEGE, LANVIN L'HOMME, OXYGENE, ECLAT D'ARPEGE, VETYVER)
In June 2004 Inter Parfums S.A., and Lanvin S.A. signed a worldwide
license agreement to create, develop and distribute fragrance lines under the
LANVIN brand name.
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 Arpege (created in 1927),
Lanvin L'Homme (1997), Oxygene (2000), Eclat d'Arpege (2002) and Vetyver (2003).
Our first Lanvin fragrance, Arpege pour Homme is in the planning stage
for a late 2005 or early 2006 debut.
MOLYNEUX
(QUARTZ, QUARTZ POUR HOMME, MODERN QUARTZ)
The Molyneux brand name, which we purchased in March 1994, was originally
created at the turn of the century by the fashion designer Edouard Molyneux, and
ranks among the institutional brand names of French perfumery. Molyneux enjoys a
very prominent market position in South America, especially through the "Quartz"
line for women, which was launched in 1978. The Molyneux name is also well
established in duty-free outlets, France and other Western European countries.
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PRESTIGE SKIN CARE
In April 2004 Inter Parfums, S.A. acquired a 67.5% interest in Nickel
S.A.
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
our men's spas in Paris and New York.
Our plans include broader retail distribution of the Nickel product line
and new product introductions. We also plan to draw upon the skin care product
expertise that the Nickel team brings, as we explore other opportunities in the
treatment side of the beauty business beyond the Nickel brand.
We believe the opportunity for a unique brand such as Nickel in a
fast-paced market is exceptional, as we market our products to the growing
number of men who seek to expand their grooming regime beyond shaving, by using
moisturizer, eye cream and exfoliants formulated specially for male skin.
PRESTIGE COLOR COSMETICS
DIANE VON FURSTENBERG
In May 2002 we entered into an exclusive worldwide license agreement with
Diane von Furstenberg Studio, L.P. for the development, manufacturing and
distribution of fragrance, cosmetics, skin care and related beauty products, to
be sold under the Diane von Furstenberg, DVF, Diane von Furstenberg The Color
Authority and Tatiana brand names. Our rights under such license agreement are
subject to certain minimum sales requirements, advertising expenditures and
royalty payments.
TABLE OF PRESTIGE BRANDS
The following is a summary of the prestige brand names owned or licensed
by us:
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
BRAND NAME LICENSED DATE TERM, INCLUDING OPTION PERIODS PURCHASE
OR OWNED ACQUIRED PRICE
(IN MILLIONS)
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
Burberry Licensed July 04 12.5 years and additional 5-year optional 3.6
term that requires mutual consent
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
S.T. Dupont Licensed July 97 11 years 1.0
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
Paul Smith Licensed Dec. 98 12 years 0.0
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
Celine Licensed May 00 11 years from January 2001, with an 0.0
additional 5-year option term
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
Lanvin Licensed July 04 15-year 19.2
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
Nickel Owned April 04 N/A 4.4
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
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- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
BRAND NAME LICENSED DATE TERM, INCLUDING OPTION PERIODS PURCHASE
OR OWNED ACQUIRED PRICE
(IN MILLIONS)
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
Molyneux Owned Mar. 94 N/A 4.2
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
Christian Lacroix Licensed Mar. 99 11 years 0.0
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
Diane Von Furstenberg Licensed May 02 8 year 7 month term with three additional 0.0
2-year option terms.
- ---------------------------- ------------- ------------ ---------------------------------------------- ---------------
MASS MARKET PRODUCTS
MASS MARKET FRAGRANCES
We produce and market a complete line of alternative designer fragrances
and personal care products which sell at a substantial discount from their high
profile, high retail cost, brand name counterparts. Our alternative designer
fragrances, which are produced in the United States, are similar in scent to
highly advertised designer fragrances that are marketed at a high retail price.
These products are intended to have an upscale image without a high retail
price, and typically sell at a price below $3.00 at the mass market retail
level, substantially discounted from the high cost of designer fragrances which
typically range from $30.00 to $200.00 at prestige retail locations.
Our alternative designer fragrances encompass a complete array of
fragrances, body sprays, deodorants and perfumed creams. Product line extensions
into additional personal care products are ongoing and development of new and
innovative product lines is a continuous process.
New designer fragrances are constantly being launched in the marketplace.
Substantial expenditure of advertising dollars, selective distribution and a
high retail price create a perfect candidate for an alternative designer
fragrance. We react to demand by creating a similar scent which, when combined
with an innovative packaging design, is ready for sale to mass market
merchandisers, chain drug stores, wholesalers and international trading
companies. To this end, our strategy is to be among the first to release these
new introductions into the market.
In May 2002 we, through our wholly-owned subsidiary, Jean Philippe
Fragrances, LLC, acquired certain mass market fragrance brands, intellectual
property, trademarks and inventory from Tristar Corporation, a Debtor-in-
Possession in a Chapter 11 proceeding in U.S. Bankruptcy Court, paying
$3.2 million for the intellectual property and $3.7 million for inventory.
Tristar had been one of our most significant competitors over the years,
and we believe this acquisition has benefited our mass market business. We now
have greater market share, and the additional brands have opened new retail
accounts for us, although we have experienced some consolidation of sales from
our other mass market fragrance brands.
Under the terms of a license agreement signed in 1990 with Jordache
Enterprises, we have capitalized on the strength and awareness of the Jordache
trademark. In December 2004 we amended our agreement, which provided for a
series of ten one-year annual renewal terms. We have directed our marketing
efforts on the younger, trendy mass market consumer who is the core of the
Jordache franchise. New packaging, which utilizes the latest in graphic
technology, is both innovative and attractive. We expect to continue this trend
with additional line extensions under the Jordache brand name.
12
MASS MARKET COSMETICS
We purchased the trademark, Aziza from Unilever N.V. in 1995. The
recognition of the Aziza trade name provided us with the opportunity to
introduce a new cosmetic line with an existing loyal customer base.
We market the Aziza line of low priced eye shadow kits, mascara, and
pencils to the young teen market. This product line, with its low suggested
retail prices, is being distributed to mass market retailers and discount
chains, including the 99 Cent and Dollar Store markets.
Line extensions to Aziza include foundation, lipstick, nail polish and
related accessories. Aziza is presently distributed in approximately 15,000 mass
market outlets throughout the United States.
MASS MARKET HEALTH AND BEAUTY AIDS
During 2001, we introduced a new line of mass market health and beauty
aids under our Intimate brand, consisting of shampoo, conditioner, hand lotion
and baby oil. We distribute this line to the same mass market retailers and
discount chains as our Aziza cosmetic line. Intimate health and beauty aids are
presently distributed in approximately 10,000 mass market outlets throughout the
United States.
INVENTORY
We purchase raw materials and component parts from suppliers based on
internal estimates of anticipated need for finished goods, which enables us to
meet production requirements for finished goods. We generally deliver product to
customers within 72 hours of the receipt of their orders.
PRODUCT LIABILITY
We maintain product liability coverage in an amount of $5,000,000. Based
upon our experience, we believe this coverage is adequate and covers
substantially all of the exposure we may have with respect to our products. We
have never been the subject of any material product liability claims.
GOVERNMENT REGULATION
A fragrance is defined as a "cosmetic" under the Federal Food, Drug and
Cosmetics Act. A fragrance must comply with the labeling requirements of this
FDC Act as well as the Fair Packaging and Labeling Act and its regulations. Some
of our color cosmetic products may contain menthol and are also classified as a
"drug". Under U.S. law, a product may be classified as both a cosmetic and a
drug. Additional regulatory requirements for products which are "drugs" include
additional labeling requirements, registration of the manufacturer and the
semi-annual update of a drug list.
13
Our fragrances are subject to the approval of the Bureau of Alcohol,
Tobacco and Firearms as a result of the use of specially denatured alcohol. So
far we have not experienced any difficulties in obtaining the required
approvals.
TRADEMARKS
Under various license agreements we have the right to use certain
registered trademarks throughout the world. These registered trademarks include:
o Burberry
o S.T. Dupont
o Paul Smith
o Christian Lacroix
o Lanvin
o Celine
o Diane von Furstenberg, DVF, Diane von Furstenberg The Color
Authority, and Tatiana
o Jordache
In addition, we are the registered trademark owner of many trademarks,
including:
o Intimate
o Aziza
o Nickel
o Regal Collections, Royal Selections, Euro Collections and Apple
o Parfums Molyneux, Captain, Quartz and Lord
EMPLOYEES
As of March 1, 2005 we had 144 full-time employees world-wide. Of these,
73 are engaged in sales activities and 71 in administrative and marketing
activities.
As of March 1, 2005 we had 95 full-time employees in Paris. Of these, 48
are engaged in sales activities and 47 in administrative and marketing
activities.
As of March 1, 2005 we had 59 full-time United States employees. Of
these, 25 were engaged in sales activities and 34 in administrative and
marketing activities.
We believe that our relationship with our employees is good.
FORWARD LOOKING INFORMATION AND RISK FACTORS
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.
14
Given these risks, uncertainties and other factors, persons are cautioned not to
place undue reliance on the forward-looking statements.
The following is a discussion of some of the material risk factors
relating to our business:
WE ARE DEPENDENT UPON BURBERRY FOR A SIGNIFICANT PORTION OF OUR SALES, AND THE
LOSS OF THIS LICENSE WILL HAVE A MATERIAL ADVERSE EFFECT ON US.
Burberry is our leading prestige brand name, as sales of Burberry
products represented 62%, 56% and 41% of net sales for the years ended December
31, 2004, 2003 and 2002, respectively.
In October 2004 our Paris-based subsidiary, Inter Parfums, S.A., entered
into a 12.5-year, exclusive world-wide fragrance license with Burberry Limited,
effective as of July 1, 2004, which replaced the existing 1993 license. This
license includes an additional 5-year optional term that requires the consent of
both Burberry and Inter Parfums, S.A., and must be exercised, if at all, prior
to December 31, 2014. 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.
Further, this license provides for a termination on a change in control of
either Inter Parfums, S.A., the licensee, or Inter Parfums, Inc., the guarantor.
This license is subject to Inter Parfums, S.A. making certain royalty
payments, minimum royalty payments, minimum advertising and promotional
expenditures and minimum sales requirements. The new royalty rates, which will
approximately double the rates under the prior license, commence as of July 1,
2004. The new advertising and promotional expenditures, which commenced on
January 1, 2005, as well as the minimum sales requirements, are substantially
higher than under the prior license. In an attempt to mitigate the associated
expenses, Inter Parfums is fine-tuning its model and establishing a dedicated
Burberry Fragrances operating division. This new model includes increased
selling prices to distributors, modification of cost-sharing arrangements with
suppliers and distributors, and involves the future formation of joint ventures
or Company-owned subsidiaries within key markets.
THE SUCCESS OF OUR PRODUCTS IS DEPENDENT ON PUBLIC TASTE.
Although we believe we have the ability and experience to recognize
valuable fragrances and cosmetic products and gauge trends in the cosmetic and
fragrance market, our revenues are substantially dependent on the success of our
products, which depends upon, among other matters, pronounced and rapidly
changing public tastes, factors which are difficult to predict and over which we
have little, if any, control. In addition, we have to develop successful
marketing, promotional and sales programs in order to sell our fragrances and
cosmetics. If we are not able to develop successful marketing, promotional and
sales programs, then such failure will have a material adverse effect on our
business, financial condition and operating results.
WE ARE DEPENDENT UPON MESSRS. JEAN MADAR AND PHILIPPE BENACIN, AND THE LOSS OF
THEIR SERVICES COULD HARM OUR BUSINESS.
15
Jean Madar, our Chief Executive Officer, and Philippe Benacin, our
President and Chief Executive Officer of Inter Parfums, S.A., are responsible
for day-to-day operations as well as major decisions. Termination of their
relationships with us, whether through death, incapacity or otherwise, could
have a material adverse effect on our operations, and we cannot assure you that
qualified replacements can be found. We maintain key man insurance on the lives
of both Mr. Madar ($1 million) and Mr. Benacin ($2.8 million), however, we
cannot assure you that we would be able to retain suitable replacements for
either Mr. Madar or Mr. Benacin.
WE ARE SUBJECT TO EXTREME COMPETITION IN BOTH THE PRESTIGE AND MASS MARKETS.
The market for fragrances and beauty related products is highly
competitive and sensitive to changing market preferences and demands. Many of
these companies have substantial financial resources and national marketing
campaigns.
The prestige fragrance and cosmetic industry is highly concentrated
around certain major players with resources far greater than ours. We compete
with an original strategy-- regular and methodical development of quality
products for a growing portfolio of internationally renowned brand names.
Mass market fragrances are characterized by competition primarily based
upon price. We feel the quality of our fragrance products, competitive pricing,
and our ability to quickly and efficiently develop and distribute new products,
will enable us to continue to effectively compete with these companies.
The market for name brand and mass market color cosmetics, as well as
health and beauty aids, is highly competitive, with several major cosmetic
companies marketing similar products. However, we believe that brand recognition
of the Aziza and Intimate brand names, together with the quality and competitive
pricing of our products, enables us to compete with these companies in the mass
market.
We cannot assure you that sufficient demand for our existing fragrances,
cosmetics and health and beauty aids will continue or that we will develop
future products that will withstand competition.
OUR RELIANCE ON THIRD PARTY MANUFACTURERS COULD HAVE A MATERIAL ADVERSE EFFECT
ON US.
We rely on outside sources to manufacture our fragrances and cosmetics.
The failure of such third party manufacturers to deliver either components or
finished goods on a timely basis could have a material adverse effect on our
business. Although we believe there are alternate manufactures available to
supply our requirements, we cannot assure you that current or alternative
sources will be able to supply all of our demands on a timely basis. We do not
intend to develop our own manufacturing capacity. As these are third parties
over which we have little or no control, the failure of such third parties to
provide components or finished goods on a timely basis could have a material
adverse effect on our business, financial condition and operating results.
16
THE INTERNATIONAL CHARACTER OF OUR BUSINESS RENDERS US SUBJECT TO FLUCTUATION IN
FOREIGN CURRENCY EXCHANGE RATES AND INTERNATIONAL TRADE TARIFFS, BARRIERS AND
OTHER RESTRICTIONS.
Approximately 30% of our Paris subsidiary's net sales are sold in US
dollars. In an effort to reduce our exposure to foreign currency exchange
fluctuations, we engage in a program of cautious hedging of foreign currencies
to minimize the risk arising from operations. Despite such actions, fluctuations
in foreign currency exchange rates for the U.S. dollar, particularly with
respect to the Euro, could have a material adverse effect on our operating
results. Possible import, export, tariff and other trade barriers, which could
be imposed by the United States, France, Canada or other countries might also
have a material adverse effect on our business.
OUR BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATION, WHICH COULD IMPACT OUR
OPERATIONS.
Fragrances and other cosmetics must comply with the labeling requirements
of the Federal Food, Drug and Cosmetics Act as well as the Fair Packaging and
Labeling Act and their regulations. Some of our color cosmetic products may also
be classified as a "drug". Additional regulatory requirements for products which
are "drugs" include additional labeling requirements, registration of the
manufacturer and the semi-annual update of a drug list.
Our fragrances are subject to the approval of the Bureau of Alcohol,
Tobacco and Firearms as a result of the use of specially denatured alcohol. So
far we have not experienced any difficulties in obtaining the required
approvals.
Our fragrances and cosmetics that are manufactured in France are subject
to certain regulatory requirements of the European Union, but as of the date of
this report, we have not experienced any material difficulties in complying with
such requirements.
However, we cannot assure you that, should we develop or market
fragrances and cosmetics with different ingredients, or should existing
regulations or requirements be revised, we would not in the future experience
difficulty in complying with such requirements, which could have a material
adverse effect on our results of operations.
WE MAY BECOME SUBJECT TO POSSIBLE LIABILITY FOR IMPROPER COMPARATIVE ADVERTISING
OR "TRADE DRESS."
Brand name manufacturers and sellers of brand name products may make
claims of improper comparative advertising or trade dress (packaging) with
respect to the likelihood of confusion between some of our mass market
fragrances, cosmetics and health and beauty aids, and those of brand name
manufacturers and sellers. They may seek damages for loss of business or
injunctive relief to seek to have the use of the improper comparative
advertising or trade dress halted. However, we believe that our displays and
packaging constitute fair competitive advertising and are not likely to cause
confusion between our products and others. Further, we have not experienced to
any material degree, any of such problems to date.
17
ITEM 2. PROPERTIES
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
USE LOCATION APPROXIMATE SIZE ANNUAL RENT TERM EXPIRES OTHER INFORMATION
(ALL ARE SUBJECT
TO ESCALATIONS,
EXCEPT WHERE
NOTED)
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
1. Office 551 Fifth Avenue, 9,000 square feet $324,000, February 28, 2013
Space-corporate New York, NY.
headquarters and
United States
operations
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
2. Distribution 60 Stults Road 140,000 square $684,000 October 31, 2010
center Dayton, NJ foot
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
3. Office 4 Rond Point Des 4,000 square feet 127,000 Euros July 2005 Lessee has early
Space-Paris Champs Elysees, termination
corporate Paris, France right every 3
headquarters and years on 6
Paris based months notice
operations
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
3. Office 4 Rond Point Des 2,000 square feet 71,000 Euros July 2005 Lessee has early
Space-Paris Champs Elysees, termination
corporate Paris, France right every 3
headquarters and years on 6
Paris based months notice
operations
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
3. Office 4 Rond Point Des 1700 square feet 52,000 Euros June 2007 Lessee has early
Space-Paris Champs Elysees, termination
corporate Paris, France right every 3
headquarters and years on 6
Paris based months notice
operations
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
4. Office Space 18 avenue 2500 square feet 90,000 Euros April 2009 Lessee has early
Franklin termination
Roosevelt, Paris, right every 3
France years on 6
months notice
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
5. Office Space ASNIERES 40,000 Euros March 31, 2010 Lessee has early
(92600)-107, Quai termination
du Docteur Dervaux right every 3
years on 6
months notice
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
6. Men's Spa 48 Rue des Francs 175,000Euros June 30, 2011 Lessee has early
Bourgeois, Paris termination
(75003), 3rd right every 3
District years on 6
months notice
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
7. Men's Spa Unit C2, 300 West $248,000 October 31, 2009 5-year term
14th Street, New option term
York, N.Y.
- ---------------------- ------------------- ------------------ ------------------ ------------------ ------------------
18
Inter Parfums, S.A. has an agreement with Sagatrans, S.A. for warehousing
and distribution services through September 2011.Fees are calculated based upon
a percentage of sales, which are customary in the industry. Minimum future lease
payments range from 2.1 million euro in 2005 increasing to 3.0 million euro in
2011.
