UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended |
OR
☐ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___________to ________. |
Commission File No.0-16469
INTER PARFUMS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 13-3275609 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
551 Fifth Avenue, New York, New York10176 |
(Address of Principal Executive Offices) (Zip Code) |
(Registrants telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $.001 par value per share | IPAR | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitiondefinitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act).
Large accelerated | Accelerated filer |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company ☐ |
Emerging Growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
At November 7, 2017,May 8, 2023, there were 31,186,748 shares of common stock, par value $.001 per share, outstanding.
INTER PARFUMS, INC. AND SUBSIDIARIES
INDEX
INDEX
INTER PARFUMS, INC. AND SUBSIDIARIES
Item 1. Financial Statements
In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. We have condensed such financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued by filing with the SEC. These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 20162022, included in our annual report filed on Form 10-K.
The results of operations for the ninethree months ended September 30, 2017March 31, 2023, are not necessarily indicative of the results to be expected for the entire fiscal year.
Page 1
INTER PARFUMS, INC. AND SUBSIDIARIES
(In thousands except share and per share data)
(Unaudited)
ASSETS | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 108,367 | $ | 161,828 | ||||
Short-term investments | 122,402 | 94,202 | ||||||
Accounts receivable, net | 159,434 | 104,819 | ||||||
Inventories | 134,280 | 96,977 | ||||||
Receivables, other | 1,341 | 7,433 | ||||||
Other current assets | 8,885 | 6,240 | ||||||
Income tax receivable | 548 | 626 | ||||||
Total current assets | 535,257 | 472,125 | ||||||
Equipment and leasehold improvements, net | 10,321 | 10,076 | ||||||
Trademarks, licenses and other intangible assets, net | 200,841 | 183,868 | ||||||
Deferred tax assets | 11,071 | 8,090 | ||||||
Other assets | 8,183 | 8,250 | ||||||
Total assets | $ | 765,673 | $ | 682,409 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 24,016 | $ | 21,498 | ||||
Accounts payable – trade | 54,449 | 49,507 | ||||||
Accrued expenses | 63,113 | 62,609 | ||||||
Income taxes payable | 10,970 | 3,331 | ||||||
Dividends payable | 5,301 | 5,293 | ||||||
Total current liabilities | 157,849 | 142,238 | ||||||
Long-term debt, less current portion | 41,554 | 53,064 | ||||||
Deferred tax liability | 3,741 | 3,449 | ||||||
Equity: | ||||||||
Inter Parfums, Inc. shareholders’ equity: | ||||||||
Preferred stock, $.001 par; authorized 1,000,000 shares; none issued | — | — | ||||||
Common stock, $.001 par; authorized 100,000,000 shares; outstanding 31,182,458 and 31,138,318 shares at September 30, 2017 and December 31, 2016, respectively | 31 | 31 | ||||||
Additional paid-in capital | 64,645 | 63,103 | ||||||
Retained earnings | 424,545 | 402,714 | ||||||
Accumulated other comprehensive loss | (23,061 | ) | (57,982 | ) | ||||
Treasury stock, at cost, 9,864,805 common shares at September 30, 2017 and December 31, 2016, respectively | (37,475 | ) | (37,475 | ) | ||||
Total Inter Parfums, Inc. shareholders’ equity | 428,685 | 370,391 | ||||||
Noncontrolling interest | 133,844 | 113,267 | ||||||
Total equity | 562,529 | 483,658 | ||||||
Total liabilities and equity | $ | 765,673 | $ | 682,409 |
See notes to consolidated financial statements.
Page 2
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOMEBALANCE SHEETS
(In thousands except share and per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales | $ | 169,531 | $ | 157,622 | $ | 441,725 | $ | 386,301 | ||||||||
Cost of sales | 66,059 | 62,790 | 164,240 | 145,723 | ||||||||||||
Gross margin | 103,472 | 94,832 | 277,485 | 240,578 | ||||||||||||
Selling, general and administrative expenses | 70,309 | 62,529 | 203,676 | 179,285 | ||||||||||||
Income from operations | 33,163 | 32,303 | 73,809 | 61,293 | ||||||||||||
Other expenses (income): | ||||||||||||||||
Interest expense | 495 | 515 | 1,494 | 2,181 | ||||||||||||
Loss on foreign currency | 335 | 334 | 1,308 | 388 | ||||||||||||
Interest income | (615 | ) | (765 | ) | (2,788 | ) | (2,722 | ) | ||||||||
215 | 84 | 14 | (153 | ) | ||||||||||||
Income before income taxes | 32,948 | 32,219 | 73,795 | 61,446 | ||||||||||||
Income taxes | 10,845 | 10,740 | 24,314 | 22,790 | ||||||||||||
Net income | 22,103 | 21,479 | 49,481 | 38,656 | ||||||||||||
Less: Net income attributable to the noncontrolling interest | 5,026 | 5,240 | 12,287 | 9,252 | ||||||||||||
Net income attributable to Inter Parfums, Inc. | $ | 17,077 | $ | 16,239 | $ | 37,194 | $ | 29,404 | ||||||||
Earnings per share: | ||||||||||||||||
Net income attributable to Inter Parfums, Inc. common shareholders: | ||||||||||||||||
Basic | $ | 0.55 | $ | 0.52 | $ | 1.19 | $ | 0.95 | ||||||||
Diluted | $ | 0.55 | $ | 0.52 | $ | 1.19 | $ | 0.94 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 31,175 | 31,080 | 31,163 | 31,058 | ||||||||||||
Diluted | 31,307 | 31,171 | 31,281 | 31,138 | ||||||||||||
Dividends declared per share | $ | 0.17 | $ | 0.15 | $ | 0.51 | $ | 0.45 |
ASSETS | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 149,055 | $ | 104,713 | ||||
Short-term investments | 88,702 | 150,833 | ||||||
Accounts receivable, net | 241,948 | 197,584 | ||||||
Inventories | 323,700 | 289,984 | ||||||
Receivables, other | 27,779 | 28,803 | ||||||
Other current assets | 20,346 | 15,650 | ||||||
Income taxes receivable | 71 | 157 | ||||||
Total current assets | 851,601 | 787,724 | ||||||
Property, equipment and leasehold improvements, net | 169,036 | 166,722 | ||||||
Right-of-use assets, net | 26,901 | 27,964 | ||||||
Trademarks, licenses and other intangible assets, net | 294,300 | 290,853 | ||||||
Deferred tax assets | 12,543 | 11,159 | ||||||
Other assets | 25,825 | 24,120 | ||||||
Total assets | $ | 1,380,206 | $ | 1,308,542 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Loans payable - banks | $ | 18,000 | $ | — | ||||
Current portion of long-term debt | 29,092 | 28,547 | ||||||
Current portion of lease liabilities | 5,310 | 5,296 | ||||||
Accounts payable – trade | 93,053 | 88,388 | ||||||
Accrued expenses | 190,305 | 213,621 | ||||||
Income taxes payable | 26,409 | 8,715 | ||||||
Total current liabilities | 362,169 | 344,567 | ||||||
Long–term debt, less current portion | 145,128 | 151,494 | ||||||
Lease liabilities, less current portion | 23,302 | 24,335 | ||||||
Equity: | ||||||||
Inter Parfums, Inc. shareholders’ equity: | ||||||||
Preferred stock, $ | par; authorized shares; issued— | — | ||||||
Common stock, $ par; authorized shares; outstanding and shares at March 31, 2023 and December 31, 2022, respectively | 32 | 32 | ||||||
Additional paid-in capital | 95,429 | 90,186 | ||||||
Retained earnings | 654,440 | 620,095 | ||||||
Accumulated other comprehensive loss | (48,440 | ) | (56,056 | ) | ||||
Treasury stock, at cost, | and shares at March 31, 2023 and December 31, 2022, respectively(43,055 | ) | (37,475 | ) | ||||
Total Inter Parfums, Inc. shareholders’ equity | 658,406 | 616,782 | ||||||
Noncontrolling interest | 191,201 | 171,364 | ||||||
Total equity | 849,607 | 788,146 | ||||||
Total liabilities and equity | $ | 1,380,206 | $ | 1,308,542 |
See notes to consolidated financial statements.
Page 3 2
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Net sales | $ | 311,723 | $ | 250,678 | ||||
Cost of sales | 108,766 | 92,020 | ||||||
Gross margin | 202,957 | 158,658 | ||||||
Selling, general and administrative expenses | 112,678 | 97,441 | ||||||
Income from operations | 90,279 | 61,217 | ||||||
Other expenses (income): | ||||||||
Interest expense | 2,357 | 883 | ||||||
Loss (gain) on foreign currency | 759 | (2,239 | ) | |||||
Interest and investment (income) loss | (5,382 | ) | 1,466 | |||||
Other income | (41 | ) | (116 | ) | ||||
Nonoperating Income (Expense) | (2,307 | ) | (6 | ) | ||||
Income before income taxes | 92,586 | 61,223 | ||||||
Income taxes | 21,678 | 14,932 | ||||||
Net income | 70,908 | 46,291 | ||||||
Less: Net income attributable to the noncontrolling interest | 16,840 | 10,992 | ||||||
Net income attributable to Inter Parfums, Inc. | $ | 54,068 | $ | 35,299 | ||||
Earnings per share: | ||||||||
Net income attributable to Inter Parfums, Inc. common shareholders: | ||||||||
Basic | $ | 1.69 | $ | 1.11 | ||||
Diluted | $ | 1.68 | $ | 1.10 | ||||
Weighted average number of shares outstanding: | ||||||||
Basic | 32,018 | 31,840 | ||||||
Diluted | 32,159 | 32,010 | ||||||
Dividends declared per share | $ | 0.625 | $ | 0.50 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Comprehensive income: | ||||||||||||||||
Net income | $ | 22,103 | $ | 21,479 | $ | 49,481 | $ | 38,656 | ||||||||
Other comprehensive income: | ||||||||||||||||
Net derivative instrument gain (loss), net of tax | (591 | ) | — | 30 | — | |||||||||||
Transfer from OCI into earnings | — | — | 22 | — | ||||||||||||
Translation adjustments, net of tax | 15,143 | 2,391 | 48,715 | 10,504 | ||||||||||||
Comprehensive income | 36,655 | 23,870 | 98,248 | 49,160 | ||||||||||||
Comprehensive income attributable to the noncontrolling interests: | ||||||||||||||||
Net income | 5,026 | 5,240 | 12,287 | 9,252 | ||||||||||||
Other comprehensive income: | ||||||||||||||||
Net derivative instrument gain (loss), net of tax | (160 | ) | — | 8 | — | |||||||||||
Transfer from OCI into earnings | — | — | 5 | — | ||||||||||||
Translation adjustments, net of tax | 4,367 | 698 | 13,833 | 3,141 | ||||||||||||
Comprehensive income attributable to the noncontrolling interests | 9,233 | 5,938 | 26,133 | 12,393 | ||||||||||||
Comprehensive income attributable to Inter Parfums, Inc. | $ | 27,422 | $ | 17,932 | $ | 72,115 | $ | 36,767 | ||||||||
See notes to consolidated financial statements.
Page 3
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Comprehensive income: | ||||||||
Net income | $ | 70,908 | $ | 46,291 | ||||
Other comprehensive income: | ||||||||
Net derivative instrument gain (loss), net of tax | (4,166 | ) | 261 | |||||
Transfer from OCI into earnings | 1,709 | 992 | ||||||
Translation adjustments, net of tax | 13,489 | (12,441 | ) | |||||
Comprehensive income | 81,940 | 35,103 | ||||||
Comprehensive income attributable to the noncontrolling interests: | ||||||||
Net income | 16,840 | 10,992 | ||||||
Other comprehensive income: | ||||||||
Net derivative instrument gain (loss), net of tax | (206 | ) | 72 | |||||
Translation adjustments, net of tax | 3,622 | (3,419 | ) | |||||
Comprehensive income attributable to the noncontrolling interests | 20,256 | 7,645 | ||||||
Comprehensive income attributable to Inter Parfums, Inc. | $ | 61,684 | $ | 27,458 |
See notes to consolidated financial statements.
