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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2002.
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.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3275609
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
551 FIFTH AVENUE, NEW YORK, NEW YORK 10176
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(Address of Principal Executive Offices) (Zip Code)
(212) 983-2640
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(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes _X_ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At November 6, 2002 there were 18,780,782 shares of common stock, par value
$.001 per share, outstanding.
INTER PARFUMS, INC. AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements 1
Consolidated Balance Sheets as of
September 30, 2002 (unaudited) and
December 31, 2001 (audited) 2
Consolidated Statements of Income for
the Three and Nine Months Ended
September 30, 2002 (unaudited) and
September 30, 2001 (unaudited) 3
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 2002 (unaudited) and
September 30, 2001 (unaudited) 4
Notes to Unaudited Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
Item 4. Controls and Procedures 16
Part II. Other Information 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Signatures 19
Certifications 20
INTER PARFUMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
In our opinion, the accompanying unaudited consolidated condensed financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly our financial position, results of
operations and cash flows for the interim periods presented. We have condensed
such financial statements in accordance with the rules and regulations of the
Securities and Exchange Commission. Therefore, such financial statements do not
include all disclosures required by generally accepted accounting principles.
These financial statements should be read in conjunction with our audited
financial statements for the year ended December 31, 2001 included in our annual
report filed on Form 10-K.
The results of operations for the nine months ended September 30, 2002 are not
necessarily indicative of the results to be expected for the entire fiscal year.
Page 1
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2002 2001
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $30,996,744 $28,562,296
Accounts receivable, net 44,235,654 31,222,907
Inventories 33,899,183 27,644,960
Receivables, other 1,187,260 944,220
Other 2,464,573 1,362,352
Income taxes receivable 815,309 2,633,000
Deferred tax benefit 1,261,500 1,360,000
------------ ------------
Total current assets 114,860,223 93,729,735
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 4,101,133 3,895,733
OTHER ASSETS 331,941 304,928
DEFERRED TAX BENEFIT 305,500 767,000
INTANGIBLE ASSETS, NET 6,889,105 3,841,707
------------ ------------
$126,487,902 $102,539,103
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable, banks $4,824,016 $1,308,086
Accounts payable 19,851,977 15,512,938
Accrued expenses 11,102,168 7,960,117
Income taxes payable 1,191,748 746,684
------------ ------------
Total current liabilities 36,969,909 25,527,825
------------ ------------
DEFERRED TAXES PAYABLE 816,291 739,353
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION 1,571,680 1,365,633
------------ ------------
MINORITY INTERESTS 12,094,078 9,817,925
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par; authorized 30,000,000 shares;
outstanding 18,780,782 and 18,692,269 shares at
September 30, 2002 and December 31, 2001, respectively 18,781 18,692
Additional paid-in capital 32,738,077 32,469,587
Retained earnings 72,569,603 66,786,620
Accumulated other comprehensive income (4,147,267) (8,043,282)
Treasury stock, at cost, 7,492,463
shares at September 30, 2002 and
December 31, 2001 (26,143,250) (26,143,250)
------------ ------------
75,035,944 65,088,367
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$126,487,902 $102,539,103
============ ============
SEE NOTES TO FINANCIAL STATEMENTS.
