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 June 30, 2013. |
OR
¨ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___________to ________. |
Commission File No. 0-16469
INTER PARFUMS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 13-3275609 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
551 Fifth Avenue, New York, New York 10176 |
(Address of Principal Executive Offices) (Zip Code) |
(212) 983-2640 |
(Registrants telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨
Indicate by check mark whether the registrant 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 x 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. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
Large accelerated Filer ¨ | Accelerated filer x |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
At August 5, 2013, there were 30,796,914 shares of common stock, par value $.001 per share, outstanding.
INTER PARFUMS, INC. AND SUBSIDIARIES |
INDEX
Page Number | |
Part I. Financial Information | 1 |
Item 1. Financial Statements | |
Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 | 2 |
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012 | 3 |
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012 | 4 |
Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2013 and June 30, 2012 | 5 |
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and June 30, 2012 | 6 |
Notes to Consolidated Financial Statements | 7 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 15 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 29 |
Item 4. Controls and Procedures | 30 |
Part II. Other Information | 31 |
Item 6. Exhibits | 31 |
Signatures | 31 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
Part I. Financial Information
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, 2012 included in our annual report filed on Form 10-K.
The results of operations for the six months ended June 30, 2013 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
(In thousands except share and per share data)
(Unaudited)
June 30,
2013 |
December 31,
2012 |
|||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 142,117 | $ | 307,335 | ||||
Short-term investments | 119,682 | — | ||||||
Accounts receivable, net | 124,098 | 149,340 | ||||||
Inventories | 112,641 | 142,614 | ||||||
Receivables, other | 1,818 | 2,534 | ||||||
Other current assets | 5,018 | 5,897 | ||||||
Income tax receivable | 590 | 1,968 | ||||||
Deferred tax assets | 7,167 | 13,132 | ||||||
Total current assets | 513,131 | 622,820 | ||||||
Equipment and leasehold improvements, net | 9,336 | 12,289 | ||||||
Goodwill | 947 | 954 | ||||||
Trademarks, licenses and other intangible assets, net | 110,344 | 113,041 | ||||||
Other assets | 11,062 | 10,816 | ||||||
Total assets | $ | 644,820 | $ | 759,920 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Loans payable – banks | $ | 394 | $ | 27,776 | ||||
Accounts payable, trade | 58,911 | 73,113 | ||||||
Accrued expenses | 43,261 | 68,768 | ||||||
Income taxes payable | 7,161 | 84,030 | ||||||
Dividends payable | 3,695 | 2,453 | ||||||
Total current liabilities | 113,422 | 256,140 | ||||||
Deferred tax liability | 3,424 | 3,799 | ||||||
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 30,787,894 and 30,680,634 shares at June 30, 2013 and December 31, 2012, respectively | 31 | 31 | ||||||
Additional paid-in capital | 56,122 | 54,679 | ||||||
Retained earnings | 377,887 | 349,672 | ||||||
Accumulated other comprehensive income | 8,377 | 12,498 | ||||||
Treasury stock, at cost, 9,976,524 common shares at June 30, 2013 and December 31, 2012 | (35,404 | ) | (35,404 | ) | ||||
Total Inter Parfums, Inc. shareholders’ equity | 407,013 | 381,476 | ||||||
Noncontrolling interest | 120,961 | 118,505 | ||||||
Total equity | 527,974 | 499,981 | ||||||
Total liabilities and equity | $ | 644,820 | $ | 759,920 |
See notes to consolidated financial statements.
Page 2 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net sales | $ | 117,485 | $ | 145,555 | $ | 331,296 | $ | 310,923 | ||||||||
Cost of sales | 53,878 | 57,099 | 133,045 | 116,389 | ||||||||||||
Gross margin | 63,607 | 88,456 | 198,251 | 194,534 | ||||||||||||
Selling, general and administrative expenses | 55,708 | 75,828 | 123,376 | 150,152 | ||||||||||||
Income from operations | 7,899 | 12,628 | 74,875 | 44,382 | ||||||||||||
Other expenses (income): | ||||||||||||||||
Interest expense | 416 | 442 | 874 | 805 | ||||||||||||
(Gain) loss on foreign currency | (461 | ) | 931 | 982 | 1,178 | |||||||||||
Interest income | (1,064 | ) | (311 | ) | (2,254 | ) | (835 | ) | ||||||||
(1,109 | ) | 1,062 | (398 | ) | 1,148 | |||||||||||
Income before income taxes | 9,008 | 11,566 | 75,273 | 43,234 | ||||||||||||
Income taxes | 4,487 | 4,085 | 27,810 | 15,499 | ||||||||||||
Net income | 4,521 | 7,481 | 47,463 | 27,735 | ||||||||||||
Less: Net income attributable to the noncontrolling interest | 706 | 1,473 | 11,952 | 6,230 | ||||||||||||
Net income attributable to Inter Parfums, Inc. | $ | 3,815 | $ | 6,008 | $ | 35,511 | $ | 21,505 | ||||||||
Earnings per share: | ||||||||||||||||
Net income attributable to Inter Parfums, Inc. common shareholders: | ||||||||||||||||
Basic | $ | 0.12 | $ | 0.20 | $ | 1.16 | $ | 0.70 | ||||||||
Diluted | $ | 0.12 | $ | 0.20 | $ | 1.14 | $ | 0.70 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 30,748 | 30,563 | 30,717 | 30,557 | ||||||||||||
Diluted | 30,953 | 30,688 | 30,900 | 30,687 | ||||||||||||
Dividends declared per share | $ | 0.12 | $ | 0.08 | $ | 0.24 | $ | 0.16 |
See notes to consolidated financial statements
Page 3 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Comprehensive income (loss): | ||||||||||||||||
Net income | $ | 4,521 | $ | 7,481 | $ | 47,463 | $ | 27,735 | ||||||||
Other comprehensive income: | ||||||||||||||||
Net derivative instrument gain (loss), net of tax | (9 | ) | (56 | ) | — | 46 | ||||||||||
Reclassification from OCI into earnings, net | (327 | ) | — | (327 | ) | — | ||||||||||
Translation adjustments, net of tax | 9,392 | (17,644 | ) | (4,979 | ) | (8,127 | ) | |||||||||
Comprehensive income (loss) | 13,577 | (10,219 | ) | 42,157 | 19,654 | |||||||||||
Comprehensive income attributable to the noncontrolling interests: | ||||||||||||||||
Net income | 706 | 1,473 | 11,952 | 6,230 | ||||||||||||
Other comprehensive income: | ||||||||||||||||
Net derivative instrument gain (loss), net of tax | (5 | ) | (9 | ) | — | 16 | ||||||||||
Reclassification from OCI into earnings, net | (87 | ) | — | (87 | ) | — | ||||||||||
Translation adjustments, net of tax | 2,889 | (4,535 | ) | (1,098 | ) | (2,132 | ) | |||||||||
Comprehensive income (loss) attributable to the noncontrolling interests | 3,503 | (3,071 | ) | 10,767 | 4,114 | |||||||||||
Comprehensive income (loss) attributable to Inter Parfums, Inc. | $ | 10,074 | $ | (7,148 | ) | $ | 31,390 | $ | 15,540 |
See notes to consolidated financial statements.
.
Page 4 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands)
(Unaudited)
Six months ended
June 30, |
||||||||
2013 | 2012 | |||||||
Common stock, beginning and end of period | $ | 31 | $ | 31 | ||||
Additional paid-in capital, beginning of period | 54,679 | 50,883 | ||||||
Shares issued upon exercise of stock options | 1,198 | 311 | ||||||
Sale of subsidiary shares to noncontrolling interests | — | 737 | ||||||
Stock-based compensation | 245 | 253 | ||||||
Additional paid-in capital, end of period | 56,122 | 52,184 | ||||||
Retained earnings, beginning of period | 349,672 | 228,164 | ||||||
Net income | 35,511 | 21,505 | ||||||
Dividends | (7,378 | ) | (4,889 | ) | ||||
Stock-based compensation | 82 | 80 | ||||||
Retained earnings, end of period | 377,887 | 244,860 | ||||||
Accumulated other comprehensive income, beginning of period | 12,498 | 7,747 | ||||||
Foreign currency translation adjustment | (3,881 | ) | (5,995 | ) | ||||
Net derivative instrument gain (loss), net of tax | (240 | ) | 30 | |||||
Accumulated other comprehensive income, end of period | 8,377 | 1,782 | ||||||
Treasury stock, beginning and end of period | (35,404 | ) | (34,151 | ) | ||||
Noncontrolling interest, beginning of period | 118,505 | 71,676 | ||||||
Net income | 11,952 | 6,230 | ||||||
Foreign currency translation adjustment | (1,098 | ) | (2,132 | ) | ||||
Net derivative instrument gain (loss), net of tax | (87 | ) | 16 | |||||
Sale of subsidiary shares to noncontrolling interest | — | 2,508 | ||||||
Dividends | (8,341 | ) | (3,333 | ) | ||||
Stock-based compensation | 30 | 30 | ||||||
Noncontrolling interest, end of period | 120,961 | 74,995 | ||||||
Total equity | $ | 527,974 | $ | 339,701 |
See notes to consolidated financial statements.
Page 5 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended
June 30, |
||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 47,463 | $ | 27,735 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 6,003 | 7,455 | ||||||
Provision for doubtful accounts | 118 | 472 | ||||||
Noncash stock compensation | 421 | 425 | ||||||
Deferred tax (benefit) | 5,560 | (1,353 | ) | |||||
Change in fair value of derivatives | — | (56 | ) | |||||
Changes in: | ||||||||
Accounts receivable | 24,181 | 32,056 | ||||||
Inventories | 29,212 | (15,861 | ) | |||||
Other assets | 876 | (55 | ) | |||||
Accounts payable and accrued expenses | (39,465 | ) | (43,321 | ) | ||||
Income taxes, net | (75,437 | ) | 3,784 | |||||
Net cash provided by (used in) operating activities | (1,068 | ) | 11,281 | |||||
Cash flows from investing activities: | ||||||||
Purchases of short-term investments | (199,722 | ) | — | |||||
Proceeds from sale of short-term investments | 79,098 | — | ||||||
Purchases of equipment and leasehold improvements | (2,328 | ) | (5,968 | ) | ||||
Proceeds from sale of equipment | 2,801 | — | ||||||
Payment for intangible assets acquired | (1,804 | ) | (2,337 | ) | ||||
Net cash used in investing activities | (121,955 | ) | (8,305 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayments of loans payable – banks, net | (27,356 | ) | (7,272 | ) | ||||
Repayment of long-term debt | — | (2,860 | ) | |||||
Proceeds from exercise of options | 1,197 | 311 | ||||||
Proceeds from sale of stock of subsidiary | — | 3,245 | ||||||
Dividends paid | (6,137 | ) | (4,889 | ) | ||||
Dividends paid to noncontrolling interest | (8,341 | ) | (3,333 | ) | ||||
Net cash used in financing activities | (40,637 | ) | (14,798 | ) | ||||
Effect of exchange rate changes on cash | (1,558 | ) | (904 | ) | ||||
Net decrease in cash and cash equivalents | (165,218 | ) | (12,726 | ) | ||||
Cash and cash equivalents - beginning of period | 307,335 | 35,856 | ||||||
Cash and cash equivalents - end of period | $ | 142,117 | $ | 23,130 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | 887 | $ | 838 | ||||
Income taxes | 96,604 | 9,793 |
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 financial statements included in our Form 10-K, which was filed with the Securities and Exchange Commission for the year ended December 31, 2012. 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. | Recent Accounting Pronouncements: |
In July 2013, new accounting guidance was issued regarding financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit exists. This guidance is effective for interim and annual periods beginning after December 15, 2014. The adoption of this new guidance is not expected to have a material affect the Company’s financial position, results of operations or cash flows.