Page 4
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands)
(Unaudited)
Nine months ended September 30, | Three months ended March 31, | |||||||||||||||
2017 | 2016 | 2023 | 2022 | |||||||||||||
Common stock, beginning and end of period | $ | 31 | $ | 31 | $ | 32 | $ | 32 | ||||||||
- | - | |||||||||||||||
32 | 32 | |||||||||||||||
Additional paid-in capital, beginning of period | 63,103 | 62,030 | 90,186 | 87,132 | ||||||||||||
Shares issued upon exercise of stock options | 839 | 1,235 | 4,929 | 708 | ||||||||||||
Purchase of subsidiary shares from noncontrolling interests | — | (1,670 | ) | |||||||||||||
Share based compensation | 703 | 630 | ||||||||||||||
Sale of subsidiary shares to noncontrolling interest | — | (154 | ) | |||||||||||||
Share-based compensation | 314 | 341 | ||||||||||||||
Additional paid-in capital, end of period | 64,645 | 62,071 | 95,429 | 88,181 | ||||||||||||
Retained earnings, beginning of period | 402,714 | 388,434 | 620,095 | 560,663 | ||||||||||||
Net income | 37,194 | 29,404 | 54,068 | 35,299 | ||||||||||||
Dividends | (15,899 | ) | (13,980 | ) | (20,023 | ) | (15,921 | ) | ||||||||
Share based compensation | 536 | — | ||||||||||||||
Share-based compensation | 300 | 53 | ||||||||||||||
Retained earnings, end of period | 424,545 | 403,858 | 654,440 | 580,094 | ||||||||||||
Accumulated other comprehensive loss, beginning of period | (57,982 | ) | (48,091 | ) | (56,056 | ) | (38,432 | ) | ||||||||
Foreign currency translation adjustment, net of tax | 34,882 | 7,363 | 9,867 | (9,022 | ) | |||||||||||
Transfer from other comprehensive income into earnings | 17 | — | 1,709 | 992 | ||||||||||||
Net derivative instrument gain, net of tax | 22 | — | ||||||||||||||
Net derivative instrument gain (loss), net of tax | (3960 | ) | 189 | |||||||||||||
Accumulated other comprehensive loss, end of period | (23,061 | ) | (40,728 | ) | (48,440 | ) | (46,273 | ) | ||||||||
- | - | |||||||||||||||
Treasury stock, beginning and end of period | (37,475 | ) | (36,817 | ) | ||||||||||||
Treasury stock, beginning of period | (37,475 | ) | (37,475 | ) | ||||||||||||
Shares repurchased | (5,580 | ) | — | |||||||||||||
Treasury stock, end of period | (43,055 | ) | (37,475 | ) | ||||||||||||
Noncontrolling interest, beginning of period | 113,267 | 110,800 | 171,364 | 166,412 | ||||||||||||
Net income | 12,287 | 9,252 | 16,840 | 10,992 | ||||||||||||
Foreign currency translation adjustment, net of tax | 13,833 | 3,141 | 3,622 | (3,419 | ) | |||||||||||
Transfer from other comprehensive income into earnings | 5 | — | ||||||||||||||
Net derivative instrument gain, net of tax | 8 | — | ||||||||||||||
Share based compensation | 391 | — | ||||||||||||||
Purchase of subsidiary shares from noncontrolling interest | — | (800 | ) | |||||||||||||
Sale of subsidiary shares to noncontrolling interest | — | 1,603 | ||||||||||||||
Net derivative instrument gain (loss), net of tax | (206 | ) | 72 | |||||||||||||
Share-based compensation (adjustment) | 54 | 11 | ||||||||||||||
Transfer of subsidiary shares purchased | — | 54 | ||||||||||||||
Dividends | (5,947 | ) | (4,863 | ) | (473 | ) | (440 | ) | ||||||||
Noncontrolling interest, end of period | 133,844 | 119,133 | 191,201 | 173,682 | ||||||||||||
\788,146 | 738,332 | |||||||||||||||
70,908 | 46,291 | |||||||||||||||
Total equity | $ | 562,529 | $ | 507,548 | $ | 849,607 | $ | 758,241 |
See notes to consolidated financial statements.
Page 5
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended September 30, | Three months ended March 31, | |||||||||||||||
2017 | 2016 | 2023 | 2022 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 49,481 | $ | 38,656 | $ | 70,908 | $ | 46,291 | ||||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 7,377 | 7,113 | 4,115 | 3,124 | ||||||||||||
Provision for doubtful accounts | 283 | 231 | 220 | 1,048 | ||||||||||||
Share based compensation | 1,558 | 706 | ||||||||||||||
Deferred tax benefit | (2,051 | ) | (2,556 | ) | ||||||||||||
Noncash stock compensation | 633 | 654 | ||||||||||||||
Share of income of equity investment | (41 | ) | (116 | ) | ||||||||||||
Noncash lease expense | 1,324 | 1,881 | ||||||||||||||
Deferred tax provision | (1,188 | ) | 135 | |||||||||||||
Change in fair value of derivatives | (1,869 | ) | 314 | 1,518 | (3,803 | ) | ||||||||||
Changes in: | ||||||||||||||||
Accounts receivable | (43,163 | ) | (48,735 | ) | (42,670 | ) | (50,316 | ) | ||||||||
Inventories | (27,345 | ) | (4,979 | ) | (29,688 | ) | (31,195 | ) | ||||||||
Other assets | 542 | 71 | (5,640 | ) | (2,869 | ) | ||||||||||
Operating lease liabilities | (1,293 | ) | (1,671 | ) | ||||||||||||
Accounts payable and accrued expenses | (8,145 | ) | (7,784 | ) | (23,327 | ) | 3,203 | |||||||||
Income taxes, net | 7,203 | 4,391 | 17,771 | 9,690 | ||||||||||||
Net cash used in operating activities | (16,129 | ) | (12,572 | ) | (7,358 | ) | (23,944 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of short-term investments | (25,988 | ) | (48,629 | ) | (42,835 | ) | (2,243 | ) | ||||||||
Proceeds from sale of short-term investments | 10,033 | 15,621 | 107,045 | 3,982 | ||||||||||||
Purchases of equipment and leasehold improvements | (2,253 | ) | (4,260 | ) | ||||||||||||
Purchases of property, equipment and leasehold improvements | (2,415 | ) | (12,895 | ) | ||||||||||||
Payment for intangible assets acquired | (764 | ) | (642 | ) | (151 | ) | (647 | ) | ||||||||
Proceeds from sale of trademark | 5,886 | — | ||||||||||||||
Net cash used in investing activities | (13,086 | ) | (37,910 | ) | ||||||||||||
Net cash provided by (used in) investing activities | 61,644 | (11,803 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Repayments of long-term debt | (16,567 | ) | (16,567 | ) | ||||||||||||
Proceeds from exercise of stock options | 839 | 1,235 | ||||||||||||||
Proceeds from sale of shares of subsidiary | — | 1,449 | ||||||||||||||
Proceeds from issuance of long-term debt | 17,989 | — | ||||||||||||||
Repayment of long-term debt | (9,397 | ) | (4,379 | ) | ||||||||||||
Proceeds from exercise of options | 4,929 | 708 | ||||||||||||||
Dividends paid | (15,891 | ) | (13,349 | ) | (20,023 | ) | (15,921 | ) | ||||||||
Dividends paid to noncontrolling interest | (5,947 | ) | (4,863 | ) | (473 | ) | (440 | ) | ||||||||
Purchase of stock of subsidiary | — | (2,470 | ) | |||||||||||||
Purchase of treasury stock | (5,580 | ) | — | |||||||||||||
Net cash used in financing activities | (37,566 | ) | (34,565 | ) | (12,555 | ) | (20,032 | ) | ||||||||
Effect of exchange rate changes on cash | 13,320 | 4,032 | 2,611 | (2,486 | ) | |||||||||||
Net decrease in cash and cash equivalents | (53,461 | ) | (81,015 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents | 44,342 | (58,265 | ) | |||||||||||||
Cash and cash equivalents - beginning of period | 161,828 | 176,967 | 104,713 | 168,387 | ||||||||||||
Cash and cash equivalents - end of period | $ | 108,367 | $ | 95,952 | $ | 149,055 | $ | 110,122 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Cash paid for: | ||||||||||||||||
Interest | $ | 1,351 | $ | 1,758 | $ | 1,563 | $ | 797 | ||||||||
Income taxes | 16,823 | 18,881 | 4,816 | 5,193 |
See notes to consolidated financial statements.
Page 6
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. | Significant Accounting Policies: |
The accounting policies we follow are set forth in the notes to our consolidated financial statements included in our Form 10-K, which was filed with the Securities and Exchange Commission for the year ended December 31, 2016. We also discuss such policies in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this Form 10-Q.2022.
2. |
In August 2017,Our business has continued to significantly improve throughout 2022 and the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to improve accounting for hedging activities. The objectivefirst quarter of 2023 after the disastrous effects of the ASU isCOVID-19 Pandemic starting in early 2020, as retail stores reopened, and consumers increased online purchasing. The introduction of variants of COVID-19 in various parts of the world continues to improvecause the financial reportingtemporary re-implementation of hedging relationshipsgovernmental restrictions to prevent further spread of the virus. In addition, international air travel remains curtailed in orderseveral jurisdictions due to better portrayboth governmental restrictions and consumer health concerns. While COVID-19 had significantly restricted international travel, the economic resultstravel retail business has picked up. Lastly, we have experienced significant strains on our supply chain causing disruptions affecting the procurement of an entity’s risk management activitiescomponents, the ability to transport goods, and related cost increases. These disruptions have come at a time when demand for our product lines has never been stronger or more sustained. We have been addressing this issue since the beginning of 2021, by ordering well in its financial statementsadvance of need and in larger quantities. Since 2021, we have strived to make certain targeted improvementscarry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to simplifywhere they are sold. We do not expect the applicationsupply chain bottlenecks to begin lifting until the second half of hedge accounting guidance. This ASU is effective for annual and interim periods beginning after December 15, 2018 and early adoption is permitted. We are currently evaluating the standard to determine2023. Therefore, despite recent business improvement, the impact of its adoption on our consolidated financial statements.
In August 2016, the FASB issued an ASUCOVID-19 pandemic might continue to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. This ASU is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. We have evaluated the standard and determined that there will be no material impact on our consolidated financial statements.
In February 2016, the FASB issued an ASU which requires lessees to recognize lease assets and lease liabilities arising from operating leases on the balance sheet. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018 using a modified retrospective approach, with early adoption permitted. We are currently evaluating the standard to determine the impact of its adoption on our consolidated financial statements.
In November 2015, the FASB issued an ASU that requires all deferred tax liabilities and assets to be classified as noncurrent on the balance sheet. This ASU is effective for annual and interim reporting periods beginning after December 15, 2016. In January 2017, the Company adopted the standard retrospectively, which resulted in reclassifications among accounts on the consolidated balance sheet, but had no other impactadverse effects on our results of our operations, financial condition orposition and cash flows. flows through at least the first half of 2023.
3. | Recent Agreements: |
Lacoste
In December 2022, we closed a transaction agreement with Lacoste, whereby an exclusive and worldwide license was granted for the production and distribution of Lacoste brand perfumes and cosmetics. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. The effectlicense becomes effective in January 2024 and will last for 15 years.
Dunhill
In April 2022, we announced that the Dunhill fragrance license will expire on September 30, 2023 and will not be renewed. The Company will continue to produce and sell Dunhill fragrances until the license expires and will maintain the right to sell-off remaining Dunhill fragrance inventory for a limited time as is customary in the fragrance industry.
Donna Karan and DKNY
In September 2021, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under the adoption on prior periods wasDonna Karan and DKNY brands. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. With this agreement, we gained several well-established and valuable fragrance franchises, most notably Donna Karan Cashmere Mist and DKNY Be Delicious, as well as a reclassification from current assetssignificant loyal consumer base around the world. In connection with the grant of license, we issued shares of Inter Parfums, Inc. common stock valued at $5.0 million to noncurrent assets of approximately $8 million.the licensor. The exclusive license became effective July 1, 2022, and we are planning to launch new fragrances under these brands in 2024.