Page 2
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
NET SALES 37,373,822 $27,628,127 $93,234,277 $84,931,066
COST OF SALES 20,913,855 14,347,431 50,260,599 43,477,828
----------- ----------- ----------- -----------
GROSS MARGIN 16,459,967 13,280,696 42,973,678 41,453,238
SELLING, GENERAL AND ADMINISTRATIVE 11,447,770 9,530,447 30,545,582 30,632,839
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 5,012,197 3,750,249 12,428,096 10,820,399
----------- ----------- ----------- -----------
OTHER CHARGES (INCOME):
Interest 90,417 71,382 339,858 201,057
(Gain) loss on foreign currency 16,165 157,867 73,574 (18,410)
Interest and dividend (income) (107,323) (197,380) (437,244) (848,699)
Loss on sale of stock of subsidiary, net 5,382 85,805
Realized (gain) on sale of investments
----------- ----------- ----------- -----------
(741) 31,869 (18,430) (580,247)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 5,012,938 3,718,380 12,446,526 11,400,646
INCOME TAXES 1,766,809 1,408,964 4,421,014 4,272,886
----------- ----------- ----------- -----------
NET INCOME BEFORE MINORITY INTEREST 3,246,129 2,309,416 8,025,512 7,127,760
MINORITY INTEREST IN NET INCOME
OF CONSOLIDATED SUBSIDIARY 554,802 387,094 1,397,995 1,232,783
----------- ----------- ----------- -----------
NET INCOME $2,691,327 $1,922,322 $6,627,517 $5,894,977
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
BASIC $0.14 $0.11 $0.35 $0.34
DILUTED $0.14 $0.10 $0.33 $0.30
=========== =========== =========== ===========
NUMBER OF COMMON SHARES OUTSTANDING:
BASIC 18,780,558 17,788,416 18,763,817 17,560,866
DILUTED 19,877,170 20,166,681 19,952,609 19,930,546
=========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
Page 3
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
2002 2001
-------------- -------------
OPERATING ACTIVITIES:
Net income $6,627,517 $5,894,977
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,498,095 1,331,297
Loss on sale of stock of subsidiary 5,382 85,266
Minority interest in net income 1,397,995 1,233,288
Deferred tax provision 560,000
Gain on sale of trademark (85,459)
Increase (decrease) in cash from changes in:
Accounts receivable (10,084,362) (3,374,239)
Inventories (4,132,837) (5,622,394)
Other assets (1,077,556) (198,094)
Accounts payable and accrued expenses 4,977,183 439,360
Income taxes payable 2,315,542 327,196
-------------- -------------
Net cash provided by operating activites 2,001,500 116,657
-------------- -------------
INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements (986,443) (1,503,227)
Trademark and license acquisitions (3,225,199)
Proceeds from the sale of trademark 155,126
-------------- ------------
Net cash (used in) investing activities (4,056,516) (1,503,227)
-------------- ------------
FINANCING ACTIVITIES:
Increase in loan payable, bank 3,384,542 3,680,628
Proceeds from sale of stock of subsidiary 5,573 105,866
Proceeds from exercise of stock options 268,579 77,188
Dividends paid (835,918) (197,144)
Purchases of treasury stock (425,456)
-------------- ------------
Net cash provided by financing activities 2,822,776 3,241,082
-------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,666,688 (180,919)
-------------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,434,448 1,673,593
Cash and cash equivalents at beginning of period 28,562,296 27,598,771
-------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $30,996,744 $29,272,364
============== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $274,000 $191,000
Income taxes 591,000 3,290,000
SEE NOTES TO FINANCIAL STATEMENTS.
Page 4
INTER PARFUMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies we follow are set forth in the notes to our
financial statements included in our Form 10-K which was filed with the
Securities and Exchange Commission for the year ended December 31,
2001. We also discuss such policies in Part I, Item 2, Management's
Discussion and Analysis of Financial Condition and Results of
Operations, included in this Form 10-Q.
2. COMPREHENSIVE INCOME:
Nine months ended Nine months ended
September 30, 2002 September 30, 2001
------------------ ------------------
Comprehensive income:
Net income $ 6,627,517 $ 5,894,977
Other comprehensive income, net of tax:
Foreign currency
translation adjustment 3,951,812 (397,134)
Cumulative effect of adopting SFAS 133
as of January 1, 2001 274,201
Loss (gain) on derivatives reclassified
into earnings 55,797 (274,201)
Change in fair value of derivatives (51,080) 31,337
------------ -------------
Comprehensive income $ 10,584,046 $ 5,529,180
============ =============
3. GEOGRAPHIC AREAS:
Segment information related to domestic and foreign operations is as
follows:
Nine months ended Nine months ended
September 30, 2002 September 30, 2001
------------------ ------------------
Net sales:
United States $ 29,301,840 $ 24,499,860
Europe 64,037,437 60,536,206
Eliminations (105,000) (105,000)
-------------- -------------
$ 93,234,277 $ 84,931,066
============= =============
Net Income:
United States $ 1,913,350 $ 1,693 559
Europe 4,714,167 4,201,418
------------- -------------
$ 6,627,517 $ 5,894,977
============= =============
4. EARNINGS PER SHARE:
We computed basic earnings per share using the weighted average number
of shares outstanding during each period. We computed diluted earnings
per share using the weighted average number of shares outstanding
during each period, plus the incremental shares outstanding assuming
the exercise of dilutive stock options.