We believe our office and warehouse facilities are satisfactory for our
present needs and those for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material lawsuits.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
THE MARKET FOR OUR COMMON STOCK
Our company's common stock, $.001 par value per share, is traded on The
Nasdaq Stock Market (National Market System) under the symbol "IPAR". The
following table sets forth in dollars, the range of high and low closing prices
for the past two fiscal years for our common stock.
----------------------- --------------------- -------------------
Fiscal 2004 High Closing Price Low Closing Price
----------------------- --------------------- -------------------
Fourth Quarter $ 17.12 $ 12.45
----------------------- --------------------- -------------------
Third Quarter $ 20.99 $ 11.34
----------------------- --------------------- -------------------
Second Quarter $ 26.00 $ 20.23
----------------------- --------------------- -------------------
First Quarter $ 31.52 $ 19.88
----------------------- --------------------- -------------------
----------------------- --------------------- -------------------
Fiscal 2003 High Closing Price Low Closing Price
----------------------- --------------------- -------------------
Fourth Quarter $ 26.92 $ 10.00
----------------------- --------------------- -------------------
Third Quarter $ 11.55 $ 7.62
----------------------- --------------------- -------------------
Second Quarter $ 8.59 $ 6.78
----------------------- --------------------- -------------------
First Quarter $ 8.24 $ 5.80
----------------------- --------------------- -------------------
As of February 28, 2005 the number of record holders, which include
brokers and broker's nominees, ETC., of our common stock was 61. We believe
there are in excess of 3,300 beneficial owners of the company's common stock.
DIVIDENDS
Commencing in March 2002, our Board of Directors authorized our first
cash dividend of $.06 per share per annum, payable $.015 per share quarterly.
The first cash dividend of $.015 per share was paid on April 15, 2002 to
shareholders of record on March 31, 2002. In March 2003, our board of directors
increased the cash dividend to $.08 per share per annum, payable $.02 per share
on a quarterly basis. In March 2004, our board of directors again increased the
cash dividend to $.12 per share per annum, payable $.03 per share on a quarterly
basis.
20
Commencing March 31, 2005 our board of directors increased the cash
dividend from $.12 to $.16 per share per annum, payable on a quarterly basis.
The first cash dividend of $.04 per share is to be paid on April 15, 2005 to
shareholders of record on March 31, 2005.
Our Certificate of Incorporation provides for the requirement of
unanimous approval of the members of our board of directors for the declaration
or payment of dividends, if the aggregate amount of dividends to be paid by us
and our subsidiaries in any fiscal year is more than thirty percent (30%) of our
annual net income for the last completed fiscal year, as indicated by our
consolidated financial statements.
SALES OF UNREGISTERED SECURITIES
For the period consisting of the date of the filing of our quarterly
report on Form 10-Q for the three and nine months ended September 30, 2004,
through the date of this report, we issued the following unregistered equity
securities.
In February 2005, both the Chief Executive Officer and the President
exercised an aggregate of 511,350 and 426,850 outstanding stock options,
respectively, of the Company's common stock. The exercise prices of $1,307,000
for the Chief Executive Officer and $1,091,000 for the President were paid by
each of them tendering to the Company 90,513 and 75,556 shares, respectively, of
the Company's common stock, previously owned by them, valued at $14.44 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 10,388 shares for partial 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, 2005.
Each of the Chief Executive Officer and the President agreed to hold
their shares for investment and not with a view towards distribution. The above
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.
The following sets forth certain information as to all options granted to
purchase our common stock during the last quarter of the last fiscal year and
through the date of this report, which were not registered under the Securities
Act. In each of the transactions, we granted options to affiliates (executive
officers and directors) and employees. 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. Each option holder agreed that, if the option is
exercised, the option holder would purchase his common stock for investment and
not for resale to the public. Also, we provide all option holders with all
reports we file with the SEC and press releases issued by us.
21
On December 10, 2004, we granted options to purchase an aggregate of
186,400 shares for a five-year period at the exercise price of $15.39 per share,
the fair market value at the time of grant, to 40 employees, and 5 current
executive officers under our 1999 Stock Option Plan.
On February 1, 2005, we granted options to purchase an aggregate of
10,000 shares for a five-year period at the exercise price of $15.20 per share,
the fair market value at the time of grant, to 7 directors under our 2000
Non-Employee Director Stock Option Plan.
REPURCHASES OF OUR COMMON STOCK
Except as disclosed above in connection with the tender of shares by the
CEO and President for the exercise price of certain stock options, we did not
repurchase any of our Common Stock during the fourth quarter of fiscal year
ended December 31, 2004.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from our
financial statements, and should be read in conjunction with those financial
statements, including the related footnotes.
YEARS ENDED DECEMBER 31
(In Thousands Except Share and Per Share Data)
- ----------------------------------------------- -------------- ------------- -------------- ------------- -------------
2004 2003 2002 2001 2000
- ----------------------------------------------- -------------- ------------- -------------- ------------- -------------
Income Statement Data:
- ----------------------------------------------- -------------- ------------- -------------- ------------ -------------
Net Sales $236,047 $185,589 $130,352 $112,233 $101,582
- ----------------------------------------------- -------------- ------------- -------------- ------------ -------------
Cost of Sales 113,988 95,449 71,630 60,176 53,668
- ----------------------------------------------- -------------- ------------- -------------- ------------ -------------
Selling, General and Administrative 89,516 64,147 41,202 37,335 35,714
- ----------------------------------------------- -------------- ------------- -------------- ------------ -------------
Income Before Taxes and Minority Interest 31,638 26,632 17,581 15,456 13,539
- ----------------------------------------------- -------------- ------------- -------------- ------------ -------------
Net Income 15,703 13,837 9,405 8,119 6,589(1)
- ----------------------------------------------- -------------- ------------- -------------- ------------ -------------
Net Income per Share(2):
Basic $0.82 $0.73 $0.50 $0.46 $0.37
Diluted $0.77 $0.69 $0.47 $0.41 $0.34
- ----------------------------------------------- -------------- ------------- -------------- ------------ -------------
Average Common Shares Outstanding(2):
Basic 19,204,768 19,032,460 18,776,988 17,834,945 17,590,106
Diluted 20,494,038 20,116,433 19,948,305 19,935,534 19,500,648
- ----------------------------------------------- -------------- ------------- -------------- ------------- -------------
- --------------
(1) Includes nonrecurring charges aggregating $0.6 million and a gain
of $0.6 million, all after taxes and minority interest. The charges represent an
accrual for exposure relating to pending litigation of $0.2 million and a
potential tax assessment of $0.4 million. The gain represents a realized gain on
the sale of marketable securities.
(2) Adjusted for 3:2 stock splits (50% stock dividends) paid in June
2000 and September 2001.
22
AS AT DECEMBER 31
(In Thousands)
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
2004 2003 2002 2001 2000
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Balance Sheet Data:
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Working Capital $129,866 $115,970 $83,828 $68,204 $57,688
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Total Assets 230,485 194,001 129,370 102,539 94,571
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Long-Term Debt 15,258 -0- -0- 1,366 1,417
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Shareholders' Equity 126,509 104,916 80,916 65,091 55,061
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Dividends per Share $0.12 $0.08 $0.06 -0- -0-
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
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 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.
o Prestige products - For each prestige brand, owned or licensed by us, we
develop an original concept for the perfume, cosmetic or skincare line
consistent with world market trends.
o 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
84% of net sales during 2004. 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. In terms of sales, Burberry is our most
significant license, and sales of Burberry products represented 62%, 56% and 41%
of net sales for the years ended December 31, 2004, 2003 and 2002, respectively.
23
We have acquired two licenses with affiliates of our strategic partner,
LV Capital, USA Inc. (LV Capital), a wholly-owned subsidiary of LVMH Moet
Hennessy Louis Vuitton S.A. LVMH) 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. 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. We believe that our association with LV Capital has
enhanced our creditability 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 16% of sales for the year ended
December 31, 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 acquisitions of brands. 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.
2004 IMPORTANT EVENTS
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. This new model includes increased selling prices to distributors,
modified cost sharing arrangements with suppliers and distributors, and involves
the future formation of joint ventures or Company-owned subsidiaries within key
markets to handle future distribution. While we anticipate a continued
short-term negative
24
impact on our bottom line, particularly for the first half of 2005, the growth
potential offered by this international luxury brand makes us confident about
our future long-term prospects.
LANVIN
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 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.
NICKEL
In April 2004 Inter Parfums, S.A. acquired a 67.5% interest in Nickel
S.A. for approximately $8.7 million in cash including a capital infusion of $2.8
million made in June 2004, aggregating approximately $4.5 million, net of cash
acquired. This marked our official entree into prestige skin care products. We
also own and operate men's spas in Paris and New York, which sell our Nickel
products.
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.
25
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
26
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
NET SALES Years ended December 31,
(in millions) 2004 % Change 2003 % Change 2002
Prestige product sales $198.0 39% $142.1 61% $ 88.4
Mass market product sales 38.0 (13%) 43.5 4% 42.0
------ ------ ------
Total net sales $236.0 27% $185.6 42% $130.4
====== ====== ======
Net sales for the year ended December 31, 2004 increased 27% to $236.0
million. For the year ended December 31, 2003, net sales were up 42%. At
comparable foreign currency exchange rates, net sales rose 22% and 31% in 2004
and 2003, respectively. The increases in net sales are attributable to increases
in our prestige product lines.
Prestige product sales, which were up 61% in 2003, grew an additional 39%
in 2004. Our 2003 calendar of product launches was most ambitious. Besides the
continued geographic rollout of our 2002 launches of ESSENCE PURE by S.T. Dupont
and Paul Smith EXTREME, new brands and brand extensions made their debuts
throughout the year. In the spring of 2003 we launched a summer seasonal
fragrances for both our Celine and Christian Lacroix fragrance lines. In
addition, in late September 2003, we launched a fragrance and cosmetic line
under the Diane von Furstenberg label.
Most importantly, the global rollout of Burberry Brit for women, which
began in the third quarter of 2003, expanded to Asia, South America and the
Middle East in early 2004. In addition, during the third quarter of 2004, the
BURBERRY BRIT men's line was launched in the UK, select countries in Western
Europe and in the US. The excellent performance of BURBERRY LONDON, BURBERRY
WEEKEND, BURBERRY TOUCH, as well as the BURBERRY BRIT collection all contributed
to, and was the primary driver of, growth in prestige product sales.
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.
27
With respect to our mass-market product lines, net sales were down 13% in
2004 after rising 4% in 2003. Through June 2003 we continued to see growth in
our fragrances lines as a result of our May 2002 acquisition of certain
fragrance brands from Tristar Corporation, a Debtor-in-Possession, ("Tristar").
Tristar was one of our most significant competitors in mass-market fragrances
and the brands acquired are being sold in the same distribution channels as that
of our other mass-market fragrance lines. After passing the one-year anniversary
of this acquisition, we began consolidating certain fragrance lines to reduce
duplication and improve overall efficiency. This resulted in a decline in
mass-market fragrance sales in 2003. However, new product line extensions and an
expanding distribution network continued to benefit sales volume in our Intimate
health and beauty aids and our Aziza cosmetics lines.
The decline in mass-market product sales in 2004 is partially the result
of a 13% decline in US export sales primarily 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. Domestic sales in 2004 also showed signs of weakness and were
also off 13% for the year.
Our new product development program for all of our product groups is well
under way, and we expect to roll out new products throughout 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.
As previously discussed, in April 2004, Inter Parfums, S.A. 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. Net sales of
Nickel products for the period April 1, 2004 through December 31, 2004
aggregated $3.7 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.
Also as discussed above, 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 six months period ended
December 31, 2004, net sales of Lanvin products aggregated approximately $10.2
million.
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 includes 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 first half of 2005, the growth potential offered by this
international luxury brand makes us confident about our future long-term
prospects.
28
GROSS MARGINS
(in millions) Years ended December 31,
2004 2003 2002
------- ------- -------
Net sales $ 236.0 $ 185.6 $ 130.4
Cost of sales 114.0 95.4 71.6
------- ------- -------
Gross margin $ 122.0 $ 90.2 $ 58.7
======= ======= =======
Gross margin as a % of net sales 52% 49% 45%
======= ======= =======
Gross profit margins were 52% in 2004, 49% in 2003 and 45% in 2002. Sales
of products from our primarily French based prestige fragrance lines generate
significantly higher gross profit margins than sales of our primarily United
States based mass-market product lines. In 2004, a decline of approximately 1%
in gross margin as a percentage of sales for United States mass-market
operations in 2004 was more than offset by an approximate 2% improvement in
gross margin as a percentage of sales for our French based prestige product
lines. The balance of the margin improvement in 2004 was the result of the net
sales growth rate achieved in prestige product lines, as compared to the
negative growth rate of our mass-market product lines. In 2003, there was no
change in gross margin as a percentage of sales for United States mass-market
operations and a 3% improvement in gross margin as a percentage of sales for our
French based prestige product lines. The balance of the margin improvement in
2004 was the result of the net sales growth rate achieved in prestige product
lines, as compared to the growth rate of our mass-market product lines.
SELLING, GENERAL & ADMINISTRATIVE
(in millions) Years ended December 31,
2004 2003 2002
------- ------- -------
Selling, general & administrative $ 89.5 $ 64.1 $ 41.2
======= ======= =======
Selling, general & administrative
as a % of net sales 38% 35% 32%
======= ======= =======
Selling, general and administrative expense increased 40% for the year
ended December 31, 2004, as compared to 2003 and 56% for the year ended December
31, 2003, as compared to 2002. As a percentage of sales selling, general and
administrative was 38%, 35% and 32% of sales for the years ended December 31,
2004, 2003 and 2002, respectively. The increase in selling, general and
administrative expenses as a percentage of sales for 2004 is primarily the
result of increased royalties required under our new license with Burberry.
Royalty expense, included in selling,
29
general, and administrative expenses, aggregated $20.9 million, $10.4 million
and $5.5 million, for the years ended December 31, 2004, 2003 and 2002,
respectively.
In addition, growth in our prestige product lines requires 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 $21.8
million, $19.8 million and $10.3 million for the years ended December 31, 2004,
2003 and 2002, respectively. 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, Inter Parfums, S.A. 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 Inter Parfums, S.A. 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, Inter Parfums, S.A. 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 $0.8 million, $0.3 million and $0.4 million
for the years ended December 31, 2004, 2003 and 2002, respectively. 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, Inter Parfums, S.A. financed the license
fee by entering into a $19.2 million 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 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 fair value of this derivative
instrument at December 31, 2004 is reflected in the accompanying consolidated
balance sheet and an expense of $0.13 million has been recorded as interest
expense in the accompanying consolidated statement of operations.
Foreign currency gains or (losses) aggregated ($0.4) million, $0.3
million and ($0.1) million for the years ended December 31, 2004, 2003 and 2002,
respectively. We enter into foreign currency forward exchange contracts to
manage exposure related to certain foreign currency commitments.
Our effective income tax rate was 36.5%, 35.3% and 35.7% for the years
ended December 31, 2004, 2003 and 2002, respectively. Our effective tax rates
differ from statutory rates due to the effect of state and local taxes and tax
rates in foreign jurisdictions which are slightly higher than those in the
United States. No significant changes in tax rates were experienced nor were any
expected in jurisdictions where we operate.
30
Net income increased 13% to $15.7 million in 2004 after increasing 47% to
$13.8 million in 2003. Diluted earnings per share increased 12% to $0.77 in 2004
after increasing 47% to $0.69 in 2003. Weighted average shares outstanding
aggregated 19.2 million, 19.0 million and 18.8 million for the years ended
December 31, 2004, 2003 and 2002, respectively. On a diluted basis, average
shares outstanding were 20.5 million, 20.1 million and 19.9 million for the
years ended December 31, 2004, 2003 and 2002, respectively. 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 $19.25 per share for the year ended
December 31, 2004, as compared to $10.41 per share for the year ended December
31, 2003.
LIQUIDITY AND FINANCED RESOURCES
Our financial position remains strong. At December 31, 2004, working
capital aggregated $130 million and we had a working capital ratio of 3.4 to 1.
Cash and cash equivalents aggregated $41.0 million.
In April 2004, Inter Parfums, S.A. acquired a 67.5% interest in Nickel
for approximately $8.7 million in cash including an additional capital infusion
of $2.8 million made in June 2004, aggregating 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 at $0.93 million as of the date of acquisition. These options are
carried at fair value as determined by management as of December 31, 2004, which
resulted in a gain of $0.17 million.
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 June 2004, Inter Parfums, S.A. 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. Inter Parfums, S.A. financed the
license fee by entering 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, Inter Parfums, S.A. 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 Inter Parfums, S.A. paid Burberry an
upfront license fee of approximately $3.6 million.
31
Cash provided by (used in) operating activities aggregated ($4.4)
million, $19.3 million and $12.7 million for the years ended December 31, 2004,
2003 and 2002, respectively. At December 31, 2003, in terms of cash flows,
accounts receivable and inventories were up 34% and 49%, respectively, from
December 31, 2002. The increase in accounts receivable and inventories is
reasonable considering that net sales for the three months and year ended
December 31, 2003 were up 33% and 42%, respectively. In addition, a significant
inventory build up during the fourth quarter of 2003 was made to meet our sales
commitments in early 2004 including the continued rollout of our Burberry BRIT
for women line. This buildup was financed primarily through normal credit terms
with our vendors, and therefore did not have any significant impact on our cash
flows from operations.
The 2003 inventory buildup financed through normal credit terms from our
vendors is the most significant factor affecting our cash flow from operating
activities in 2004 as our vendors needed to get paid. Changes in accounts
payable and accrued expenses provided cash from operating activities in 2003 of
$23.9 million and used cash of $21.8 million in 2004. In addition, cash used in
operating activities for 2004 reflects an increase in accounts receivable of
$5.8 million. This increase, which represents a 9% increase from the December
31, 2003 accounts receivable balance, is reasonable considering the Company's
sales growth of 29% and 27% for the three months and year ended December 31,
2004, respectively.
Cash flows used in investing activities consists of approximately $2.0
million spent on tools and molds with the balance of capital expenditures
representing office fixtures, computer equipment and industrial equipment needed
at our distribution centers. For the year ended December 31, 2004, cash flows
used in investing activities aggregated $32.2 million. Included in this amount
is approximately $20.3 million paid for the purchase of the Lanvin license
(including legal expenses and fees), $4.4 million paid for the Nickel
acquisition, net of cash acquired and $3.6 million paid to Burberry in
connection with the signing of a new license agreement.