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INTER PARFUMS, INC. AND SUBSIDIARIES
In May 2014, the FASB issued an ASU which superseded the most current revenue recognition requirements. ThisNotes to Consolidated Financial Statements
Rochas Fashion
Effective January 1, 2021, we entered into a new revenue recognition standard requires entities to recognize revenuelicense agreement modifying our Rochas fashion business model. The new agreement calls for a reduction in a way that depicts the transfer of goods or services to customers in an amount that reflects the consideration which the entity expectsroyalties to be entitled toreceived. As a result, in exchange for those goods or services.the first quarter of 2021, we took a $2.4 million impairment charge on our Rochas fashion trademark. In the fourth quarter of 2022, we again took a $6.8 million impairment charge on the Rochas fashion trademark after an independent expert concluded that the valuation of the trademark was $11.3 million. The new standardlicense also contains an option for the licensee to buy-out the Rochas fashion trademarks in June 2025 at its then fair market value.
Land and Building Acquisition - New Headquarters in Paris
In April 2021, Interparfums SA, our 72% owned French subsidiary, completed the acquisition of its new headquarters at 10 rue de Solférino in the 7th arrondissement of Paris from the property developer. This is an office complex combining three buildings connected by two inner courtyards, and consists of approximately 40,000 total sq. ft.
The purchase price included the complete renovation of the site. As of March 31, 2023, $151 million of the purchase price, including approximately $4.5 million of acquisition costs, is included in property, equipment and leasehold improvements on the accompanying balance sheet. The purchase price has been allocated approximately $62.3 million to land and $88.7 million to the building. The building, which was delivered on February 28, 2022, includes enhanced disclosure requirements. This guidance is effective for annualthe building structure, development of the property, façade waterproofing, general and interim reporting periods beginning after December 15, 2017, with early adoption permitted for annual periods after December 31, 2016. We have evaluated the standardtechnical installations and determinedinterior fittings that there will be no material impactdepreciated over a range of 7 to 50 years. The Company has elected to depreciate the building cost based on our consolidated financial statements.the useful lives of its components. Approximately $1.8 million of cash held in escrow is also included in property, equipment and leasehold improvements on the accompanying balance sheet as of March 31, 2023.
The acquisition was financed by a 10-year €120 million (approximately $130.5 million) bank loan which bears interest at one-month Euribor plus 0.75%. Approximately €80 million of the variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. The swap effectively exchanges the variable interest rate to a fixed rate of approximately 1.1%.
4. | Recent Accounting Pronouncements: |
There are no other recent accounting pronouncements issued but not yet adopted that would have a material effect on our consolidated financial statements.
5. | Inventories: |
Inventories consist of the following:
(In thousands) | March 31, 2023 | December 31, 2022 | ||||||
Raw materials and component parts | $ | 155,013 | $ | 146,772 | ||||
Finished goods | 168,687 | 143,212 | ||||||
Inventories | $ | 323,700 | $ | 289,984 |
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INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Inventories consist of the following:
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
Raw materials and component parts | $ | 43,261 | $ | 36,821 | ||||
Finished goods | 91,019 | 60,156 | ||||||
$ | 134,280 | $ | 96,977 |
Fair Value Measurement: |
The following tables present our financial assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.
Fair Value Measurements at September 30, 2017 | ||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Short-term investments | $ | 122,402 | $ | — | $ | 122,402 | $ | — | ||||||||
Foreign currency forward exchange contracts accounted for using hedge accounting | 1,230 | 1,230 | ||||||||||||||
$ | 123,632 | $ | — | $ | 123,632 | $ | — | |||||||||
Liabilities: | ||||||||||||||||
Interest rate swap | $ | 628 | $ | — | $ | 628 | $ | — | ||||||||
Foreign currency forward exchange contracts not accounted for using hedge accounting | 310 | — | 310 | — | ||||||||||||
Interest rate swap | $ | 938 | $ | — | $ | 938 | $ | — |
Fair Value Measurements at December 31, 2016 | Fair Value Measurements at March 31, 2023 | |||||||||||||||||||||||||||||||
Quoted Prices in | Significant Other | Significant | Quoted Prices in | Significant Other | Significant | |||||||||||||||||||||||||||
Active Markets for | Observable | Unobservable | Active Markets for | Observable | Unobservable | |||||||||||||||||||||||||||
Identical Assets | Inputs | Inputs | Identical Assets | Inputs | Inputs | |||||||||||||||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||||
Assets: | Assets: | |||||||||||||||||||||||||||||||
Short-term investments | $ | 94,202 | $ | — | $ | 94,202 | $ | — | $ | 88,702 | $ | 681 | $ | 87,210 | $ | 811 | ||||||||||||||||
Interest rate swaps | 6,429 | 6,429 | ||||||||||||||||||||||||||||||
Foreign currency forward exchange contracts not accounted for using hedge accounting | 1,539 | — | 1,539 | — | ||||||||||||||||||||||||||||
Foreign currency forward exchange contracts accounted for using hedge accounting | 339 | $ | — | 339 | — | |||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Foreign currency forward exchange contracts accounted for using hedge accounting | $ | 181 | $ | — | $ | 181 | $ | — | ||||||||||||||||||||||||
Foreign currency forward exchange contracts not accounted for using hedge accounting | 418 | — | 418 | — | ||||||||||||||||||||||||||||
Interest rate swap | 908 | — | 908 | — | ||||||||||||||||||||||||||||
$ | 1,507 | $ | — | $ | 1,507 | $ | — | |||||||||||||||||||||||||
Total assets | $ | 97,010 | $ | 681 | $ | 95,517 | $ | 811 |
Fair Value Measurements at December 31, 2022 | ||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Short-term investments | $ | 150,833 | $ | 19,861 | $ | 130,174 | $ | 798 | ||||||||
Interest rate swaps | 6,758 | — | 6,758 | — | ||||||||||||
Foreign currency forward exchange contracts accounted for using hedge accounting | 1,189 | — | 1,189 | — | ||||||||||||
Total assets | $ | 158,780 | $ | 19,861 | $ | 138,122 | $ | 798 | ||||||||
Liabilities: | ||||||||||||||||
Foreign currency forward exchange contracts not accounted for using hedge accounting | 68 | — | 68 | — | ||||||||||||
Total liabilities | $ | 68 | $ | — | $ | 68 | $ | — |
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INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The carrying amount of cash and cash equivalents including money market funds, short-term investments, accounts receivable, other receivables, andcash held in escrow, accounts payable and accrued expenses approximatesapproximate fair value due to the short terms to maturity of these instruments.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The carrying amount of loans payable approximates fair value as the interest rates on the Company’s indebtedness approximate current market rates. The fair value of the Company’s long-term debt was estimated based on the current rates offered to companies for debt with the same remaining maturities and is approximately equal to its carrying value.
Foreign currency forward exchange contracts are valued based on quotations from financial institutions and the value of interest rate swaps are the discounted net present value of the swaps using third party quotes obtained from financial institutions.
Derivative Financial Instruments: |
The Company enters into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Before entering into a derivative transaction for hedging purposes, it is determined that a high degree of initial effectiveness exists between the change in value of the hedged item and the change in the value of the derivative instrument from movement in exchange rates. High effectiveness means that the change in the cash flows of the derivative instrument will effectively offset the change in the cash flows of the hedged item. The effectiveness of each hedged item is measured throughout the hedged period and is based on the dollar offset methodology and excludes the portion of the fair value of the foreign currency forward exchange contract attributable to the change in spot-forward difference which is reported in current period earnings. Any hedge ineffectiveness is also recognized as a gain or loss on foreign currency in the income statement. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued, and gains and losses accumulated in other comprehensive income are reclassified to earnings. If it is probable that the forecasted transaction will no longer occur, then any gains or losses accumulated in other comprehensive income are reclassified to current-period earnings.
In December 2022, to finance the acquisition of the Lacoste trademark, the Company entered into a €50 million ($54.4 million) 4-year term loan with a variable interest rate. This variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. This swap is a hedged derivative instrument and is therefore recorded at fair value and changes in fair value are reflected in other comprehensive income.
In connection with the May 2015 Rochas brandApril 2021 acquisition $108of the office building complex in Paris, €120 million (approximately $130.5 million) of the purchase price was paid in cash on the closing date and was financed entirely through a 5-year10-year term loan. As the payment at closing was due in dollars and we had planned to finance it with debt in euro, theThe Company entered into foreign currency forwardinterest rate swap contracts related to secure€80 million of the exchangeloan, effectively exchanging the variable interest rate for the $108 million purchase price at $1.067 per 1 euro.to a fixed rate of approximately 1.1%. This derivative was designatedinstrument is recorded at fair value and qualified as a cash flow hedge.changes in fair value are reflected in the accompanying consolidated statements of income.
Gains and losses in derivatives designated as hedges are accumulated in other comprehensive income (loss) and gains and losses in derivatives not designated as hedges are included in (gain) loss on foreign currency on the accompanying income statements. Such gains and losses were immaterial for both the ninethree months ended September 30, 2017March 31, 2023 and 2016. Interest expense includes a gain (loss) of $0.4 million and ($0.2) million for the nine months ended September 30, 2017 and 2016 respectively, relating to the interest rate swap.2022.
All derivative instruments are reported as either assets or liabilities on the balance sheet measured at fair value. The valuation of interest rate swaps as of September 30, 2017, resulted in a liability which is included in long-term debt on the accompanying balance sheets. The valuation of foreign currency forward exchange contracts not accounted for using hedge accounting at September 30, 2017,March 31, 2023, resulted in a liabilitynet asset and is included in accrued expensesother current assets on the accompanying balance sheet.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At September 30, 2017,March 31, 2023, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $22.6 million and GB £11.5$37 million which bothall have maturities of less than one year.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Accrued expenses include approximately $20.6The Company leases its offices and warehouses, vehicles, and certain office equipment, substantially all of which are classified as operating leases. The Company currently has no material financing leases. The Company determines if an arrangement is a lease at inception. Operating lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term.
In determining lease asset value, the Company considers fixed or variable payment terms, prepayments, incentives, and options to extend or terminate, depending on the lease. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. The Company generally uses its incremental borrowing rate based on information available at the lease commencement date for the location in which the lease is held in determining the present value of lease payments.
As of March 31, 2023, the weighted average remaining lease term was 5.5 years and the weighted average discount rate used to determine the operating lease liability was 2.6%. Rental expense related to operating leases was $1.4 million and $14.1$1.8 million for the three months ended March 31, 2023 and 2022, respectively. Operating lease payments included in advertising liabilities as of September 30, 2017operating cash flows totaled $1.3 million and December$1.7 million for the three months ended March 31, 2016, respectively.2023 and 2022, respectively, and there were no noncash additions to operating lease assets for the three months ended March 31, 2023 and 2022.
The Company maintains a stock option programsprogram for key employees, executives and directors. The plans, all of which have been approved by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans typically have a six-year term and vest over a to five-year -year period. The fair value of shares vested for bothduring the ninethree months ended September 30, 2017March 31, 2023 and 20162022 aggregated $0.05 million.$ million and $ million, respectively. Compensation cost, net of forfeitures, is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures are estimated based on historic trends. It is generally our policy to issue new shares upon exercise of stock options.