Page 5
INTER PARFUMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
5. INVENTORIES:
Inventories consist of the following:
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
Raw materials and component parts $ 11,136,400 $ 8,823,260
Finished goods 22,762,783 18,821,700
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$ 33,899,183 $ 27,644,960
============= ============
6. RECENT ACCOUNTING DEVELOPMENTS:
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires all business combinations after June 30,
2001 to be accounted for using the purchase method. SFAS No. 142
establishes new guidelines for accounting for goodwill and other
intangible assets. In accordance with SFAS No. 142, goodwill and
intangible assets with an indeterminate life associated with
acquisitions are no longer amortized; however, the carrying value of
existing intangible assets with an indeterminate life is assessed for
impairment at least annually. We have implemented the provisions of
SFAS No. 142 on January 1, 2002 and have tested our trademarks for
impairment as of such date and determined that there was no impairment.
The effect on net income of amortization of intangible assets with an
indeterminate life for the nine months ended September 30, 2001
aggregated $108,000, after taxes and minority interest.
7. TRISTAR ASSET ACQUISITION:
On May 21, 2002 our wholly-owned subsidiary, Jean Philippe Fragrances,
LLC, purchased certain mass market fragrance brands and inventories of
Tristar Corporation ("Tristar"), a Debtor-in-Possession. Jean Philippe
Fragrances, LLC purchased the trademarks and related intellectual
property of certain brands for approximately $3.2 million, and acquired
certain existing inventory for approximately $3.7 million.
In connection with the acquisition, Jean Philippe Fragrances, LLC
entered into a manufacturing agreement with Fragrance Impressions
Corporation for production of the Tristar brands acquired. In addition,
Tristar and Fragrances Impressions Corporation entered into a
non-competition agreement with Jean Philippe Fragrances, LLC relating
to alternative designer fragrances and certain mass market cosmetics.
Page 6
INTER PARFUMS, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We are a leading manufacturer and distributor of fragrances, cosmetics and
personal care products. Innovation and creativity are combined to produce
quality products for our customers around the world.
We operate in the fragrance and cosmetic industry, specializing in prestige
fragrances and mass market fragrances, cosmetics and health and beauty aids:
X Prestige products -- For each prestige brand, owned or licensed by us,
we create an original concept for the perfume consistent with world
market trends;
X Mass market products -- We design, market and distribute inexpensive
fragrances and personal care products including alternative designer
fragrances, health and beauty aids and mass market cosmetics.
Statements in this document, which are not historical in nature, are
forward-looking statements. Forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results to be
materially different from projected results. Given these risks, uncertainties
and other factors, persons are cautioned not to place undue reliance on the
forward-looking statements.
Such factors include effectiveness of sales and marketing efforts and product
acceptance by consumers, dependence upon management, competition, currency
fluctuation and international tariff and trade barriers, governmental regulation
and possible liability for improper comparative advertising or "Trade Dress".
We operate under various license agreements, including two licenses that are
with affiliates of our strategic partner, LV Capital USA, Inc. ("LV Capital"), a
wholly-owned subsidiary of LVMH Moet Hennessy Louis Vuitton S.A. In May 2000 we
entered into an exclusive worldwide license for prestige fragrances for the
Celine brand, and in March 1999 we entered into an exclusive worldwide license
for Christian Lacroix fragrances. Both licenses are subject to certain minimum
sales requirements, advertising expenditures and royalty payments as are
customary in our industry.
Page 7
INTER PARFUMS, INC. AND SUBSIDIARIES
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AS COMPARED TO THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
Net sales for the three months ended September 30, 2002 increased 35% to $37.4
million, as compared to $27.6 million for the corresponding period of the prior
year. At comparable foreign currency exchange rates, net sales were up 26% for
the period.
Net sales for the nine months ended September 30, 2002 increased 10% to $93.2
million, as compared to $84.9 million for the corresponding period of the prior
year. At comparable foreign currency exchange rates, net sales were up 7% for
the period.
The 35% net sales increase for the three months ended September 30, 2002 is the
result of growth in both our prestige and mass market product lines. Sales
generated by our French subsidiary, which consist primarily of our prestige
product lines, increased 32% for the three month period; in constant dollars
those sales were up 18%. Domestic sales, which consist primarily of our mass
market product lines, registered a 43% increase for the period.