There are no other recent accounting pronouncements issued but not yet adopted that would have a material effect on our consolidated financial statements.
3. | Termination of Burberry License: |
Burberry exercised its option to buy-out the license rights effective December 31, 2012. On October 11, 2012, the Company and Burberry entered into a transition agreement that provided for certain license rights and obligations to continue through March 31, 2013. The Company continued to operate certain aspects of the business for the brand including product development, testing, and distribution. The transition agreement provided for non-exclusivity for manufacturing, a cap on sales of Burberry products, a reduced advertising requirement and no minimum royalty amounts.
The transition agreement provided that Burberry inventories at March 31, 2013 should be less than $20.0 million in the aggregate. Actual Burberry inventory as of March 31, 2013 aggregated approximately $18 million. During the second quarter of 2013, the Company and Burberry reached an agreement regarding inventory. Burberry agreed to purchase $7.8 million of inventory at cost. Remaining inventories were sold off in the ordinary course of business pursuant to our sell-off rights, destroyed or given to Burberry at no charge.
As of June 30, 2013, the $10 million inventory reserve, recorded in December upon recognition of the license termination gain of $198.8 million, was fully consumed by the costs incurred for inventories given to Burberry at no charge, sold below cost and destroyed, together with commercial rebates and free merchandise given to customers over the sell-off period.
Accounts receivables and accounts payables were collected and paid in the ordinary course of business. In addition, Burberry purchased fixed assets for $2.8 million as agreed in the transition agreement.
Page 7 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
Notes to Consolidated Financial Statements
4. | Inventories: |
Inventories consist of the following:
(In thousands) |
June 30,
2013 |
December 31,
2012 |
||||||
Raw materials and component parts | $ | 36,946 | $ | 47,732 | ||||
Finished goods | 75,695 | 94,882 | ||||||
$ | 112,641 | $ | 142,614 |
5. | 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.
(In thousands) | Fair Value Measurements at June 30, 2013 | |||||||||||||||
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 | $ | 119,682 | $ | — | $ | 119,682 | $ | — | ||||||||
Foreign currency forward exchange contracts not accounted for using hedge accounting | 182 | — | 182 | — | ||||||||||||
$ | 119,864 | $ | — | $ | 119,864 | $ | — |
(In thousands) | Fair Value Measurements at December 31, 2012 | |||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Foreign currency forward exchange contracts not accounted for using hedge accounting | $ | 784 | $ | — | $ | 784 | $ | — |
The carrying amount of cash and cash equivalents including money market funds, short-term investments, accounts receivable, other receivables, accounts payable and accrued expenses approximates fair value due to the short terms to maturity of these instruments. The carrying amount of loans payable approximates fair value as the interest rates on the Company’s indebtedness approximate current market rates.
Foreign currency forward exchange contracts are valued based on quotations from financial institutions.
Page 8 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
Notes to Consolidated Financial Statements
6. | 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. The Company had no cash flow hedges during the three and six month periods ended June 30, 2013 and 2012.
The following table presents gains and losses in derivatives not designated as hedges and the location of those gains and losses in the financial statements (in thousands):
Derivatives Not
Designated
as Hedging Instruments |
Location of Gain (Loss)
recognized in Income on Derivative |
Six months
ended
June 30, 2013 |
Six months
ended
June 30, 2012 |
|||||||
Interest rate swaps | Interest expense | $ | — | $ | 56 | |||||
Foreign exchange contracts | Gain (loss) on foreign currency | $ | 15 | $ | 143 | |||||
Derivatives Not
Designated
as Hedging Instruments |
Location of Gain (Loss)
recognized in Income on Derivative |
Three months
ended June 30, 2013 |
Three months
ended June 30, 2012 |
|||||||
Interest rate swaps | Interest expense | $ | — | $ | 26 | |||||
Foreign exchange contracts | Gain (loss) on foreign currency | $ | (10 | ) | $ | 29 |
All derivative instruments are reported as either assets or liabilities on the balance sheet measured at fair value. The valuation of foreign currency forward exchange contracts not accounted for using hedge accounting as of June 30, 2013 and December 31, 2012, resulted in an asset and is included in other current assets on the accompanying balance sheets. Generally, increases or decreases in the fair value of derivative instruments will be recognized as gains or losses in earnings in the period of change. If the derivative instrument is designated and qualifies as a cash flow hedge, the changes in fair value of the derivative instrument will be recorded as a separate component of shareholders’ equity.
At June 30, 2013, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $48 million and GB pounds £5.2 million which all have maturities of less than one year.
Page 9 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
Notes to Consolidated Financial Statements
7. | Goodwill and Other Intangible Assets : |
The following table presents our assets and liabilities that are measured at fair value on a nonrecurring basis and are categorized using the fair value hierarchy.
Fair Value Measurements at June 30, 2013 | ||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Description | ||||||||||||||||
Trademark - Nickel | $ | 2,288 | $ | — | $ | — | $ | 2,288 | ||||||||
Goodwill | $ | 947 | $ | — | $ | — | $ | 947 |
Fair Value Measurements at December 31, 2012 | ||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Description | ||||||||||||||||
Trademark - Nickel | $ | 2,308 | $ | — | $ | — | $ | 2,308 | ||||||||
Goodwill | $ | 954 | $ | — | $ | — | $ | 954 |
The goodwill and trademarks referred to above relate to the Company’s Nickel skin care business which is primarily a component of our European operations. The Company has determined that it may be inclined to sell the Nickel business within the next few years. As a result, the Company has determined that as of December 31, 2012, the carrying amount of the goodwill exceeded fair value resulting in an impairment loss of $1.8 million. A similar evaluation is performed every year and in 2011, the Company recorded an impairment loss of $0.8 million. Accumulated impairment losses relating to goodwill aggregated $6.1 million as of December 31, 2012.
To determine fair value of indefinite-lived intangible assets, the Company uses an income approach, including the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. The relief-from-royalty calculations require us to make a number of assumptions and estimates concerning future sales levels, market royalty rates, future tax rates and discount rates. The Company uses this method to determine if an impairment charge is required relating to the Nickel trademarks. Although impairment charges have been taken in the past, no impairment charge relating to the Nickel trademarks was required in 2012, 2011 or 2010. The Company assumed a market royalty rate of 6% and a discount rate of 7.6%.
Page 10 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
Notes to Consolidated Financial Statements
8. | Share-Based Payments: |
The Company maintains a stock option program for key employees, executives and directors. The plans, all of which have been approved by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans typically have a six year term and vest over a four to five-year period. The fair value of shares vested during the six months ended June 30, 2013 and 2012 aggregated $0.04 million and $0.52 million, respectively. Compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. It is generally our policy to issue new shares upon exercise of stock options.
The following table sets forth information with respect to nonvested options for the six month period ended June 30, 2013:
Number of Shares |
Weighted Average
Grant Date Fair Value |
|||||||
Nonvested options – beginning of period | 346,075 | $ | 5.02 | |||||
Nonvested options granted | 9,000 | $ | 6.17 | |||||
Nonvested options vested or forfeited | (12,455 | ) | $ | 4.25 | ||||
Nonvested options – end of period | 342,620 | $ | 5.08 |
Share-based payment expense decreased income before income taxes by $0.21 million and $0.42 million for the three and six month periods ended June 30, 2013, respectively, as compared to $0.20 million and $0.43 million for the corresponding periods of the prior year. Share-based payment expense decreased income attributable to Inter Parfums, Inc. by $0.11 million and $0.23 million for the three and six month periods ended June 30, 2013 and 2012, respectively.
The following table summarizes stock option information as of June 30, 2013:
Shares |
Weighted Average
Exercise Price |
|||||||
Outstanding at January 1, 2013 | 716,235 | $ | 14.41 | |||||
Options granted | 9,000 | 21.95 | ||||||
Options cancelled | (2,100 | ) | 16.54 | |||||
Options exercised | (107,060 | ) | 11.19 | |||||
Outstanding at June 30, 2013 | 616,075 | $ | 15.07 | |||||
Options exercisable | 273,455 | $ | 12.65 | |||||
Options available for future grants | 585,775 |
As of June 30, 2013, the weighted average remaining contractual life of options outstanding is 3.18 years (1.76 years for options exercisable), the aggregate intrinsic value of options outstanding and options exercisable is $8.3 million and $4.3 million, respectively and unrecognized compensation cost related to stock options outstanding of Inter Parfums, Inc. aggregated $1.4 million. The amount of unrecognized compensation cost related to stock options outstanding of our majority-owned subsidiary, Interparfums SA, was $0.34 million. Options under Interparfums SA plans vest over a four-year period.
Page 11 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
Notes to Consolidated Financial Statements
Cash proceeds, tax benefits and intrinsic value related to stock options exercised during the six months ended June 30, 2013 and June 30, 2012 were as follows:
(In thousands) |
June 30,
2013 |
June 30,
2012 |
||||||
Cash proceeds from stock options exercised | $ | 1,197 | $ | 311 | ||||
Tax benefits | 275 | 34 | ||||||
Intrinsic value of stock options exercised | 1,785 | 105 |
The weighted average fair values of the options granted by Inter Parfums, Inc. during the six months ended June 30, 2013 and 2012 were $6.17 and $4.99 per share, respectively, on the date of grant using the Black-Scholes option pricing model to calculate the fair value of options granted. The assumptions used in the Black-Scholes pricing model for the periods ended June 30, 2013 and 2012 are set forth in the following table:
June 30,
2013 |
June 30,
2012 |
|||||||
Weighted-average expected stock-price volatility | 38 | % | 40 | % | ||||
Weighted-average expected option life | 5 years | 4.5 years | ||||||
Weighted-average risk-free interest rate | 0.89 | % | 0.84 | % | ||||
Weighted-average dividend yield | 2.0 | % | 1.7 | % |
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.
9 . | 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 earnings attributable to Inter Parfums, Inc. by the weighted-average number of shares outstanding. Net earnings 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.
The reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:
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Notes to Consolidated Financial Statements
Three months ended | Six months ended | |||||||||||||||
(In thousands) | June 30, | June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to Inter Parfums, Inc. | $ | 3,815 | $ | 6,008 | $ | 35,511 | $ | 21,505 | ||||||||
Effect of dilutive securities of consolidated subsidiary | (176 | ) | — | (176 | ) | — | ||||||||||
Numerator for diluted earnings per share | $ | 3,639 | $ | 6,008 | $ | 35,335 | $ | 21,505 | ||||||||
Denominator: | ||||||||||||||||
Weighted average shares | 30,748 | 30,563 | 30,717 | 30,557 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options | 205 | 125 | 183 | 130 | ||||||||||||
Denominator for diluted earnings per share | 30,953 | 30,688 | 30,900 | 30,687 | ||||||||||||
Earnings per share: | ||||||||||||||||
Net income attributable to Inter Parfums, Inc. common shareholders: | ||||||||||||||||
Basic | $ | 0.12 | $ | 0.20 | $ | 1.16 | $ | 0.70 | ||||||||
Diluted | 0.12 | 0.20 | 1.14 | 0.70 |
Not included in the above computations is the effect of antidilutive potential common shares which consist of outstanding options to purchase 0.07 million shares of common stock for the six month periods ended June 30, 2013, and 0.23 million shares of common stock for both the three and six month periods ended June 30, 2012.