Number of Shares | Weighted Average Grant Date Fair Value | Number of Shares | Weighted Average Grant-Date Fair Value | |||||||||||||
Nonvested options – beginning of period | 401,440 | $ | 7.14 | 168,730 | $ | 16.31 | ||||||||||
Nonvested options granted | 7,000 | $ | 8.04 | — | — | |||||||||||
Nonvested options vested or forfeited | (18,145 | ) | $ | 7.01 | (23,080 | ) | $ | 13.58 | ||||||||
Nonvested options – end of period | 390,295 | $ | 7.16 | 145,650 | $ | 16.74 |
Share basedShare-based payment expense decreased income before income taxes by $0.54$ and $1.56$ for the three and nine months ended September 30, 2017,March 31, 2023 and 2022, respectively, as compared to $0.28 million and $0.70 million for the corresponding periods of the prior year. Share based payment expense decreased income attributable to Inter Parfums, Inc. by $0.29$ and $0.86$ for the three and nine months ended September 30, 2017, respectively, as compared to $0.16 millionMarch 31, 2023 and $0.42 million for the corresponding periods of the prior year.2022, respectively.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||
Outstanding at January 1, 2017 | 684,540 | $ | 26.94 | |||||||||||||
Options granted | 7,000 | 35.72 | ||||||||||||||
Outstanding at January 1, 2023 | 441,580 | $ | 67.30 | |||||||||||||
Options forfeited | (12,080 | ) | 29.70 | (15,480 | ) | 70.48 | ||||||||||
Options exercised | (44,140 | ) | 19.02 | (88,710 | ) | 55.57 | ||||||||||
Outstanding at September 30, 2017 | 635,320 | $ | 27.54 | |||||||||||||
Outstanding at March 31, 2023 | 337,390 | $ | 70.24 | |||||||||||||
Options exercisable | 245,025 | $ | 25.13 | 191,740 | $ | 61.38 | ||||||||||
Options available for future grants | 1,086,735 | 574,455 |
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INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of September 30, 2017,March 31, 2023, the weighted average remaining contractual life of options outstanding is 3.23 years (1.99( years for options exercisable),; the aggregate intrinsic value of options outstanding and options exercisable is $8.7$ million and $4.0$ million, respectively,respectively; and unrecognized compensation cost related to stock options outstanding aggregated $2.2$ million.
(In thousands) | September 30, 2017 | September 30, 2016 | March 31, 2023 | March 31, 2022 | ||||||||||||
Cash proceeds from stock options exercised | $ | 839 | $ | 1,235 | $ | 4,929 | $ | 708 | ||||||||
Tax benefits | 135 | — | 780 | 75 | ||||||||||||
Intrinsic value of stock options exercised | 804 | 947 | 5,403 | 635 |
The weighted average fair values of theThere were by Inter Parfums, Inc. during the ninethree months ended September 30, 2017March 31, 2023 and 2016 were $8.04 and $6.50 per share, respectively, on the date of grant using the Black-Scholes option pricing model to calculate the fair value of options granted.March 31, 2022. options granted
The assumptions used in the Black-Scholes pricing model for the periods ended September 30, 2017 and 2016 are set forth in the following table:
September 30, 2017 | September 30, 2016 | |||||||
Weighted average expected stock-price volatility | 29 | % | 33 | % | ||||
Weighted average expected option life | 5 years | 5 years | ||||||
Weighted average risk-free interest rate | 1.9 | % | 1.4 | % | ||||
Weighted average dividend yield | 2.1 | % | 2.2 | % |
Expected volatility is estimated based on historic volatility of the Company’s common stock. The expected term of the option is estimated based on historic data. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option and the dividend yield reflects the assumption that the dividend payout as authorized by the Board of Directors would increase as the earnings of the Company and its stock price increases.continue to increase.
In September 2016,December 2018, Interparfums SA our 73% owned subsidiary in Paris, approved a plan to grant an aggregate of 15,100 shares of its stock to employees with no performance condition requirement, and an aggregate of shares to officers and managers, subject to certain corporate performance conditions. The corporate performance conditions were met and therefore in June 2022, shares, adjusted for stock splits, were distributed. The aggregate cost of the grant of approximately $4.8 million was recognized as compensation cost on a straight-line basis over the requisite three-year service period.
In March 2022, Interparfums SA approved an additional plan to grant an aggregate of September 2019 so longJune 2025 and will follow the same guidelines as the individual is employed by Interparfums SA at the time, and in the case of officers and managers, only to the extent that the performance conditions have been met. Once distributed, the shares will be unrestricted and the employees will be permitted to trade their shares.December 2018 plan. shares to all Interparfums SA employees and corporate officers having more than six months of employment at grant date, subject to certain corporate performance conditions. The shares, subject to adjustment for stock splits, will be distributed in
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INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of the grant of €22.46 per share (approximately $26.50 per share) hashad been determined based on the quoted sharestock price of Interparfums SA shares as reported by the NYSE Euronext on the date of grant. The estimated number of shares to be distributed of 137,381 has been determined taking into account employee turnover. The aggregate cost of the grant of €3.1approximately $4.1 million (approximately $3.7 million) will be recognized as compensation cost by Interparfums SA on a straight-line basis over the requisite three and a quarter year service period. For
Similar to the nine months ended September 30, 2017, $0.9 million of compensation cost has been recognizedDecember 2018 plan, in connection with this plan.
Toorder to avoid dilution of the Company’s ownership of Interparfums SA, all shares distributed or to be distributed pursuant to this planthese plans will be pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA. As ofDuring the year ended December 31, 2016, 108,3482022, the Company acquired shares have been acquired in the open market at an aggregate cost of $2.9$3.0 million.
In the first quarter of 2023, the Company initiated a small share repurchase program, and over the course the course of the first quarter of 2023, the Company repurchased 5.58 million and such amount has been. These shares are classified as an equity transactiontreasury shares on the accompanying balance sheet. No additionalThe Company plans to continue repurchasing shares were purchased duringthroughout 2023. shares at a cost of $
All share purchases and issuances have been classified as equity transactions on the nine months ended September 30, 2017.accompanying balance sheet.
Net Income Attributable to Inter Parfums, Inc. Common Shareholders: |
Net income attributable to Inter Parfums, Inc. per common share (“basic EPS”) is computed by dividing net income attributable to Inter Parfums, Inc. by the weighted average number of shares outstanding. Net income attributable to Inter Parfums, Inc. per share assuming dilution (“diluted EPS”), is computed using the weighted average number of shares outstanding, plus the incremental shares outstanding assuming the exercise of dilutive stock options using the treasury stock method.
Three months ended | Nine months ended | Three months ended | ||||||||||||||||||||||
(In thousands) | September 30, | September 30, | March 31, | |||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2023 | 2022 | |||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Net income attributable to Inter Parfums, Inc. | $ | 17,077 | $ | 16,239 | $ | 37,194 | $ | 29,404 | $ | 54,068 | $ | 35,299 | ||||||||||||
Denominator: | ||||||||||||||||||||||||
Weighted average shares | 31,175 | 31,080 | 31,163 | 31,058 | 32,018 | 31,840 | ||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Stock options | 132 | 91 | 118 | 80 | 141 | 170 | ||||||||||||||||||
Denominator for diluted earnings per share | 31,307 | 31,171 | 31,281 | 31,138 | 32,159 | 32,010 | ||||||||||||||||||
Earnings per share: | ||||||||||||||||||||||||
Net income attributable to Inter Parfums, Inc. common shareholders: | ||||||||||||||||||||||||
Basic | $ | 0.55 | $ | 0.52 | $ | 1.19 | $ | 0.95 | $ | 1.69 | $ | 1.11 | ||||||||||||
Diluted | 0.55 | 0.52 | 1.19 | 0.94 | 1.68 | 1.10 |
Not included in the above computations is the effect ofThere were which consist of outstanding options to purchase 0.22 million shares and 0.31 million shares of common stock for the nine months ended September 30, 2017 and 2016, respectively, and 0.15 million and 0.25 million shares of common stock for the three months ended September 30, 2017March 31, 2023 and 2016, respectively.March 31, 2022. antidilutive potential common shares
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INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Segment and Geographic Areas: |
The Company manufactures and distributes one product line, fragrances and fragrance related products. The Company manages its business in two segments, European based operations and United States based operations. The European assets are located, and operations are primarily conducted, in France. Both European operations and United States operations primarily represent the sale of prestige brand name fragrances.
Information on our operations by geographical areas is as follows:
Information on the Company’s operations by segments is as follows:
(In thousands) | Three months ended March 31, | |||||||
2023 | 2022 | |||||||
Net sales: | ||||||||
United States | $ | 81,454 | $ | 68,502 | ||||
Europe | 230,269 | 182,182 | ||||||
Eliminations | — | (6 | ) | |||||
$ | 311,723 | $ | 250,678 | |||||
Net income attributable to Inter Parfums, Inc.: | ||||||||
United States | $ | 10,343 | $ | 6,514 | ||||
Europe | 43,725 | 28,785 | ||||||
$ | 54,068 | $ | 35,299 |
(In thousands) | Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales: | ||||||||||||||||
United States | $ | 35,690 | $ | 34,251 | $ | 81,977 | $ | 82,197 | ||||||||
Europe | 134,639 | 123,405 | 361,172 | 304,217 | ||||||||||||
Eliminations | (798 | ) | (34 | ) | (1,424 | ) | (113 | ) | ||||||||
$ | 169,531 | $ | 157,622 | $ | 441,725 | $ | 386,301 | |||||||||
Net income attributable to Inter Parfums, Inc.: | ||||||||||||||||
United States | $ | 3,668 | $ | 2,850 | $ | 5,134 | $ | 4,804 | ||||||||
Europe | 13,409 | 13,389 | 32,060 | 24,600 | ||||||||||||
$ | 17,077 | $ | 16,239 | $ | 37,194 | $ | 29,404 |
(In thousands) | September 30, | December 31, | ||||||
2017 | 2016 | |||||||
Total Assets: | ||||||||
United States | $ | 98,747 | $ | 89,930 | ||||
Europe | 676,519 | 602,077 | ||||||
Eliminations of investment in subsidiary | (9,593 | ) | (9,598 | ) | ||||
$ | 765,673 | $ | 682,409 |
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
Total Assets: | ||||||||
United States | $ | 288,927 | $ | 278,090 | ||||
Europe | 1,110,902 | 1,052,004 | ||||||
Eliminations | (19,623 | ) | (21,522 | ) | ||||
$ | 1,380,206 | $ | 1,308,542 |
License Renewal:
In May 2017, the Company, through its majority owned Paris based subsidiary, Interparfums SA, renewed its license agreement for an additional four years with Paul Smith for the creation, development, and distribution of fragrance products through December 2021, without any material changes in terms and conditions. Our initial 12-year license agreement with Paul Smith was signed in 1998, and had previously been extended through December 31, 2017.
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Notes to Consolidated Financial Statements
Buyout of License:
In December 2016, the Company reached an agreement with the Balmain brand calling for Balmain to buyout the Balmain license agreement, effective December 31, 2016, in exchange for a payment aggregating $5.9 million. As a result of the buyout, the Company recognized a gain of $4.7 million as of December 31, 2016, and received the buyout payment in May 2017. As of March 31, 2017, the three month inventory sell-off period concluded and Balmain purchased all remaining inventory aggregating $1.4 million.
Settlement with French Tax Authorities:
As previously reported, the French Tax Authorities examined the 2012 tax return of Interparfums SA, and in August 2015 issued a $6.9 million tax adjustment. The main issues challenged by the French Tax Authorities related to the commission rate and royalty rate paid to Interparfums Singapore Pte. and Interparfums (Suisse) SARL, respectively. Due to the subjective nature of the issues involved, in April 2016, Interparfums SA reached an agreement in principle to settle the entire matter with the French Tax Authorities. The settlement required Interparfums SA to pay a tax assessment of $1.9 million covering the issues for not only the 2012 tax year, but also covering the issues for the tax years ended 2013 through 2015. The settlement, which was finalized by the French Tax Authorities in the first quarter of 2017, was accrued in March 2016.
In 2012, the French government introduced a 3% tax on dividends or deemed dividends for entities subject to French corporate income tax. On October 6, 2017 the French Constitutional Court released a decision declaring that the 3% tax on dividends or deemed dividends is unconstitutional. As a result of that decision, the Company has filed a claim for refund of approximately $3.3 million (€2.8 million) for these taxes paid since 2015. The French government has not yet determined if, how, or when they will reimburse companies who have filed claims. There is even discussion of additional tax measures to offset this cost. Therefore, due to the unknown factors involved in the potential reimbursement of the claim, the Company did not recognize the refund claim in the accompanying financial statements as of September 30, 2017. The Company will continue to monitor future events as they relate to this matter.