Prestige product sales experienced a significant turnaround during the third
quarter of 2002. The travel business and related luxury goods markets are
beginning to trend upward. Our sales growth was also spurred by the continued
geographic expansion of our Celine fragrance distribution network. Our Christian
Lacroix fragrance line, Bazar, which was launched in select markets during the
second quarter of 2002 is also continuing its international expansion.
We are very optimistic for the remainder of 2002 and beyond. Essence Pure by
S.T. Dupont and Eaux Extremes by Paul Smith are two new products that were
launched in October 2002. Our 2003 plans include a seasonal perfume under our
Celine brand, an alcohol-free Bazar eau de toilette by Christian Lacroix, a new
Burberry women's line, two new fragrances by Paul Smith and in late 2003 we
expect to launch our first prestige fragrance line under the Diane von
Furstenberg label.
With respect to our mass market product lines, sales gains were achieved in all
three of our principal product groups: mass market fragrances, Intimate health
and beauty aids and Aziza cosmetic lines, for an overall improvement of 43% as
compared to the third quarter of last year. Sales growth in mass market
fragrances stems from the acquisition of certain fragrance brands from Tristar
Corporation ("Tristar"), a Debtor-in-possession in a Chapter 11 proceeding. In
May 2002, we purchased trademarks and related intellectual property of certain
brands for $3.2 million, and acquired certain existing inventory for
approximately $3.7 million. Tristar was one of our most significant competitors
in mass market fragrances and the brands acquired are being sold in the same
distribution channels as that of our other mass market fragrance lines. New
product line extensions were the primary reasons for the increased sales volume
from our Intimate health and beauty aids and Aziza cosmetic lines.
Page 8
INTER PARFUMS, INC. AND SUBSIDIARIES
Growing sales within existing product lines, new product launches and an active
new business development program are how we plan to grow our business. With
respect to new business development, several licensing and acquisition
opportunities are presently under discussion. However, we cannot assure you that
any such transactions will be completed.
Gross profit margin was 44% and 46% of net sales for the three and nine month
periods ended September 30, 2002, as compared to 48% and 49% for the
corresponding periods of the prior year. Our target gross margin percentage has
historically been 45% to 46%. Sales growth in our mass market product lines,
which generate lower gross margins than our prestige product lines, out paced
that of prestige lines, thereby slightly lowering our gross margins. In
addition, during the three months ended September 30, 2002, we closed out some
slow moving and discontinued product lines generating margins below our historic
norms.
Selling, general and administrative expenses aggregated $11.4 million for the
three months ended September 30, 2002, as compared to $9.5 million for the
corresponding period of the prior year. However, as a percentage of sales,
selling, general and administrative expenses declined to 31% of net sales for
the 2002 period, as compared to 35% for the 2001 period.
Selling, general and administrative expenses aggregated $30.5 million for the
nine months ended September 30, 2002, as compared to $30.6 million for the
corresponding period of the prior year. As a percentage of sales, selling,
general and administrative expenses declined to 33% of net sales for the 2002
period, as compared to 36% for the 2001 period.
Selling, general and administrative expenses, as a percentage of sales, improved
as we spread our fixed costs over a growing sales base. In addition, promotion
and advertising are prerequisites for brand-building and sales of designer
products. We develop a complete marketing and promotional plan to support our
growing portfolio of prestige fragrance brands and to build upon each brand's
awareness. We typically budget advertising and promotion expenditures based upon
sales of each of our product lines. With the softness in the economy experienced
earlier this year, particularly for discretionary consumer products, we
intentionally curtailed advertising and marketing expenditures. We plan to again
gear up our promotional programs as the economy and market for luxury goods
continues to improve.
Interest expense was $90,000 and $340,000 for the three and nine month periods
ended September 30, 2002, as compared to $71,000 and $201,000 for the
corresponding periods of the prior year. We use the credit lines available to
us, as needed, to finance our working capital needs.
Our effective income tax rate was 35% for the three months ended September 30,
2002, as compared to 38% for the corresponding period of the prior year. Our
effective income tax rate was 36% for the nine months ended September 30, 2002,
as compared to 37% for the corresponding period of the prior year. The small
decline in our effective tax rate is the result of slightly lower foreign tax
rates.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Net income increased 40% to $2.7 million for the three months ended September
30, 2002, as compared to $1.9 million for the corresponding period of the prior
year. Diluted earnings per share was also up 40% aggregating $0.14 for the three
months ended September 30, 2002, as compared to $0.10 for the corresponding
period of the prior year.