In March 2005, our board of directors increased the cash dividend to $.16
per share, approximately $3.1 million per annum, payable $.04 per share on a
quarterly basis. Our first cash dividend of $.04 per share is to be paid on
April 15, 2005 to shareholders of record on March 31, 2005. Dividends paid,
including dividends paid to minority shareholders by our French subsidiary
aggregated $2.9 million, $1.8 million and $1.1 million in 2004, 2003 and 2002,
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 at December 31, 2004, cash generated by operations and short-term credit
lines provided by domestic and foreign banks. The principal credit facilities
for 2004 consist of a $12.0 million unsecured revolving line of credit provided
by a domestic commercial bank and approximately $30.0 million in credit lines
provided by a consortium of international financial institutions. Actual
borrowings under these facilities have been minimal as we typically use our
working capital to finance all of our cash needs.
32
We believe that funds generated from operations, supplemented by our
present cash position and available credit facilities, will provide us with
sufficient resources to meet all present and reasonably foreseeable future
operating needs.
Inflation rates in the U.S. and foreign countries in which we operate did
not have a significant impact on operating results for the year ended December
31, 2004.
CONTRACTUAL OBLIGATIONS
The following table sets for a schedule of our contractual obligations
over the periods indicated in the table, as well as our total contractual
obligations ($ in thousands).
- --------------------------------------------------------------------------------
Payments due by period
- --------------------------------------------------------------------------------
Total Less than Years Years More than
Contractual Obligations 1 year 2-3 4-5 5 years
- --------------------------------------------------------------------------------
Long-Term Debt $ 19,617 $ 4,359 $ 8,718 $ 6,540 $ 0
Capital Lease Obligations $ 0 $ 0 $ 0 $ 0 $ 0
Operating Leases $ 38,138 $ 5,062 $11,197 $11,386 $ 10,493
Purchase Obligations $ 0 $ 0 $ 0 $ 0 $ 0
Other Long-Term Liabilities
Reflected on the Registrant's
Balance Sheet under GAAP $ 0 $ 0 $ 0 $ 0 $ 0
Minimum Royalty Obligations $396,892 $25,651 $58,565 $65,330 $247,346
Total $454,647 $35,072 $78,480 $83,256 $257,839
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
GENERAL
We address certain financial exposures through a controlled program of
risk management that primarily consists of the use of derivative financial
instruments. We primarily enter into foreign currency forward exchange contracts
in order to reduce the effects of fluctuating foreign currency exchange rates.
We do not engage in the trading of foreign currency forward exchange contracts
or interest rate swaps.
FOREIGN EXCHANGE RISK MANAGEMENT
We periodically enter into foreign currency forward exchange contracts to
hedge exposure related to receivables denominated in a foreign currency and to
manage risks related to future sales expected to be denominated in a 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 major
industrial countries and are with large financial institutions, which are rated
as strong investment grade.
33
All derivative instruments are required to be reflected as either assets
or liabilities in the balance sheet measured at fair value. Generally, increases
or decreases in fair value of derivative instruments will be recognized as gains
or losses in earnings in the period of change. If the derivative is designated
and qualifies as a cash flow hedge, then the changes in fair value of the
derivative instrument will be recorded in other comprehensive income.
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 December 31, 2004, we had foreign currency contracts at
Inter Parfums, S.A. in the form of forward exchange contracts in the amount of
approximately U.S. $37.2 million and GB Pounds 5.4 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%.
The fair value of this derivative instrument at December 31, 2004 is reflected
in our consolidated balance sheet and an expense of $0.13 million has been
recorded in our consolidated statement of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required financial statements commence on page F-1.
SUPPLEMENTARY DATA
QUARTERLY DATA (UNAUDITED)
FOR THE YEAR ENDED 31 DECEMBER 2004
(In Thousands Except Share and Per Share Data)
- ----------------------------------------- --------------- --------------- --------------- --------------- ---------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year
- ----------------------------------------- --------------- --------------- --------------- --------------- ---------------
Net Sales $58,392 $46,733 $67,090 $63,832 $236,047
- ----------------------------------------- --------------- --------------- --------------- --------------- ---------------
Gross Profit 28,724 23,682 33,268 36,385 122,059
- ----------------------------------------- --------------- --------------- --------------- --------------- ---------------
Net Income 4,779 3,401 4,037 3,486 15,703
- ----------------------------------------- --------------- --------------- --------------- --------------- ---------------
Net Income per Share:
Basic $0.25 $0.18 $0.21 $0.18 $0.82
Diluted $0.23 $0.17 $0.20 $0.17 $0.77
- ----------------------------------------- --------------- --------------- --------------- --------------- ---------------
Average Common Shares
Outstanding:
Basic 19,169,477 19,170,936 19,171,078 19,307,579 19,204,768
Diluted 20,614,308 20,577,922 20,397,201 20,386,720 20,494,038
- ----------------------------------------- --------------- --------------- --------------- --------------- ---------------
34
QUARTERLY DATA (UNAUDITED)
FOR THE YEAR ENDED 31 DECEMBER 2003
(In Thousands Except Share and Per Share Data)
- ----------------------------------------- --------------- -------------- --------------- --------------- --------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year
- ----------------------------------------- --------------- -------------- --------------- --------------- --------------
Net Sales $37,564 $41,392 $57,401 $49,232 $185,589
- ----------------------------------------- --------------- -------------- --------------- --------------- --------------
Gross Profit 17,880 20,126 27,511 24,623 90,140
- ----------------------------------------- --------------- -------------- --------------- --------------- --------------
Net Income 2,503 2,937 4,684 3,713 13,837
- ----------------------------------------- --------------- -------------- --------------- --------------- --------------
Net Income per Share:
Basic $.13 $.15 $.25 $.19 $.73
Diluted $.13 $.15 $.23 $.18 $.69
- ----------------------------------------- --------------- -------------- --------------- --------------- --------------
Average Common Shares Outstanding:
Basic 18,816,503 18,999,219 19,024,081 19,128,715 19,032,460
Diluted 19,907,660 19,905,644 20,182,148 20,470,279 20,116,433
- ----------------------------------------- --------------- -------------- --------------- --------------- --------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Eisner LLP previously was our principal accountants. On January 7, 2004,
that firm was dismissed as our principal accountants and KPMG LLP was engaged as
principal accountants. The decision to change accountants was approved by our
audit committee.
In connection with the audits of each of the two fiscal years ended
December 31, 2001 and December 31, 2002, and the interim period through January
7, 2004, the date of dismissal, there were no disagreements with Eisner LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not resolved
to their satisfaction would have caused them to make reference in connection
with their opinion to the subject matter of the disagreement.
The audit reports of Eisner LLP on the consolidated financial statements
of Inter Parfums, Inc. and subsidiaries as of and for the years ended December
31, 2001 and 2002, did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles. Eisner LLP did make reference in their reports to other
auditors who audited the financial statements of our consolidated foreign
subsidiaries.
During the two fiscal years ended December 31, 2002, and the interim
period through January 7, 2004, the date of engagement, we did not consult with
or engage KPMG LLP
35
regarding the application of generally accepted accounting principles to a
specific transaction or the type of audit opinion that might be rendered on our
consolidated financial statements. KPMG SA, an affiliate of KPMG LLP, has been
engaged as the audit firm for our French subsidiaries for each of the three
fiscal years ended December 31, 2001, 2002 and 2003.
On September 13, 2004 KPMG LLP, which was previously the principal
accountants for Inter Parfums, Inc., resigned as the principal accountants. This
decision to change accountants was communicated to the audit committee of Inter
Parfums, Inc.
In connection with the audit of fiscal year ended December 31, 2003, and
the subsequent interim period through September 13, 2004, there were no
reportable events and there were no disagreements with KPMG LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to their satisfaction
would have caused them to make reference in connection with their opinion to the
subject matter of the disagreement.
The audit report of KPMG LLP on the consolidated financial statements of
Inter Parfums, Inc. and subsidiaries as of and for the year ended December 31,
2003 did not contain any adverse opinion or disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
On October 15, 2004 Mazars LLP was engaged as the principal accountants
to audit the financial statements of Inter Parfums, Inc. The decision to engage
Mazars LLP was approved by our audit committee.
During the two fiscal years ended December 31, 2003 and the subsequent
interim period through the date of engagement, we did not consult with or engage
Mazars LLP regarding the application of generally accepted accounting principles
to a specific transaction or the type of audit opinion that might be rendered on
our consolidated financial statements.
ITEM 9A. 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 annual report on Form 10-K (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 annual report on Form 10-K was being prepared,
and that no changes were required at this time.
36
INTERNAL CONTROL OVER FINANCIAL REPORTING
Within 45 days of the date this report is due, we will provide our
management's assessment report relating to our internal control over financial
reporting as required by Item 308(a) of Regulation S-K.
ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM
Within 45 days of the date this report is due, we will provide the
attestation report of the registered public accounting firm as required by Item
308(b) of Regulation S-K.
CHANGES IN INTERNAL CONTROLS
Within 45 days of the date this report is due, we will provide the
disclosure relating to changes in internal control over financial reporting as
required by Item 308(c) of Regulation S-K.
ITEM 9B. OTHER INFORMATION.
None.
37
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
As of the date of this report, our executive officers and directors were
as follows:
- --------------------------- ----------------------------------------------------
Name Position
- --------------------------- ----------------------------------------------------
Jean Madar Chairman of the Board, Chief Executive Officer of
Inter Parfums, Inc. and Director General of Inter
Parfums, S.A.
- --------------------------- ----------------------------------------------------
Philippe Benacin Vice Chairman of the Board, President of Inter
Parfums, Inc. and President of Inter Parfums, S.A.
- --------------------------- ----------------------------------------------------
Russell Greenberg Director, Executive Vice President and Chief
Financial Officer
- --------------------------- ----------------------------------------------------
Philippe Santi Director, Executive Vice President and Director of
Finance, Inter Parfums, S.A.
- --------------------------- ----------------------------------------------------
Francois Heilbronn Director
- --------------------------- ----------------------------------------------------
Joseph A. Caccamo Director
- --------------------------- ----------------------------------------------------
Jean Levy Director
- --------------------------- ----------------------------------------------------
Robert Bensoussan-Torres Director
- --------------------------- ----------------------------------------------------
Daniel Piette Director
- --------------------------- ----------------------------------------------------
Jean Cailliau Director
- --------------------------- ----------------------------------------------------
Serge Rosinoer Director
- --------------------------- ----------------------------------------------------
Wayne Hamerling Executive Vice President
- --------------------------- ----------------------------------------------------
Marcella Cacci President of Burberry Fragrances, Inter Parfums,
S.A.
- --------------------------- ----------------------------------------------------
Frederic Garcia-Pelayo President of the Luxury and Fashion division of
Inter Parfums, S.A.
- --------------------------- ----------------------------------------------------
Jack Ayer Director of Distribution - France, Inter Parfums,
S.A.
- --------------------------- ----------------------------------------------------
Axel Marot Director of Production & Logistics, Inter Parfums,
S.A.
- --------------------------- ----------------------------------------------------
Our directors will serve until the next annual meeting of stockholders
and thereafter until their successors shall have been elected and qualified. LV
Capital USA, Inc. and Messrs. Jean Madar and Philippe Benacin have entered into
a Shareholders' Agreement relating to certain corporate governance issues,
including granting two seats on the Board of directors to designees of LV
Capital USA, Inc. LV Capital USA, Inc. and Messrs. Jean Madar and Philippe
Benacin have each agreed to vote for each others nominees for directors. As
Messrs. Madar and Benacin and LV Capital USA, Inc. beneficially own more than
50% of the outstanding shares of the Inter Parfums' common stock, Inter Parfums
is considered a "controlled company" under the applicable rules of The Nasdaq
Stock Market.
With the exception of Mr. Benacin, the officers are elected annually by
the directors and serve at the discretion of the board of directors. There are
no family relationships between executive officers or directors of our Company.
BOARD OF DIRECTORS
Our Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of our Company. Although
certain directors are not involved in day-to-day operating details, members of
the Board are kept informed of our business by various reports and documents
made available to them. The Board of Directors held five meetings (or
38
executed consents in lieu thereof), including meetings of committees of the
Board during 2004, and all of the directors attended at least 75% of the
meetings of the Board and committee meetings of which they were a member, except
Serge Rosinoer.
We have adopted a Code of Business Conduct, which is filed with the
Securities and Exchange Commission as Exhibit 14 to this report, and we agree to
provide to any person without charge, upon request, a copy of our Code of
Business Conduct. Any person who requests a copy of our Code of Business Conduct
should provide their name and address in writing to: Inter Parfums, Inc., 551
Fifth Avenue, New York, NY 10176, Att.: Shareholder Relations.
During Fiscal 2004, the Board of Directors had the following standing
committees:
o Audit Committee - The Audit Committee has the sole authority and
is directly responsible for, the appointment, compensation and oversight of the
work of the independent accountants employed by the Company which prepare or
issue an audit report for the Company. During Fiscal 2004, the Audit Committee
consisted of Messrs. Heilbronn, Levy and Bensoussan-Torres.
The Audit Committee does not have a member who is an "Audit Committee
Financial Expert" as such term is defined under the applicable rules and
regulations. However, as the result of the background, education and experience
of the members of the Audit Committee, the Board of Directors believes that such
committee members are fully qualified to fulfill their obligations as members of
the Audit Committee.
o Executive Compensation and Stock Option Committee - The Executive
Compensation Committee oversees the compensation of the Company's executives and
administers the Company's stock option plans. The members of such committee are
Messrs. Heilbronn, Levy and Piette.
Our Board of Directors does not maintain a standing nominating committee
or a committee performing similar functions. In view of the existing
shareholders' agreement relating to certain corporate governance issues,
including the election of directors, among LV Capital USA, Inc. and Messrs. Jean
Madar and Philippe Benacin who beneficially own more than 50% of the outstanding
shares of the Inter Parfums' common stock, our Board of Directors does not
believe it necessary for the Company to have such a committee. Also as a
"controlled company" under the applicable rules of The Nasdaq Stock Market, we
are exempt from the nominating committee requirements. Our Board of Directors as
a group agreed to nominate the same members of the board who had served last
year.
The following sets forth biographical information as to the business
experience of each executive officer and director of our Company for at least
the past five years.
39
JEAN MADAR
Jean Madar, age 44, a Director, has been the Chairman of the Board of
Directors since the Company's inception, and is a co-founder of the Company with
Mr. Benacin. From inception until December 1993 he was the President of the
Company; in January 1994 he became Director General of Inter Parfums, S.A., the
Company's subsidiary; and in January 1997 he became Chief Executive Officer of
the Company. Mr. Madar was previously the managing director of Inter Parfums,
S.A., from September 1983 until June 1985. At such subsidiary, he had the
responsibility of overseeing the marketing operations of its foreign
distribution, including market research analysis and actual marketing campaigns.
Mr. Madar graduated from The French University for Economic and Commercial
Sciences (ESSEC) in 1983.
PHILIPPE BENACIN
Mr. Benacin, age 46, a Director, has been the Vice Chairman of the Board
since September 1991, and is a co-founder of the Company with Mr. Madar. He was
elected the Executive Vice President in September 1991, Senior Vice President in
April 1993, and President of the Company in January 1994. In addition, he has
been the President of Inter Parfums, S.A. for more than the past five years. Mr.
Benacin graduated from The French University for Economic and Commercial
Sciences (ESSEC) in 1983.
RUSSELL GREENBERG
Mr. Greenberg, age 48, the Chief Financial Officer, was Vice-President,
Finance when he joined the Company in June 1992; became Executive Vice President
in April 1993; and was appointed to the Board of Directors in February 1995. He
is a certified public accountant licensed in the State of New York, and is a
member of the American Institute of Certified Public Accountants and the New
York State Society of Certified Public Accountants. After graduating from The
Ohio State University in 1980, he was employed in public accounting until he
joined the Company in June 1992.
PHILIPPE SANTI
Philippe Santi, age 43 and a Director since December 1999, has been the Director
of Finance and the Chief Financial Officer of Inter Parfums, S.A. since February
1995. Mr. Santi became Executive Vice President of Inter Parfums, S.A. in 2004,
and is a Certified Accountant and Statutory Auditor in France.
FRANCOIS HEILBRONN
Mr. Heilbronn, age 44, a Director since 1988, an independent director,
and a member of the audit, stock option and executive compensation committees,
is a graduate of Harvard Business School with a Master of Business
Administration degree and is currently the managing partner of the consulting
firm of M.M. Friedrich, Heilbronn & Fiszer. He was formerly employed by The
Boston Consulting Group, Inc. from 1988 through 1992 as a manager. Mr. Heilbronn
40
graduated from Institut D' Etudes Politiques De Paris in June 1983. From 1984 to
1986, he worked as a financial analyst for Lazard Freres & Co.
JOSEPH A. CACCAMO
Mr. Caccamo, age 49, a Director since 1992, is an attorney with the law
firm of Becker & Poliakoff, P.A., our general counsel. A member of both the New
York and Florida bars, Mr. Caccamo has been a practicing attorney since 1981,
concentrating in the areas of corporate and securities law, and in September
1991 he became our counsel.
JEAN LEVY
Jean Levy, age 72, a Director since August 1996, an independent director
and a member of the audit and executive compensation and stock option
committees, worked for twenty-seven years at L'Oreal, and was the President and
Chief Executive Officer of Cosmair, the exclusive United States licensee of
L'Oreal, from 1983 through June 1987. In addition, he is the former President
and Chief Executive Officer of Sanofi Beaute (France). For the more than the
past five years, Mr. Levy has been an independent advisor as well as a
consultant for economic development to local governments in France. A graduate
of l'Institut d'Etudes Politiques de Paris, he also attended Yale Graduate
School and was a recipient of a Fulbright Scholarship. He was also a Professor
at l'Institut d'Etudes Politiques de Paris. He was formerly a director of
Zannier Group and Escada Beaute Worldwide and Rallye, S.A. In addition, Mr. Levy
was also a director (Chairman of the Board until October 2001) of Financiere
d'Or, and its subsidiary, Histoire d'Or which is in the retail jewelry business.
Mr. Levy was formerly a consultant to Ernst & Young, Paris through 2004. He is
currently a board member of Price Minister, an internet based retainer located
in Paris.
