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2005
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2004
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| Selling, general & administrative |
$ 31.6
|
|
$ 18.6
|
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Selling, general & administrative
as a % of net sales |
44%
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32%
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Selling, general and administrative expense increased 70% for the three-month period ended March 31, 2005, as
compared to the corresponding period of the prior year. As a percentage of sales selling, general and administrative was
44% and 32% of sales for the three-month period ended March 31, 2005 and 2004, respectively. The increase in selling,
general and administrative expenses as a percentage of sales for 2005 is primarily the result of increased royalties and
increased advertising expenditure requirements under our new license with Burberry. Royalty expense, included in selling,
general, and administrative expenses, aggregated $7.7 million and $3.4 million, for the three-month period ended March
31, 2005 and 2004, respectively. Promotion and advertising included in selling, general and administrative expenses was
approximately $11.1 million and $4.6 million for the three-month period ended March 31, 2005 and 2004, respectively.
We develop a complete marketing and promotional plan to support our growing portfolio of prestige brands and to build
upon each brand's awareness.
As a result of the details discussed above about gross margin and selling, general and administrative expenses,
income from operations decreased 11% or $1.1 million for the three-month period ended March 31, 2005, as compared to
the corresponding period of the prior year. Operating margins were 12.7% of net sales in the current period as compared
to 17.4% in the corresponding period of the prior year.
Interest expense aggregated $0.2 million and $0.1 million for the three-month period ended March 31, 2005 and
2004, respectively. We use the credit lines available to us, as needed, to finance our working capital needs. In July 2004,
Inter Parfums, S.A. entered into a 16 million euro, five-year credit agreement. In order to reduce exposure to rising variable
interest rates, Inter Parfums, S.A. entered into a swap transaction effectively exchanging a three-month variable interest rate
to a variable rate based on the 12 month EURIBOR rate with a floor of 3.25% and a ceiling of 3.85%. This derivative
instrument is recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of
income.
Foreign currency gains or (losses) aggregated $0.1 million and ($0.4) million for the three-month period ended
March 31, 2005 and 2004, respectively. We enter into foreign currency forward exchange contracts to manage exposure
related to certain foreign currency commitments.
Our effective income tax rate was 35.2% and 35.5% for the three-month period ended March 31, 2005 and 2004,
respectively. Our effective tax rates differ from statutory rates due to the effect of state and local taxes and tax rates in
foreign jurisdictions which are slightly higher than those in the United States. No significant changes in tax rates were
experienced nor were any expected in jurisdictions where we operate.
Net income was $4.4 million for the three months ended March 31, 2005, as compared to $4.8 million for the
corresponding period of the prior year. As we have stated above, we have incurred increased selling, general and
administrative expenses, which are primarily the result of increased royalties and increased advertising expenditure
requirements under our new license with Burberry. We believe these are the most significant factors that have led to the
decrease in net income for this quarter.
Diluted earnings per share was $0.22 for the three months ended March 31, 2005, as compared to $0.23 for the
corresponding period of the prior year.
Weighted average shares outstanding aggregated 19.7 million for the three months ended March 31, 2005, as
compared to 19.2 million for the corresponding period of the prior year. On a diluted basis, average shares outstanding were
20.4 million for the three months ended March 31, 2005, as compared to 20.6 million for the corresponding period of the
prior year. The decrease in diluted shares outstanding is the result of the effect of dilutive securities resulting from a
decrease in our stock price. The average stock price of our common shares was $15.00 per share for the three-month period
ended March 31, 2005, as compared to $25.00 per share for the corresponding period of the prior year.
Liquidity and Financed Resources
Our financial position remains strong. At March 31, 2005, working capital aggregated $129 million and we had a
working capital ratio of almost 3 to 1. Cash and cash equivalents and short-term investments aggregated $49.0 million.
The Company reclassified investments in auction rate securities that were previously classified as cash and cash
equivalents to short-term investments. The consolidated statements of cash flows for the three months ended March 31,
2004, was adjusted to reflect the impact of the reclassification. Auction rate securities are comprised of preferred stock,
which pay a variable dividend rate that is reset every 49 days through an auction process.
In April 2004, Inter Parfums, S.A. acquired a 67.5% interest in Nickel for approximately $4.5 million, net of cash
acquired. We funded this acquisition with cash on hand. In accordance with the purchase agreement, each of the minority
shareholders has an option to put their remaining interest in Nickel to Inter Parfums, S.A. from January 2007 through
June 2007. Based on an independent valuation, management has valued the put options as of the date of acquisition. These
options are carried at fair value as determined by management.