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Item 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward Looking Information
Statements in this report which are not historical in nature are forward-looking statements. Although we believe that our plans, intentions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. In some cases, you can identify forward-looking statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and “would” or similar words. You should not rely on forward-looking statements because actual events or results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. These factors include, but are not limited to, the risks and uncertainties discussed under the headings “Forward Looking Statements” and “Risk Factors” in Inter Parfums’ annual report on Form 10-K for the fiscal year ended December 31, 20162022, and the reports Inter Parfums files from time to time with the Securities and Exchange Commission. Inter Parfums does not intend to and undertakes no duty to update the information contained in this report.
Regulation S-K Item 10(e)Overview
Regulation S-K Item 10(e), “Use of Non-GAAP Financial Measures in commission filings,” prescribes the conditions for use of non-GAAP financial information in commission filings. Our reported results for the nine months ended September 30, 2016, include a provision of $1.9 million ($1.4 million net of noncontrolling interests) for income taxes resulting from a nonrecurring tax settlement. Due to the significance of this transaction, as well as its nonrecurring nature, exclusion of such amount in the non-GAAP financial measures provides a more complete disclosure and facilitates a more accurate comparison of current results to historic results. Based upon the foregoing, we believe that our presentation of the non-GAAP financial information beginning on page 27 of this Form 10-Q is an important supplemental measure of operating performance to investors.
Overview
We operate in the fragrance business, and manufacture, market and distribute a wide array of fragrances and fragrance related products. We manage our business in two segments, European based operations and United States based operations. Certain prestige fragrance products are produced and marketed by our European operations through our 73%72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 27%28% of Interparfums SA shares trade on the NYSE Euronext.
We produce and distribute through our European basedoperations, fragrance products primarily under license agreements with brand owners, and European based fragrance product sales represented approximately 82%74% and 79%73% of net sales for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. We have built a portfolio of prestige brands, which includeBoucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade, Lanvin, Moncler, Montblanc, Paul Smith, Repetto, Rochas S.T. DupontandVan Cleef & Arpels, whose products are distributed in over 100120 countries around the world.
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With respect to In addition, our largest brands, we own the Lanvin brand name for its class of trade,exclusive and worldwide license the Montblanc and Jimmy Choo brand names; for the nine months ended September 30, 2017, salesproduction and distribution of product for these brands represented 12%, 22%,Lacoste brand perfumes and 20% of net sales, respectively.cosmetics becomes effective in January 2024.
Through our United States operations, we also market fragrance and fragrance related products. United States operations represented 18%26% and 21%27% of net sales for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. These fragrance products are sold primarily pursuant to license or other agreements with the owners of theAbercrombie & Fitch, Agent Provocateur, Anna Sui, bebe, Dunhill, French Connection,Donna Karan, DKNY, Ferragamo, Graff, GUESS, Hollister, MCM, Oscar de la RentaandShanghai TangUngaro brands.
Substantially all of our prestige fragrance brands are licensed from unaffiliated third parties, and our business is dependent upon the continuation and renewal of such licenses. With respect to the Company’s largest brands, we license the Montblanc, Coach, Jimmy Choo and GUESS brand names.
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As a percentage of net sales, product sales for the Company’s largest brands were as follows:
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Montblanc | 20 | % | 19 | % | ||||
Jimmy Choo | 20 | % | 15 | % | ||||
Coach | 15 | % | 15 | % | ||||
GUESS | 9 | % | 11 | % |
Quarterly sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season. In certain markets where we sell directly to retailers, seasonality is more evident. We primarily sell directly to retailers in France as well as through our own distribution subsidiaries in Italy, Germany, Spain and the United States.
We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses or other arrangements or out-right acquisitions of brands. Second, we grow through the introduction of new products and by supporting new and established products through advertising, merchandising and sampling as well as phasing out underperforming products so we can devote greater resources to those products with greater potential. The economics of developing, producing, launching and supporting products influence our sales and operating performance each year. Our introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.
Our business is not capital intensive, and it is important to note that we do not own manufacturing facilities. We act as a general contractor and source our needed components from our suppliers. These components are received at one of our distribution centers and then, based upon production needs, the components are sent to one of several third party fillers, which manufacture the finished product for us and then deliver them to one of our distribution centers.
As with any global business, many aspects of our operations are subject to influences outside our control. We believe we have a strong brand portfolio with global reach and potential. As part of our strategy, we plan to continue to make investments behind fast-growing markets and channels to grow market share.
For the past several years, the economic and political uncertainty and financial market volatility in Eastern Europe, the Middle East and China had a minor negative impact on our business, however our sales in these regions have been improving and we do not anticipate dramatic changes in business conditions for the foreseeable future. However, if the degree of uncertainty or volatility worsens or is prolonged, then there will likely be a negative effect on ongoing consumer confidence, demand and spending and accordingly, our business. We believe general economic and other uncertainties still exist in select markets in which we do business, and we monitor these uncertainties and other risks that may affect our business.
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Our reported net sales are impacted by changes in foreign currency exchange rates. A strong U.S. dollar has a negative impact on our net sales. However, gross marginsearnings are positively affected by a strong dollar, because almost 45%above 50% of net sales of our European operations are denominated in U.S. dollars, while almost all costs of our European operations are incurred in euro. Conversely, a weak U.S. dollar has a favorable impact on our net sales while gross margins are negatively affected. Our Company addressesWe address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. Weinstruments and primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates. We are also carefully monitoring currency trends in the United Kingdom as a result of the volatility created from the United Kingdom’s decision to exit the European Union. We have evaluated our current pricing models and currently we do not expect any significant pricing changes. However, if the devaluation of the British Pound worsens, it may affect future gross profit margins from sales in that territory.
Recent Important Events
Subsequent Event
In 2012, the French government introduced a 3% tax on dividends or deemed dividends for entities subject to French corporate income tax. On October 6, 2017 the French Constitutional Court released a decision declaring that the 3% tax on dividends or deemed dividends is unconstitutional. As a result of that decision, the Company has filed a claim for refund of approximately $3.3 million (€2.8 million) for these taxes paid since 2015. The French government has not yet determined if, how, or when they will reimburse companies who have filed claims. There is even discussion of additional tax measures to offset this cost. Therefore, due to the unknown factors involved in the potential reimbursement of the claim, the Company did not recognize the refund claim in the accompanying financial statements as of September 30, 2017. The Company will continue to monitor future events as they relate to this matter.
License Renewal
In May 2017, the Company, through its majority owned Paris based subsidiary, Interparfums SA, renewed its license agreement for an additional four years with Paul Smith for the creation, development, and distribution of fragrance products through December 2021, without any material changes in terms and conditions. Our initial 12-year license agreement with Paul Smith was signed in 1998, and had previously been extended through December 31, 2017.
Buyout of License
In December 2016, the Company reached an agreement with the Balmain brand calling for Balmain to buyout the Balmain license agreement, effective December 31, 2016, in exchange for a payment aggregating $5.7 million. As a result of the buyout, the Company recognized a gain of $4.7 million as of December 31, 2016, and received the buyout payment in May 2017. As of March 31, 2017, the three month inventory sell-off period concluded and Balmain purchased all remaining inventory aggregating $1.4 million.
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Settlement with French Tax AuthoritiesImpact of COVID-19 Pandemic
As previously reported,Please see our discussion of the French Tax Authorities examinedImpact of the 2012 tax return of Interparfums SA, and in August 2015 issued a $6.9 million tax adjustment. The main issues challengedCOVID-19 Pandemic, which is incorporated by the French Tax Authorities relatedreference to note 2 to the commission rate and royalty rate paidConsolidated Financial Statements contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.
Recent Important Events
Please see our discussion of Recent Important Events, which is incorporated by reference to Interparfums Singapore Pte. and Interparfums (Suisse) SARL, respectively. Duenote 3 to the subjective nature of the issues involved,Consolidated Financial Statements contained in April 2016, Interparfums SA reached an agreement in principle to settle the entire matter with the French Tax Authorities. The settlement required Interparfums SA to pay a tax assessment of $1.9 million covering the issues for not only the 2012 tax year, but also covering the issuesthis Quarterly Report on Form 10-Q for the tax yearsquarter ended 2013 through 2015. The settlement, which was finalized by the French Tax Authorities in the first quarter of 2017, was accrued in March 2016.31, 2023.
Discussion of Critical Accounting Policies
We make estimates and assumptions in the preparation ofInformation regarding 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 ofcan be found in 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. Management of the Company has discussed the selection of significant accounting policies and the effect of estimates2022 Annual Report on Form 10-K filed with the Audit Committee of the Board of Directors.SEC.
Revenue Recognition
We sell our products to department stores, perfumeries, specialty stores, 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 euro or U.S. dollars. 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, trade discounts and allowances.
Accounts Receivable
Accounts receivable represent payments due to the Company for previously recognized net sales, reduced by allowances for sales returns and doubtful accounts. Accounts receivable balances are written-off against the allowance for doubtful accounts when they become uncollectible. Recoveries of accounts receivable previously recorded against the allowance are recorded in the consolidated statement of income when received. We generally grant credit based upon our analysis of the customer’s financial position as well as previously established buying patterns.
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Sales Returns
Generally, we do not permit customers to return their unsold products. However, for U.S. distribution of our prestige products, we allow returns if properly requested, authorized and approved. 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, including information provided by retailers regarding their inventory levels. In addition, as necessary, specific accruals may be established for significant future known or anticipated events. The types of known or anticipated events that we have considered, and will continue to consider, include, but are not limited to, the financial condition of our customers, store closings by retailers, changes in the retail environment and our decision to continue to support new and existing products. 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.
Inventories
Inventories are stated at the lower of cost and net realizable 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 results 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.
We evaluate indefinite-lived intangible assets for impairment at least annually during the fourth quarter, or more frequently when events occur or circumstances change, such as an unexpected decline in sales, that would more likely than not indicate that the carrying value of an indefinite-lived intangible asset may not be recoverable. When testing indefinite-lived intangible assets for impairment, the evaluation requires a comparison of the estimated fair value of the asset to the carrying value of the asset. The fair values used in our evaluations are estimated based upon discounted future cash flow projections using a weighted average cost of capital of 6.2%. The cash flow projections are based upon a number of assumptions, including, future sales levels and future cost of goods and operating expense levels, as well as economic conditions, changes to our business model or changes in consumer acceptance of our products which are more subjective in nature. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment charge is recorded.
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We believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable and currently no impairment indicators exist for our indefinite-lived intangible assets. However, if future actual results do not meet our expectations, we may be required to record an impairment charge, the amount of which could be material to our results of operations.
At December 31, 2016 indefinite-lived intangible assets aggregated approximately $116 million. The following table presents the impact a change in the following significant assumptions would have had on the calculated fair value in 2016 assuming all other assumptions remained constant:
$ in millions | Increase (decrease) | |||||||
Change | to fair value | |||||||
Weighted average cost of capital | +10 | % | $ | (16.2 | ) | |||
Weighted average cost of capital | -10 | % | $ | 20.0 | ||||
Future sales levels | +10 | % | $ | 17.0 | ||||
Future sales levels | -10 | % | $ | (17.0 | ) |
Intangible assets subject to amortization are evaluated for impairment testing whenever events or changes in circumstances indicate that the carrying amount of an amortizable intangible asset may not be recoverable. If impairment indicators exist for an amortizable intangible asset, the undiscounted future cash flows associated with the expected service potential of the asset are compared to the carrying value of the asset. If our projection of undiscounted future cash flows is in excess of the carrying value of the intangible asset, no impairment charge is recorded. If our projection of undiscounted future cash flows is less than the carrying value of the intangible asset, an impairment charge would be recorded to reduce the intangible asset to its fair value. The cash flow projections are based upon a number of assumptions, including future sales levels and future cost of goods and operating expense levels, as well as economic conditions, changes to our business model or changes in consumer acceptance of our products which are more subjective in nature. In those cases where we determine that the useful life of long-lived assets should be shortened, we would amortize 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. We believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable.