ROBERT BENSOUSSAN-TORRES
Robert Bensoussan-Torres, age 47, has been a Director since March 1997,
and also is an independent director and a member of the audit committee. In
November 2001, he became the Chief Executive Officer of Jimmy Choo Ltd., a
luxury shoe and ready to wear accessory company. From 1999 to December 2000, he
was the Managing Director of Gianfranco Ferre fashion group, based in Milano,
Italy. Mr. Bensoussan-Torres is a Director of Towers Consulting Europe, Ltd.
Towers Consulting Europe, Ltd. is a consulting company based in London, which
specializes in strategic advise in connection with mergers and acquisitions in
the luxury goods business. Mr. Bensoussan-Torres was the Chief Executive Officer
of Christian Lacroix, Paris, a subsidiary of LVMH Group, from February 1993
until May 1998. Christian Lacroix is a French Haute Couture House and has
activities in the field of apparel, accessories and fragrances. From December
1990 through January 1993 he was based in Munich, Germany, as the International
Sales Director of The Escada Group.
DANIEL PIETTE
Mr. Piette, age 59, and a director since December 1999, is also a member
of the executive compensation and stock option committee of the Board of
Directors. The Board considers Mr.
41
Piette to be independent of management, notwithstanding his affiliation with LV
Capital USA Inc. Mr. Piette is the President of L Capital Management, a private
equity fund sponsored by LVMH Moet Hennessy Louis Vuitton S.A. ("LVMH"), the
world's largest luxury goods conglomerate. For the past 12 years, he has been a
Group Executive Vice President of LVMH. Mr. Piette is also a non-executive
director of D.S. Smith Holdings PLC (London) as well as a member of the Board of
Overseers of ESSEC (Paris) and Columbia Business School (New York).
JEAN CAILLIAU
Mr. Cailliau, age 42, and a director since December 1999. The Board
considers Mr. Cailliau to be independent of management, notwithstanding his
affiliation with LV Capital USA Inc. Through June 2001, Mr. Cailliau was the
Deputy General Manager of LV Capital SA, the investment arm of LVMH. He is the
CEO of LV Capital USA Inc., its United States vehicle. In January 2001 he became
a Director of L Capital Management, a private equity fund sponsored by LVMH. For
the past 10 years, Mr. Cailliau has held executive positions at LVMH. He is also
a Director of various European companies. Mr. Cailliau is an Engineer in
Agronomics and has an MBA (1988) from Insead.
SERGE ROSINOER
Mr. Rosinoer, age 73, was appointed to the Board of Directors in December
2000, as an independent director. Mr. Rosinoer has devoted most of his career to
the personal care, cosmetics and fragrance industry. In 1978, Mr. Rosinoer
joined the Clarins Group as Vice President and Chief Operating Officer where he
was largely responsible for its rapid international expansion. As COO, then CEO
since 1978, Mr. Rosinoer oversaw the transformation of Clarins into a major
force in cosmetics, skin care and fragrance, with annual sales of approximately
600 million Euro and more than 4,000 employees. He retired from active duty in
June of 2000, but continues to serve on the board of directors of Clarins.
Earlier in his career he was President of Parfums Corday. He also held senior
level executive positions at Max Factor, where he had full supervision of that
cosmetics company's European production and sales. Mr. Rosinoer has served
several terms as President of the French Prestige Cosmetics Association and
currently serves as Conseiller du Commerce Exterieur de la France.
WAYNE C. HAMERLING
Mr. Hamerling, age 48, is an Executive Vice President in charge of mass
market sales of fragrances, cosmetics and health and beauty aids in the United
States. Mr. Hamerling, who attended Rutgers University, has over twenty (20)
years experience in the fragrance and cosmetic business.
MARCELLA CACCI
Marcella Cacci, age 39, becomes the President of Burberry Fragrances, a
division of Inter Parfums, S.A. on March 15, 2005. Ms. Cacci will be responsible
for the strategic direction, management and operational control of Burberry
Fragrances. From April 2000 through March
42
2005, Ms. Cacci was the Senior Vice President of Global Licensing of the
Burberry Group. Before joining Burberry, she held the position of Managing
Director of Etro North America.
FREDERIC GARCIA-PELAYO
Frederic Garcia-Pelayo, age 46, became the President of the Luxury and Fashion
division of Inter Parfums, S.A. in March 2005. He was previously the Director of
Marketing and Distribution for Perfume and Cosmetics for Inter Parfums, S.A. and
was named Executive Vice President in 2004. Previously Mr. Garcia-Pelayo was the
Director of Export Sales of Inter Parfums, S.A. from September 1994. Prior to
September 1994, Mr. Garcia-Pelayo was the Export Manager for Benetton Perfumes
for seven (7) years.
JACK AYER
Jack Ayer, age 56, was a French Market Sales Manager when he joined Inter
Parfums, S.A. in 1989 and has been the Director of the French Market Sales for
Inter Parfums, S.A. since 1999. Prior to 1989 Mr. Ayer spent 13 years as a brand
representative for L'Oreal.
AXEL MAROT
Axel Marot, age 32, was the Supply Chain Manager when he joined Inter
Parfums, S.A. in 2003 and has been the Director of Operations for Inter Parfums,
S.A. since January 2005. Prior to joining Inter Parfums, S.A., Mr. Marot was a
Supply Chain Manager for Nestle.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 and any amendments to such
forms furnished to us, and written representations from various reporting
persons furnished to us, we are not aware of any reporting person who has failed
to file the reports required to be filed under Section 16(a) of the Securities
Exchange Act of 1934 on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation awarded to,
earned by or paid to, our Chief Executive Officer and each of the four most
highly compensated executive officers of our Company whose compensation exceeded
$100,000 per annum for services rendered in all capacities to our Company and
its subsidiaries during fiscal years ended December 31, 2004, December 31, 2003
and December 31, 2002. All amounts paid in euro have been converted to US
dollars at the average rate of exchange in each year.
43
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Awards
- ------------------------------------ ------ ------------- ------------- ------------------- -------------- ----------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#) Compensation
- ------------------------------------ ------ ------------- ------------- ------------------- -------------- ----------------
Jean Madar, Chairman of the Board, 2004 330,000 0 1,291,030(1) 50,000 -0-
Chief Executive Officer of Inter 2003 330,000 191,000 906,117(2) 50,000 -0-
Parfums, Inc. and Director General 2002 330,000 200,000 703,032(3) 50,000 -0-
of Inter Parfums, S.A.
- ------------------------------------ ------ ------------- ------------- ------------------- -------------- ----------------
Philippe Benacin, President of 2004 210,000 111,250 1,697,412(4) 50,000 -0-
Inter Parfums, Inc. and President 2003 160,433 100,837 1,277,436(5) 50,000 -0-
of Inter Parfums, S.A. 2002 128,250 78,850 1,075,075(6) 50,000 -0-
- ------------------------------------ ------ ------------- ------------- ------------------- -------------- ----------------
Russell Greenberg, Executive Vice 2004 315,000 30,000 222,055(7) 25,000 -0-
President and Chief Financial 2003 295,000 23,000 116,217(8) 18,000 -0-
Officer 2002 275,000 58,000 135,268(9) 18,000 -0-
- ------------------------------------ ------ ------------- ------------- ------------------- -------------- ----------------
Wayne C. Hamerling, Executive Vice 2004 243,120 15,000 334,994(10) 18,000 -0-
President 2003 228,120 25,000 86,571(11) 18,000 -0-
2002 196,120 15,000 256,389(12) 18,000 -0-
- ------------------------------------ ------ ------------- ------------- ------------------- -------------- ----------------
Frederic Garcia-Pelayo, 2004 149,000 136,000 624,775(13) -0- -0-
Director Export Sales, 2003 109,448 101,970 162,000(14) -0- -0-
Inter Parfums, S.A. 2002 90,013 59,693 113,700(15) -0- -0-
- ------------------------------------ ------ ------------- ------------- ------------------- -------------- ----------------
[Footnotes to Table]
- ------------------------------------
(1) Consists of $670,285 realized upon the exercise of options, and $620,745
realized on the exercise of options of Inter Parfums, S.A.
(2) Consists of $678,648 realized upon the exercise of options, and $227,469
realized on the exercise of options of Inter Parfums, S.A.
(3) Consists of $703,032 realized upon exercise of options.
(4) Consists of lodging expenses of $48,000, $16,250 for automobile expenses,
$1,000,302 realized upon the exercise of options, and $632,860 realized
upon exercise of options of Inter Parfums, S.A.
(5) Consists of lodging expenses of $35,000, $15,000 for automobile expenses,
$999,967 realized upon the exercise of options, and $227,469 realized on
the exercise of options of Inter Parfums, S.A.
(6) Consists of lodging expenses of $35,000, $15,000 for automobile expenses
and $1,025,075 realized upon exercise of options.
(7) Consists of $2,214 for automobile expenses and $183,935 realized upon
exercise of options and $35,906 realized on the exercise of options of
Inter Parfums, S.A.
(8) Consists of $2,214 for automobile expenses and $87,600 realized upon
exercise of options, and $26,403 realized on the exercise of options of
Inter Parfums, S.A..
(9) Consists of $2,214 for automobile expenses and $133,054 realized upon the
exercise of options.
(10) Consists of selling commissions of $75,956 and non cash compensation of
$4,500 equal to the value of personal use of a Company leased automobile;
and $254,538 realized upon the exercise of options.
(11) Consists of selling commissions of $82,071 and non cash compensation of
$4,500 equal to the value of personal use of a Company leased automobile.
44
(12) Consists of selling commissions of $75,950 and non cash compensation of
$4,500 equal to the value of personal use of a Company leased automobile;
and $175,949 realized upon the exercise of options.
(13) Consists of $24,000 from profit sharing plan of Inter Parfums, S.A. and
$600,775 realized on the exercise of options of Inter Parfums, S.A.
(14) Consists of $ $17,562 from profit sharing plan of Inter Parfums, S.A. and
$144,458 realized on the exercise of options of Inter Parfums, S.A.
(15) Consists of $13,265 from profit sharing plan of Inter Parfums, S.A. and
$100,435 realized on the exercise of options of Inter Parfums, S.A.
The following table sets forth certain information relating to stock
option grants during Fiscal 2004 to our Chief Executive Officer and each of the
four most highly compensated executive officers of the Company whose
compensation exceeded $100,000 per annum for services rendered in all capacities
to our Company and its subsidiaries during Fiscal 2004:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUALIZED GRANTS PRICE APPRECIATION FOR OPTION TERM
- --------------------------------------------------------------------------- -------------- ------------- --------------
Name Number of % of Total Exercise Expiration Five (5%) Ten (10%)
Securities Options/SARs or Base Date Percent Percent
Underlying Granted to Price ($) ($)
Options Employees in ($/Sh)
Granted (#) Fiscal Year
- ------------------------ ---------------- -------------------- ------------ -------------- ------------- --------------
Jean Madar 50,000 23.0 15.39 12/09/09 212,599 469,787
- ------------------------ ---------------- -------------------- ------------ -------------- ------------- --------------
Philippe Benacin 50,000 23.0 15.39 12/09/09 212,599 469,787
- ------------------------ ---------------- -------------------- ------------ -------------- ------------- --------------
Russell Greenberg 25,000 11.5 15.39 12/09/09 106,299 234,894
- ------------------------ ---------------- -------------------- ------------ -------------- ------------- --------------
Wayne Hamerling 18,000 8.3 15.39 12/09/09 76,536 169,123
- ------------------------ ---------------- -------------------- ------------ -------------- ------------- --------------
Frederic Garcia-Pelayo -0- -0- 15.39 12/09/09 -0- -0-
- ------------------------ ---------------- -------------------- ------------ -------------- ------------- --------------
The following table sets forth certain information relating to option
exercises effected during Fiscal 2004, and the value of options held as of
December 31, 2004 by each of our Chief Executive Officer and the four most
highly compensated executive officers of our Company whose compensation exceeded
$100,000 per annum for services rendered in all capacities to our Company and
its subsidiaries during Fiscal 2004:
45
AGGREGATE OPTION/SAR EXERCISES FOR FISCAL 2004
AND YEAR END OPTION VALUES
- --------------------------- ------------------- --------------- --------------------------- -------------------------
Number of Value(1) of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 2004(#) December 31, 2004($)
- --------------------------- ------------------- --------------- --------------------------- -------------------------
Name Shares Acquired Value ($) Exercisable/ Exercisable/
on Exercise Realized(2) Unexercisable Unexercisable
- --------------------------- ------------------- --------------- --------------------------- -------------------------
Jean Madar(3) 65,400 670,285 711,350/-0- 7,648,932/-0-
- --------------------------- ------------------- --------------- --------------------------- -------------------------
Philippe Benacin(3) 97,600 1,302,000 626,850/-0- 6,521,326/-0-
- --------------------------- ------------------- --------------- --------------------------- -------------------------
Russell Greenberg 15,000 183,935 113,750/-0- 718,879/-0-
- --------------------------- ------------------- --------------- --------------------------- -------------------------
Wayne C. Hamerling 21,750 254,538 100,000/-0- 625,234/-0-
- --------------------------- ------------------- --------------- --------------------------- -------------------------
Frederic Garcia-Pelayo -0- -0- -0-/-0- -0-/-0-
- --------------------------- ------------------- --------------- --------------------------- -------------------------
(1) Total value of unexercised options is based upon the fair market value of
the common stock as reported by the Nasdaq Stock Market of $15.90 on
December 31, 2004.
(2) Value realized in dollars is based upon the difference between the fair
market value of the common stock on the date of exercise, and the exercise
price of the option, or the fair market value of the net amount of shares
received upon exercise of options.
(3) 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.
EMPLOYMENT AGREEMENTS
As part of our acquisition in 1991 of the controlling interest in Inter
Parfums, S.A., now a subsidiary, we entered into an employment agreement with
Philippe Benacin. The agreement provides that Mr. Benacin will be employed as
Vice Chairman of the Board and President and Chief Executive Officer of Inter
Parfums Holdings and its subsidiary, Inter Parfums. The initial term expired on
September 2, 1992, and has subsequently been automatically renewed for
additional annual periods. The agreement provides for automatic annual renewal
terms, unless either party terminates the agreement upon 120 days notice. Mr.
Benacin presently receives an annual salary of 135,000 Euros, which is
approximately US$170,000, together with annual lodging expenses of approximately
$35,000 and automobile expenses of approximately $15,000, which are subject to
increase in the discretion of the Board of Directors. The agreement also
provides for indemnification and a covenant not to compete for one year after
termination of employment.
46
In February 2005 we entered into an employment agreement with Marcella
Cacci to act as the President of Burberry Fragrances, a division of Inter
Parfums, S.A. for a three year period. Her salary is $400,000, which is subject
to adjustment for currency fluctuations under certain circumstances. She is also
entitled to annual bonuses of $125,000 if Burberry Fragrances reaches certain
sales targets, and another $125,000 if Burberry Fragrances achieves a specified
target based upon earnings of Burberry Fragrances before interest and taxes.
Ms. Cacci is also to receive the following benefits:
o Stock Options: Options to purchase 20,000 ordinary shares of Inter
Parfums S.A.'s common stock at a purchase price equal to the fair market value
of the shares at the time of the grant, vesting 1/3 each year for three years.
o One Time Issuance of Restricted Shares: Issuance of 5,000 ordinary
shares of Inter Parfums S.A. vesting 1/3 each year for three years.
Generally, upon termination of the employment agreement by us without
cause, we are obligated to pay Ms. Cacci 0.75 times her annual salary and
benefits, and if an annual bonus was earned for the prior calendar year, then we
are obligated to make a lump sum payment equal to 0.75 times such annual bonus.
In addition, all vesting restrictions on the option grant and restricted shares
shall lapse.
If Ms. Cacci terminates the employment agreement without cause, then we
are obligated to pay her salary and benefits equal to the lesser of a 9 month
period, or the number of months she worked, together with a pro-rated annual
bonus, if earned, for the calendar year in which the date of termination occurs
based on the number of days she was employed during such calendar year. However,
upon such termination, all unvested options, except to the extent previously
exercised, are terminated and all restricted shares to the extent not vested are
canceled.
COMPENSATION OF DIRECTORS
All nonemployee directors receive $1,000 for each board meeting at which
they participate. Mr. Caccamo's board fees are paid to his law firm. In
addition, all members of the Audit Committee receive an additional $2,000 on
January 1 of each year in which they serve on the Audit Committee.
In March 1997 our Board of Directors adopted our 1997 Nonemployee Stock
Option Plan. This plan was approved by our stockholders at the annual meeting of
shareholders held in July 1997. The purpose of this plan is to assist us in
attracting and retaining key directors who are responsible for continuing the
growth and success of our Company.
Our 1997 Nonemployee Stock Option Plan provides for the grant of
nonqualified stock options to nonemployee directors to purchase an aggregate of
25,000 shares of common stock. Options to purchase 1,000 shares are granted on
each February 1st to all nonemployee directors for as long as each is a
nonemployee director on such date except for Joseph A. Caccamo, who is
47
granted options to purchase 4,000 shares. Options to purchase 2,000 shares are
granted to each nonemployee director upon his initial election or appointment to
our board.
In December 2000 our Board of Directors adopted our 2000 Nonemployee
Stock Option Plan, as substantially all of the shares reserved under our 1997
Nonemployee Stock Option Plan had been allocated to outstanding options. This
plan was approved by our stockholders at the annual meeting of shareholders held
in July 2001. The purpose of this plan is to assist us in attracting and
retaining key directors who are responsible for continuing the growth and
success of our Company.
Our 2000 Nonemployee Stock Option Plan provides for the grant of
nonqualified stock options to nonemployee directors to purchase an aggregate of
30,000 shares of common stock. Options to purchase 1,000 shares are granted on
each February 1st to all nonemployee directors for as long as each is a
nonemployee director on such date except for Joseph A. Caccamo, who is granted
options to purchase 4,000 shares. Options to purchase 2,000 shares are granted
to each nonemployee director upon his initial election or appointment to our
board.
On 1 February 2005, options to purchase 1,000 shares were granted to each
of Francois Heilbronn, Jean Levy, Robert Bensoussan-Torres, Daniel Piette, Jean
Cailliau and Serge Rosinoer and an option to purchase 4,000 shares was granted
to Joseph A. Caccamo at the exercise price of $15.20 per share under the 2000
plan. The options held by Mr. Caccamo are held as nominee for his present law
firm.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 10, 2005 with
respect to the beneficial ownership of our common stock by (a) each person we
know to be the beneficial owner of more than five percent of our outstanding
common stock, (b) our executive officers and directors and (c) all of our
directors and officers as a group. As of March 10, 2005, we had 20,175,160
shares of common stock outstanding.