The purchase price for the minority shares will be based upon a formula applied to Nickel's sales for the year ending
December 31, 2006, pro rated for the minority holders' equity in Nickel or at a price approximately 7% above the recent
purchase price.
In July 2004, Inter Parfums, S.A. entered into a 16 million euro, five-year credit agreement. In order to reduce
exposure to rising variable interest rates, Inter Parfums, S.A. entered into a swap transaction effectively exchanging a three-month variable interest rate to a variable rate based on the 12 month EURIBOR rate with a floor of 3.25% and a ceiling of
3.85%. This derivative instrument is recorded at fair value and changes in fair value are reflected in the accompanying
consolidated statements of income.
Cash provided by (used in) operating activities aggregated $8.5 million and ($5.1) million for the three-month period
ended March 31, 2005 and 2004, respectively. At March 31, 2005, cash flows from operating activities shows that accounts
receivable and inventories increased 8% and 2%, respectively, from December 31, 2004. These increases are reasonable
considering that net sales for the three months ended March 31, 2005 was up 22% from the corresponding period of the
prior year and up 10% from net sales for the three months ended December 31, 2004.
The use of cash in operating activities for 2004 reflects a significant decline in accounts payable. An inventory
buildup during the fourth quarter of 2003 was made to meet our sales commitments in early 2004. This buildup was
financed primarily through normal credit terms with our vendors, and therefore did not have any significant impact on our
cash flows from operations for the year ended December 31, 2003. The impact of that inventory buildup was however felt
in the first quarter of 2004 as our vendor's bills became due.
Cash flows used in investing activities, reflects purchases of short-term investments and capital expenditures.
Capital expenditures aggregated $1.3 million and $0.6 million for the three-month periods ended March 31, 2005 and 2004,
respectively. Our business is not capital intensive and we do not own any manufacturing facilities. We typically spend
between $2.0 and $3.0 million per year on tools and molds, depending on our new product development calendar. The
balance of capital expenditures is for office fixtures, computer equipment and industrial equipment needed at our
distribution centers.
In March 2005, our board of directors increased the cash dividend to $.16 per share, approximately $3.1 million per
annum, payable $.04 per share on a quarterly basis. Our first cash dividend of $.04 per share was paid on April 15, 2005
to shareholders of record on March 31, 2005. Dividends paid aggregated $0.6 million and $0.4 million for the three-month
period ended March 31, 2005 and 2004, respectively. This increased cash dividend in 2005 represents a small part of our
cash position and is not expected to have any significant impact on our financial position.
Our short-term financing requirements are expected to be met by available cash at March 31, 2005, cash generated
by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2005
consist of a $12.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately
$45.0 million in credit lines provided by a consortium of international financial institutions. Actual borrowings under these
facilities have been minimal as we typically use our working capital to finance all of our cash needs.
We believe that funds generated from operations, supplemented by our present cash position and available credit
facilities, will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.
Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating
results for the period ended March 31, 2005.
Contractual Obligations
We lease our office and warehouse facilities under operating leases expiring through 2013. Obligations pursuant
to these leases for the years ended December 31, 2005, 2006, 2007, 2008, 2009 and thereafter are $5.1 million, $5.6 million,
$5.6 million, $5.7 million, $5.7 million and $10.5 million, respectively.
We are obligated under a number of license agreements for the use of trademarks and rights in connection with the
manufacture and sale of our products. Obligations pursuant to these license agreements for the years ended December 31,
2005, 2006, 2007, 2008, 2009 and thereafter are $25.7 million, $27.8 million, $30.8 million, $32.0 million, $33.3 million
and $247.3 million, respectively.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
We address certain financial exposures through a controlled program of risk management that primarily consists
of the use of derivative financial instruments. Our French subsidiary primarily enters into foreign currency forward exchange
contracts in order to reduce the effects of fluctuating foreign currency exchange rates. We do not engage in the trading of
foreign currency forward exchange contracts or interest rate swaps.
Foreign Exchange Risk Management
We periodically enter into foreign currency forward exchange contracts to hedge exposure related to receivables
denominated in a foreign currency and to manage risks related to future sales expected to be denominated in a foreign
currency. We enter into these exchange contracts for periods consistent with our identified exposures. The purpose of the
hedging activities is to minimize the effect of foreign exchange rate movements on the receivables and cash flows of Inter
Parfums, S.A., our French subsidiary, whose functional currency is the Euro. All foreign currency contracts are denominated
in currencies of 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, the changes in fair
value of the derivative instrument will be recorded in other comprehensive income.