10. | Net Income Attributable to Inter Parfums, Inc. and Transfers From the Noncontrolling Interest : |
(In thousands) |
Three months ended
June 30, |
Six months ended
June 30, |
||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net income attributable to Inter Parfums, Inc. | $ | 3,815 | $ | 6,008 | $ | 35,511 | $ | 21,505 | ||||||||
Increase in Inter Parfums, Inc.’s additional paid-in capital for subsidiary share transactions | — | 737 | — | 737 | ||||||||||||
Change from net income attributable to Inter Parfums, Inc. and transfers from noncontrolling interest | $ | 3,815 | $ | 6,745 | $ | 35,511 | $ | 22,242 |
11. | 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. European operations primarily represent the sale of prestige brand name fragrances and United States operations primarily represent the sale of prestige brand and specialty retail fragrance and fragrance related products. Information on our operations by geographical areas is as follows: |
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INTER PARFUMS, INC. AND SUBSIDIARIES |
Notes to Consolidated Financial Statements
(In thousands) |
Three months ended
June 30, |
Six months ended
June 30, |
||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net sales: | ||||||||||||||||
United States | $ | 24,805 | $ | 19,897 | $ | 43,354 | $ | 41,249 | ||||||||
Europe | 92,778 | 125,616 | 287,981 | 270,813 | ||||||||||||
Eliminations | (98 | ) | 42 | (39 | ) | (1,139 | ) | |||||||||
$ | 117,485 | $ | 145,555 | $ | 331,296 | $ | 310,923 | |||||||||
Net income attributable to Inter Parfums, Inc.: | ||||||||||||||||
United States | $ | 12,855 | $ | 921 | $ | 13,517 | $ | 2,485 | ||||||||
Europe | 2,274 | 5,041 | 33,295 | 19,022 | ||||||||||||
Eliminations of intercompany profits | (11,314 | ) | 46 | (11,301 | ) | (2 | ) | |||||||||
$ | 3,815 | $ | 6,008 | $ | 35,511 | $ | 21,505 |
June 30, | December 31, | |||||||
2013 | 2012 | |||||||
Total Assets: | ||||||||
United States | $ | 77,465 | $ | 64,278 | ||||
Europe | 576,451 | 704,464 | ||||||
Eliminations of investment in subsidiary | (9,096 | ) | (8,822 | ) | ||||
$ | 644,820 | $ | 759,920 |
12. | Accrued Expenses: |
Accrued expenses include approximately $10.2 million and $24.4 million in advertising liabilities as of June 30, 2013 and December 31, 2012, respectively. |
13. | Subsequent Events: |
In July 2013, the Company created a wholly-owned Hong Kong subsidiary, Inter Parfums USA Hong Kong Limited, which entered into a 12-year exclusive worldwide license to create, produce and distribute perfumes and related products under China’s leading luxury brand, Shanghai Tang. The agreement commenced on July 1, 2013 and is subject to certain minimum sales, advertising expenditures and royalty payments as are customary in our industry. The Company plans to launch its first fragrance under the Shanghai Tang brand in Spring 2014.
On July 25, 2013, the Company entered into a 10.5-year exclusive worldwide license to create, produce and distribute perfumes and related products under London-based luxury lingerie brand, Agent Provocateur. The agreement commences on August 1, 2013 and is subject to certain minimum advertising expenditures as is customary in our industry. The Company plans to launch its first fragrance under the Agent Provocateur brand in 2014. In addition, Inter Parfums will take over distribution of selected fragrances within the brand’s current perfume portfolio and plans to revitalize the Agent Provocateur signature scent.
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INTER PARFUMS, INC. AND SUBSIDIARIES |
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, 2012 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)
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. We believe that our presentation of the non-GAAP financial information included in this Form 10-Q is important supplemental measures 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% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 27% of Interparfums SA shares trade on the NYSE Euronext. Prestige cosmetics and prestige skin care products represent less than 2% of consolidated net sales.
We produce and distribute our European based prestige products primarily under license agreements with brand owners, and European based prestige product sales represented approximately 87% of net sales for the six months ended June 30, 2013 and 2012. We have built a portfolio of prestige brands, which include Lanvin, Jimmy Choo, Van Cleef & Arpels, Montblanc, Paul Smith, Boucheron, S.T. Dupont, Balmain, Karl Lagerfeld and Repetto , whose products are distributed in over 100 countries around the world.
Burberry was our most significant license, and sales of Burberry products represented 39% and 43% of net sales for the six months ended June 30, 2013 and 2012, respectively. ( See Note 3 “Termination of Burberry License” in notes to consolidated financial statements on page 7 of this Form 10-Q). In addition, we own the Lanvin brand name for our class of trade, and license the Montblanc and Jimmy Choo brand names; sales of products for these three brands represented 13.5%, 11.2% and 10.8% of net sales for the six months ended June 30, 2013, respectively, as compared to 12.3%, 9.2% and 7.8% respectively, for the corresponding period of the prior year.
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INTER PARFUMS, INC. AND SUBSIDIARIES |
Through our United States operations we also market prestige brand as well as specialty retail fragrance and fragrance related products. United States operations represented 13% of net sales for the six months ended June 30, 2013 and 2012. These fragrance products are sold under trademarks pursuant to license or other agreements with the owners of the Anna Sui, Alfred Dunhill, Shanghai Tang, Agent Provocateur, Gap , Banana Republic, Brooks Brothers, bebe, Betsey Johnson, Nine West, and Lane Bryant brands.
Historically, seasonality has not been a major factor for our Company as quarterly sales fluctuations were more influenced by the timing of new product launches than by the third and fourth quarter holiday season. However, in certain markets where we now sell directly to retailers, seasonality is more evident. We have operated our European distribution subsidiaries in Italy, Germany, Spain and the United Kingdom since 2007, and in January 2011, we commenced operations of our U. S. distribution subsidiary. In addition, our specialty retail product lines sold to U. S. retailers are also concentrated in the second half of the year.
We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses, other arrangements or out-right acquisitions of brands. Second, we grow through the introduction of new products and supporting new and established products through advertising, merchandising and sampling, as well as phasing out existing products that no longer meet the needs of our consumers. 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.
During the six months ended June 30, 2013, the economic uncertainty and financial market volatility taking place in certain European countries did not have a significant impact on our business, and at this time we do not believe it will have a significant impact on our business for the foreseeable future. This is due in part to our belief that we are well positioned as a result of our strategy to manage our business effectively and efficiently. 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 as a result, our business. Currently, we believe general economic and other uncertainties still exist in select markets in which we do business, and we continue to monitor global economic uncertainties and other risks that may affect our business.
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INTER PARFUMS, INC. AND SUBSIDIARIES |
Our reported net sales are impacted by changes in foreign currency exchange rates. A weak U.S. dollar has a positive impact on our net sales. However, earnings are negatively affected by a weak dollar because approximately 40% of net sales of our European operations are denominated in U.S. dollars, while all costs of our European operations are incurred in euro. Our Company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. We primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates.
Recent Important Events
Burberry
Burberry exercised its option to buy-out the license rights effective December 31, 2012. On October 11, 2012, the Company and Burberry entered into a transition agreement that provided for certain license rights and obligations to continue through March 31, 2013. The Company continued to operate certain aspects of the business for the brand including product development, testing, and distribution. The transition agreement provided for non-exclusivity for manufacturing, a cap on sales of Burberry products, a reduced advertising requirement and no minimum royalty amounts.
The transition agreement provided that Burberry inventories at March 31, 2013 should be less than $20.0 million in the aggregate. Actual Burberry inventory as of March 31, 2013 aggregated approximately $18 million. During the second quarter of 2013, the Company and Burberry reached an agreement regarding inventory. Burberry agreed to purchase $7.8 million of inventory at cost. Remaining inventories were sold off in the ordinary course of business pursuant to our sell-off rights, destroyed or given to Burberry at no charge.
As of June 30, 2013, the $10 million inventory reserve, recorded in December upon recognition of the license termination gain of $198.8 million, was fully consumed by the costs incurred for inventories given to Burberry at no charge, sold below cost and destroyed, together with commercial rebates and free merchandise given to customers over the sell-off period.
Accounts receivables and accounts payables were collected and paid in the ordinary course of business. In addition, Burberry purchased fixed assets for $2.8 million as agreed in the transition agreement.
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INTER PARFUMS, INC. AND SUBSIDIARIES |
Shanghai Tang
In July 2013, the Company created a wholly-owned Hong Kong subsidiary, Inter Parfums USA Hong Kong Limited, which entered into a 12-year exclusive worldwide license to create, produce and distribute perfumes and related products under China’s leading luxury brand, Shanghai Tang. The agreement commenced on July 1, 2013 and is subject to certain minimum sales, advertising expenditures and royalty payments as are customary in our industry. The Company plans to launch its first fragrance under the Shanghai Tang brand in Spring 2014.
Agent Provocateur
On July 25, 2013, the Company entered into a 10.5-year exclusive worldwide license to create, produce and distribute perfumes and related products under London-based luxury lingerie brand, Agent Provocateur. The agreement commences on August 1, 2013 and is subject to certain minimum advertising expenditures as is customary in our industry. The Company plans to launch its first fragrance under the Agent Provocateur brand in 2014. In addition, Inter Parfums will take over distribution of selected fragrances within the brand’s current perfume portfolio and plans to revitalize the Agent Provocateur signature scent.
Discussion of Critical Accounting Policies
We make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations. These accounting policies generally require our management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management of the Company has discussed the selection of significant accounting policies and the effect of estimates with the Audit Committee of the Board of Directors.
Revenue Recognition
We sell our products to department stores, perfumeries, specialty retailers, mass-market retailers, supermarkets and domestic and international wholesalers and distributors. Sales of such products by our domestic subsidiaries are denominated in U.S. dollars and sales of such products by our foreign subsidiaries are primarily denominated in either 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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INTER PARFUMS, INC. AND SUBSIDIARIES |
Sales Returns
Generally, we do not permit customers to return their unsold products. However, commencing in January 2011, we took over U.S. distribution of our European based prestige products and for U.S. based customers we allow customer 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.
Promotional Allowances
We have various performance-based arrangements with certain retailers. These arrangements primarily allow customers to take deductions against amounts owed to us for product purchases. The costs that we incur for performance-based arrangements, shelf replacement costs and slotting fees are netted against revenues on our Company’s consolidated statement of income. Estimated accruals for promotions and 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, or market acceptance of products, could result in shortened useful lives.
We evaluate goodwill and 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 (i) reduce the carrying value of the reporting unit below its fair value or (ii) indicate that the carrying value of an indefinite-lived intangible asset may not be recoverable. Impairment of goodwill is evaluated using a two-step process. The first step involves a comparison of the estimated fair value of the reporting unit to the carrying value of that unit to determine if there is an indication of impairment. In accordance with ASU 2011-08, the Company has the option of performing a qualitative assessment before calculating the fair value of a reporting unit in the first step of the goodwill impairment test. If the Company determines, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, the second step of the process involves comparison of the implied fair value of goodwill with its carrying value. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized as an amount equal to the excess.