48
- ----------------------------------- ------------------------- ------------------
Name and Address Amount of Approximate
of Beneficial Owner Beneficial Ownership(1) Percent of Class
- ----------------------------------- ------------------------- ------------------
Jean Madar 6,148,531(2) 30.2%
c/o Inter Parfums, S.A.
4, Rond Point Des Champs Elysees
75008 Paris, France
- ----------------------------------- ------------------------- ------------------
Philippe Benacin 6,148,250(3) 30.2%
c/o Inter Parfums, S.A.
4, Rond Point Des Champs Elysees
75008 Paris, France
- ----------------------------------- ------------------------- ------------------
Russell Greenberg 113,750(4) Less than 1%
c/o Inter Parfums, Inc.
551 Fifth Avenue
New York, NY 10176
- ----------------------------------- ------------------------- ------------------
Francois Heilbronn 21,375(5) Less than 1%
60 Avenue de Breteuil
75007 Paris, France
- ----------------------------------- ------------------------- ------------------
Joseph A. Caccamo, Esq. 12,000(6) Less than 1%
Becker & Poliakoff, P.A.
3111 Stirling Road
Ft. Lauderdale, FL 33312
- ----------------------------------- ------------------------- ------------------
Jean Levy 6,750(7) Less than 1%
Chez Axcess Groupe
8 rue de Berri
75008 Paris, France
- ----------------------------------- ------------------------- ------------------
Robert Bensoussan-Torres 10,000(8) Less than 1%
7 Beaufort Gardens, Flat 3
London, England SW3 1PT
- ----------------------------------- ------------------------- ------------------
Wayne C. Hamerling 90,000(9) Less than 1%
c/o Inter Parfums, Inc.
551 Fifth Avenue
New York, NY 10176
- ----------------------------------- ------------------------- ------------------
Daniel Piette 5,500(10) Less than 1%
L Capital Management
22, avenue Montaigne
75008, Paris, France
- ----------------------------------- ------------------------- ------------------
Jean Cailliau 5,500(11) Less than 1%
LV Capital
22, avenue Montaigne
75008, Paris, France
- ----------------------------------- ------------------------- ------------------
Philippe Santi 25,000(12) Less than 1%
Inter Parfums, S.A.
4, Rond Point Des Champs Elysees
75008, Paris France
- ----------------------------------- ------------------------- ------------------
Serge Rosinoer 8,700(13) Less than 1%
14 rue LeSueur
75116 Paris, France
- ----------------------------------- ------------------------- ------------------
- ----------
(1) All shares of common stock are directly held with sole voting power and
sole power to dispose, unless otherwise stated. Jean Madar, the Chairman
of the Board and Chief Executive Officer of Inter Parfums, Inc. (the
"Company"), Philippe Benacin, the Vice Chairman of the Board and President
of the Company, and LV Capital USA, Inc., an indirect subsidiary of LVMH
Moet Hennessy Louis Vuitton, S.A., have entered into a Shareholders'
Agreement dated 22 November 1999 relating to certain corporate governance
issues, including the agreement to vote for Jean Madar, Philippe Benacin
and six (6) nominees of Messrs. Madar and Benacin, and two (2) designees
of LV Capital USA, Inc., as directors of the Company. As Messrs. Madar and
Benacin and LV Capital USA, Inc. beneficially own more than 50% of the
outstanding shares of the Inter Parfums' common stock, Inter Parfums is
considered a "controlled company" under the applicable rules of The Nasdaq
Stock Market.
(2) Consists of 5,948,531 shares held directly and options to purchase 200,000
shares.
(3) Consists of 5,948,250 shares held directly and options to purchase 200,000
shares.
(4) Consists of 16,750 shares held directly and options to purchase 97,000
shares.
(5) Consists of 16,875 shares held directly and options to purchase 4,500
shares.
(6) Consists of shares of common stock underlying options, which are held as
nominee for his employer. Beneficial ownership of such shares is
disclaimed.
(7) Consists of 2,250 shares held directly and options to purchase 4,500
shares.
(8) Consists of 4,500 shares held directly and options to purchase 5,500
shares.
(9) Consists of shares of common stock underlying options.
(10) Consists of shares of common stock underlying options. Beneficial
ownership of shares of common stock held by LV Capital USA, Inc. is
disclaimed.
(11) Consists of shares of common stock underlying options. Beneficial
ownership of shares of common stock held by LV Capital USA, Inc. is
disclaimed.
(12) Consists of shares of common stock underlying options.
(13) Consists of 1,700 shares held directly and options to purchase 7,000
shares.
49
- ----------------------------------- ------------------------- ------------------
Name and Address Amount of Approximate
of Beneficial Owner Beneficial Ownership(1) Percent of Class
- ----------------------------------- ------------------------- ------------------
Marcella Cacci -0- NA
Inter Parfums, S.A.
4, Rond Point Des Champs Elysees
75008, Paris France
- ----------------------------------- ------------------------- ------------------
Frederic Garcia-Pelayo -0- NA
Inter Parfums, S.A.
4, Rond Point Des Champs Elysees
75008, Paris France
- ----------------------------------- ------------------------- ------------------
Jack Ayer -0- NA
Inter Parfums, S.A.
4, Rond Point Des Champs Elysees
75008, Paris France
- ----------------------------------- ------------------------- ------------------
Axel Marot -0- NA
Inter Parfums, S.A.
4, Rond Point Des Champs Elysees
75008, Paris France
- ----------------------------------- ------------------------- ------------------
LV Capital USA, Inc. 3,458,550(14) 17.9%
19 East 57th Street
New York, NY 10022
- ----------------------------------- ------------------------- ------------------
All Directors and Officers 16,053,906(15) 77.1%
As a Group (14 Persons)
- ----------------------------------- ------------------------- ------------------
The following table sets forth certain information as of the end of our
last fiscal year regarding all equity compensation plans that provide for the
award of equity securities or the grant of options, warrants or rights to
purchase our equity securities.
EQUITY COMPENSATION PLAN INFORMATION
- --------------------------------------------------------------------------------
Number of Weighted-average Number of
securities exercise price securities remaining
to be of outstanding available for future
issued upon options, warrants issuance under
Plan category exercise of and rights equity compensation
outstanding plans (excluding
options, securities reflected
warrants in column (a))
and rights
(a) (b) (c)
- --------------------------------------------------------------------------------
Equity compensation 1,842,675 7.51 1,175,804
plans approved by
security holders
- --------------------------------------------------------------------------------
Equity compensation -0- N/A -0-
plans not approved
by security holders
- --------------------------------------------------------------------------------
Total 1,842,675 7.51 1,175,804
- --------------------------------------------------------------------------------
- ----------
(14) Based upon information contained in amendment 4 to Schedule 13D of LVMH
Moet Hennessy Louis Vuitton, S.A. dated December 7, 2004.
(15) Consists of 11,938,856 shares held directly, and options to purchase
656,500 shares. It also includes 3,458,550 shares held by LV Capital USA,
Inc., an affiliate of LVMH Moet Hennessy Louis Vuitton, S.A.
50
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH FRENCH SUBSIDIARIES
In connection with the acquisitions by our subsidiary, Inter Parfums,
S.A., of the world-wide rights under the Burberry license agreement and the Paul
Smith license agreement, we guaranteed the obligations of Inter Parfums, S.A.
under the Burberry and Paul Smith license agreements. In addition, Inter
Parfums, S.A. has agreed to reimburse us for all of our obligations that we
incur under employment agreement with Marcella Cacci.
OPTION EXERCISE PAID WITH TENDER OF SHARES
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 has been reflected as an increase to additional paid-in capital
in the Company's consolidated financial statements for the year ended December
31, 2004.
In February 2005, both the Chief Executive Officer and the President
exercised an aggregate of 511,350 and 426,850 outstanding stock options,
respectively, of the Company's common stock. The exercise prices of $1,307,000
for the Chief Executive Officer and $1,091,000 for the President were paid by
each of them tendering to the Company 90,513 and 75,556 shares, respectively, of
the Company's common stock, previously owned by them, valued at $14.44 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 10,388 shares for partial 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, 2005.
REMUNERATION OF COUNSEL
Joseph A. Caccamo, a director, is a senior attorney at the law firm of
Becker & Poliakoff, P.A., our general counsel. In Fiscal 2004, Becker &
Poliakoff, P.A. received an aggregate of $246,692 for its services. Such amount
consists of $113,391 for legal fees and reimbursement of disbursements incurred
on our behalf, $58,103 paid by Inter Parfums, S.A. in connection with
representation in the Burberry license matter and $75,198 realized upon exercise
of options.
51
On 1 February 2005 in accordance with the terms of our 2000 Nonemployee
Stock Option Plan, Mr. Caccamo was granted an option with a term of five years
to purchase 4,000 shares at $15.20 per share, the fair market value at the time
of grant. He holds this option as nominee for his firm.
SALE OF GOODS TO RELATED PARTY
The wife of the Chief Executive Officer owns and operates a Diane von
Furstenberg retail store in Paris, with Diane von Furstenberg as a partner.
Inter Parfums USA, LLC is the fragrance and cosmetic licensee of Diane von
Furstenberg, and Inter Parfums Inc. is the guarantor of such license. The retail
outlet opened in July 2004 and purchased an immaterial amount of DVF fragrances
and cosmetics from Inter Parfums USA, LLC. All sales are recorded as arms'
length transactions.
TRANSACTIONS WITH LVMH MOET HENNESSY LOUIS VUITTON S.A.
ACQUISITION OF COMMON STOCK AND SHAREHOLDERS' AGREEMENT
In November 1999, LV Capital, USA Inc. ("LV Capital"), a wholly-owned
subsidiary of LVMH Moet Hennessy Louis Vuitton S.A., purchased shares of our
common stock from management and employees. As of the date of this report, it
beneficially owns approximately 18% of our outstanding common stock. Further, in
return for LV Capital becoming our strategic partner, LV Capital was granted the
right to buy additional shares in order to maintain its percentage ownership
upon issuance of shares to third parties, subject to certain exceptions, and was
granted demand registrations rights for all of its shares. In addition, LV
Capital has agreed to a standstill agreement, which limits the amount of shares
of common stock that LV Capital can hold to twenty-five percent (25%) of our
outstanding shares.
CELINE
In May 2000 we entered into an exclusive worldwide license agreement with
Celine, S.A., a division of LVMH Moet Hennessy Louis Vuitton S.A., for the
development, manufacturing and distribution of prestige fragrance lines under
the Celine brand name. The term of the License Agreement is for eleven (11)
years, beginning as of 1 January 2001, with an optional five (5) year renewal
term, which is subject to certain minimum sales requirements, advertising
expenditures and royalty payments as are customary in our industry.
CHRISTIAN LACROIX
In March 1999, we entered into an exclusive license agreement with the
Christian Lacroix Company, a division of LVMH Moet Hennessy Louis Vuitton S.A.,
for the worldwide development, manufacture and distribution of perfumes. The
license agreement has an 11 year term, and is subject to certain minimum sales
requirements, advertising expenditures and royalty payments as are customary in
our industry.
52
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
GENERAL
As discussed above, Eisner LLP previously was the principal accountants
for the Company. On January 7, 2004, that firm was dismissed as our principal
accountants and KPMG LLP was engaged as principal accountants. The decision to
change accountants was approved by our audit committee. KPMG SA, an affiliate of
KPMG LLP, has been engaged as the audit firm for our French subsidiaries for
each of the two fiscal years ended December 31, 2001 and December 31, 2002.
Also as discussed above, on September 13, 2004 KPMG LLP, which was
previously the principal accountants for Inter Parfums, Inc., resigned as the
principal accountants. This decision to change accountants was communicated to
the audit committee of Inter Parfums, Inc. On October 15, 2004 Mazars LLP was
engaged as the principal accountants to audit the financial statements of Inter
Parfums, Inc. The decision to engage Mazars LLP was approved by our audit
committee.
FEES
The following sets forth the fees billed to us by each of such accounting
firms, as well as discusses the services provided for the past two fiscal years,
fiscal years ended December 31, 2003 and December 31, 2004.
AUDIT FEES
For year 2003, the fees billed by Eisner LLP and KPMG LLP for audit
services and review of the financial statements contained in our Quarterly
Reports on Form 10-Q were $15,000 by Eisner LLP and $286,000 by KPMG LLP and
KPMG S.A.. For year 2004, the fees billed by KPMG LLP and KPMG S.A. for audit
services and review of the financial statements contained in our Quarterly
Reports on Form 10-Q were $317,000, and the fees billed by Mazars LLP and its
affiliate, Mazars S.A., for review of the financial statements contained in our
Quarterly Reports on Form 10-Q were $186,500. Audit fees for Mazars LLP and its
affiliate, Mazars S.A., for 2004 are expected to be approximately $270,000.
AUDIT-RELATED FEES
For year 2003, the fees billed by KPMG S.A. for services that would be
classified as audit-related were $61,000. In addition, for year 2003 the
services performed for audit related fees for Fiscal 2003 were accounting and
reporting consultations relating to Inter Parfums, S.A. dealing its it own
shares, as is permissible under French law; treatment of a potential trademark
acquisition; international financial reporting standards conversion; fraud
risks; attestation services for warehouse services; and compliance with French
securities laws.
For year 2004, no audit related fees were paid to KPMG LLP or Mazars LLP.
53
TAX FEES
For year 2003, Eisner LLP billed us $17,000 for tax preparation and tax
consulting services. Neither KPMG LLP nor Mazars LLP billed us for tax services
during 2004.
ALL OTHER FEES
For year 2003, Eisner LLP billed us $5,500, which relates to various tax
matters.
For year 2003, KPMG S.A. billed us $13,000 to provide tax consultation
and advice with respect to repatriation of earnings of our Company's French
subsidiaries to us in the United States.
Neither KPMG LLP nor Mazars LLP billed us for tax services during 2004.
AUDIT COMMITTEE PRE APPROVAL POLICIES AND PROCEDURES
The Audit Committee has the sole authority for the appointment,
compensation and oversight of the work of our independent accountants, who
prepare or issue an audit report for us.
During the second quarter of 2004, the audit committee authorized the
following non-audit services to be performed by our then auditors, KPMG LLP and
KPMG SA:
We were authorized to retain each of KPMG LLP and KPMG SA in order to
perform such review as may be necessary in order to provide their required
consents in the Registration Statement on Form S-8 to incorporate by reference
their reports on the audit of our financial statements which are included in the
Annual Report on Form 10-K for the year ended December 31, 2003. Fees for such
services are to be subject to the approval of the Audit Committee.
o We were authorized to retain each of KPMG LLP and KPMG SA in order
to provide tax consultation in the ordinary course of for fiscal year ending
December 31, 2004.
o We were authorized to retain each of KPMG LLP and KPMG SA in order
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, up a $5,000 fee
limit per project, subject to an aggregate fee limit of $25,000 for fiscal year
ending December 31, 2004. Approval of the audit committee is required for any
further tax services.
o If we require other services by KPMG LLP and KPMG SA on an
expedited basis such that obtaining pre-approval of the audit committee is not
practicable, then the Chairman of the Committee has authority to grant the
required pre-approvals for all such services.
As discussed above, on September 13, 2004 KPMG LLP, which was previously
the principal accountants for Inter Parfums, Inc., resigned as the principal
accountants. This decision
54
to change accountants was communicated to the audit committee of Inter Parfums,
Inc. On October 15, 2004 Mazars LLP was engaged as the principal accountants to
audit the financial statements of Inter Parfums, Inc. The decision to engage
Mazars LLP was approved by our audit committee.
During the third quarter of 2004, the audit committee authorized the
following non-audit services to be performed by our auditors.
o We authorized the engagement of Mazars LLP if deemed necessary to
provide tax consultation in the ordinary course of business for fiscal year
ended December 31, 2004.
o 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 December 31, 2004. If we require further tax services from Mazars
LLP, then the approval of the audit committee must be obtained.
o 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
the Chairman of the Committee has authority to grant the required pre-approvals
for all such services.
o None of the non-audit services of either of the Company's auditors
had the pre-approval requirement waived in accordance with Rule 2-01(c)(7)(i)(C)
of Regulation S-X.
55
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements annexed hereto Page No.
Independent Auditors' Report F-2
Independent Auditors' Report - Predecessor Auditor F-3
Independent Auditors' Report - Predecessor Auditor F-4
Independent Auditors' Report - Predecessor Auditor F-5
Consolidated Balance Sheets as of December 31, 2004
and December 31, 2003 F-6
Consolidated Statements of Income for each of the years
in the three-year period ended December 31, 2004 F-7
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income for each of the years in the
three-year period ended December 31, 2004 F-8
Consolidated Statements of Cash Flows for each of the
years in the three-year period ended December 31, 2004 F-9
Notes to Consolidated Financial Statements F-10
(a)(2) Financial Statement Schedules annexed hereto:
Schedule II - Valuation and Qualifying Accounts F-27
Schedules other than those referred to above have been
omitted as the conditions requiring their filing are not
present or the information has been presented elsewhere
in the consolidated financial statements.
(a)(3) Exhibits
The following document heretofore filed with the Commission is
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991:
56
EXHIBIT NO. DESCRIPTION
10.25 Employment Agreement between the Company and Philippe Benacin
dated July 29, 1991
The following documents heretofore filed with the Commission is
incorporated by reference to the Company's Registration Statement on Form S-1
(No. 33-48811):
EXHIBIT NO. DESCRIPTION
10.26 Lease for portion of 15th Floor, 551 Fifth Avenue, New York, New
York
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992:
EXHIBIT NO. DESCRIPTION
4.10 Amendment to 1992 Stock Option Plan
4.11 1993 Stock Option Plan
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993:
EXHIBIT NO. DESCRIPTION
3.3 Articles of Incorporation of Inter Parfums Holdings, S.A.
3.3.1 English Translation of Exhibit no. 3.3, Articles of Incorporation
of Inter Parfums Holding, S.A.
3.4 Articles of Incorporation of Inter Parfums, S.A.
3.4.1 English Translation of Exhibit no. 3.4, Articles of Incorporation
of Inter Parfums, S.A.
4.15 1994 Nonemployee Director Stock Option Plan
10.51 Traite D'Apport Partiel D'Actif dated July 30, 1993
(Reorganization Agreement between Inter Parfums, S.A. and
Selective Industrie, S.A.)
57
10.51.1 English translation of Exhibit no. 10.51, Traite D'Apport Partiel
D'Actif dated July 30, 1993 (Reorganization Agreement between
Inter Parfums, S.A. and Selective Industrie, S.A.)