In determining the useful life of our Lanvin brand names and trademarks, we applied the provisions of ASC topic 350-30-35-3. The only factor that prevented us from determining that the Lanvin brand names and trademarks were indefinite life intangible assets was Item c. “Any legal, regulatory, or contractual provisions that may limit the useful life.” The existence of a repurchase option in 2025 may limit the useful life of the Lanvin brand names and trademarks to the Company. However, this limitation would only take effect if the repurchase option were to be exercised and the repurchase price was paid. If the repurchase option is not exercised, then the Lanvin brand names and trademarks are expected to continue to contribute directly to the future cash flows of our Company and their useful life would be considered to be indefinite.
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With respect to the application of ASC topic 350-30-35-8, the Lanvin brand names and trademarks would only have a finite life to our Company if the repurchase option were exercised, and in applying ASC topic 350-30-35-8, we assumed that the repurchase option is exercised. When exercised, Lanvin has an obligation to pay the exercise price and the Company would be required to convey the Lanvin brand names and trademarks back to Lanvin. The exercise price to be received (Residual Value) is well in excess of the carrying value of the Lanvin brand names and trademarks, therefore no amortization is required.
Derivatives
We account for derivative financial instruments in accordance with ASC topic 815, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This topic also requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet and that they are measured at fair value.
We currently use derivative financial instruments to hedge certain anticipated transactions and interest rates, as well as receivables denominated in foreign currencies. We do not utilize derivatives for trading or speculative purposes. Hedge effectiveness is documented, assessed and monitored by employees who are qualified to make such assessments and monitor the instruments. Variables that are external to us such as social, political and economic risks may have an impact on our hedging program and the results thereof.
Income Taxes
The Company accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The net deferred tax assets assume sufficient future earnings for their realization, as well as the continued application of currently anticipated tax rates. Included in net deferred tax assets is a valuation allowance for deferred tax assets, where management believes it is more-likely-than-not that the deferred tax assets will not be realized in the relevant jurisdiction. If the Company determines that a deferred tax asset will not be realizable, an adjustment to the deferred tax asset will result in a reduction of net income at that time. In addition, the Company follows the provisions of uncertain tax positions as addressed in ASC topic 740.
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Results of Operations
Three and Nine Months Ended September 30, 2017March 31, 2023 as Compared to the Three and Nine Months Ended September 30, 2016March 31, 2022
Net Sales:
Three months ended March 31, | ||||||||||||
(in millions) | 2023 | 2022 | % Change | |||||||||
European based product sales | $ | 230.3 | $ | 182.2 | 26.4 | % | ||||||
United States based product sales | 81.4 | 68.5 | 18.9 | % | ||||||||
$ | 311.7 | $ | 250.7 | 24.4 | % |
Net Sales
(In millions) | Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
European based brand product sales | $ | 134.6 | $ | 123.4 | 9.1 | % | $ | 361.0 | $ | 304.1 | 18.7 | % | ||||||||||||
United States based product sales | 34.9 | 34.2 | 2.0 | % | 80.7 | 82.2 | (1.8 | )% | ||||||||||||||||
Total net sales | $ | 169.5 | $ | 157.6 | 7.6 | % | $ | 441.7 | $ | 386.3 | 14.3 | % | ||||||||||||
Net sales for the three months ended September 30, 2017March 31, 2023 increased 7.6% to $169.5 million, as compared to $157.6 million for the corresponding period of the prior year.24% from March 31, 2022. At comparable foreign currency exchange rates, net sales increased 5.2%. Net sales29% from the first quarter of 2022. The average dollar/euro exchange rate for the nine months ended September 30, 2017current first quarter was 1.07 compared to 1.12 in the first quarter of 2022.
The current first quarter was exceptionally strong for both European and United States based operations, as net sales increased 14.3% to $441.7 million,26% and 19%, respectively, as compared to $386.3 million for the corresponding period of the prior year. There was no discernible effect on net sales from changes in foreign currency exchange rates for the nine month period.
For European based product sales increased 9.1% and 18.7% for the three and nine months ended September 30, 2017, respectively, as compared to the corresponding periods of the prior year. Montblanc,operations, our largest brand, generated sales of $37.2 million and $99.0 million for the three and nine months ended September 30, 2017, respectively, representing an increase of 13% and 5%, as compared to the corresponding periods of the prior year. The 5% increase in nine month 2017 Montblanc product sales reflects the difficult period comparison, as we achieved a 23% increase in 2016 nine months sales when we launched our highly successful scent,brands, Montblanc Legend Spirit. Our second largest brand, Jimmy Choo, generatedMontblanc and Coach sales of $28.2 million and $87.6 million for the three and nine months ended September 30, 2017, respectively, representing an increase of 3%rose 63%, 28% and 24%, as compared to the corresponding periods of the prior year. The increase is due to two recent extensions,Jimmy Choo L’Eau for women andJimmy Choo Man Ice,as well as from solid sales of the brand’s established collections for men and women. Lanvin brand sales, although down 8% for the 2017 third quarter, are up 14% year-to-date resulting from gains in the brand’s best performing product line,Éclat d’Arpège, coupled with the international launch ofModern Princess. Lanvin brand sales aggregated $19.4 million and $52.4 million for the three and nine months ended September 30, 2017, respectively.
The excellent performance of our two newest brands, Coach and Rochas, is especially gratifying. Coach brand sales rose 34% over the comparable period last year and aggregated $18.6 million and $35.2 million for the three and nine months ended September 30, 2017, respectively. Strong sales of the Coach women’s line which rolled out in 2016, combined with the recent launch of the brand’s signature scent for men, generated the exceptional brand sales growth. Rochas fragrance sales aggregated $9.3 million and $29.6 million for the three and nine months ended September 30, 2017, respectively, representing an increase of 33% and 32%, as compared to the corresponding periods of the prior year. The dramatic increase in Rochas fragrance sales was primarily attributable to the strength of theEau de Rochas line and the successful rollout ofMademoiselle Rochas in approximately fifteen markets thus far.
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United States based product sales increased 2.0% and decreased 1.8% for the three and nine months ended September 30, 2017, respectively, as compared to the corresponding periods of the prior year. The quarterly and year-to-date comparisons are particularly difficult because in the second quarter of 2016, we commenced international distribution of our first ever Abercrombie & Fitch men’s scentFirst Instinct and the Hollister fragrance duo,Wave. The 2017 third quarter included initial shipments ofIcon Racing by Dunhill andFantasia by Anna Sui, which are expected to energize sales by U.S. operations for the remainder of the year.
We maintain confidence in our future and we have strengthened advertising and promotional investments supporting most portfolio brands and accelerated brand development. We plan to continue to build upon the strength of our brands and our worldwide distribution network.
Net Sales to Customers by Region | Nine months ended September 30, | |||||||
(In millions) | 2017 | 2016 | ||||||
North America | $ | 122.3 | $ | 106.4 | ||||
Western Europe | 121.8 | 115.5 | ||||||
Asia | 70.5 | 61.9 | ||||||
Middle East | 41.6 | 33.8 | ||||||
Central and South America | 42.4 | 35.0 | ||||||
Eastern Europe | 35.5 | 25.0 | ||||||
Other | 7.6 | 8.7 | ||||||
$ | 441.7 | $ | 386.3 |
Virtually all regions registered strong growth for the nine months ended September 30, 2017, as compared to the corresponding period of the prior year. SomeOur U.S. operations also had a strong start growing 19% off a high 2022 base when first quarter sales had expanded 77%. This increase was driven by the addition and extension of the strongest performing regions were the laggards of recent years, namely Eastern Europe, the Middle EastDonna Karan and Asia which increased 42%, 23%DKNY to our portfolio and 14%, respectively. Our largest markets, North Americadouble-digit growth for Ferragamo and Western Europe increased 15% and 6%, respectively.Oscar de la Renta, following successful brand extensions.
Gross margin | Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net sales | $ | 169.5 | $ | 157.6 | $ | 441.7 | $ | 386.3 | ||||||||
Cost of sales | 66.0 | 62.8 | 164.2 | 145.7 | ||||||||||||
Gross margin | $ | 103.5 | $ | 94.8 | $ | 277.5 | $ | 240.6 | ||||||||
Gross margin as a percent of net sales | 61 | % | 60 | % | 63 | % | 62 | % |
Gross profit margin was 61% and 63% of net sales for the three and nine months ended September 30, 2017, as compared to 60% and 62% for the corresponding periods of the prior year. For European operations, gross profit margin was 65% and 66% for the three and nine months ended September 30, 2017, as compared to 64% and 66% for the corresponding periods of the prior year.
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During the first quarter of 2023, we debuted Jimmy Choo Rose Passion and Montblanc Signature Absolue, which contributed to the double digit brand sales gains. Many of our mid-sized brands, including Boucheron, Ferragamo, Karl Lagerfeld, and Oscar de la Renta, also achieved double digit sales gains. Additionally, we introduced brand extensions within established lines for Abercrombie & Fitch, and MCM. After the challenging lockdowns, the progressive reopening of China buoyed the Ferragamo and Anna Sui brands.
As expected, the implementation of our enterprise resource planning software weighed on our quarterly results, impacting GUESS disproportionately, which was flat off a high base in 2022, but we have strong orders that we will be fulfilling during the second quarter. However, overall our first quarter started the year on a strong note, and we look forward to executing our plans for the remainder of the year. Our brands are in high demand in a robust environment for the fragrance industry. We have a large number of brand extensions across many of our brands launching throughout the year, plus Montblanc Explorer Platinum, Coach Green and Coach Love, later in the year. In sum, 2023 has all the earmarks of another superb year as the growth catalysts currently far outweigh the headwinds, most notably limited travel retail business and supply chain disruptions.
Net Sales to Customers by Region | Three months ended March 31, | |||||||
(In millions) | 2023 | 2022 | ||||||
North America | $ | 111.2 | $ | 81.5 | ||||
Western Europe | 77.2 | 63.6 | ||||||
Asia | 46.0 | 42.5 | ||||||
Middle East | 25.4 | 24.1 | ||||||
Central and South America | 26.2 | 18.3 | ||||||
Eastern Europe | 22.5 | 18.0 | ||||||
Other | 3.1 | 2.7 | ||||||
$ | 311.7 | $ | 250.7 |
First quarter sales in our largest market, North America, rose 36%, followed by Western Europe and Asia/Pacific where comparable quarter sales in both regions increased 21% and 8%, respectively. Our sales in Central and South America, Eastern Europe and the Middle East were also robust, up 43%, 25% and 5%, respectively. Additionally, our travel retail business is beginning to show signs of renewed life.
Gross Profit margin | Three months ended March 31, | |||||||
(in millions) | 2023 | 2022 | ||||||
European operations | ||||||||
Net sales | $ | 230.3 | $ | 182.2 | ||||
Cost of sales | 74.3 | 60.5 | ||||||
Gross margin | $ | 156.0 | $ | 121.7 | ||||
Gross margin as a % of net sales | 67.8 | % | 66.8 | % | ||||
United States operations | ||||||||
Net sales | $ | 81,4 | $ | 68.5 | ||||
Cost of sales | 34.5 | 31.6 | ||||||
Gross margin | $ | 46.9 | $ | 36.9 | ||||
Gross margin as a % of net sales | 57.6 | % | 53.9 | % |
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INTER PARFUMS, INC. AND SUBSIDIARIES
For European based operations, gross profit margin as a percentage of net sales was 67.8% and 66.8% in the first quarters of 2023 and 2022, respectively as we have benefited from our pricing actions and favorable exchange rate. We carefully monitor movements in foreign currency exchange rates as almost 45%more than 50% of our European based operations net sales are denominated in U.S. dollars, while most of our costs are incurred in euro. From a gross margin standpoint, a strong U.S. dollar has a positive effect on our gross profit margin while a weak U.S. dollar has a negative effect. The average dollar/euro exchange rate forwas 1.07 in the three and nine months ended September 30, 2017 was 1.17 and 1.11, respectively,2023 first quarter as compared to 1.12 for both corresponding periodsin the first quarter of the prior year giving rise to a slight decrease in gross margin as a percentage of sales for the three months ended September 30, 2017. This decrease however, was mitigated by increased gross margins from higher product sales made directly to retailers through our own distribution subsidiaries. Increased sales of Rochas brand fragrances was a major contributor as its sales are concentrated in France and Spain, both of which are countries where we distribute directly to retailers.2022.