For indefinite-lived intangible assets, the evaluation requires a comparison of the estimated fair value of the asset to the carrying value of the asset. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, impairment is recorded. To determine fair value of indefinite-lived intangible assets, we use an income approach, including the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. The relief-from-royalty calculations require us to make a number of assumptions and estimates concerning future sales levels, market royalty rates, future tax rates and discount rates. We use this method to determine if an impairment charge is required relating to our Nickel brand trademarks.
The following table presents the impact a change in the following significant assumptions would have had on the calculated fair value in 2012 assuming all other assumptions remained constant:
In thousands | Increase (decrease) | |||||||
Change | to fair value | |||||||
Weighted average cost of capital | +10% | $ | (301 | ) | ||||
Weighted average cost of capital | -10% | $ | 396 | |||||
Future sales levels | +10% | $ | 255 | |||||
Future sales levels | -10% | $ | (255 | ) |
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INTER PARFUMS, INC. AND SUBSIDIARIES |
The fair values used in our evaluations are also estimated based upon discounted future cash flow projections using a weighted average cost of capital of 7.6%. 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. We believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable. 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.
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. 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 intangible assets subject to amortization. In those cases where we determine that the useful life of 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.
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.
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.
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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 earnings at that time. In addition, the Company follows the provisions of uncertain tax positions as addressed in ASC topic 740-10-65-1.
Results of Operations
Three and Six Months Ended June 30, 2013 as Compared to the Three and Six Months Ended June 30, 2012
Net Sales
Three months ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||||||||||
2013 | 2012 | % Change | 2013 | 2012 | % Change | |||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||
European-based product sales | $ | 92.7 | $ | 125.6 | -26.2 | % | $ | 287.9 | $ | 270.8 | 6.3 | % | ||||||||||||
United States-based product sales | 24.8 | 20.0 | 24.4 | % | 43.4 | 40.1 | 8.3 | % | ||||||||||||||||
$ | 117.5 | $ | 145.6 | -19.3 | % | $ | 331.3 | $ | 310.9 | 6.6 | % |
Net sales for the three months ended June 30, 2013 decreased 19.3% to $117.5 million, as compared to $145.6 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales decreased 20.6% for the period. Net sales for the six months ended June 30, 2013 increased 6.6% to $331.3 million, as compared to $310.9 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 5.7% for the period. Our association with Burberry concluded during the second quarter of 2013. Burberry brand product sales aggregated $20.7 million and $130.3 million for the three and six months ended June 30, 2013, respectively, as compared to $62.8 million and $134.0 million for the corresponding periods of the prior year.
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See information regarding Regulation S-K Item 10(e) on page 15 of this Form 10-Q. European based prestige product sales excluding Burberry brand product sales increased 15% for both three and six month periods ended June 30, 2013, as compared to the corresponding periods of the prior year. Our major ongoing brands have performed very well in the first half of 2013. Jimmy Choo introduced its second fragrance line, Jimmy Choo Flash , which contributed to the 43% and 48% increase in brand sales for the second quarter and first half, respectively. Sales of Montblanc Legend fragrances also performed exceptionally well spurring second quarter and first half brand sales up 20.3% and 30.2%, respectively. With the continued growth of Eclat ď Arpège along with the launch of Lanvin Me and the steady performance of the Jeanne Lanvin line, Lanvin product sales increased 14% and 16% in the second quarter and first half, respectively.
Future sales within our European operations will be significantly affected as a result of the termination of the Burberry license. However, we are confident in our future. This new situation allows us to strengthen investments supporting all portfolio brands and to accelerate their development. Our expectations reflect our plans to continue to build upon the strength of our brands and worldwide distribution network. While we are not expecting any contribution in 2013 from one of our newest brands, Karl Lagerfeld, as we are in the midst of the product development process, we do expect continued strong performances from the Lanvin, Jimmy Choo, Montblanc and Boucheron brands, as well as initial sales from the launch of fragrances under the Repetto brand. In addition, the Company expects to benefit from its substantial resources to potentially acquire one or more brands, either on a proprietary basis or as a licensee.
With respect to our United States prestige brand and specialty retail products, sales benefited from strong consumer demand and expanded retail distribution for Anna Sui fragrances. Initial sales of Anna Sui fragrances began in 2012 and we expect this brand to gain further momentum following the launch of La Vie de Bohème during the third quarter of 2013. Additionally, in April 2013, our U.S. based operations took over the manufacture and distribution of legacy Alfred Dunhill fragrances, which provided an incremental contribution to second quarter 2013 growth for our U.S. business.
Consolidated Net Sales to Customers by Region
(in millions)
Six months ended June 30, | ||||||||
2013 | 2012 | |||||||
North America | $ | 86.0 | $ | 83.6 | ||||
Western Europe | 93.6 | 78.6 | ||||||
Eastern Europe | 27.8 | 21.5 | ||||||
Central and South America | 27.0 | 28.3 | ||||||
Middle East | 28.7 | 34.3 | ||||||
Asia | 63.2 | 60.7 | ||||||
Other | 5.0 | 3.9 | ||||||
$ | 331.3 | $ | 310.9 |
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INTER PARFUMS, INC. AND SUBSIDIARIES |
Gross margin |
Three
months ended
June 30, |
Six
months ended
June 30, |
||||||||||||||
(In millions) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Net sales | $ | 117.5 | $ | 145.6 | $ | 331.3 | $ | 310.9 | ||||||||
Cost of sales | 53.9 | 57.1 | 133.0 | 116.4 | ||||||||||||
Gross margin | $ | 63.6 | $ | 88.5 | $ | 198.3 | $ | 194.5 | ||||||||
Gross margin as a percent of net sales | 54 | % | 61 | % | 60 | % | 63 | % |
Gross profit margin was 54% and 60% for the three and six month periods ended June 30, 2013, respectively, as compared to 61% and 63% for the corresponding periods of the prior year. The gross margin decline is directly related to the resolution of the Burberry inventory during the period. Although reserves were established and used to cover losses on the disposition of inventory, the sale to Burberry, at cost, resulted in lower gross margin during the periods.
In addition, we carefully monitor movements in foreign currency exchange rates as approximately 40% of our European based operations net sales are denominated in dollars, while our costs are incurred in euro. From a profit standpoint, a stronger U.S. dollar has a positive effect on our gross margin while a weak dollar has a negative effect. The average dollar/euro exchange rate for the six months ended June 30, 2013 was 1.32, as compared to 1.30 for the 2012 period. As such, there was only a minor effect on gross margin in 2013 from changes in currency exchange rates.
Generally, we do not bill customers for shipping and handling costs, and such costs, which aggregated $1.1 million and $3.1 million for the three and six month periods ended June 30, 2013, respectively, as compared to $1.9 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
June 30, |
Six
months ended
June 30, |
||||||||||||||
(In millions) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Selling, general and administrative expenses | $ | 55.7 | $ | 75.8 | $ | 123.4 | $ | 150.2 | ||||||||
Selling, general and administrative expenses as a percent of net sales | 47 | % | 52 | % | 37 | % | 48 | % |
Selling, general and administrative expenses decreased 26% and 18% for the three and six-month periods ended June 30, 2013, respectively, as compared to the corresponding periods of the prior year. Selling, general and administrative expenses were 47% and 37% of net sales for the three and six-month periods ended June 30, 2013, as compared to 52% and 48% for the corresponding periods of the prior year.
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INTER PARFUMS, INC. AND SUBSIDIARIES |
Promotion and advertising included in selling, general and administrative expenses aggregated $22.4 million and $37.1 million for the three and six-month periods ended June 30, 2013, respectively, as compared to $30.4 million and $57.1 million for the corresponding periods of the prior year. P romotion and advertising represented 19% and 11% of net sales for the three and six months ended June 30, 2013, as compared to 21% and 18% of net sales for the corresponding period of the prior year. In 2013, pursuant to the requirements of the transition agreement with Burberry, advertising requirements were reduced. For the three months ended June 30, 2013, promotional spending on continuing brands aggregated approximately 20.6% of net sales, which is consistent with that of the prior year. We plan to invest heavily in the second half of 2013 to support new product launches and invest in the continued worldwide development of our brand portfolio.
Royalty expense included in selling, general and administrative expenses aggregated $6.8 million and $24.8 million for the three and six month periods ended June 30, 2013, respectively, as compared to $12.4 million and $26.1 million for the corresponding periods of the prior year. Royalty expense represented 5.8% and 7.5% of net sales for the three and six months ended June 30, 2013, as compared to 8.5% and 8.4% of net sales for the corresponding period of the prior year. In addition, service fees relating to the activities of our distribution subsidiaries aggregated $2.8 million and $9.4 million for the three and six month periods ended June 30, 2013, respectively, as compared to $5.2 million and $10.9 million for the corresponding periods of the prior year. The declines in both royalties and service fees are directly related to the termination of the Burberry license.
As a result of the above analysis, income from operations decreased to $7.9 million for the three-month period ended June 30, 2013, as compared to $12.6 million for the corresponding period of the prior year. Income from operations increased to $74.9 million for the six month period ended June 30, 2013, as compared to $44.4 million for the corresponding period of the prior year. Operating margins were 6.7% and 22.6% of net sales for the three and six month periods ended June 30, 2013, respectively, as compared to 8.7% and 14.3% for the corresponding periods of the prior year. Results for the six months ended June 30, 2013 were influenced by an exceptional first quarter where profits were extraordinarily strong due to a substantial increase in sales, coupled with low promotional expenses. Second quarter results were influenced by lower sales and profitability relating to the termination of the Burberry license. As we build our business in this new post Burberry era, we are investing in our on-going brands, and we anticipate higher promotional expense in succeeding periods.
Interest expense aggregated $0.4 million and $0.9 million for the three and six-month periods ended June 30, 2013, respectively, as compared to $0.4 million and $0.8 million for the corresponding periods of the prior year. We use the credit lines available to us, as needed, to finance our working capital needs. In October 2012, the Company entered into a one year, €20 million short-term credit facility to finance payments required pursuant to the Karl Lagerfeld license. This credit facility was repaid in full as of June 30, 2013.
Interest income aggregated $1.1 million and $2.3 million for the three and six-month periods ended June 30, 2013, respectively, as compared to $0.3 million and $0.8 million for the corresponding periods of the prior year. Cash and cash equivalents and short-term investments are primarily invested in certificates of deposit.
Our effective income tax rate was 50% and 37% for the three and six-month periods ended June 30, 2013, respectively, as compared to 35% and 36% for the corresponding periods of the prior year. In 2013, the company incurred a new tax levied by the French Government equal to 3% on any dividend paid by a French company to its shareholders. This new tax aggregated approximately $1.3 million for the three and six months ended June 30, 2013. Excluding this new tax our effective income tax rate was 36% and 35% for the three and six-month periods ended June 30, 2013, respectively. Our effective tax rates differ from statutory rates due to the effect of state and local taxes and tax rates in foreign jurisdictions.
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INTER PARFUMS, INC. AND SUBSIDIARIES |
Net income and earnings per share
(In thousands except per share data) |
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net income | $ | 4,521 | $ | 7,481 | $ | 47,463 | $ | 27,735 | ||||||||
Less: Net income attributable to the noncontrolling interest | 706 | 1,473 | 11,952 | 6,230 | ||||||||||||
Net income attributable to Inter Parfums, Inc. | $ | 3,815 | $ | 6,008 | $ | 35,511 | $ | 21,505 | ||||||||
Earnings per share: | ||||||||||||||||
Net income attributable to Inter Parfums, Inc. common shareholders: | ||||||||||||||||
Basic | $ | 0.12 | $ | 0.20 | $ | 1.16 | $ | 0.70 | ||||||||
Diluted | $ | 0.12 | $ | 0.20 | $ | 1.14 | $ | 0.70 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 30,748 | 30,563 | 30,717 | 30,557 | ||||||||||||
Diluted | 30,953 | 30,688 | 30,900 | 30,687 |
Net income decreased to $4.5 million for the three months ended June 30, 2013, as compared to $7.5 million for the corresponding period of the prior year. Net income increased to $47.5 million for the six-months ended June 30, 2013, as compared to $27.7 million for the corresponding period of the prior year.