10.52 Lease for portion of 4, Rond Point Des Champs Des Elysees dated
September 30, 1993
10.52.1 English translation of Exhibit no. 10.52, Lease for portion of 4,
Rond Point Des Champs Des Elysees dated September 30, 1993
10.53 Lease for portion of 4, Rond Point Des Champs Des Elysees dated
March 2, 1994
10.53.1 English translation of Exhibit no. 1053, Lease for portion of 4,
Rond Point Des Champs Des Elysees dated March 2, 1994
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994:
EXHIBIT NO. DESCRIPTION
4.16 1994 Nonemployee Director Supplemental Stock Option Plan (Listed
as no. 4.15 therein)
10.59 Modification of Lease Agreement dated June 17, 1994 between
Metropolitan Life Insurance Company and Jean Philippe Fragrances,
Inc.
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995:
EXHIBIT NO. DESCRIPTION
10.61 Lease for 60 Stults Road, South Brunswick, NJ between Forsgate
Industrial Complex, a limited partnership, and Jean Philippe
Fragrances, Inc. dated July 10, 1995
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997:
58
EXHIBIT NO. DESCRIPTION
10.67 Second Modification of Lease made as of the 30th day of April,
1997 between Metropolitan Life Insurance Company as landlord and
Jean Philippe Fragrances, Inc. as tenant
10.69 Exclusive License Agreement dated June 20, 1997 between S.T.
Dupont, S.A. and Inter Parfums (English translation, excised
form)
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998:
EXHIBIT NO. DESCRIPTION
3.2 Amended and Restated By-laws
4.17 1997 Nonemployee Director Stock Option Plan
10.70 License Agreement among Paul Smith Limited, Inter Parfums, S.A.
and Jean-Philippe Fragrances, Inc. (excised form)
10.71 License Agreement between Christian LaCroix, a division of Group
LVMH and Inter Parfums, S.A. (English translation, excised form)
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's current report on Form 8-K (date of
event - November 22, 1999):
EXHIBIT NO. DESCRIPTION
4.2 Shareholder's Agreement among LV Capital USA, Inc., Jean Madar
and Philippe Benacin dated November 22, 1999
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999:
EXHIBIT NO. DESCRIPTION
3.1.4 Amendment to the Company's Restated Certificate of Incorporation,
as amended, dated July 13, 1999 (listed therein as 3.1(d)
59
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's current report on Form 8-K/A no. 1
(date of event - 18 May 2000):
EXHIBIT NO. DESCRIPTION
10.76 Celine License Agreement (French, excised form).
10.76.1 Celine License Agreement (English translation, excised form).
The following document heretofore filed with the Commission is
incorporated by reference to the Company's quarterly report on Form 10-Q for the
period ending 30 June 2000:
EXHIBIT NO. DESCRIPTION
3.1.5 Amendment to the Company's Restated Certificate of Incorporation,
as amended, dated 12 July 2000 (listed therein as 3.1(e))
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000:
EXHIBIT NO. DESCRIPTION
3.1.1 Restated Certificate of Incorporation dated September 3, 1987
3.1.2 Amendment to the Company's Restated Certificate of Incorporation
dated July 31, 1992
3.1.3 Amendment to the Company's Restated Certificate of Incorporation
dated July 9, 1993
4.19 2000 Nonemployee Director Stock Option Plan
10.79 Bail [Lease] for 18 avenue Franklin Roosevelt, Paris France
[French Original]
10.79.1 Bail [Lease] for 18 avenue Franklin Roosevelt, Paris France
[English Translation]
10.80 Credit Lyonnais Letter Agreement dated 22 March 2001 - [French
Original]
10.80.1 Credit Lyonnais Letter Agreement dated 22 March 2001 - [English
Translation]
60
10.81 Barclays Bank Letter Agreement dated 4 June 1998 - [French
Original]
10.81.1 Barclays Bank Letter Agreement dated 4 June 1998 - [English
Translation]
10.82 Banque OBC Odier Bungener Courvoisier Letter Agreement one dated
31 July 1998 - [French Original]
10.82.2 Banque OBC Odier Bungener Courvoisier Letter Agreement one dated
31 July 1998 - [English Translation]
10.83 Banque OBC Odier Bungener Courvoisier Letter Agreement two dated
31 July 1998 - [French Original]
10.83.2 Banque OBC Odier Bungener Courvoisier Letter Agreement two dated
31 July 1998 - [English Translation]
10.84 Banque Worms Letter Agreement dated 22 December 1997 - [French
Original]
10.84.1 Banque Worms Letter Agreement dated 22 December 1997 - [English
Translation]
10.85 Credit Agricole ile de France Letter Agreement dated 19 June 1996
- [French Original]
10.85.1 Credit Agricole ile de France Letter Agreement dated 19 June 1996
- [English Translation]
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001:
EXHIBIT NO. DESCRIPTION
3.2 Amended and Restated By-laws
4.20 1999 Stock Option Plan, as amended
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's current report on Form 8-K (date of
event - 21 May 2002):
EXHIBIT NO. DESCRIPTION
2.1 Agreement dated 21 May 2002 between Jean Philippe Fragrances, LLC
and Tristar Corporation, Debtor-in-Possession*
61
10.88 Noncompetition and Nonsolicition Agreement dated 21 May 2002
among Jean Philippe Fragrances, LLC, Tristar Corporation,
Debtor-in-Possession and Fragrance Impressions Corporation
- -----------------
* Certain disclosure schedules and other attachments are omitted, but will be
furnished supplementally to the Commission upon request.
The following documents heretofore filed with the Commission is
incorporated by reference to the Company's current report on Form 8-K (date of
event - 29 May 2002):
EXHIBIT NO. DESCRIPTION
10.90 Agreement dated 29th day of May, 2002, among Diane Von
Furstenberg Studio, L.P., Inter Parfums USA, LLC and Inter
Parfums, Inc.*
- -----------------
* Filed in excised form.
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's quarterly report on Form 10-Q for the
period ending 30 June 2002:
EXHIBIT NO. DESCRIPTION
10.91 Bail entre SCI et Inter Parfums, S.A. [Original in French]
10.91.1 Lease between SCI and Inter Parfums, S.A. [English Translation
Version]
19.92 Third Modification of Lease dated June 17, 2002 between
Metropolitan Life Insurance Company, and Jean Philippe
Fragrances, LLC
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended 31 December 2002:
EXHIBIT NO. DESCRIPTION
10.93 Revolving Credit Agreement dated as of June 23, 2002 between HSBC
Bank USA and Inter Parfums, Inc.
23.1 Consent of Eisner LLP
23.2 Consent of KPMG Audit, a division of KPMG S.A.
99.1 Certification Required by Section 906 of the Sarbanes Oxley Act
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Quarterly Report for the quarterly
period ended September 30, 2003:
62
EXHIBIT NO. DESCRIPTION
10.97 Agreement dated as of August 8, 2003 between HSBC Bank USA and
Jean Philippe Fragrances, LLC
The following documents heretofore filed with the Commission is
incorporated by reference to the Company's current report on Form 8-K (date of
event - 7 January 2004):
EXHIBIT NO. DESCRIPTION
16. Letter of Eisner LLP dated January 7, 2004
The following documents heretofore filed with the Commission is
incorporated by reference to the Company's current report on Form 8-K/A (date of
event - 7 January 2004):
EXHIBIT NO. DESCRIPTION
16. Letter of Eisner LLP dated January 16, 2004
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended 31 December 2003:
EXHIBIT NO. DESCRIPTION
10.99 Agreement between Inter Parfums, S.A. and Credit Lyonnais dated
28 November 2003- French original
10.99.1 Agreement between Inter Parfums, S.A. and Credit Lyonnais dated
28 November 2003-English translation
10.100 Line of Credit Agreement between The Banque OBC-Odier Bungener
Courvoisier and Inter Parfums, S.A dated 29 October 2003- French
original
10.100.1 Line of Credit Agreement between The Banque OBC-Odier Bungener
Courvoisier and Inter Parfums, S.A dated 29 October 2003- English
translation
14 Code of Business Conduct
31 Certification Required by Rule 13a-14
32 Certification Required by Section 906 of the Sarbanes-Oxley Act
63
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Quarterly Report for the quarterly
period ended March 31, 2004:
EXHIBIT NO. DESCRIPTION
2.2 Offer for purchase and sale of stock of the Nickel S.A. Company
under conditions precedent among Inter Parfums S.A. and Philippe
Dumont et al dated March 29, 2004- French original
2.2.1 Offer for purchase and sale of stock of the Nickel S.A. Company
under conditions precedent among Inter Parfums S.A. and Philippe
Dumont et al dated March 29, 2004- English translation
2.3 Agreement for Sale of Equity Capital with Condition Precedent
dated March 29, 2004- French original
2.3.1 Agreement for Sale of Equity Capital with Condition Precedent
dated March 29, 2004- English Translation
10.101 Shareholders Agreement from Nickel SA Company dated March 29,
2004- French original
10.101.1 Shareholders Agreement from Nickel SA Company dated March 29,
2004-English translation
10.102 Agreement between BNP Paribas and Inter Parfums SA dated March
17, 2004- French Original
10.102.1 Agreement between BNP Paribas and Inter Parfums SA dated March
17, 2004- English translations
The following document heretofore filed with the Commission is
incorporated by reference to the Company's Definitive Proxy Material filed on
June 23, 2004 (and contained as Exhibit A to the Definitive Proxy Statement):
EXHIBIT NO. DESCRIPTION
4.21 2004 Nonemployee Director Stock Option Plan
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Quarterly Report for the quarterly
period ended June 30, 2004:
64
EXHIBIT NO. DESCRIPTION
3.1.6 Amendment to Certificate of Incorporation dated 6 August 2004
10.104 Lease dated as of 1 March 2001 for 300 West 14th Street, New
York, NY
10.105 Loan Contract dated 12 July 2004 between Credit Lyonnais and
Inter Parfums, S.A. (French Original)
10.105.1 Loan Contract dated 12 July 2004 between Credit Lyonnais and
Inter Parfums, S.A. (English Translation)
10.106 Lease effective as of 1 April 2004 for 4-6 Rond Point des Champs
Elysees, Ground and 1st Floor, Paris, France (French Original)
10.106.1 Lease effective as of 1 April 2004 for 4-6 Rond Point des Champs
Elysees, Ground and 1st Floor, Paris, France (English
Translation)
10.107 Lease effective as of 1 April 2004 for 4-6 Rond Point des Champs
Elysees, 5th Floor-Left, Paris, France (French Original)
10.107.1 Lease effective as of 1 April 2004 for 4-6 Rond Point des Champs
Elysees, 5th Floor-Left, Paris, France(English Translation)
10.108 Lease effective as of 1 April 2004 for 4-6 Rond Point des Champs
Elysees, 6th Floor-Right, Paris, France (French Original)
10.108.1 Lease effective as of 1 April 2004 for 4-6 Rond Point des Champs
Elysees, 6th Floor-Right, Paris, France(English Translation)
The following documents heretofore filed with the Commission are
incorporated by reference to the Company's Quarterly Report for the quarterly
period ended September 30, 2004:
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, 3rd District
(French Original)
10.110.1 Lease For 48 Rue Des Francs-Bourgeois, In Paris,, 3rd District
(English Translation)
65
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
66
The following documents are filed with this report:
EXHIBIT NO. DESCRIPTION
10.114 Employment Agreement Dated February 8, 2005 Between Inter
Parfums, Inc. and Marcella Cacci*
10.115 Agreement dated July 29, 2004 between Credit Lyonnais and Groupe
Inter Parfums (French Original)
10.115.1 Agreement dated July 29, 2004 between Credit Lyonnais and Groupe
Inter Parfums (English Translation)
10.116 Logistics Service Contract (effective January 1, 2005) between
Inter Parfums, S.A. and Sagatrans (French Original)
10.116.1 Logistics Service Contract (effective January 1, 2005) between
Inter Parfums, S.A. and Sagatrans (English Translation)
10.117 Agreement dated July 29, 2004 between HSBC Bank USA and Jean
Philippe Fragrances, LLC
21 List of Subsidiaries
23.1 Consent of Mazars LLP
23.2 Consent of KPMG LLP
23.3 Consent of Eisner LLP
23.4 Consent of KPMG Audit, a division of KPMG S.A.
31 Certification Required by Rule 13a-14
32 Certification Required by Section 906 of the Sarbanes-Oxley Act
- ---------
*Filed in excised form.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Inter Parfums, Inc.
By: /s/ Jean Madar
Jean Madar, Chief Executive Officer
Date: March 14, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Jean Madar Chairman of the Board March 14, 2005
- -------------------------- of Directors and
Jean Madar Chief Executive Officer
/s/ Russell Greenberg Chief Financial and March 14, 2005
- -------------------------- Accounting Officer
Russell Greenberg and Director
/s/ Philippe Benacin Director March 11, 2005
- --------------------------
Philippe Benacin
/s/ Francois Heilbronn Director March 10, 2005
- --------------------------
Francois Heilbronn
/s/ Joseph A. Caccamo Director March 14, 2005
- --------------------------
Joseph A. Caccamo
/s/ Jean Levy Director March 11, 2005
- --------------------------
Jean Levy
Director March __, 2005
- --------------------------
Robert Bensoussan-Torres
/s/ Daniel Piette Director March 7, 2005
- --------------------------
Daniel Piette
/s/ Jean Cailliau Director March 7, 2005
- --------------------------
Jean Cailliau
/s/ Philippe Santi Director March 11, 2005
- --------------------------
Philippe Santi
/s/ Serge Rosinoer Director March 11, 2005
- --------------------------
Serge Rosinoer
68
INTER PARFUMS, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedule
INDEX
PAGE
Independent Auditors' Report F-2
Independent Auditors' Report - Predecessor Auditor F-3
Independent Auditors' Report - Predecessor Auditor F-4
Independent Auditors' Report - Predecessor Auditor F-5
Audited Financial Statements:
Consolidated Balance Sheets as of December 31, 2004 and 2003 F-6
Consolidated Statements of Income for each of the years in the
three-year period ended December 31, 2004 F-7
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income for each of the years in the
three-year period ended December 31, 2004 F-8
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 2004 F-9
Notes to Consolidated Financial Statements F-10
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts F-27
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------
Board of Directors and Shareholders
Inter Parfums, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Inter Parfums,
Inc. and subsidiaries as of December 31, 2004, and the related consolidated
statements of income, stockholders' equity and comprehensive income, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Inter Parfums, Inc.
and subsidiaries as of December 31, 2004, and the results of their operations
and their cash flows for the year then ended in conformity with U.S. generally
accepted accounting principles.
In connection with our audit of the consolidated financial statements enumerated
above, we audited schedule II for the year ended December 31, 2004. In our
opinion, schedule II, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.
Mazars LLP
New York, New York
March 4, 2005
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Inter Parfums, Inc.:
We have audited the accompanying consolidated balance sheet of Inter Parfums,
Inc. and subsidiaries as of December 31, 2003, and the related consolidated
statements of income, changes in shareholders' equity and comprehensive income,
and cash flows for the year then ended. In connection with our audit of the
consolidated financial statements we have also audited the financial statement
schedule as of December 31, 2003 as listed in the index on page F-1. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Inter Parfums, Inc.
and subsidiaries as of December 31, 2003, and the results of their operations
and their cash flows for the year then ended, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
/s/ KPMG LLP
New York, New York
March 26, 2004
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Inter Parfums, Inc.
New York, New York
We have audited the accompanying consolidated statements of income, changes in
shareholders' equity and comprehensive income, and cash flows of Inter Parfums,
Inc. and subsidiaries (the "Company") for the year ended December 31, 2002.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the financial
statements of Inter Parfums Holdings, S.A. and subsidiaries, consolidated
foreign subsidiaries of the Company, which statements reflect net sales
constituting 68% for 2002. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts for Inter Parfums Holdings, S.A. and subsidiaries, is based solely on
the report of the other auditors.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
financial statements enumerated above present fairly, in all material respects,
the consolidated results of operations and consolidated cash flows of Inter
Parfums, Inc. and subsidiaries for the year ended December 31, 2002 in
conformity with U.S. generally accepted accounting principles.
In connection with our audit of the consolidated financial statements enumerated
above, we audited schedule II for the year ended December 31, 2002. In our
opinion, schedule II, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.
Eisner LLP
New York, New York
March 5, 2003
With respect to accounts for foreign subsidiaries
March 21, 2003
F-4
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
INTER PARFUMS, S.A.
We have audited the accompanying consolidated statements of income,
shareholders' equity and comprehensive income, and cash flows of Inter Parfums
Holdings, S.A. and subsidiaries for the year ended December 31, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). . Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Inter Parfums Holdings, S.A. and subsidiaries for the year ended
December 31, 2002, in conformity with U.S. generally accepted accounting
principles.
Paris La Defense, March 21, 2003
KPMG Audit
A DIVISION OF KPMG S.A.
Alain Bouchet
PARTNER
F-5
INTER PARFUMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2004 and 2003
(In thousands except share and per share data)
ASSETS 2004 2003
---------- ----------
Current assets:
Cash and cash equivalents $ 40,972 $ 58,958
Accounts receivable, net of allowances of $3,230
and $1,989 in 2004 and 2003, respectively 75,382 63,467
Inventories (note 4) 61,066 54,255
Receivables, other 2,703 1,631
Other current assets 930 1,638
Income tax receivable 544 1,110
Deferred tax assets (note 12) 2,605 1,381
---------- ----------
Total current assets 184,202 182,440
Equipment and leasehold improvements, net (note 5) 6,448 4,967
Trademarks and licenses, net (notes 3, 6, 9, and 13) 34,171 6,323
Goodwill (note 2) 5,143 --
Other assets 521 271
---------- ----------
Total assets $ 230,485 $ 194,001
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable - banks (note 7) $ 748 $ 121
Current portion of long-term debt 4,359 --
Accounts payable 30,730 45,152
Accrued expenses 15,385 17,403
Income taxes payable 2,533 3,411
Dividends payable 581 383
---------- ----------
Total current liabilities 54,336 66,470
---------- ----------
Deferred tax liability (note 12) 2,839 1,417
---------- ----------
Long-term debt, less current portion (note 8) 15,258 --
---------- ----------
Put option (note 2) 838 --
---------- ----------
Minority interest 30,705 21,198
---------- ----------
Commitments and contingencies (notes 9 and 13)
Shareholders' equity (notes 10 and 13):
Preferred stock, $0.001 par value. Authorized
1,000,000 shares; none issued
Common stock, $0.001 par value. Authorized
100,000,000 shares; outstanding
19,379,917 and 19,164,186 shares, in 2004
and 2003, respectively 19 19
Additional paid-in capital 35,538 34,363
Retained earnings 100,772 87,376
Accumulated other comprehensive income 16,431 9,404
Treasury stock, at cost, 7,064,511 and
7,180,579 common shares in 2004 and
2003, respectively (26,251) (26,246)
---------- ----------
Total shareholders' equity 126,509 104,916
---------- ----------
Total liabilities and
shareholders' equity $ 230,485 $ 194,001
========== ==========
See accompanying notes to consolidated financial statements.