For U.S.United States operations, gross profit margin was 47%57.6% and 48%53.9% in the first quarters of 2023 and 2022, respectively. The significant margin expansion stems from a number of factors. Firstly, for the threemost part, the price increases we took early 2023 weren’t offset by a higher cost of goods given our inventory coverage and nine months ended September 30, 2017, respectively,FIFO accounting. Secondly, we are seeing favorable brand and channel mix, as a higher portion of our sales are being sold directly to retailers as opposed to third-party distributors. Lastly, the significant increase in sales in the first quarter of 2023 allowed us to better absorb fixed expenses such as depreciation and point of sale expenses, as compared to 47% and 49% for the corresponding periodsperiod of the prior year. The decrease for
As previously mentioned, supply chain disruptions affecting the nine months ended September 30, 2017 is primarilyprocurement of components, the result ofability to transport goods, and related cost increases have and are expected to continue to have a decline innegative impact on sales of higher margin prestige products for Abercrombie & Fitch and Hollister.gross margin. While we have been addressing these issues and have implemented processes to mitigate the impact, prolonged disruption could have a material negative effect on our sales and gross margin.
Generally, we do not bill customers for shipping and handling costs, and such costs, which aggregated $1.8$3.9 million and $4.3$2.7 million for the three and nine months ended September 30, 2017,March 31, 2023 and 2022, respectively, as compared to $1.7 million and $3.9 million for the corresponding periods of the prior year, are included in selling, general and administrative expenses in the consolidated statements of income. As such, our Company’s gross profit may not be comparable to other companies, which may include these expenses as a component of cost of goods sold.
Selling, general and administrative expenses | Three months ended September 30, | Nine months ended September 30, | Three months ended March 31, | |||||||||||||||||||||
(In millions) | 2017 | 2016 | 2017 | 2016 | 2023 | 2022 | ||||||||||||||||||
European Operations | ||||||||||||||||||||||||
Selling, general and administrative expenses | $ | 70.3 | $ | 62.5 | $ | 203.7 | $ | 179.3 | $ | 77.3 | $ | 69.0 | ||||||||||||
Selling, general and administrative expenses as a percent of net sales | 41 | % | 40 | % | 46 | % | 46 | % | 33.6 | % | 37.9 | % | ||||||||||||
United States Operations | ||||||||||||||||||||||||
Selling, general and administrative expenses | $ | 35.4 | $ | 28.4 | ||||||||||||||||||||
Selling, general and administrative expenses as a percent of net sales | 43.5 | % | 41.5 | % |
Selling, general and administrative expenses increased 12% and 14% for the three and nine months ended September 30, 2017, respectively, as compared to the corresponding periods of the prior year. Selling, general and administrative expenses were 41% and 46% of net sales for the three and nine months ended September 30, 2017, as compared to 40% and 46% for the corresponding periods of the prior year. For European operations, selling, general and administrative expenses increased 16% and 18% for12.0% in the three and nine months ended September 30, 2017,2023 first quarter, as compared to the corresponding periodsperiod of the prior year, and represented 44%33.6% and 48%37.9% of net sales forin the three2023 and nine months ended September 30, 2017, as compared to 41% and 48% for the corresponding2022 periods, of the prior year.respectively. For U.S.United States operations, selling, general and administrative expenses were 32% and 39% of sales forincreased 24.7% in the three and nine months ended September 30, 2017,2023 first quarter, as compared to 34% and 40% for the corresponding periodsperiod of the prior year.year, and represented 43.5% and 41.5% of net sales in the 2023 and 2022 periods, respectively. As discussed in more detail below, the increased selling, general and administrative expenses as a percent of net sales are primarily the result of increases in promotion and advertising expenditures as well as the annualization impact of the structural investments in our US operations that we made throughout 2022 in order to support the new licenses of $4.0 million.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Promotion and advertising included in selling, general and administrative expenses aggregated $35.2 million and $34.2 million in the first quarters of 2023 and 2022, respectively, and represented 15%11.3% and 18%13.6% of net sales forin the three2023 and nine months ended September 30, 2017, respectively, as compared to 13% and 16% for the corresponding2022 periods, of the prior year.respectively. Promotion and advertising expenses aggregated $26.2 millionare integral parts of our industry, and $79.6 million for the three and nine months ended September 30, 2017, respectively, as comparedwe continue to $20.8 million and $61.9 million for the corresponding periods of the prior year. The increase in 2017 is the result of expenditures incurred within our European operations in connection withinvest heavily to support new product launches in 2017.and to build brand awareness. We have significantbelieve that our promotion and advertising programs underway for the final quarterefforts have had a beneficial effect on online net sales. All of 2017,our brands have benefitted from newly launched and enhanced e-commerce sites in existing markets in collaboration with our retail customers on their e-commerce sites. We also continue to develop and implement omnichannel concepts and compelling content to deliver an integrated consumer experience. We anticipate that on a full year basis, promotion and advertising expenditureexpenditures will aggregate approximately 21% of 2017 net sales.sales, which is in line with pre-COVID historical averages.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Royalty expense included in selling, general and administrative expenses aggregated $11.2 million and $29.2$24.1 million for the three and nine months ended September 30, 2017, respectively,March 31, 2023, as compared to $11.1 million and $27.7$19.4 million for the corresponding periods of the prior year. Royalty expense represented 6.6%7.7% of net sales for both the three and nine months ended September 30, 2017, as compared to 7.0%March 31, 2023 and 7.2% of net sales for the corresponding periods of the prior year. The decline in royalty expense as a percentage of sales relates primarily to a lower minimum guaranteed royalty in the renewal of the S.T. Dupont license and the exit2022.
Income from the Balmain license.Operations
Service fees relating to the activities of our distribution subsidiaries aggregated $2.9 million and $8.2 million for the three and nine months ended September 30, 2017, respectively, as compared to $2.7 million and $7.2 million for the corresponding periods of the prior year. As a percentage of sales, service fees represented 1.7% and 1.9% for the three and nine months ended September 30, 2017, unchanged from that of the corresponding periods of the prior year.
As a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, income from operations increased 20% to $73.8 millionour operating margins aggregated 29.0% and 24.4% for the nine months ended September 30, 2017, as compared to $61.3 million for the corresponding period of the prior year. For the three months ended September 30, 2017, income from operations increased 3% to $33.2 million, as compared to $32.3 million for the corresponding period of the prior year. Operating margins were 20%March 31, 2023 and 17% of net sales for the three and nine months ended September 30, 2017, respectively, as compared to 20% and 16% for the corresponding periods of the prior year.2022, respectively.
Other Income and Expense
InterestTraditionally, interest expense aggregated $0.5 million and $1.5 million for the three and nine months ended September 30, 2017, respectively, as compared to $0.5 million and $2.2 million for the corresponding periods of the prior year. Interest expense iswas primarily related to the financing of brand and licensing acquisitions. However, in April 2021, we completed the Rochas brand acquisition andof the headquarters of Interparfums SA. The acquisition was financed by a 10-year €120 million (approximately $130.5 million) bank loan which bears interest at one-month Euribor plus 0.75%. Also in 2021, approximately €80 million of the variable rate debt was swapped for the nine months ended September 30, 2016, includesvariable rate debt with a $0.2 million loss relating to themaximum interest rate of 2%. The swap as comparedeffectively exchanges the variable interest rate to a $0.4 million gain in the 2017 period. We use the credit lines available to us, as needed, to finance our working capital needs as well as our financing needs for brand acquisitions. Long-term debt including current maturities aggregated $65.6 million and $84.7 million asfixed rate of September 30, 2017 and 2016, respectively.approximately 1.1%.
Foreign currency loss aggregated $0.3 and $1.3 million for the three and nine months ended September 30, 2017, respectively, as compared to $0.3 million and $0.4 million for the corresponding periods of the prior year. We typically enter into foreign currency forward exchange contracts to manage exposure related to receivables from unaffiliated third parties denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Gains and losses on foreign currency transactions have not been significant. Above 50% of net sales of our European operations are denominated in U.S. dollars.
Interest and investment (income) loss represents interest earned on cash and cash equivalents and short-term investments. As of March 31, 2022, short-term investments include approximately $20.7 million of marketable equity securities of other companies in the luxury goods sector. In the first quarter of 2023, the Company sold these marketable securities which generated a gain of $3.1 million. Interest and investment (income) loss for the three months ended March 31, 2023, includes approximately $3.4 million of losses on such marketable equity securities.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Interest income aggregated $0.6 millionIncome Taxes
Our consolidated effective tax rate was 23.4% and $2.8 million24.4% for the three and nine months ended September 30, 2017, respectively, as compared to $0.8 million and $2.7 million for the corresponding periods of the prior year. Cash and cash equivalents and short-term investments are primarily invested in certificates of deposit with varying maturities.
Income Taxes
As previously reported, the French Tax Authorities examined the 2012 tax return of Interparfums SA, and in August 2015 issued a $6.9 million tax adjustment. The main issues challenged by the French Tax Authorities related to the commission rate and royalty rate paid to Interparfums Singapore Pte. and Interparfums (Suisse) SARL, respectively. Due to the subjective nature of the issues involved, in April 2016, Interparfums SA reached an agreement in principle to settle the entire matter with the French Tax Authorities. The settlement required Interparfums SA to pay a tax assessment of $1.9 million covering the issues for not only the 2012 tax year, but also covering the issues for the tax years ended 2013 through 2015. The settlement, which was finalized by the French Tax Authorities in the first quarter of 2017, was accrued as of March 31, 20162023 and income tax expense for the nine months ended September 30, 2016 includes the $1.9 million settlement.2022, respectively.
Excluding the 2016 settlement, ourThe effective income tax rate for European operations was 33%25% for both the three and nine months ended September 30, 2017,March 31, 2023 and 2022.
Our effective tax rate for U.S. operations was 12.7% for the three months ended March 31, 2023, as compared to 33% and 34%20.7% for the corresponding periodsperiod of the prior year. Our effective tax rates differrate differs from the 21% statutory ratesrate due to benefits received from the effectexercise of stock options as well as deductions we are allowed for a portion of our foreign derived intangible income, slightly offset by state and local taxes and tax rates in foreign jurisdictions. Wetaxes.
Other than as discussed above, we did not experience any significant changes in tax rates, during the period, and none were expected in jurisdictions where we operate.
Net Income
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
(In thousands) | ||||||||
Net income attributable to European operations | $ | 60,565 | $ | 39,776 | ||||
Net income attributable to United States operations | 10,343 | 6,515 | ||||||
Net income | 70,908 | 46,291 | ||||||
Less: Net income attributable to the noncontrolling interest | 16,840 | 10,992 | ||||||
Net income attributable to Inter Parfums, Inc. | $ | 54,068 | $ | 35,299 |
Net income attributable to European operations was $60.6 million and earnings per share
(In thousands except per share data) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income European operations | $ | 18,435 | $ | 18,629 | $ | 44,347 | $ | 33,852 | ||||||||
Net income U.S. operations | 3,668 | 2,850 | 5,134 | 4,804 | ||||||||||||
Net income | 22,103 | 21,479 | 49,481 | 38,656 | ||||||||||||
Less: Net income attributable to the noncontrolling interest | 5,026 | 5,240 | 12,287 | 9,252 | ||||||||||||
Net income attributable to Inter Parfums, Inc. | $ | 17,077 | $ | 16,239 | $ | 37,194 | $ | 29,404 | ||||||||
Earnings per share: | ||||||||||||||||
Net income attributable to Inter Parfums, Inc. common shareholders: | ||||||||||||||||
Basic | $ | 0.55 | $ | 0.52 | $ | 1.19 | $ | 0.95 | ||||||||
Diluted | $ | 0.55 | $ | 0.52 | $ | 1.19 | $ | 0.94 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 31,175 | 31,080 | 31,163 | 31,058 | ||||||||||||
Diluted | 31,307 | 31,171 | 31,281 | 31,138 |
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INTER PARFUMS, INC. AND SUBSIDIARIES
Net income increased 3% to $22.1$39.8 million for the three months ended September 30, 2017, as comparedMarch 31, 2023 and 2022, respectively, while net income attributable to $21.5United States operations was $10.3 million and $6.5 million for the corresponding period of the prior year. Net income increased 28% to $49.5 million for the ninethree months ended September 30, 2017, as compared to $38.7 million for the corresponding period of the prior year.March 31, 2023 and 2022, respectively. The reasons for significant fluctuations in net income for both European operations and United States operations are directly related to the previous discussions relatingpertaining to changes in sales, gross margin, selling, general and administrative expenses and the settlement with the French Tax Authorities. As previously discussed, European based product sales increased 19% for the nine months ended September 30, 2017, as compared to the corresponding period of the prior year, while gross profit margins as a percentage of sales for European operations were relatively unchanged and selling general and administrative expenses increased 18% for the period. In addition, for our European operations, net income for the nine months ended September 30, 2016, includes the effect of the $1.9 million income tax settlement with the French Tax Authorities.