Net income attributable to the noncontrolling interest aggregated 16% and 25% of net income for the three and six month periods ended June 30, 2013, respectively, as compared to 20% and 22% for both corresponding periods of the prior year. The fluctuations are primarily the effect of changes in the percentage of profit contributed by our 100% owned U.S. operating segment.
Net income attributable to Inter Parfums, Inc. decreased to $3.8 million for the three months ended June 30, 2013, as compared to $6.0 million for the corresponding period of the prior year. Net income attributable to Inter Parfums, Inc. increased to $35.5 million for the six months ended June 30, 2013, as compared to $21.5 million for the corresponding period of the prior year.
Diluted earnings per share were $0.12 and $0.20 for the three months ended June 30, 2013 and 2012, respectively, and diluted earnings per share were $1.14 and $0.70 for the six months ended June 30, 2013 and 2012, respectively.
Page 26 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
Liquidity and Capital Resources
Having received the proceeds in December 2012 from the termination of the Burberry license, our financial position remains strong. At June 30, 2013, working capital aggregated $400 million and we had a working capital ratio of 4.5 to 1. Cash and cash equivalents and short-term investments aggregated $262 million.
As previously disclosed, Burberry exercised its option to buy-out the license rights effective December 31, 2012. On October 11, 2012, the Company and Burberry entered into a transition agreement that provided for certain license rights and obligations to continue through March 31, 2013. The Company continued to operate certain aspects of the business for the brand including product development, testing, and distribution. The transition agreement provided for non-exclusivity for manufacturing, a cap on sales of Burberry products, a reduced advertising requirement and no minimum royalty amounts.
The transition agreement provided that Burberry inventories at March 31, 2013 should be less than $20.0 million in the aggregate. Actual Burberry inventory as of March 31, 2013 aggregated approximately $18 million. During the second quarter of 2013, the Company and Burberry reached an agreement regarding inventory. Burberry agreed to purchase $7.8 million of inventory at cost. Remaining inventories were sold off in the ordinary course of business pursuant to our sell-off rights, destroyed or given to Burberry at no charge.
As of June 30, 2013, the $10 million inventory reserve, recorded in December upon recognition of the license termination gain of $198.8 million, was fully consumed by the costs incurred for inventories given to Burberry at no charge, sold below cost and destroyed, together with commercial rebates and free merchandise given to customers over the sell-off period.
Accounts receivables and accounts payables were collected and paid in the ordinary course of business. In addition, Burberry purchased fixed assets for $2.8 million as agreed in the transition agreement.
With only limited reorganization measures needed, the Company’s business model is expected to continue to demonstrate its effectiveness. This new situation will allow us to strengthen investments supporting all portfolio brands and to accelerate their development. In addition, the Company will benefit from its substantial resources to potentially acquire one or more brands, either on a proprietary basis or as a licensee. Opportunities for external growth are examined without urgency, with the priority of maintaining the quality and homogeneous nature of our portfolio. However, we cannot assure you that any new license or acquisition agreements will be consummated.
Cash provided by (used in) operating activities aggregated ($1.1) million and $11.3 million for the six months ended June 30, 2013 and 2012, respectively. For the six months ended June 30, 2013, working capital items used $60.6 million in cash from operating activities, as compared to $23.4 million in the 2012 period. The biggest factor contributing to the use of cash during the 2013 period is the payment of taxes relating to the gain on termination of license. The decline in accounts receivable, inventories and payables reflect the wind down associated with the termination of the Burberry license.
Cash flows used in investing activities in 2013 reflect the purchase and sales, in France, of short-term investments aggregating to a net position of $120.7 million. These investments are primarily certificates of deposit with maturities greater than three months. Approximately $39 million of such certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal.
Page 27 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
Our business is not capital intensive as we do not own any manufacturing facilities. However, on a full year basis, we spend upwards of $4 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 addition, we generated proceeds of approximately $2.8 million from the sale of certain Burberry assets to Burberry.
Our short-term financing requirements are expected to be met by available cash on hand at June 30, 2013, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2013 consist of a $15.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $50.0 million in credit lines provided by a consortium of international financial institutions. As of June 30, 2013, short-term borrowings aggregated $0.4 million.
In January 2013, our Board of Directors authorized a 50% increase in the annual dividend to $0.48 per share for 2013. The next quarterly dividend of $0.12 per share will be paid on October 14, 2013 to shareholders of record on September 30, 2013. The annual cash dividend for 2013 represents a small part of our cash position and is not expected to have any significant impact on our financial position.
We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.
Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the three month period ended June 30, 2013.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2012 over the periods indicated, as well as our total contractual obligations ($ in thousands).
Payments due by period | ||||||||||||||||||||
Contractual Obligations | Total |
Less than 1
year |
Years
2-3 |
Years
4-5 |
More than 5
years |
|||||||||||||||
Long-Term Debt | ||||||||||||||||||||
Capital Lease Obligations | ||||||||||||||||||||
Operating Leases | $ | 30,080 | $ | 4,527 | $ | 7,872 | $ | 7,383 | $ | 10,298 | ||||||||||
Purchase obligations (1) | $ | 974,670 | $ | 88,704 | $ | 189,695 | $ | 189,101 | $ | 507,170 | ||||||||||
Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet under GAAP | ||||||||||||||||||||
Total | $ | 1,004,750 | $ | 93,231 | $ | 197,567 | $ | 196,484 | $ | 517,468 |
(1) |
Consists of purchase commitments for advertising and promotional items, minimum royalty guarantees, including fixed or minimum obligations, and estimates of such obligations subject to variable price provisions. Future advertising commitments were estimated based on planned future sales for the license terms that were in effect at December 31, 2012, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations. |
Page 28 |
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 June 30, 2013, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $48 million and GB pounds £5.2 million which all have 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 September 2007 on €22 million of debt, effectively exchanging the variable interest rate of 0.6% above the three month EURIBOR to a fixed rate of 4.42%. As of December 31, 2012, this loan had been paid in full. The derivative instrument had been 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.
Page 30 |
INTER PARFUMS, INC. AND SUBSIDIARIES |
Part II. Other Information
Items 1. Legal Proceedings, 1a. Risk Factors, 2. Unregistered Sales of Equity Securities and Use of Proceeds, 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.
Item 6. Exhibits.
The following documents are filed herewith:
Exhibit No. | Description | Page Number | ||
4.21 | 2004 Nonemployee Director Stock Option Plan as amended | 34 | ||
4.22 | 2004 Stock Option Plan as amended | 40 | ||
31.1 | Certifications required by Rule 13a-14(a) of Chief Executive Officer | 52 | ||
31.2 | Certifications required by Rule 13a-14(a) of Chief Financial Officer | 53 | ||
32.1 | Certification required by Section 906 of the Sarbanes-Oxley Act of Chief Executive Officer | 54 | ||
32.2 | Certification required by Section 906 of the Sarbanes-Oxley Act of Chief Financial Officer | 55 | ||
101* | Interactive data files |
_________________
* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these Sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 7th day of August 2013.
INTER PARFUMS, INC. | ||
By: | /s/ Russell Greenberg | |
Executive Vice President and | ||
Chief Financial Officer |
Page 31 |
Exhibit 4.21
Inter Parfums, Inc.
2004 Nonemployee Director
Stock Option Plan (As Amended)
**********
1. Purpose of the Plan. The purpose of this 2004 Nonemployee Director Stock Option Plan (the “Plan”) of Inter Parfums, Inc., a Delaware corporation (the “Corporation”), is to make available shares of the Common Stock, par value $.001 per share, of the Corporation (the “Common Stock”) for purchase by directors of the Corporation who are not employees of the Corporation, or any parent or subsidiary thereof (“Nonemployee Directors”). Thus, the Plan permits the Corporation to attract and retain the services of experienced and knowledgeable Nonemployee Directors for the benefit of the Corporation and its shareholders and to provide additional incentive for such Nonemployee Directors to continue to work for the best interests of the Corporation and its shareholders through continuing ownership of its Common Stock.
2. Stock Subject to the Plan. Subject to the provisions of Section 10, the total number of shares of Common Stock which may be subject to options under the Plan shall not exceed 50,000 1 , whether authorized but unissued shares, or shares which shall have been purchased or acquired by the Corporation for this or any other purpose. Such shares are from time to time to be allotted for option and sale to Nonemployee Directors in accordance with the Plan. In the event any option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the shares not so purchased thereby shall again be available for the purposes of the Plan.
3. Administration of the Plan. The Plan shall be self-executing. However, to the extent permitted herein, the Plan shall be administered by either the Board of Directors of the Corporation (the "Board") or a committee of two (2) or more Nonemployee Directors (the "Committee") of the Board appointed by the Board. The Board or the Committee shall, subject to the express provisions of the Plan, have the power to interpret the Plan; correct any defect, supply any omission or reconcile any inconsistency in the Plan; prescribe, amend and rescind rules and regulations relating to the Plan; and make all other determinations necessary or advisable for the administration of the Plan. The determination of the Board or the Committee on the matters referred to in this Section 3 shall be conclusive.
4. Eligibility; Grants.
(a) Nonemployee Directors shall not include directors who are also employees of the Corporation or any parent or subsidiary thereof, but shall include directors of the Corporation who are providing services such as business, financial, legal or investment banking services, to, for, or on behalf of the Corporation or any parent or subsidiary thereof, in return for remuneration, directly or indirectly through one or more entities. All grants under this Plan shall be in lieu of any other option grants that a Nonemployee Director may have been entitled to under any other plan of the Company.
1 The number of shares was adjusted to 75,000 shares in order to take into account our 3:2 forward stock split in the nature of a 50% stock dividend to shareholders of record on May 15, 2008.
(b) Each individual who becomes a Nonemployee Director, shall on the date of his initial election or appointment to the Board be granted an option to purchase 2,000 shares of Common Stock.
(c) Each Nonemployee Director shall be granted an option to purchase 1,000 shares of Common Stock commencing on the next February 1st, and each succeeding February 1st throughout the term of this Plan for so long as he is a Nonemployee Director. Notwithstanding the foregoing, no option shall be granted on such February 1st grant date to any Nonemployee Director who first becomes a Nonemployee Director within six (6) months prior to such February 1st grant date. Commencing with the grant to non-employee directors on February 1, 2006 and continuing each year thereafter, if a Nonemployee Director did not attend one of the two in-person board meetings that are usually held the prior June and December, then the option to be granted on the following February 1, under this Plan would be reduced by 50%; and if such Nonemployee Director did not attend both of such meetings, then such Nonemployee Director would not receive any option grant on the following February 1.
(d) If a sufficient number of shares of Common Stock reserved for issuance upon proper exercise of options to be granted to Nonemployee Directors on the February 1st grant date does not exist, then the aggregate remaining number of shares shall be prorated equally among options to be granted to all Nonemployee Directors at such February 1st grant date, and options shall be granted to purchase such reduced number of shares. Notwithstanding the foregoing, if a sufficient number of shares of Common Stock reserved for issuance upon proper exercise of options to be granted to Nonemployee Directors on the February 1st grant date does not exist, then options shall be granted under any pre-existing Nonemployee Director plan in order to satisfy such deficiency, if, and to the extent available.