F-6
INTER PARFUMS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2004, 2003, and 2002
(In thousands except share and per share data)
2004 2003 2002
------------- ------------- -------------
Net sales $ 236,047 $ 185,589 $ 130,352
Cost of sales 113,988 95,449 71,630
------------- ------------- -------------
Gross margin 122,059 90,140 58,722
Selling, general, and administrative 89,516 64,147 41,202
------------- ------------- -------------
Income from operations 32,543 25,993 17,520
Other expenses (income):
Interest expense 798 271 394
(Gain) loss on foreign currency 360 (333) 106
Interest income (782) (946) (628)
Loss on subsidiary's issuance of stock 529 369 67
------------- ------------- -------------
905 (639) (61)
------------- ------------- -------------
Income before income taxes and minority interest 31,638 26,632 17,581
------------- ------------- -------------
Income taxes 11,542 9,403 6,282
------------- ------------- -------------
Income before minority interest 20,096 17,229 11,299
Minority interest in net income of consolidated subsidiary 4,393 3,392 1,894
------------- ------------- -------------
Net income $ 15,703 $ 13,837 $ 9,405
============= ============= =============
Net income per share:
Basic $ 0.82 $ 0.73 $ 0.50
Diluted 0.77 0.69 0.47
Weighted average number of shares outstanding:
Basic 19,204,768 19,032,460 18,776,988
Diluted 20,494,038 20,116,433 19,948,305
See accompanying notes to consolidated financial statements.
F-7
INTER PARFUMS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes
in Shareholders' Equity and Comprehensive Income
Years ended December 31, 2004, 2003, and 2002
(In thousands except share data)
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPRE- COMPRE-
-------------------- PAID-IN RETAINED HENSIVE HENSIVE TREASURY
SHARES AMOUNT CAPITAL EARNINGS INCOME INCOME STOCK TOTAL
---------- ------ --------- -------- -------- ----------- -------- --------
Balance - January 1, 2002 18,692,269 $ 19 32,470 $66,788 $ (8,043) $(26,143) $ 65,091
Comprehensive income:
Net income -- -- -- 9,405 $ 9,405 -- -- 9,405
Foreign currency translation adjustments -- -- -- -- 6,746 6,746 -- 6,746
Change in fair value of derivatives -- -- -- -- (97) (97) -- (97)
--------
Total comprehensive income $ 16,054
========
Dividends -- -- -- (1,130) -- -- (1,130)
Shares issued upon exercise of stock
options (including income tax benefit) 428,613 -- 971 -- -- 1,119 2,090
Shares received as proceeds of
option exercises (144,675) -- -- -- -- (1,189) (1,189)
---------- ----- ------- -------- -------- -------- --------
Balance - December 31, 2002 18,976,207 19 33,441 75,063 (1,394) (26,213) 80,916
Comprehensive income:
Net income -- -- -- 13,837 $ 13,837 -- -- 13,837
Foreign currency translation adjustments -- -- -- -- 10,616 10,616 -- 10,616
Change in fair value of derivatives -- -- -- -- 182 182 -- 182
--------
Total comprehensive income $ 24,635
========
Dividends -- -- -- (1,524) -- -- (1,524)
Shares issued upon exercise of stock options
(including income tax benefit) 266,750 -- 922 -- -- 732 1,654
Shares received as proceeds of
option exercises (78,771) -- -- -- -- (765) (765)
---------- ----- ------- -------- -------- -------- --------
Balance - December 31, 2003 19,164,186 19 34,363 87,376 9,404 (26,246) 104,916
Comprehensive income:
Net income -- -- -- 15,703 $ 15,703 -- -- 15,703
Foreign currency translation adjustments -- -- -- -- 6,919 6,919 -- 6,919
Change in fair value of derivatives -- -- -- -- 108 108 -- 108
--------
Total comprehensive income $ 22,730
========
Dividends -- -- -- (2,307) -- -- (2,307)
Shares issued upon exercise of stock options
(including income tax benefit) 262,663 -- 1,175 -- -- 596 1,771
Shares received as proceeds of
option exercises (46,932) -- -- -- -- (601) (601)
---------- ----- ------- -------- -------- -------- --------
Balance - December 31, 2004 19,379,917 $ 19 $35,538 $100,772 $ 16,431 $(26,251) $126,509
========== ===== ======= ======== ======== ======== ========
See accompanying notes to consolidated financial statements.
F-8
INTER PARFUMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2004, 2003, and 2002
(In thousands)
2004 2003 2002
---------- ---------- ----------
Cash flows from operating activities:
Net income $ 15,703 $ 13,837 $ 9,405
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,988 3,344 2,220
Provision for doubtful accounts 1,191 362 184
Minority interest in net income of
consolidated subsidiary 4,393 3,392 1,894
Deferred tax provision 155 369 830
Change in fair value of put options (174) -- --
Loss on subsidiary's issuance of stock 529 369 67
Gain on sale of trademark -- -- (87)
Changes in:
Accounts receivable (6,974) (14,199) (5,699)
Inventories (1,703) (15,881) (1,185)
Other assets (10) 570 (543)
Accounts payable and accrued expenses (21,835) 23,882 3,363
Income taxes payable, net 354 3,301 2,291
---------- ---------- ----------
Net cash provided by (used in) operating
activities (4,383) 19,346 12,740
---------- ---------- ----------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (3,254) (2,545) (1,317)
Payment for licenses and trademarks acquired (24,465) -- (3,225)
Acquisition of businesses, net of cash acquired (4,481) -- --
Proceeds from sale of trademark -- -- 158
---------- ---------- ----------
Net cash used in investing activities (32,200) (2,545) (4,384)
---------- ---------- ----------
Cash flows from financing activities:
Increase (decrease) in loans payable - banks 182 (1,752) 353
Proceeds from long-term debt 19,925 -- --
Repayment of long-term debt (1,992) -- (1,445)
Proceeds from sale of stock of subsidiary 1,622 1,105 15
Purchase of treasury stock (184) (184) (193)
Proceeds from exercise of options 455 274 295
Dividends paid (2,109) (1,428) (844)
Dividends paid to minority interest (776) (409) (273)
---------- ---------- ----------
Net cash provided by (used in) financing 17,123 (2,394) (2,092)
activities
---------- ---------- ----------
Effect of exchange rate changes on cash 1,474 6,261 3,464
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents (17,986) 20,668 9,728
Cash and cash equivalents - beginning of year 58,958 38,290 28,562
---------- ---------- ----------
Cash and cash equivalents - end of year $ 40,972 $ 58,958 $ 38,290
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 495 $ 271 $ 334
Income taxes 11,535 6,518 2,047
See accompanying notes to consolidated financial statements.
F-9
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
(1) THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS OF THE COMPANY
Inter Parfums, Inc. and its domestic and foreign subsidiaries (the
Company) manufacture and distribute prestige brand name fragrances
and cosmetics and mass market fragrances, cosmetics, and personal
care products.
(B) BASIS OF PREPARATION
The consolidated financial statements include the accounts of the
Company including majority-owned Inter Parfums, S.A. (IPSA), a
subsidiary whose stock is publicly traded in France. All material
intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from
those estimates.
(C) FOREIGN CURRENCY TRANSLATION
For foreign subsidiaries with operations denominated in a foreign
currency, assets and liabilities are translated to U.S. dollars at
year-end exchange rates. Income and expense items are translated
at average rates of exchange prevailing during the year. Gains and
losses from translation adjustments are accumulated in a separate
component of shareholders' equity.
(D) CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity of three
months or less are considered to be cash equivalents.
(E) FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts
receivable, other receivables, accounts payable and accrued
expenses approximates fair value due to the short terms to
maturity of these instruments. The carrying amount of loans
payable approximates fair value as the interest rates on the
Company's indebtedness approximate current market rates. The value
of the Company's long-term debt was estimated based on the current
rates offered to the Company for debts with the same remaining
maturities.
All derivative instruments are reported as either assets or
liabilities on the balance sheet measured at fair value.
Generally, increases or decreases in the fair value of derivative
instruments will be recognized as gains or losses in earnings in
the period of change. If the derivative instrument is designated
and qualifies as a cash flow hedge, the changes in fair value of
the derivative instrument will be recorded as a separate component
of shareholders' equity until the forcasted sale is recorded or
when the hedge is determined to be ineffective.
The Company occasionally enters 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.
Before entering into a
F-10
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
derivative transaction for hedging purposes, it is determined that
a high degree of initial effectiveness exists between the change
in value of the hedged item and the change in the value of the
derivative instrument from movement in exchange rates. High
effectiveness means that the change in the value of the derivative
instrument will effectively offset the change in the fair value of
the hedged item. The effectiveness of each hedged item is measured
throughout the hedged period. Any hedge ineffectiveness as defined
by SFAS No. 133 is recognized as a gain or loss on foreign
currency in the income statement. At December 31, 2004, the
Company's subsidiary had foreign currency contracts in the form of
forward exchange contracts in the amount of approximately U.S.
$37.2 million and GB pounds 5.4 million, which have maturities of
less than a year.
(F) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out)
or market.
(G) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are provided using the straight-line method over the
estimated useful asset lives for equipment, which range between
three and ten years and the shorter of the lease term or estimated
useful asset lives for leasehold improvements.
(H) GOODWILL AND OTHER INTANGIBLE ASSETS
The Company reviews goodwill, trademarks with indefinite lives for
impairment at least annually, and whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. The goodwill primarily relates to the Company's
European operations. The cost of licenses acquired is being
amortized by the straight-line method over the term of the
respective license. The Company reviews licenses and trademarks
with finite lives for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable.
(I) REVENUE RECOGNITION
Revenue is recognized when merchandise is shipped and the risk of
loss passes to the customer. The Company, at its discretion,
permits limited returns of merchandise and establishes allowances
for estimated returns based upon historic trends and relevant
current data. The Company does not bill its customer's freight and
handling charges and all shipping and handling costs, which
aggregated $4.0 million, $3.5 million and $2.6 million in 2004,
2003 and 2002, respectively, are included in selling, general and
administrative expense in the consolidated statements of income.
(J) ISSUANCE OF COMMON STOCK BY CONSOLIDATED SUBSIDIARY
The difference between the Company's share of the proceeds
received by the subsidiary and the carrying amount of the portion
of the Company's investment deemed sold is reflected as a gain or
loss in the consolidated statements of income.
(K) 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
F-11
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
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 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
if the fair value based method had been applied to all awards.
YEAR ENDED DECEMBER 31
--------------------------------------
2004 2003 2002
---------- ---------- ----------
Reported net income $ 15,703 $ 13,837 $ 9,405
Stock-based employee compensation
expense included in reported net
income, net of related tax effects -- -- --
Stock-based employee compensation
determined under the fair value
based method, net of related
tax effects (1,224) (1,409) (578)
---------- ---------- ----------
Pro forma net income $ 14,479 $ 12,428 $ 8,827
========== ========== ==========
Income per share, as reported:
Basic $ 0.82 $ 0.73 $ 0.50
Diluted 0.77 0.69 0.47
Pro forma net income per share:
Basic 0.75 0.65 0.47
Diluted 0.71 0.62 0.44
The weighted average fair values of the options granted by Inter
Parfums, Inc. during 2004, 2003, and 2002 are estimated as $6.22,
$6.58, and $2.25 per share, respectively, on the date of grant
using the Black-Scholes option pricing model with the following
assumptions: dividend yield 0.8% in 2004, 0.5% in 2003, and 0.8%
in 2002; volatility of 50% in 2004, 2003, 2002; risk-free interest
rates at the date of grant, 2.93% in 2004, 1.88% in 2003, and
1.83% in 2002; and an expected life of the option of four years in
2004 and two years in 2003 and 2002.
Stock-based employee compensation determined under the fair value
based method, net of related tax effects, includes compensation
incurred by our majority owned subsidiary, Inter Parfums, S.A.,
whose stock is publicly traded in France. The weighted average
fair values of the options granted by Inter Parfums, S.A. during
2004, 2003, and 2002 are estimated as 12.48 euro, 14.62 euro and
10.96 euro per share, respectively, on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
dividend yield 1.0% in 2004 and 2003, and 0.0% in 2002; volatility
of 23%, 41% and 35% in 2004, 2003 and 2002; risk-free interest
rates at the date of grant, 4.2% in 2004 and 3.0% in 2003 and
2002; and an expected life of the option of four years in 2004,
2003 and 2002.
(L) EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average
number of shares outstanding during each year. Diluted earnings
per share is computed using the weighted
F-12
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
average number of shares outstanding during each year, plus the
incremental shares outstanding assuming the exercise of dilutive
stock options using the treasury stock method.
The following table sets forth the computation of basic and
diluted earnings per share:
YEAR ENDED DECEMBER 31
---------------------------------------
2004 2003 2002
----------- ----------- -----------
Numerator:
Net income $ 15,703 $ 13,837 $ 9,405
=========== =========== ===========
Denominator:
Weighted average shares 19,204,768 19,032,460 18,776,988
Effect of dilutive securities:
Stock options 1,289,270 1,083,973 1,171,317
----------- ----------- -----------
Denominator for diluted
earnings per share 20,494,038 20,116,433 19,948,305
=========== =========== ===========
Not included in the above computations is the effect of
anti-dilutive potential common shares which consist of options to
purchase 116,000, 204,000, and 114,000 shares of common stock for
2004, 2003, and 2002, respectively.
(M) ADVERTISING AND PROMOTION
Costs associated with advertising are expensed when incurred.
Total advertising expenses, which primarily include print media
and promotional expenses, such as products used as sales
incentives, were $40.8 million, $31.8 million, and $18.5 million
for 2004, 2003, and 2002, respectively. These amounts include
expenses relating to purchase with purchase and gift with purchase
promotions that are reflected in cost of sales.
Advertising and promotional expenses included in selling, general
and administrative expenses were $21.8 million, $19.8 million and
$10.3 million for 2004, 2003 and 2002, respectively.
The Company also has various arrangements with customers pursuant
to its trade terms to reimburse them for a portion of their
advertising or promotional costs, which provide advertising and
promotional benefits to the Company. The costs that the Company
incurs for shelf replacement costs and slotting fees are expensed
as incurred and are netted against revenues on the Company's
consolidated statement of income.
(N) ACCOUNTS RECEIVABLE
Accounts receivable represent payments due to the Company for
previously recognized net sales, reduced by an allowance for
doubtful accounts or balances, which are estimated to be
uncollectible at December 31, 2004 and 2003. Accounts receivable
balances are recorded against the allowance for doubtful accounts
when they are deemed uncollectible. Recoveries of accounts
receivable previously recorded against the allowance are recorded
in the consolidated statement of income when received.
F-13
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
(O) RECLASSIFICATION
Certain prior year amounts in the accompanying consolidated
statements of income have been reclassified to conform to current
year presentation.
(P) INCOME TAXES
The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes".
Deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates
applicable to future years to the difference between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities. Tax benefits recognized must be reduced by a
valuation allowance where it is more likely than not that the
benefits may not be realized.
(Q) RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued FASB Interpretation Number 46-R
("FIN 46-R"), "Consolidation of Variable Interest Entities." FIN
46-R, which modifies certain provisions and effective dates of FIN
46, sets forth criteria to be used in determining whether an
investment in a variable interest entity should be consolidated.
These provisions are based on the general premise that if a
company controls another entity through interests other than
voting interests, that company should consolidate the controlled
entity. The Company believes that currently, it does not have any
material arrangements that meet the definition of a variable
interest entity, which would require consolidation.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs -
An Amendment of ARB No. 43, Chapter 4" (SFAS No. 151). SFAS No.
151 requires all companies to recognize a current-period charge
for abnormal amounts of idle facility expense, freight, handling
costs and wasted materials. This statement also requires that the
allocation of fixed production overhead to the costs of conversion
be based on the normal capacity of the production facilities. SFAS
No. 151 will be effective for fiscal years beginning after June
15, 2005. The Company does not expect the adoption of this
statement to have a material effect on its consolidated financial
statements.
In December 2004, 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
quarterly periods beginning after June 15, 2005. While the Company
currently provides the pro forma disclosures required by SFAS No.
148 on a quarterly basis (see "Note 1 (k) - Stock-Based
Compensation"), it is currently evaluating the impact this
statement will have on its consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets - An Amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions" (SFAS 153). SFAS
eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges
that do not have commercial substance. SFAS 153 specifies that a
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a
result of the exchange. SFAS 153 is effective for fiscal periods
beginning
F-14
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
after June 15, 2005. The Company does not expect the adoption of
this statement to have a material effect on its consolidated
financial statements.
(2) ACQUISITION OF BUSINESS
In April 2004, IPSA acquired a 67.5% interest in Nickel S.A. (Nickel) for
approximately $8.7 million in cash including a capital infusion of $2.8
million made in June 2004, aggregating approximately $4.5 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, and has recorded a long-term
liability and increased goodwill accordingly. These options are carried
at fair value as determined by management, which resulted in a gain of
$0.17 million, which is included in selling, general and administrative
expense in the accompanying consolidated statements of income.
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 call does not meet the criteria of a derivative and therefore
it has no effect on the accompanying consolidated financial statements.
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
December 31, 2004 aggregated $3.7 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 following table summarizes the estimated fair values of the assets
acquired and liabilities assumed on April 1, 2004, the date of the
acquisition adjusted for the capital infusion made in June 2004. All
amounts have been translated to US dollars at the April 1, 2004 exchange
rate, the date of the acquisition.
Current assets $ 6,989
Equipment and leasehold improvements 747
Trademarks and licenses 1,840
Goodwill 4,645
Other assets 167
--------
Assets acquired 14,388
--------
Current liabilities 3,513
Put option 925
Minority interest 1,281
--------
Liabilities assumed 5,719
--------
Net assets acquired $ 8,669
========
F-15
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
(3) ACQUISITION OF LICENSES AND TRADEMARKS
[1] In June 2004, IPSA entered into a fifteen year, 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 previous 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 paid to Burberry an upfront
non-recoupable license fee of approximately $3.6 million.
[3] In May 2002, the Company purchased certain mass market fragrance
brands and inventories of Tristar Corporation, a Debtor-in-Possession.