Net income increased 12% to $6.6 million for the nine months ended September 30,
2002, as compared to $5.9 million for the corresponding period of the prior
year. Diluted earnings per share aggregated $0.33 for the nine months ended
September 30, 2002, as compared to $0.30 for the corresponding period of the
prior year.
Weighted average shares outstanding aggregated 18.8 million for both the three
and nine month periods ended September 30, 2002, as compared to 17.8 million and
17.6 million for the three and nine month periods ended September 30, 2002,
respectively. On a diluted basis, average shares outstanding were 19.9 million
and 20.0 million for the three and nine months ended September 30, 2002,
respectively, as compared to 20.2 million and 19.9 million for the three and
nine months ended September 30, 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Profitable operating results continue to strengthen our financial position. At
September 30, 2002, working capital aggregated $78 million and we had a working
capital ratio of greater than 3 to 1. Cash and cash equivalents aggregated $31
million and our net book value was $4.00 per outstanding share as of September
30, 2002. Furthermore, we had only $1.6 million in long-term debt.
Our short-term financing requirements are expected to be met by available cash
at September 30, 2002, cash generated by operations and short-term credit lines
provided by domestic and foreign banks. The principal credit facilities for 2002
are a $12.0 million unsecured revolving line of credit provided by a domestic
commercial bank and approximately $12.0 million in credit lines provided by a
consortium of international financial institutions.
Cash provided by operating activities aggregated $2.0 million for the nine
months ended September 30, 2002 as compared to $0.1 million for the
corresponding period of the prior year. As previously discussed, in connection
with the May 2002 acquisition of certain Tristar fragrance brands, we purchased
existing inventory aggregating $3.7 million. This is reflected as a use of cash
by operating activities in the accompanying cash flow statement. In addition,
since the acquisition, we purchased additional raw materials to balance our
inventory of Tristar brand products. Accounts receivable is also up as of
September 30, 2002, as a result of the 35% sales growth reported for the three
months ended September 30, 2002. Cash provided by operating activities continues
to be the primary source of funds to finance operating needs and investments in
new ventures.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Cash used in investing activities includes the $3.2 million paid for the Tristar
brands and related intellectual property.
Our Board of Directors approved a quarterly cash dividend program of 1.5 cents
per share paid on a quarterly basis. This cash dividend, which totals $1.1
million on an annual basis, represents a small part of our cash position and is
not expected to have any significant impact on our financial position.
We believe that funds generated from operations, supplemented by our present
cash position and available credit facilities, will provide us with sufficient
resources to meet all present and reasonably foreseeable future operating needs.
Inflation rates in the U.S. and foreign countries in which we operate have not
had a significant impact on operating results for the nine months ended
September 30, 2002.
DISCUSSION OF CRITICAL ACCOUNTING POLICIES
We make estimates and assumptions in the preparation of our financial statements
in conformity with accounting principles generally accepted in the United States
of America. Actual results could differ significantly from those estimates under
different assumptions and conditions. We believe that the following discussion
addresses the Company's most critical accounting policies, which are those that
are most important to the portrayal of our financial condition and results of
operations and which require our management's most difficult and subjective
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. The following is a brief discussion of
the more critical accounting policies that we employ.
REVENUE RECOGNITION
We sell our products to department stores, perfumeries, mass market retailers,
supermarkets and domestic and international wholesalers and distributors. Sales
of such products by domestic subsidiaries are denominated in U.S. dollars and
sales of such products by foreign subsidiaries are primarily denominated in
either Euros or U.S. dollars. Accounts receivable reflect the granting of credit
to these customers. We generally grant credit based upon analysis of the
customer's financial position and previously established buying patterns. We do
not generally bill customers for shipping and handling costs and, accordingly,
classify such costs as selling and administrative expenses. Revenues are
recognized when merchandise is shipped and the risk of loss passes to the
customer. Net sales are comprised of gross revenues less returns and trade
discounts and allowances.
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INTER PARFUMS, INC. AND SUBSIDIARIES
We do not generally allow customers to return their unsold products. However, on
a case-by-case basis we occasionally allow customer returns. We regularly review
and revise, as deemed necessary, our estimate of reserves for future sales
returns based primarily upon historic trends. We record estimated reserves for
future sales returns as a reduction of sales, cost of sales and accounts
receivable. Returned products are recorded as inventories and are valued based
on estimated realizable value. The physical condition and marketability of
returned products are the major factors considered in estimating realizable
value. Actual returns, as well as estimated realizable values of returned
products, may differ significantly, either favorably or unfavorably, from
estimates if factors such as economic conditions, inventory levels or
competitive conditions differ from expectations.