(e) It is the express intent that options to be granted under this Plan shall be in lieu of further option grants under any of the Company’ existing Nonemployee Director plans, such as the 1997 Nonemployee Director Stock Option Plan, and the 2000 Nonemployee Director Stock Option Plan, except to the extent to satisfy any deficiency as set forth in Section 4(d) above.
(f) On or after June 19, 2006, all options that may be granted from time to time under the Plan shall vest and become exercisable to purchase shares of Common Stock as follows: 25% one year after the date of grant, and then 25% on each of the second, third and fourth consecutive years from the date of grant on a cumulative basis, so that each option shall become fully vested and exercisable on the fourth year from the date of grant.
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5. Option Price; Fair Market Value.
(a) The price at which shares of the Common Stock may be purchased pursuant to options granted under the Plan shall be equal to one hundred percent (100%) of the fair market value of the Common Stock on the date an option is granted.
(b) The fair market value of the Common stock on any day shall be (a) if the principal market for the Common Stock is a national securities exchange, the average between the high and low sales prices of the Common Stock on such day as reported by such exchange or on a consolidated tape reflecting transactions on such exchange; (b) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is quoted on The Nasdaq Stock Market ("NASDAQ") or The Over The Counter Bulletin Board (the "Bulletin Board"), and (i) if actual sales price information is available with respect to the Common Stock, then the average between the high and low sales prices of the Common Stock on such day on NASDAQ or the Bulletin Board, or (ii) if such information is not available, then the average between the highest bid and lowest asked prices for the Common Stock on such day on NASDAQ or the Bulletin Board; or (c) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is not quoted on NASDAQ or the Bulletin Board, then the average between the highest bid and lowest asked prices for the Common Stock on such day as reported by National Quotation Bureau, Incorporated or a comparable service; provided, that if clauses (a), (b) and (c) of this paragraph are all inapplicable, or if no trades have been made or no quotes are available for such day, then the fair market value of the Common Stock shall be determined by the Committee by any method consistent with applicable regulations adopted by the Treasury Department relating to stock options. The determination of the Board or the Committee shall be conclusive in determining the fair market value of the stock.
6. Term of Each Option. The term of each option shall be five (5) years or such shorter period as is prescribed in Section 9 hereof.
7. Exercise of Options.
(a) Subject to the provisions of Sections 9 and 14, options granted hereunder shall be exercisable immediately; provided, that options shall not be exercisable at any time in an amount less than 100 shares (or the remaining shares then covered by and purchasable under the option if less than 100 shares), or for a fraction of a share.
(b) The purchase price of the shares as to which an option shall be exercised shall be paid in full at the time of exercise in cash, by certified check or wire transfer of funds through the Federal Reserve System.
8. Non-Transferability of Options. No option granted under the Plan shall be transferable otherwise than by will or by the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code, Title I of the Employee Retirement Income Security Act and the rules thereunder, and an option may be exercised, during the lifetime of the holder thereof, only by him.
3 |
9. Termination of Services on the Board of Directors.
(a) If a Nonemployee Director to whom an option has been granted under the Plan shall cease to serve on the Board, otherwise than by reason of death or disability (as that term is defined in paragraph (d) of this Section 9), then such option may be exercised (to the extent that the Nonemployee Director was entitled to do so at the time of cessation of service) at any time within three (3) months after such cessation of service but not thereafter, and in no event after the date on which, except for such cessation of service, the option would otherwise expire.
(b) If a Nonemployee Director to whom an option has been granted under the Plan shall cease to serve on the Board by reason of disability, then the remaining unexercised portion of the option may be exercised in whole or in part by the Nonemployee Director (notwithstanding that the option had not yet become exercisable with respect to all or part of such shares at the date of disability) at any time within one (1) year after such disability but not thereafter, and in no event after the date on which, except for such disability, the option would otherwise expire.
(c) If a Nonemployee Director to whom an option has been granted under the Plan shall die (i) while he is serving on the Board, or (ii) within three (3) months after cessation of service on the Board, then such option may be exercised by the legatee or legatees of such option under the Nonemployee Director's last will, or by his personal representatives or distributee, at any time within one (1) year after his death, but in no event after the date on which, except for such death, the option would otherwise expire.
(d) For the purpose of this Section 9, "disability" shall mean permanent mental or physical disability as determined by the Committee.
10. Adjustment of and Changes in Common Stock.
(a) If the outstanding shares of the Common Stock are increased, decreased, changed into, or exchanged for a different number or kind of shares or securities of the Corporation through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or the like, an appropriate and proportionate adjustment shall be made in the (i) aggregate number and kind of securities available under the Plan, and (ii) number and kind of securities issuable upon the exercise of all outstanding options granted under the Plan, without change in the total price applicable to the unexercised portion of such options, but with a corresponding adjustment in the price for each unit of any security covered by such options.
(b) Upon the dissolution or liquidation of the Corporation, or upon a reorganization, merger or consolidation of the Corporation with one or more corporations as a result of which the Corporation is not the surviving corporation, or upon the sale of substantially all of the assets of the Corporation, the Committee shall provide in writing in connection with such transaction for one or more of the following alternatives, separately or in combination: (i) the assumption by the successor entity of the options theretofore granted or the substitution by such entity for such options of new options covering the stock of the successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; or (ii) the continuance of such option agreements by such successor entity in which such options shall remain in full force and effect under the terms so provided.
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(c) Any adjustments under this Section 10 shall be made by the Committee, whose good faith determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive.
11. Compliance with Securities Laws. As a condition to the exercise of any option, either (a) a Registration Statement under the Securities Act of 1933, as amended, or any succeeding act (collectively, the "Act"), with respect to its underlying shares shall be effective at the time of exercise of the option or (b) in the opinion of counsel to the Corporation, there shall be an exemption from registration under the Act for the issuance of shares of Common Stock upon such exercise. Nothing herein shall be construed as requiring the Corporation to register shares subject to the Plan or any option under the Act. Each opinion shall be subject to the further requirement that if, in the opinion of counsel to the Corporation, the listing or qualification of the shares of Common Stocks subject to such option on any securities exchange, National Securities Association or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the exercise of such option or the issue of shares thereunder, such option may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions requiring the Corporation to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction wherein it has not already done so and free of any other conditions not customarily imposed by a securities exchange, law or governmental regulatory body in connection with such listing, qualification, consent or approval.
12. Amendment and Termination. The Committee may amend, suspend or terminate the Plan or any portion thereof at any time but may not, without the approval of the Corporation's shareholders within twelve (12) months before or after the date of adoption of any such amendment or amendments, make any alteration or amendment thereof which (a) makes any change in the class of eligible participants as determined in accordance with Section 4 hereof; (b) increases the total number of shares of Common Stock for which options may be granted under the Plan except as provided in Section 10 hereof; (c) extends the term of the Plan or the maximum option period provided under the Plan; (d) decreases the option price provided in Section 5 hereof; or (e) materially increases the benefits accruing to participants under the Plan. Notwithstanding anything to the contrary contained herein, the Plan shall not be amended more than once every six (6) months, other than to comport with changes in the Internal Revenue Code, Employee Retirement Income Security Act or the rules thereunder.
13. Duties of the Corporation. The Corporation shall, at all times during the term of each option, reserve and keep available for issuance or delivery such number of shares of Common Stock as will be sufficient to satisfy the requirements of all options at the time outstanding, shall pay all original issue taxes with respect to the issuance or delivery of shares pursuant to the exercise of such options and all other fees and expenses necessarily incurred by the Corporation in connection therewith.
5 |
14. Term; Effective Period.
(a) The Plan shall become effective on 26 March 2004, the date of its adoption by the Board of Directors, subject to the receipt of the affirmative vote of the majority of the shares of Common Stock present in person or by proxy at the next annual meeting and entitled to vote, or the written consent of the holders of a majority of shares that would have been entitled to vote thereon, and no options granted hereunder may be exercised prior to such approval, provided that, the date of grant of any options granted hereunder shall be determined as if the Plan had not been subject to such approval.
(b) No options may be granted under the Plan after March 31, 2024. Options outstanding on or prior to such date shall, however, in all respects continue subject to the Plan.
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Exhibit 4.22
2004 STOCK OPTION PLAN
OF
INTER PARFUMS, INC. ( As Amended )
1. Purposes of The Plan. This stock option plan (the "Plan") is designed to provide an incentive to key employees, officers, directors and consultants of Inter Parfums, Inc., a Delaware corporation (the "Company"), and its present and future subsidiary corporations, as defined in Paragraph 17 ("Subsidiaries"), and to offer an additional inducement in obtaining the services of such individuals. The Plan provides for the grant of "incentive stock options," within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock options and stock appreciation rights ("SARs").
2. Shares Subject To The Plan. The aggregate number of shares of Common Stock, $.001 par value per share, of the Company ("Common Stock") for which options or SARs may be granted under the Plan shall not exceed 1,000,000 1 . Such shares may, in the discretion of the Board of Directors, consist either in whole or in part of authorized but unissued shares of Common Stock or shares of Common Stock held in the treasury of the Company. The Company shall at all times during the term of the Plan reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of the Plan. Subject to the provisions of Paragraph 14, any shares subject to an option or SAR which for any reason expire, are canceled or are terminated unexercised (other than those which expire, are canceled or terminated pursuant to the exercise of a tandem SAR or option) shall again become available for the granting of options or SARs under the Plan. The number of shares of Common Stock underlying that portion of an option or SAR which is exercised (regardless of the number of shares actually issued) shall not again become available for grant under the Plan.
3. Administration Of The Plan.
(a) The Plan shall be administered by the Board of Directors, or if appointed, by a committee consisting of not less than two (2) members of the Board of Directors, each of whom shall be a “non-employee director” within the meaning of Rule 16b-3 promulgated by the Securities and Exchange Commission. (The group administering the plan is referred to as the “Committee”). The failure of any of the Committee members to qualify as a non-employee director shall not otherwise affect the validity of the grant of any option or SAR, or the issuance of shares of Common Stock otherwise validly issued upon exercise of any such option. A majority of the members of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, and any acts approved in writing by all members without a meeting, shall be the acts of the Committee.
1 The number of shares was adjusted to 1,500,000 shares in order to take into account our 3:2 forward stock split in the nature of a 50% stock dividend to shareholders of record on May 15, 2008.