The trademarks and related intellectual property were purchased for
approximately $3.2 million, and the Company acquired certain existing
inventory for approximately $3.7 million.
(4) INVENTORIES
DECEMBER 31
---------------------------
2004 2003
---------- ----------
Raw materials and component parts $ 19,756 $ 19,776
Finished goods 41,310 34,479
---------- ----------
$ 61,066 $ 54,255
========== ==========
(5) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
DECEMBER 31
---------------------------
2004 2003
---------- ----------
Equipment $ 16,489 $ 15,202
Leasehold improvements 1,117 500
---------- ----------
17,606 15,702
Less accumulated depreciation
and amortization 11,158 10,735
---------- ----------
$ 6,448 $ 4,967
========== ==========
Depreciation expense was $2.9 million, $2.5 million and $1.6 million for
2004, 2003 and 2002, respectively.
F-16
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
(6) TRADEMARKS AND LICENSES
DECEMBER 31
---------------------------
2004 2003
---------- ----------
Trademarks (indefinite lives) $ 8,615 $ 5,752
---------- ----------
Trademarks (finite lives) 843 684
Licenses (finite lives) 28,310 3,493
---------- ----------
29,153 4,177
Less accumulated amortization 3,597 3,606
---------- ----------
25,556 571
---------- ----------
Total trademarks and licenses $ 34,171 $ 6,323
========== ==========
During 2004, 2003, and 2002, the Company recorded charges for the
impairment, included in selling, general, and administrative expense, of
trademarks with indefinite useful lives aggregating $0.01 million, $0.58
million and $0.50 million, respectively, based on fair value as
determined using discounted cash flows. Amortization expense was $1.0
million for 2004 and $0.2 million for both 2003 and 2002 and amortization
expense is expected to approximate $1.8 million in each of the next five
years.
(7) LOANS PAYABLE - BANKS
Loans payable - banks consist of the following:
The Company's foreign subsidiaries have available credit lines, including
several bank overdraft facilities totaling $45 million, bearing interest
at 0.6% above EURIBOR (2.12% at both December 31, 2004 and 2003).
Outstanding amounts totaled $0.75 million and $0.12 million at December
31, 2004 and 2003, respectively.
The Company has borrowings available under a $12 million unsecured
revolving line of credit due on demand and bearing interest at the banks'
prime rate or 1.75% above LIBOR. There were no balances outstanding at
December 31, 2004 and 2003.
(8) LONG-TERM DEBT
In connection with the acquisition of the Lanvin license referred to in
note 3, IPSA initially financed the license fee by utilizing 15 million
euro from one of its short-term credit facilities. In July 2004, IPSA
converted the loan 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 December 31, 2004 exchange rates, maturities
of long-term debt subsequent to December 31, 2004 are $4.4 million in
2005, 2006, 2007 and 2008, and $2.2 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
F-17
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
instrument is recorded at fair value and changes in fair value are
reflected in the results of operations.
(9) COMMITMENTS
(A) LEASES
The Company leases its office and warehouse facilities under
operating leases expiring through 2013. Rental expense amounted to
$6.4 million, $4.5 million and $2.5 million in 2004, 2003 and
2002, respectively. Minimum future rental payments are as follows:
2005 $ 5,062
2006 5,627
2007 5,570
2008 5,693
2009 5,693
Thereafter 10,493
-------
$38,138
=======
(B) LICENSE AGREEMENTS
The Company is obligated under a number of license agreements for
the use of trademarks and rights in connection with the
manufacture and sale of its products. Revenues generated from one
such license held by IPSA, represented 61.8%, 55.6%, and 40.6% of
net sales in 2004, 2003 and 2002, respectively. Royalty expense,
included in selling, general, and administrative expenses,
aggregated $20.9 million, $10.4 million and $5.5 million, in 2004,
2003 and 2002, respectively. In connection with certain license
agreements, the Company is subject to certain minimum annual
royalties as follows:
2005 $ 25,651
2006 27,797
2007 30,768
2008 32,005
2009 33,325
Thereafter 247,346
---------
$ 396,892
=========
In March 1999 and May 2000, the Company entered into two 11-year
license agreements with Christian Lacroix Company and Celine S.A.,
respectively, divisions of LVMH Moet Hennessy Louis Vuitton, S.A.
(LVMH). Both agreements have minimum sales and advertising
requirements and require the Company to pay royalties, as is
customary in the industry. LV Capital, USA Inc. (LV Capital) is a
wholly owned subsidiary of LVMH. As of December 31, 2004, LV
Capital owns approximately 18% of the outstanding common stock of
the Company.
F-18
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
(10) SHAREHOLDERS' EQUITY
(A) ISSUANCE OF COMMON STOCK BY CONSOLIDATED SUBSIDIARY
During 2004, 2003 and 2002, 168,314, 179,056, and 32,764 shares,
respectively, of capital stock of IPSA were issued as a result of
employees exercising stock options. At December 31, 2004 and 2003,
the Company's percentage ownership of IPSA was approximately 74%
and 75%, respectively.
The difference between the Company's share of the proceeds
received by the subsidiary and the carrying amount of the portion
of the Company's investment deemed sold is reflected as a gain or
loss in the consolidated statements of income.
(B) STOCK OPTION PLANS
The Company maintains a stock option program for key employees,
executives, and directors. The plans, all of which have been
approved by shareholder vote, provide for the granting of both
nonqualified and incentive options. Options granted under the
plans vest immediately and are exercisable for a period of five to
six years.
A summary of the Company's stock option activity, and related
information follows:
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------------
2004 2003 2002
--------------------------- --------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------- ------------ ------------ ------------- ------------- ------------
Shares under option -
beginning of year 1,897,862 $ 5.92 1,969,162 $ 3.90 2,198,075 $ 3.35
Options granted 217,400 16.72 206,700 21.58 200,950 8.02
Options exercised (262,663) 3.32 (266,750) 3.20 (428,613) 3.01
Options cancelled (9,924) 15.40 (11,250) 3.11 (1,250) 6.16
------------- ------------ -------------
Shares under options -
end of year 1,842,675 7.51 1,897,862 5.92 1,969,162 3.90
============= ============ =============
F-19
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
The following table summarizes stock option information as of
December 31, 2004:
OPTIONS OUTSTANDING
NUMBER WEIGHTED AVERAGE REMAINING OPTIONS
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- ------------------ --------------- -------------------------- ---------------
$2.56 964,950 0.17 Years 964,950
$4.53 6,750 0.08 Years 6,750
$5.08 - $5.81 69,150 0.83 Years 69,150
$6.50 - $6.92 22,500 1.19 Years 22,500
$7.22 - $7.95 199,525 2.01 Years 199,525
$8.03 171,400 2.97 Years 171,400
$9.60 9,000 1.66 Years 9,000
$15.39 185,400 4.94 Years 185,400
$22.77 2,000 4.01 Years 2,000
$23.05 - $23.06 192,000 4.00 Years 192,000
$25.24 20,000 4.12 Years 20,000
--------------- ---------------
Totals 1,842,675 1.60 Years 1,842,675
=============== ===============
At December 31, 2004, options for 1,175,804 shares were available
for future grant under the plans.
In December 2002, the Chief Executive Officer exercised 132,000 of
his outstanding stock options and the President exercised 199,500
of his outstanding stock options. The purchase price of $0.38
million for the Chief Executive Officer and $0.61 million for the
President was paid by them tendering to the Company an aggregate
of 121,140 shares of the Company's common stock, previously owned
by them, valued at $8.215 per share, the fair market value on the
date of exercise. The shares issued pursuant to the options
exercised were issued from treasury stock of the Company. In
addition, the Chief Executive Officer tendered an additional
23,535 shares for payment of withholding taxes resulting from the
exercise of the options. As a result of this transaction, the
Company received tax benefits aggregating $0.6 million, which has
been reflected as an increase to additional paid-in capital in the
accompanying consolidated financial statements.
In April and October 2003, both the Chief Executive Officer and
the President exercised an aggregate of 109,500 and 94,300
outstanding stock options, respectively, of the Company's common
stock. The exercise prices of $0.34 million for the Chief
Executive Officer and $0.24 million for the President were paid by
each of them tendering to the Company 41,850 and 18,316 shares,
respectively, of the Company's common stock, previously owned by
them, valued at $6.90 and $13.16 per share in April and October,
respectively, the fair market value on the dates of exercise. All
shares issued pursuant to these option exercises were issued from
treasury stock of the Company. In addition, the Chief Executive
Officer tendered an additional 18,605 shares for payment of
withholding taxes resulting from his option exercise. As a result
of this transaction, the Company received tax benefits aggregating
$0.54 million, which has been reflected as an increase to
additional paid-in capital in the accompanying consolidated
financial statements.
F-20
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
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 $0.17 million for the Chief Executive Officer
and $0.25 million 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 treasury stock of the Company. 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 $0.6 million, which has been reflected as
an increase to additional paid-in capital in the accompanying
consolidated financial statements.
(C) TREASURY STOCK
The board of directors of the Company has authorized a stock
repurchase program whereby the Company purchases shares of its
stock to be held in treasury. As of December 31, 2004, the Company
is authorized to purchase an additional 404,350 treasury shares in
the open market. The Company has not repurchased any treasury
shares during the three year period ended December 31, 2004.
(D) DIVIDENDS
The Company declared dividends of $0.12, $0.08, and $0.06 per
share per annum in 2004, 2003, and 2002, respectively. The
quarterly dividend of $0.6 million declared in December 2004 was
paid January 14, 2005.
(11) SEGMENTS 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.
F-21
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
2004 2003 2002
---------- ---------- ----------
Net sales:
United States $ 41,435 $ 44,747 $ 41,972
Europe 196,088 141,192 88,565
Eliminations (1,476) (350) (185)
---------- ---------- ----------
$ 236,047 $ 185,589 $ 130,352
========== ========== ==========
Net income:
United States $ 1,657 $ 2,807 $ 3,013
Europe 14,184 11,036 6,396
Eliminations (138) (6) (4)
---------- ---------- ----------
$ 15,703 $ 13,837 $ 9,405
========== ========== ==========
Depreciation and amortization expense:
United States $ 358 $ 385 $ 380
Europe 3,630 2,959 1,840
---------- ---------- ----------
$ 3,988 $ 3,344 $ 2,220
========== ========== ==========
Interest income:
United States $ 274 $ 183 $ 245
Europe 508 763 383
---------- ---------- ----------
$ 782 $ 946 $ 628
========== ========== ==========
Interest expense:
United States $ 9 $ 4 $ 88
Europe 788 267 306
---------- ---------- ----------
$ 797 $ 271 $ 394
========== ========== ==========
Income tax expense:
United States $ 774 $ 1,519 $ 1,656
Europe 10,872 7,888 4,629
Eliminations (104) (4) (3)
---------- ---------- ----------
$ 11,542 $ 9,403 $ 6,282
========== ========== ==========
Total assets:
United States $ 51,511 $ 52,407
Europe 188,729 150,639
Eliminations (9,755) (9,045)
---------- ----------
$ 230,485 $ 194,001
========== ==========
Additions to long-lived assets:
United States $ 279 $ 192
Europe 31,921 2,353
---------- ----------
$ 32,200 $ 2,545
========== ==========
Total long-lived assets:
United States $ 5,300 $ 4,861
Europe 40,462 6,429
---------- ----------
$ 45,762 $ 11,290
========== ==========
Deferred tax assets:
United States $ 415 $ 588
Europe 2,190 793
---------- ----------
$ 2,605 $ 1,381
========== ==========
F-22
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
United States export sales were approximately $9.6 million in 2004 and
$11 million in both 2003 and 2002. Consolidated net sales to customers in
the United States, United Kingdom and France, for the year ended December
31, 2004, aggregated $66 million, $29 million and $15 million,
respectively. Consolidated net sales for the year ended December 31, 2004
by region is as follows:
North America $ 67,400
Europe 105,200
Central and South America 21,400
Middle East 17,900
Asia 22,700
Other 1,400
--------
$236,000
========
(12) INCOME TAXES
The components of income before income taxes and minority interest
consist of the following:
YEAR ENDED DECEMBER 31
--------------------------------------
2004 2003 2002
---------- ---------- ----------
U.S. operations $ 2,431 $ 4,326 $ 4,670
Foreign operations 29,207 22,306 12,911
---------- ---------- ----------
$ 31,638 $ 26,632 $ 17,581
========== ========== ==========
F-23
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
The provision for current and deferred income tax expense (benefit)
consists of the following:
YEAR ENDED DECEMBER 31
--------------------------------------
2004 2003 2002
---------- ---------- ----------
Current:
Federal $ 402 $ 834 $ 700
State and local 197 174 (75)
Foreign 10,788 7,910 4,827
---------- ---------- ----------
11,387 8,918 5,452
---------- ---------- ----------
Deferred:
Federal (163) 408 731
State and local 337 102 297
Foreign (19) (25) (198)
---------- ---------- ----------
155 485 830
---------- ---------- ----------
Total income tax expense $ 11,542 $ 9,403 $ 6,282
========== ========== ==========
Deferred taxes are provided principally for reserves, and certain other
expenses that are recognized in different years for financial reporting
and income tax purposes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
DECEMBER 31,
----------------------
2004 2003
--------- ---------
Deferred tax assets:
State net operating loss carryforwards $ 537 $ 448
Foreign net operating loss carryforwards 1,400 290
Alternative minimum tax credit carryforwards 369
Inventory and accounts receivable 197 270
Profit sharing 125 228
Other 377 145
--------- ---------
Total gross deferred tax assets 3,005 1,381
Less valuation allowance (400) --
--------- ---------
Net deferred tax assets 2,605 1,381
--------- ---------
Deferred tax liabilities:
Property, plant, and equipment (1,518) (1,372)
Trademarks and licenses (985)
Other (336) (45)
--------- ---------
Total deferred tax liabilities (2,839) (1,417)
--------- ---------
Net deferred tax assets (liabilities) $ (234) $ (36)
========= =========
At December 31, 2004, the Company had state net operating loss
carryforwards, subject to applicable state apportionment, for New York
State and New York City tax purposes of
F-24
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
approximately $7.4 million and for New Jersey tax purposes of
approximately $10.2 million, which expire in 2010 and beyond. In 2004, a
valuation allowance of $0.4 million has been provided on the deferred tax
asset arising from the state net operating loss carryforwards as the
Company determined that future tax benefits from option compensation
deductions might prevent the state net operating loss carryforwards from
being fully utilized.
No valuation allowances have been provided on the Company's other
deferred tax assets, as management believes that it is more likely than
not that the asset will be realized in the reduction of future taxable
income.
The Company has not provided for U.S. deferred income taxes or foreign
withholding taxes on $63 million of undistributed earnings of its
non-U.S. subsidiaries as of December 31, 2004 since the Company has no
present intention to repatriate these earnings.
Differences between the United States Federal statutory income tax rate
and the effective income tax rate were as follows:
YEAR ENDED DECEMBER 31
--------------------------------------
2004 2003 2002
---------- ---------- ----------
Statutory rates 34.0% 34.0% 34.0%
State and local taxes, net of
Federal benefit 1.1 0.7 1.0
Effect of foreign taxes in excess of
U.S. statutory rates 2.7 1.1 1.3
Other (1.3) (0.5) (0.6)
---------- ---------- ----------
Effective rates 36.5% 35.3% 35.7%
========== ========== ==========
(13) OTHER MATTERS
(A) 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).
In February 2004, in accordance with a Court of Appeal order IPSA
paid total damages of $0.39 million. 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.
(B) IPSA is the subject of tax audits commenced by the French Tax
Authorities. As of December 31, 2003, approximately $0.4 million
in assessments had been issued and reserves for the full amount
had been set up by IPSA. During 2004, the Company settled certain
of these assessments and, as a result, the balance open as of
December 31, 2004 was approximately $0.1 million, which amount is
fully reserved for.
(C) On November 22, 1999, the Chief Executive Officer and the
President of the Company entered into and closed a Stock Purchase
Agreement with LV Capital, USA Inc. (LV Capital), a wholly owned
subsidiary of LVMH Moet Hennessy Louis Vuitton, S.A. (LVMH). As of
December 31, 2004, LV Capital owns approximately 18% of the
outstanding common stock of the Company. In accordance with the
terms of the Stock Purchase Agreement and in return for LV Capital
becoming a strategic partner of the Company, LV Capital was
granted the right to maintain its percentage ownership of the
outstanding shares of Common Stock,
F-25
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
by receiving an option to purchase shares of the Company's common
stock for cash upon issuance of shares to any party other than LV
Capital at the price paid by the purchaser, subject to certain
exceptions such as the exercise of stock options previously
granted and the grant of new stock options up to a certain limit.
There have been no common stock or option transactions through
December 31, 2004, which affected the LVMH option. LVMH was also
granted demand registration rights for all shares of common stock
it holds. Finally, LV Capital has agreed to a standstill
agreement, which includes a limitation on the amount of shares
that LV Capital can hold equal to 25% of the outstanding shares of
common stock of the Company.
(D) In February 2005, both the Chief Executive Officer and the
President exercised an aggregate of 511,350 and 426,850
outstanding stock options, respectively, of the Company's common
stock. The exercise prices of $1,307,000 for the Chief Executive
Officer and $1,091,000 for the President were paid by each of them
tendering to the Company 90,513 and 75,556 shares, respectively,
of the Company's common stock, previously owned by them, valued at
$14.44 per share, the fair market value on the date of exercise.
All shares issued pursuant to these option exercises were issued
from treasury stock of the Company. In addition, the Chief
Executive Officer tendered an additional 10,388 shares for partial
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 $0.6 million, 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,
2005.
F-26
SCHEDULE II
INTER PARFUMS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------- -------------- --------------------------- -------------- -----------
ADDITIONS
------------ -------------
(1) (2)
------------ -------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING OF COSTS AND ACCOUNTS - DEDUCTIONS - AT END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- --------------------------------------------------------- -------------- ------------ ------------- -------------- -----------
Year ended December 31, 2004:
Allowances for sales returns and doubtful accounts $ 1,989 1,191 228 (b) 178 (a) 3,230
Year ended December 31, 2003:
Allowances for sales returns and doubtful accounts $ 1,875 362 264 (b) 512 (a) 1,989
Year ended December 31, 2002:
Allowances for sales returns and doubtful accounts $ 1,914 184 205 (b) 428 (a) 1,875
(a) Write off of bad debts and sales returns,
net of acquired reserves.
(b) Foreign currency translation adjustment.
See accompanying independent auditors' reports.
F-27