Before entering into a derivative transaction for hedging purposes, we determine that the change in the value of the
derivative will effectively offset the change in the fair value of the hedged item from a movement in foreign currency rates.
Then, we measure the effectiveness of each hedge throughout the hedged period. Any hedge ineffectiveness is recognized
in the income statement.
We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote and
in any event would not be material. The contracts have varying maturities with none exceeding one year. Costs associated
with entering into such contracts have not been material to our financial results. At March 31, 2005, we had foreign currency
contracts in the form of forward exchange contracts in the amount of approximately U.S. $27.9 million and GB Pounds 2.4
million.
Interest Rate Risk Management
We mitigate interest rate risk by continually monitoring interest rates, and then determining whether fixed interest
rates should be swapped for floating rate debt, or if floating rate debt should be swapped for fixed rate debt. We have
entered into one (1) interest rate swap to reduce exposure to rising variable interest rates, by effectively exchanging the
variable interest rate of 0.6% above the three month EURIBOR rate on our long-term to a variable rate based on the 12
month EURIBOR rate with a floor of 3.25% and a ceiling of 3.85%. This derivative instrument is recorded at fair value and
changes in fair value are reflected in the accompanying consolidated statements of income.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our
disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rule 13a-14(c)) as of the end of the
period covered by this quarterly report on Form 10-Q (the "Evaluation Date"). Based on their review and evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our Company's
disclosure controls and procedures were adequate and effective to ensure that material information relating to our Company
and its consolidated subsidiaries would be made known to them by others within those entities, so that such material
information is recorded, processed and reported in a timely manner, particularly during the period in which this quarterly
report on Form 10-Q was being prepared, and that no changes were required at this time.
Changes in Internal Controls
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarterly period covered by this report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Part II. Other Information
Items 1, 3, 4 and 5 are omitted as they are either not applicable or have been included in Part I.
Item 2. Changes in Securities and Use of Proceeds
For the period consisting of the date of the filing, March 16, 2005, of our annual report on Form 10-K for the year
ended December 31, 2004, through the date of this report, we issued the following unregistered equity securities.
We granted options to affiliates (executive officers) and employees. The grants were exempt from the registration
requirements of Section 5 of the Securities Act under Sections 4(2) and 4(6) of the Securities Act. Each option holder
agreed that, if the option is exercised, the option holder would purchase his common stock for investment and not for resale
to the public. Also, we provide all option holders with all reports we file with the SEC and press releases issued by us.
On April 20, 2005, we granted options to purchase an aggregate of 187,400 shares for a five-year period at the
exercise price of $14.95 per share, the fair market value at the time of grant, to 40 employees, and 5 current executive
officers under our 2004 Stock Option Plan.
Item 6. Exhibits.
The following documents are filed herewith:
| Exhibit No. |
Description |
|
|
| 31 |
Certifications required by Rule 13a-14(a) |
|
|
| 32 |
Certification Required by Section 906 of the Sarbanes-Oxley Act |
|
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized on the 9th day of May 2005.
|
INTER PARFUMS, INC. |
By: |
/s/ Russell Greenberg
Executive Vice President and
Chief Financial Officer
|
Exhibit 31
CERTIFICATIONS
I, Jean Madar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Inter Parfums, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based upon such
evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth quarter in case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 9, 2005
/s/ Jean Madar
Jean Madar,
Chief Executive Officer
I, Russell Greenberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Inter Parfums, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report
based upon such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth quarter in case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: May 9, 2005
/s/ Russell Greenberg
Russell Greenberg
Chief Financial Officer and
Principal Accounting Officer
Exhibit 32
CERTIFICATION
Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Inter Parfums, Inc., that the Quarterly Report of Inter
Parfums, Inc. on Form 10-Q for the period ended March 31, 2005, fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material
respects, the financial condition and results of operation of Inter Parfums, Inc.
Date: May 9, 2005
|
By:
|
/s/ Jean Madar
Jean Madar
Chief Executive Officer |
|
|
|
Date: May 9, 2005
|
By:
|
/s/ Russell Greenberg
Russell Greenberg
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer |
|
|
|
A signed original of this written statement required by Section 906 has been provided to Inter Parfums, Inc. and will
be retained by Inter Parfums, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.