(b) Subject to the express provisions of the Plan, the Committee shall have the authority, in its sole discretion, to determine the individuals who shall receive options and SARS; the times when they shall receive them; whether an option shall be an incentive or a nonqualified stock option; whether an SAR shall be granted separately, in tandem with or in addition to an option; the number of shares to be subject to each option and SAR; the term of each option and SAR; the date each option and SAR shall become exercisable; whether an option or SAR shall be exercisable in whole, in part or in installments, and if in installments, the number of shares to be subject to each installment; whether the installments shall be cumulative, the date each installment shall become exercisable and the term of each installment; whether to accelerate the date of exercise of any installment; whether shares may be issued on exercise of an option as partly paid, and, if so, the dates when future installments of the exercise price shall become due and the amounts of such installments; the exercise price of each option and the base price of each SAR; the form of payment of the exercise price; the form of payment by the Company upon the optionee's exercise of an SAR; whether to require that the optionee remain in the employ of the Company or its Subsidiaries for a period of time from and after the date the option or SAR is granted to him; the amount necessary to satisfy the Company's obligation to withhold taxes; whether to restrict the sale or other disposition of the shares of Common Stock acquired upon the exercise of an option or SAR and to waive any such restriction; to subject the exercise of all or any portion of an option or SAR to the fulfillment of contingencies as specified in the Contract (as described in Paragraph 12), including without limitations, contingencies relating to financial objectives (such as earnings per share, cash flow return, return on investment or growth in sales) for a specified period for the Company, a division, a product line or other category, and/or the period of continued employment of the optionee with the Company or its Subsidiaries, and to determine whether such contingencies have been met; to construe the respective Contracts and the Plan; with the consent of the optionee, to cancel or modify an option or SAR, provided such option or SAR as modified would be permitted to be granted on such date under the terms of the Plan; and to make all other determinations necessary or advisable for administering the Plan. The determinations of the Committee on the matters referred to in this Paragraph 3 shall be conclusive.
(c) Subject to the express provisions of the Plan and solely with respect to employees of the Company who are not executive officers or directors of the Company, the Committee hereby delegates to the Chief Executive Officer, and to act in place and on behalf of the Committee, the authority to grant nonqualified options and SARs to such employees; to determine the term of such nonqualified options and SARs; to determine whether an option or SAR shall be exercisable in whole, in part or in installments; to determine whether to require that the optionee remain in the employ of the Company or its Subsidiaries for a period of time from and after the date the option or SAR is granted to him; and to subject the exercise of all or any portion of an option or SAR to the fulfillment of contingencies as specified in the Contract (as described in Paragraph 12). Any such action by the Chief Executive Officer shall be promptly reduced to writing and provided to the Committee.
4. Eligibility.
(a) The Committee may, consistent with the purposes of the Plan, grant incentive stock options to key employees (including officers and directors who are employees) and nonqualified stock options and/or SARs to key employees, officers, directors and consultants of the Company or any of its Subsidiaries from time to time, within ten (10) years from the date of adoption of the Plan by the Board of Directors, covering such number of shares of Common Stock as the Committee may determine; provided, however, that the aggregate market value (determined at the time the stock option is granted) of the shares for which any eligible person may be granted incentive stock options under the Plan or any plan of the Company, or of a Parent or a Subsidiary of the Company which are exercisable for the first time by such optionee during any calendar year shall not exceed $100,000. Any option (or portion thereof) granted in excess of such amount shall be treated as a nonqualified stock option.
(b) Notwithstanding any other provision of the Plan, if the Committee determines that at the time a person is granted an option or SAR, such person is then, or is likely to become, a Covered Person (as hereinafter defined), then the Committee may provide that this Section 4(b) is applicable to such grant.
(i) Notwithstanding any provision of this Plan, no person eligible to receive a grant of an option or SAR under this Plan shall be granted options to purchase or an SAR in excess of 150,000 shares of common stock in any one fiscal year. Such 150,000 maximum number shall be appropriately adjusted for stock splits, stock dividends and the like.
(ii) Notwithstanding any provision of this Plan, the exercise price for all options and the base price for all SARs to be granted under the Plan, shall not be less than the fair market value of the Common Stock at the time of grant.
(iii) The term “Covered Person” shall mean a “covered employee” within the meaning of Code Section 162(m)(3) or any successor provision thereto.
5. Exercise Price And Base Price.
(a) The exercise price of the shares of Common Stock under each option and the base price for each SAR shall be determined by the Committee; provided, however, in the case of an incentive stock option, the exercise price shall not be less than 100% of the fair market value of the Common Stock on the date of grant, and further provided, that if, at the time an incentive stock option is granted, the optionee owns (or is deemed to own) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, of any of its Subsidiaries or of a Parent, the exercise price shall not be less than 110% of the fair market value of the Common Stock subject to the option at the time of the granting of such option.
(b) The fair market value of the Common stock on any day shall be (a) if the principal market for the Common stock is a national securities exchange, the average between the high and low sales prices of the Common stock on such day as reported by such exchange or on a consolidated tape reflecting transactions on such exchange; (b) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is quoted on The Nasdaq Stock Market ("NASDAQ"), and (i) if actual sales price information is available with respect to the Common Stock, then the average between the high and low sales prices of the Common Stock on such day on NASDAQ, or (ii) if such information is not available, then the average between the highest bid and lowest asked prices for the Common Stock on such day on NASDAQ; or (c) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is not quoted on NASDAQ, then the average between the highest bid and lowest asked prices for the Common Stock on such day as reported by The Nasdaq Bulletin Board, or a comparable service; provided that if clauses (a), (b) and (c) of this Paragraph are all inapplicable, or if no trades have been made or no quotes are available for such day, then the fair market value of the Common Stock shall be determined by the Committee by any method consistent with applicable regulations adopted by the Treasury Department relating to stock options. The determination of the Committee shall be conclusive in determining the fair market value of the stock.
6. Term. The term of each option and SAR granted pursuant to the Plan shall be such term as is established by the Committee, in its sole discretion, at or before the term of each incentive stock option granted pursuant to the Plan shall be for a period not exceeding ten (10) years from the date of granting thereof, and further, provided, that if, at the time an incentive stock option is granted, the optionee owns (or is deemed to own) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, of any of its Subsidiaries or of a Parent, the term of the incentive stock option shall be for a period not exceeding five (5) years. Options shall be subject to earlier termination as hereinafter provided.
7. Exercise.
(a) An option or SAR (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office (at present 551 Fifth Avenue, New York, NY 10176) stating whether an incentive or nonqualified stock option or SAR is being exercised, specifying the number of shares as to which such option or SAR is being exercised, and in the case of an option, accompanied by payment in full of the aggregate exercise price therefor (or the amount due on exercise if the Contract permits installment payments) in the discretion of the Committee (a) in cash or by certified check, (b) with previously acquired shares of Common Stock having an aggregate fair market value, on the date of exercise, equal to the aggregate exercise price of all options being exercised, or (c) any combination thereof. In addition, upon the exercise of a nonqualified stock option or SAR, the Company may withhold cash and/or shares of Common Stock to be issued with respect thereto having an aggregate fair market value equal to the amount which it determined is necessary to satisfy its obligation to withhold Federal, state and local income taxes or other taxes incurred by reason of such exercise. Alternatively, the Company may require the holder to pay to the Company such amount, in cash, promptly upon demand. The Company shall not be required to issue any shares pursuant to any such option or SAR until all required payments have been made. Fair market value of the shares shall be determined in accordance with Paragraph 5.
(b) A person entitled to receive Common Stock upon the exercise of an option or SAR shall not have the rights of a shareholder with respect to such shares until the date of issuance of a stock certificate to him for such shares; provided, however, that until such stock certificate is issued, any option holder using previously acquired shares in payment of an option exercise price shall have the rights of a shareholder with respect to such previously acquired shares.
(c) In no case may a fraction of a share be purchased or issued under the Plan. Any option granted in tandem with an SAR shall no longer be exercisable to the extent the SAR is exercised, and the exercise of the related option shall cancel the SAR to the extent of such exercise.
8. Stock Appreciation Rights.
(a) An SAR may be granted separately, in tandem with or in addition to any option, and may be granted before, simultaneously with or after the grant of an option hereunder. In addition, the holder of an option may, in lieu of making the payment required at the time of exercise under Paragraph 7, include in the written notice referred to therein an "election" to exercise the option as an SAR. In such case, the Committee shall have fifteen (15) days from the receipt of notice of the election to decide, in its sole discretion, whether or not to accept the election and notify the option holder of its decision. If the Committee consents, such exercise shall be treated as the exercise of an SAR with a base price equal to the exercise price.
(b) Upon the exercise of an SAR, the holder shall be entitled to receive an amount equal to the excess of the fair market value of a share of Common Stock on the date of exercise over the base price of the SAR. Such amount shall be paid, in the discretion of the Committee, in cash, Common Stock having a fair market value on the date of payment equal to such amount, or a combination thereof. For purposes of this Paragraph 8, fair market value shall be determined in accordance with Paragraph 5.
9. Termination Of Association With The Company.
(a) Any holder of an incentive option whose association with the Company (and its Subsidiaries) has terminated for any reason other than his death or permanent and total disability (as defined in Section 22(e)(3) of the Code) may exercise such option, to the extent exercisable on the date of such termination, at any time within three (3) months after the date of termination, but in no event after the expiration of the term of the option; provided, however, that if his association shall be terminated either (i) for cause, or (ii) without the consent of the Company, said option shall terminate immediately.
(b) Any and all nonqualified stock options or SARs granted under the Plan shall terminate simultaneously with the termination of association of the holder of such nonqualified option or SAR with the Company (and its Subsidiaries) for any reason other than the death or permanent and total disability (as defined in Section 22(e)(3) of the Code) of such holder.
(c) Options and SARs granted under the Plan shall not be affected by any change in the status of an optionee so long as he continues to be associated with the Company or any of the Subsidiaries.
(d) Nothing in the Plan or in any option or SAR granted under the Plan shall confer on any individual any right to continue to be associated with the Company or any of its Subsidiaries, or interfere in any way with the right of the Company or any of its Subsidiaries to terminate the holder's association at any time for any reason whatsoever without liability to the Company or any of its subsidiaries.
10. Death Or Disability Of An Optionee.
(a) If an optionee dies while he is associated with the Company or any of its Subsidiaries, or within three (3) months after such termination for the holder of an incentive option (unless such termination was for cause or without the consent of the Company), the option or SAR may be exercised, to the extent exercisable on the death, by his executor, administrator or other person at the time entitled by law to his rights under the option or SAR, at any time within one (1) year after death, but in no event after the expiration of the term of the option or SAR.
(b) Any holder whose association with the Company or its Subsidiaries has terminated by reason of a permanent and total disability (as defined in Section 22(e) (3) of the Code) may exercise his option or SAR, to the extent exercisable upon the effective date of such termination, at any time within one (1) year after such date, but in no event after the expiration of the term of the option or SAR.
11. Compliance With Securities Laws. The Committee may require, in its discretion, as a condition to the exercise of an option or SAR that either (a) a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to such shares shall be effective at the time of exercise or (b) there is an exemption from registration under the Securities Act for the issuance of shares of Common Stock upon such exercise. Nothing herein shall be construed as requiring the Company to register shares subject to any option or SAR under the Securities Act. In addition, if at any time the Committee shall determine in its discretion that the listing or qualification of the shares subject to such option or SAR on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of an option or SAR, or the issue of shares thereunder, such option or SAR may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.
12. Stock Option And SAR Contracts. Each option and SAR shall be evidenced by an appropriate Contract which shall be duly executed by the Company and the optionee, and shall contain such terms and conditions not inconsistent herewith as may be determined by the Committee, and which shall provide, among other things, (a) that the optionee agrees that he will remain in the employ of the Company or its Subsidiaries, at the election of the Company, for the later of (i) the period of time determined by the Committee at or before the time of grant or (ii) the date to which he is then contractually obligated to remain associated with the Company or its Subsidiaries, (b) that in the event of the exercise of an option or an SAR which is paid with Common stock, unless the shares of Common Stock received upon such exercise shall have been registered under an effective registration statement under the Securities Act, such shares will be acquired for investment and not with a view to distribution thereof, and that such shares may not be sold except in compliance with the applicable provisions of the Securities Act, and (c) that in the event of any disposition of the shares of Common Stock acquired upon the exercise of an incentive stock option within two (2) years from the date of grant of the option or one (1) year from the date of transfer of such shares to him, the optionee will notify the Company thereof in writing within 30 days after such disposition, pay the Company, on demand, in cash an amount necessary to satisfy its obligation, if any, to withhold any Federal, state and local income taxes or other taxes by reason of such disqualifying disposition and provide the Company, on demand, with such information as the Company shall reasonably request to determine such obligation.