PROMOTIONAL ALLOWANCES
We have various performance-based arrangements with retailers to reimburse them
for all or a portion of their promotional activities related to our products.
These arrangements primarily allow customers to take deductions against amounts
owed to us for product purchases. Estimated accruals for promotions and
co-operative advertising programs are recorded in the period in which the
related revenue is recognized. We review and revise the estimated accruals for
the projected costs for these promotions. Actual costs incurred may differ
significantly, either favorably or unfavorably, from estimates if factors such
as the level and success of the retailers' programs or other conditions differ
from our expectations.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is principally
determined by the first-in, first-out method. We record adjustments to the cost
of inventories based upon our sales forecast and the physical condition of the
inventories. These adjustments are estimates, which could vary significantly,
either favorably or unfavorably, from actual requirements if future economic
conditions or competitive conditions differ from our expectations.
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INTER PARFUMS, INC. AND SUBSIDIARIES
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 could result in shortened useful lives.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of any such asset may not be
recoverable. If the sum of the undiscounted cash flows (excluding interest) is
less than the carrying value, we recognize an impairment loss, measured as the
amount by which the carrying value exceeds the fair value of the asset. The
estimate of undiscounted cash flow is based upon, among other things, certain
assumptions about expected future operating performance. Our estimates of
undiscounted cash flow may differ from actual cash flow due to, among other
things, economic conditions, changes to our business model or changes in
consumer acceptance. In those cases where we determine that the useful life of
other long-lived assets should be shortened, we would depreciate the net book
value in excess of the salvage value (after testing for impairment as described
above), over the revised remaining useful life of such asset thereby increasing
amortization expense.
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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 have entered into one (1) interest rate swap in an attempt to take advantage
of low variable interest rates as compared to the fixed rate on our long-term
debt. 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 a high degree of initial effectiveness exists between the change in the
value of the hedged item and the change in the value of the derivative from a
movement in foreign currency rates. High effectiveness means that the change in
the value of the derivative will effectively offset the change in the fair value
of the hedged item. We measure the effectiveness of each hedge throughout the
hedged period. Any hedge ineffectiveness is recognized in the income statement.
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INTER PARFUMS, INC. AND SUBSIDIARIES
We believe that our risk of loss as the result of nonperformance by any of such
financial institutions is remote and in any event would not be material. The
contracts have varying maturities with none exceeding one year. Costs associated
with entering into such contracts have not been material to our financial
results. At September 30, 2002, we had foreign currency contracts in the form of
forward exchange contracts in the amount of approximately $5.5 million. The
foreign currency included in these contracts is the U.S. dollar.
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 take advantage of declining
interest rates. At September 30, 2002 we had one (1) interest rate swap
agreement outstanding to convert $1.6 million of principal fixed rate debt with
an interest rate of 4.56% to floating interest rate debt, at the EURIBOR rate,
over the life of our long-term debt due in 2005. At September 30, 2002, the
EURIBOR rate was 3.3%. If interest rates were to rise 1% per annum over the
remaining term of the long-term debt, then we would incur a loss of $30,000.
Page 15
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-14(c)) as of a date
within 90 days of the filing date of 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 were no significant changes in our Company's internal controls or in other
factors that could significantly affect our internal controls after the
Evaluation Date, or any significant deficiencies or material weaknesses in such
internal controls requiring corrective actions. As a result, no corrective
actions were taken.
Page 16
INTER PARFUMS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Items 1, 2, 3 and 6 are omitted as they are either not applicable or have been
included in Part I.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of Inter Parfums, Inc. (the "Company"),
was held on August 9, 2002 at 10:00 a.m., local time, at the offices of the
Company, 551 Fifth Avenue, New York, New York 10176.
(b) The following individuals were nominated for election as members of the
Board of Directors to hold office for a term of one (1) year until the next
annual meeting of stockholders and until their successors are elected and
qualify: Jean Madar, Philippe Benacin, Russell Greenberg, Francois Heilbronn,
Joseph A. Caccamo, Jean Levy, Robert Bensoussan-Torres, Daniel Piette, Jean
Cailliau, Philippe Santi and Serge Rosinoer.