With respect to our United States operations, for the nine months ended September 30, 2017, sales declined 2% while gross margin, and selling, general and administrative expenses both declined 1% as a percentage of sales, as compared to the corresponding period of the prior year.expenses.
The noncontrolling interest arises from our 73%72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 27%28% of Interparfums SA shares trade on the NYSE Euronext. The noncontrolling interest is also affected by the profitability of Interparfums SA’s 51% owned distribution subsidiaries in Germany and Spain. Net income attributable to the noncontrolling interest is directly related to the profitability of our European operations and aggregated 27%27.8% and 28%27.6% of European operations’operations net income for the three and nine months ended September 30, 2017, respectively, as compared to 28%March 31, 2023 and 27% for the corresponding periods of the prior year.
Adjusted2022, respectively. Net Income Attributable to Inter Parfums, Inc.
Adjusted Net Income Attributable to Inter Parfums, Inc., is deemed a “non-GAAP financial measure” under the rules of the Securities and Exchange Commission. This non-GAAP measure is calculated using GAAP amounts derived from our consolidated financial statements. Adjusted net incomemargins attributable to Inter Parfums, Inc. has limitationsas of March 31, 2023 and should not be considered in isolation or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of adjusted income may not be comparable to a similarly titled measure of other companies.2022 aggregated 17.3% and 14.1%, respectively.
Adjusted Net Income Attributable to Inter Parfums, Inc. Reconciliation
Adjusted net income attributable to Inter Parfums, Inc. is defined as net income attributable to Inter Parfums, Inc., plus the 2016 nonrecurring tax settlement, net of the portion of the settlement attributable to the noncontrolling interest. We believe that certain investors consider adjusted net income attributable to Inter Parfums, Inc. a useful means of evaluating our financial performance.
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INTER PARFUMS, INC. AND SUBSIDIARIES
The following table provides a reconciliation of net income attributable to Inter Parfums, Inc. to adjusted net income attributable to Inter Parfums, Inc.
(in thousands except per share data) | Nine Months Ended September 30, | |||||||
2017 | 2016 | |||||||
Net income attributable to Inter Parfums, Inc. | $ | 37,194 | $ | 29,404 | ||||
Nonrecurring tax settlement (net of portion attributable to the noncontrolling interest of $500) | — | 1,400 | ||||||
Adjusted net income attributable to Inter Parfums, Inc. | $ | 37,194 | $ | 30,804 | ||||
Adjusted net income attributable to Inter Parfums, Inc. common stockholders: | ||||||||
Basic | $ | 1.19 | $ | 0.99 | ||||
Diluted | $ | 1.19 | $ | 0.99 | ||||
Weighted average number of shares outstanding: | ||||||||
Basic | 31,163 | 31,058 | ||||||
Diluted | 31,281 | 31,138 | ||||||
Liquidity and Capital Resources
The Company’sOur conservative financial position remains strong. At September 30, 2017, working capital aggregated $377 million andtradition has enabled us to amass significant cash balances. As of March 31, 2023, we had a working capital ratio of 3.4 to 1. Cash and$238 million in cash, cash equivalents and short-term investments, aggregated $231 million, most of which is held in euro by our European operations and is readily convertible into U.S. dollars. We have not had any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments. As of March 31, 2023, short-term investments held by our European operations.include approximately $0.7 million of marketable equity securities.
As of March 31, 2023, working capital aggregated $489 million and we had a working capital ratio of 2.4 to 1. Approximately 88%80% of the Company’s total assets are held by European operations, and approximately $191$253 million of trademarks, licenses and other intangible assets are also held by European operations.
The Company is party to a number of license and other agreements for the use of trademarks and rights in connection with the manufacture and sale of its products expiring at various dates through 2039. In connection with certain of these license agreements, the Company is subject to minimum annual advertising commitments, minimum annual royalties and other commitments. See Item 8. Financial Statements and Supplementary Data – Note 12 – Commitments in our 2022 annual report on Form 10-K, which is incorporated by reference herein. Future advertising commitments are estimated based on planned future sales for the license terms that were in effect at December 31, 2022, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.
The Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a proprietary basis or as a licensee. OpportunitiesIn December 2022, we entered into a long-term global licensing agreement for external growth continue to be examined, with the prioritycreation, development and distribution of maintainingfragrances and fragrance-related products under the quality and homogeneous nature of our portfolio. However, we cannot assure you that anyLacoste brand. This new license or acquisition agreements will be consummated.takes effect January 2024.
Cash used in operating activities aggregated $16.1$7.4 million and $12.6$23.9 million for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. For the ninethree months ended September 30, 2017,March 31, 2023, working capital items used $70.9$84.8 million in cash from operating activities, as compared to $57.0$73.2 million in the 20162022 period. As usual, the most significant usage for both periods relates to the increase in accounts receivables as of September as compared to that of the prior December year end. This is expected and reflects the seasonality in our business whereby sales in the third quarter are significantly higher than those in the fourth quarter. Although as set forth on thefrom a cash flow statement,perspective accounts receivable shows a 41% increaseis up 22% from 2016 year end 2022, the September 31, 2017 ending balance is reasonable based on thirdfirst quarter 20172023 record sales levels and reflects continued strongreasonable collection activity as day’s sales outstanding is relatively unchanged at 87was 69 days, as compared to 85down slightly from 75 days forin the corresponding period of the prior year. We continue to monitor collection activities actively and adjust customer credit limitsFrom a cash flow perspective, inventory levels as needed. Inventory levels are up approximately 28%of March 31, 2023, increased 10% from 2016 year end and reflect levels2022. Although inventories include components needed to support sales expectations and our new product launches.launches, the overall balance is lower than historic levels due primarily to supply chain disruptions. We have been addressing this issue since the beginning of 2021, by ordering well in advance of need and in larger quantities. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Cash flows used inprovided by investing activities in 20172023 reflect the purchasepurchases and sales in our European operations, of short-term investments. These investments are primarilyinclude certificates of deposit with maturities greater than three months. Approximately $62$40 million of such certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Our business is not capital intensive as we do not own any manufacturing facilities. However, onOn a full year basis, we typically spend approximately $4.0$5.0 million on tools and molds, depending on our new product development calendar. Capital expenditures also include amounts for office fixtures, computer equipment and industrial equipment needed at our distribution centers. In December 2016, the Company agreed to a buyout of its Balmain license, effective December 31, 2016, for a payment aggregating €5.4 million (approximately $5.9 million). The Company received the buyout payment in May 2017.
In connection with the 2015 acquisition of the Rochas brand, we entered into a 5-year term loan payable in equal quarterly installments of €5.0 million ($5.9 million) plus interest. In order to reduce exposure to rising variable interest rates, the Company entered into a swap transaction effectively exchanging the variable interest rate to a fixed rate of approximately 1.2%. The swap is a derivative instrument and is therefore recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income.
Our short-term financing requirements are expected to be met by available cash on hand at September 30, 2017, cash generated by operationsMarch 31, 2023, and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 20172023 consist of a $20.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $30.0$28 million in credit lines provided by a consortium of international financial institutions. There werewas $18 million of short-term borrowings outstanding pursuant to these facilities as of March 31, 2023 and no short-term borrowings outstanding as of both September 30, 2017 and September 30, 2016.March 31, 2022.
In October 2016,April 2020, as a result of the uncertainties raised by the COVID-19 pandemic, the Board of Directors authorized a 13%temporary suspension of the quarterly cash dividend. In February 2021, our Board of Directors authorized a reinstatement of an annual dividend of $1.00, payable quarterly and in February 2022, our Board authorized a 100% increase in the annual dividend to $0.68$2.00 per share and in October 2017,share. In February 2023 the Board authorized aof Directors further 24% increase inincreased the annual dividend to $0.84$2.50 per share. The next quarterly cash dividend of $0.21$0.625 per share is payable on January 15, 2018June 30, 2023, to shareholders of record on December 29, 2017. Dividends paid also include dividends paid once per year to the noncontrolling shareholders of Interparfums SA, which aggregated $5.9 million and $4.9 million for the nine months ended September 30, 2017 and 2016, respectively. The annual cash dividends represent a small part of our cash position and are not expected to have any significant impact on our financial position.June 15, 2023.
We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.
Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the ninethree months ended September 30, 2017.March 31, 2023.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Item 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
General
We address certain financial exposures through a controlled program of risk management that primarily consists of the use of derivative financial instruments. We primarily enter into foreign currency forward exchange contracts in order to reduce the effects of fluctuating foreign currency exchange rates. We do not engage in the trading of foreign currency forward exchange contracts or interest rate swaps.
Foreign Exchange Risk Management
We periodically enter into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and to manage risks related to future sales expected to be denominated in a currency other than our functional currency. We enter into these exchange contracts for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the receivables and cash flows of Interparfums SA, 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.
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.
At September 30, 2017,March 31, 2023, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $22.6$37.0 million and GB £11.5 million which all havewith maturities of less than one year. We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote.
Interest Rate Risk Management
We mitigate interest rate risk by monitoring interest rates, and then determining whether fixed interest rates should be swapped for floating rate debt, or if floating rate debt should be swapped for fixed rate debt. We entered into an interest rate swap in June 2015 on €100 million of debt, effectively exchanging the variable interest rate to a fixed rate of approximately 1.2%. This derivative instrument is recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Item 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based on their review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our Company’s disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the quarterly period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Item (c).
Inter Parfums, Inc. Purchase of Common Stock1 | ||||||||||||||
Period | Total Number of Shares Purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs | ||||||||||
January 1-31 | 16,060 | $ | 110.63 | 16,060 | 150,000 shares | |||||||||
February 1-28 | 0 | n/a | 16,060 | 150,000 shares | ||||||||||
March 1-31 | 27,000 | $ | 140.87 | 43,060 | 123,000 shares | |||||||||
Total | 43,060 | $ | 129.59 | 43,060 | 123,000 shares |
Items 1. Legal Proceedings, 1A. Risk Factors, 3. Defaults Upon Senior Securities, 4. Mine Safety Disclosures and 5. Other Information, are omitted as they are either not applicable or have been included in Part I.
1 All shares were purchased in open market transactions.
On September 12, 2017, we granted an option to purchase 2,000 shares for a five year period at the exercise price of $40.15 per share, the fair market value of our common stock on the date of grant, to one nonemployee director who was elected to our board of directors for the first time, under our 2004 Nonemployee Director Stock Option Plan. Such option vests 25% each year over a four year period on a cumulative basis. This transaction was exempt from the registration requirements of Section 5 of the Securities Act under Sections 4(2) and 4(6) of the Securities Act. The option holder agreed that, if the option is exercised, the option holder would purchase her common stock for investment and not for resale to the public.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Item 6. Exhibits.
The following documents are filed herewith:
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SIGNATURESINTER PARFUMS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 8th day of November 2017.May 2023.
INTER PARFUMS, INC. | |||
By: | /s/ | ||
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