13. Adjustment of and Changes in Common Stock.
(a) If the outstanding shares of the Common Stock are increased, decreased, changed into, or exchanged for a different number or kind of shares or securities of the Corporation through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or the like, an appropriate and proportionate adjustment shall be made in the (i) aggregate number and kind of securities available under the Plan, and (ii) number and kind of securities issuable upon the exercise of all outstanding options and SARs granted under the Plan, without change in the total price applicable to the unexercised portion of such options or SARs, but with a corresponding adjustment in the exercise price or base price for each unit of any security covered by such options or SARs.
(b) Upon the dissolution or liquidation of the Corporation, or upon a reorganization, merger or consolidation of the Corporation with one or more corporations as a result of which the Corporation is not the surviving corporation, or upon the sale of substantially all of the assets of the Corporation, the Committee shall provide in writing in connection with such transaction for one or more of the following alternatives, separately or in combination: (i) the assumption by the successor entity of the options theretofore granted or the substitution by such entity for such options of new options or SARs covering the stock of the successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; or (ii) the continuance of such option agreements by such successor entity in which such options shall remain in full force and effect under the terms so provided.
(c) Any adjustments under this Section 10 shall be made by the Committee, whose good faith determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive.
14. Amendments And Termination Of The Plan. The Plan was adopted by the Board of Directors on March 26, 2004. No options may be granted under the Plan after March 31, 2024. The Board of Directors, without further approval of the Company's stockholders, may at any time suspend or terminate the Plan, in whole or in part, or amend it from time to time in such respects as it may deem advisable, including, without limitation, in order that incentive stock options granted hereunder meet the requirements for "incentive stock options" under the Code, or any comparable provisions thereafter enacted and conform to any change in applicable law or to regulations or rulings of administrative agencies; provided, however, that no amendment shall be effective without the prior or subsequent approval of a majority of the Company's outstanding stock entitled to vote thereon which would (a) except as contemplated in Paragraph 13, increase the maximum number of shares for which options may be granted under the Plan, (b) materially increase the benefits to participants under the plan or (c) change the eligibility requirements for individuals entitled to receive options hereunder. No termination, suspension or amendment of the Plan shall, without the consent of the holder of an existing option affected thereby, adversely affect his rights under such option.
15. Nontransferability Of Options. No option or SAR granted under the Plan shall be transferable otherwise than by will or the laws of descent and distribution, or qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act, and options and SARs may be exercised, during the lifetime of the holder thereof, only by him or his legal representatives. Except to the extent provided above, options and SARs may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not subject to execution, attachment or similar process.
16. Substitutions And Assumptions Of Options Of Certain Constituent Corporations. Anything in this Plan to the contrary notwithstanding, the Board of directors may, without further approval by the stockholders, substitute new options for prior options and new SARs for prior SARs of a Constituent Corporation (as defined in Paragraph 17) or assume the prior options or SARs of such Constituent Corporation.
17. Definitions.
(a) The term "Subsidiary" shall have the same definition as "subsidiary corporation" in Section 425(f) of the Code.
(b) The term "Parent" shall have the same definition as "parent corporation" in Section 425(e) of the Code.
(c) The term "Constituent Corporation" shall mean any corporation which engages with the Company, its Parent or Subsidiary, in a transaction to which section 425(a) of the Code applies (or would apply if the option or SAR assumed or substituted were an incentive stock option), or any Parent or any Subsidiary of such corporation.
18. Conditions Precedent. The Plan shall be subject to approval by the holders of a majority of shares of the Company's capital stock outstanding and entitled to vote thereon at the next meeting of its stockholders, or the written consent of the holders of a majority of shares that would have been entitled to vote thereon, and no options or SARs granted hereunder may be exercised prior to such approval, provided that the date of grant of any options granted hereunder shall be determined as if the Plan had not been subject to such approval.
2004 STOCK OPTION PLAN OF INTER PARFUMS, INC. |
Addendum to the Plan |
FRANCE |
GENERAL
This Addendum to the Plan sets out the terms of the 2004 Stock Option of Inter Parfums, Inc. (the "Plan"), in relation to France.
This Addendum should be read in conjunction with the Plan and is subject to the terms and conditions of the Plan except to the extent that the terms and conditions of the Plan differ from or conflict with the terms set out in this Addendum in which event the terms set out in this Addendum shall prevail.
The terms of this Addendum are the terms set out in the rules of the Plan modified as follows:
APPLICATION
This Addendum will apply to any Optionee who is or may become subject to French tax (i.e. income tax and/or social security tax) on options granted under the Plan.
ELIGIBILITY
The Committee may not grant an option under this Addendum to an individual:
Ø | unless he is employed by the Company or by a company with sufficiently close capital links to the Company as defined in Article L225-180 of the French "Code de Commerce" in France; OR |
Ø | unless he is a director with a management function as defined in Article L225-185 of the French "Code de Commerce" in France of the Company or of a company with sufficiently close capital links to the Company as defined in Article L225-180 of the French "Code de Commerce" ; OR |
Ø | who owns more than 10% of the share capital of the Company and who may not therefore be granted an option to satisfy the requirements of sub-paragraph 2 of Article L225-182 of the French "Code de Commerce"; OR |
Ø | who is a member of the Committee. |
EXERCISE PRICE
The exercise price for an option shall be determined on the date on which the Committee resolves to grant the option.
The exercise price in the case of options to subscribe for unissued shares may not be:
Ø | lower than 95% of the average stock exchange price during the 20 dealing (trading) days preceding the grant |
In the case of options to purchase existing shares (also known as treasury shares), the exercise price may not be:
Ø | lower than 95% of the average stock exchange price during the 20 dealing (trading) days preceding the grant |
Ø | in addition, lower than 95% of the average actual repurchase price of the shares by the Company of its own shares to be allocated to the Optionee, provided the shares are repurchased prior to the date of grant of the options. |
GRANT OF OPTIONS
An option may not be granted in the period of 20 dealing days immediately following a distribution of dividends or a capital increase.
Furthermore, options cannot be granted under this Addendum
Ø | within the 10 dealing days before or after the publication of the annual consolidated accounts, where required, or of the Company’s annual accounts; |
Ø | within a period beginning with the date at which the Company's board of directors become aware of any information which, were it to be public knowledge, could have a material impact on the Company's share price and ending 10 dealing days after the information becomes public knowledge. |
If the option is an option to buy existing (treasury) shares of common stock, the repurchase of the shares by the Company can take place either within a twelve month period preceding the date of grant of the option, or prior to the date on which the options become exercisable if exercisability conditions exist.
VESTING AND EXERCISE
Options granted under this Addendum shall vest and become exercisable on the day following the fourth anniversary of the date of grant, subject to paragraph 9 of this Addendum.
SALES RESTRICTIONS
The shares acquired upon exercise of the options issued under this Addendum will be freely transferable in France, subject to the following conditions:
The above mentioned shares may not be sold or otherwise disposed of before the day following the fourth anniversary of the date of grant;
The sales restrictions provided by sub-paragraph 7.1 above shall not apply in the case of death or of 2nd or 3rd category disability of the Optionee as defined under Article L341-4 of the French Social Security Code;
The sales restrictions provided by sub-paragraph 7.1 above shall not apply in the case of:
a) | dismissal of the Optionee by the Company or any subsidiary of the Company provided that the Optionee exercised his options at least 3 months prior to receipt of notice of dismissal; |
b) | the Optionee’s retirement (as defined in the 3 rd paragraph of Article L. 122-14-13 of the French Labor Code) provided that the Optionee exercised his options at least 3 months prior to the date of termination of his/her employment contract; |
If the Committee so decides in its absolute discretion, after due regard to the Optionee's personal circumstances, the sales restrictions provided by sub-paragraph 7.1 may be lifted;
The sales restrictions provided by sub-paragraph 7.1 will only apply to the extent that they would not impose a restriction on resale of the shares for a period of more than three years from the date of exercise of the option, in accordance with Article L225-177 of the French "Code de Commerce".
7.6 With regard to transfer restrictions in the United States of the shares acquired on exercise options granted under this Addendum, the provisions of Article 11 of the Plan apply.
NON-TRANSFERABILITY OF OPTIONS
No option granted under this Addendum may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, except in the case of death of the Optionee. All options granted under this Addendum shall be exercisable during the Optionee's lifetime, only by the Optionee.
DEATH OF AN OPTIONEE; EARLY TERMINATION OF OPTION
9.1 If the Optionee dies, his options must be exercised by his heirs (if at all) within six months after his death after which the option will expire.
9.2 Notwithstanding Section 9(b) of the Plan that provides for termination of a nonqualified stock option simultaneously with the termination of association of an Optionee with the Company and its Subsidiaries, the Committee shall have the authority, in its sole discretion, to determine whether and under what conditions options granted under this Addendum will terminate upon the Optionee leaving the Company and to waive any such condition.
ALTERATION OF PLAN
Any alteration or addition, which would affect the subsisting rights of an Optionee, will, in all cases, require the consent of the Optionee.
PLAN LIMITS
Options may not be granted under the Plan:
Ø | over more than one third of the Company’s share capital in the case of options to subscribe for unissued shares; or |
Ø | over more than 10% of the total number of such shares in issue in the case of options to purchase existing shares. |
ADJUSTMENTS
The exercise price of an option may not be changed during the term of the option.
However, the Company is required to ensure the protection of the Optionees’ rights under the conditions provided in Article L 228-99 of the French Code de Commerce in the event of the following specific operations:
· | Capital amortization or capital reduction; |
· | Change in the allocation of earnings; |
· | Grant of free shares; |
· | Capitalization of reserves, issue premiums or earnings; |
· | Distribution of reserves; |
· | Any issuance of equity securities or any rights giving access to equity securities including a preferential subscription right to the benefit of the shareholders. |
No adjustment may be made to the option which is inconsistent with French law and, in particular, with Sections 174.8 to 174.16 of the Decree no. 67-236 of 23 March 1967.
CHANGES
The Committee may not change the Plan in a way which affects this Addendum, or options granted under this Addendum, if the change is inconsistent with French law and in particular with French legislation on stock options as defined in Articles L225-177 to L225-185 of French "Code de Commerce".
INTER PARFUMS, INC. AND SUBSIDIARIES
Exhibit 31.1
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: August 7, 2013
/s/ Jean Madar | |
Jean Madar, | |
Chief Executive Officer |
INTER PARFUMS, INC. AND SUBSIDIARIES
Exhibit 31.2
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: August 7, 2013
/s/ Russell Greenberg | |
Russell Greenberg | |
Chief Financial Officer and | |
Principal Accounting Officer |
INTER PARFUMS, INC. AND SUBSIDIARIES
Exhibit 32.1
CERTIFICATION
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 June 30, 2013, 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: August 7, 2013 | By: | /s/ Jean Madar | |
Jean Madar, | |||
Chief Executive 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.
INTER PARFUMS, INC. AND SUBSIDIARIES
Exhibit 32.2
CERTIFICATION
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 June 30, 2013, 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: August 7, 2013 | 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.