The results of the voting to elect the foregoing persons were as
follows:
- --------------------------------------------------------------------------------
Votes For Votes Withheld
- --------------------------------------------------------------------------------
Jean Madar 17,202,403 1,266,801
- --------------------------------------------------------------------------------
Philippe Benacin 17,202,403 1,266,801
- --------------------------------------------------------------------------------
Russell Greenberg 17,202,403 1,266,801
- --------------------------------------------------------------------------------
Francois Heilbronn 17,238,178 1,231,026
- --------------------------------------------------------------------------------
Joseph A. Caccamo 17,238,178 1,231,026
- --------------------------------------------------------------------------------
Jean Levy 17,238,178 1,231,026
- --------------------------------------------------------------------------------
Robert Bensoussan-Torres 17,238,178 1,231,026
- --------------------------------------------------------------------------------
Daniel Piette 17,238,178 1,231,026
- --------------------------------------------------------------------------------
Jean Cailliau 17,238,178 1,231,026
- --------------------------------------------------------------------------------
Philippe Santi 17,202,403 1,266,801
- --------------------------------------------------------------------------------
Serge Rosinoer 17,238,178 1,231,026
- --------------------------------------------------------------------------------
A plurality of the votes having been cast in favor of each of the above-named
Directors, they were duly elected to serve a one (1) year term.
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INTER PARFUMS, INC. AND SUBSIDIARIES
(c) (i) The final item on the agenda was a proposal to approve the adoption of
an amendment to the Company's 1999 Stock Option Plan. The results of the voting
on such resolution were as follows:
--------------------------------------------
17,115,717 votes for the resolution
--------------------------------------------
1,302,248 votes against
--------------------------------------------
51,238 votes abstained
--------------------------------------------
A majority of the outstanding shares were cast for the above referenced
resolution, and the resolution was duly passed.
ITEM 5. OTHER INFORMATION
In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as
added by Section 202 of the Sarbanes-Oxley Act of 2002, our Company is
responsible for disclosing the "non-audit services" to be performed by our
auditors that were approved by our Company's Audit Committee during the
quarterly period covered by this report. Non-audit services are defined in the
law as services other than those provided in connection with an audit or a
review of the financial statements of the Company.
During the quarterly period covered by this report, the Audit Committee
authorized our Company to retain our auditors, Eisner LLP, to perform tax
consultation and tax preparation services in the ordinary course of business for
our Company for fiscal year ending December 31, 2002. In addition it authorized
our Company to retain Eisner LLP for tax consultation services, on a
project-by-project basis, in return for fees not to exceed $5,000 for each
project, that would not be considered in the ordinary course of business, and
directed that approval of the Audit Committee would be required for any further
tax services.
During the quarterly period covered by this report, the Audit Committee also
authorized our Company to retain KPMG Audit, a division of KPMG S.A., the
external auditor of our consolidated wholly-owned subsidiary, Inter Parfums
Holdings, S.A., its majority-owned subsidiary, Inter Parfums, S.A., and its
wholly-owned subsidiaries, to provide tax consultation and advice with respect
to repatriation of earnings of our company's French subsidiaries to us in the
United States.
Page 18
INTER 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 2002.
INTER PARFUMS, INC.
By: /s/ RUSSELL GREENBERG
-----------------------------
Russell Greenberg
Executive Vice President and
Chief Financial Officer
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INTER PARFUMS, INC. AND SUBSIDIARIES
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 quarterly 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 quarterly
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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 8, 2002
/s/ JEAN MADAR
- ------------------------
Jean Madar
Chief Executive Officer
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INTER PARFUMS, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Russell Greenberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Inter Parfums, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 8, 2002
/s/ RUSSELL GREENBERG
- -----------------------
Russell Greenberg
Chief Financial Officer
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INTER PARFUMS, INC. AND SUBSIDIARIES
CERTIFICATION
Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his
capacity as an officer of Inter Parfums, Inc., that the Quarterly Report of
Inter Parfums, Inc. on Form 10-Q for the period ended September 30, 2002, fully
complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934 and that the information contained in such report fairly presents, in
all material respects, the financial condition and results of operation of Inter
Parfums, Inc.
Date: November 8, 2002 By:
/s/ JEAN MADAR
--------------
Jean Madar
Chief Executive Officer
Date: November 8, 2002 By:
/s/ RUSSELL GREENBERG
---------------------
Russell Greenberg
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
Page 22