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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( MARK ONE )
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2003.
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 is an accelerated filer
(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 May 5, 2003 there were 19,002,517 shares of common stock, par value
$.001 per share, outstanding.
INTER PARFUMS, INC. AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements 1
Consolidated Balance Sheets as of
March 31, 2003 (unaudited)
and December 31, 2002 (audited) 2
Consolidated Statements of Income for
the Three Months Ended
March 31, 2003 (unaudited)
and March 31, 2002 (unaudited) 3
Consolidated Statements of Cash Flows
for the Three Months Ended
March 31, 2003 (unaudited) and
March 31, 2002 (unaudited) 4
Notes to Unaudited Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
Item 4. Controls and Procedures 14
Part II. Other Information 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K. 16
Signatures 17
Certifications 18
INTER PARFUMS, INC. AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements
In our opinion, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly our financial
position, results of operations and cash flows for the interim periods
presented. We have condensed such financial statements in accordance
with the rules and regulations of the Securities and Exchange
Commission. Therefore, such financial statements do not include all
disclosures required by accounting principles generally accepted in the
United States of America. These financial statements should be read in
conjunction with our audited financial statements for the year ended
December 31, 2002 included in our annual report filed on Form 10-K.
The results of operations for the three months ended March 31, 2003
are not necessarily indicative of the results to be expected for the
entire fiscal year.
Page 1
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2003 2002
---------- ------------
Current assets:
Cash and cash equivalents $40,419,240 $38,289,774
Accounts receivable, net 43,802,258 41,232,233
Inventories 36,464,504 32,197,654
Receivables, other 1,733,417 1,211,010
Other current assets 2,514,669 2,122,181
Income tax receivable 1,260,667 2,014,274
Deferred tax asset 703,809 1,098,414
---------- ------------
Total current assets 126,898,564 118,165,540
Equipment and leasehold improvements, net 4,658,837 4,212,706
Intangible assets, net 6,789,979 6,745,090
Other assets 195,229 246,249
---------- ------------
$138,542,609 $129,369,585
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable, banks $1,104,252 $1,794,218
Accounts payable 23,548,408 20,008,011
Accrued expenses 12,690,780 10,733,407
Income taxes payable 915,194 1,518,484
Dividends payable 379,561 284,644
---------- ------------
Total current liabilities 38,638,195 34,338,764
---------- ------------
Deferred tax liability 672,295 649,814
---------- ------------
Minority interest 14,547,504 13,465,978
---------- ------------
Shareholders' equity:
Common stock, $.001 par;
authorized 30,000,000 shares;
outstanding 18,978,007 and
18,976,207 shares at March 31, 2003
and December 31, 2002, 18,978 18,976
respectively
Additional paid-in capital 33,445,869 33,440,670
Retained earnings 77,186,054 75,062,624
Accumulated other comprehensive 246,511 (1,394,444)
income Treasury stock, at cost,
7,305,638 shares at March 31, 2003
and December 31, 2002 (26,212,797) (26,212,797)
----------- -------------
84,684,615 80,915,029
------------ -------------
$138,542,609 $129,369,585
============= ==============
See notes to financial statements.
Page 2
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
2003 2002
------------- ------------
Net sales $37,563,918 $28,417,646
Cost of sales 19,615,308 14,711,524
------------- ------------
Gross margin 17,948,610 13,706,122
Selling, general and administrative 13,219,513 9,885,774
------------- ------------
Income from operations 4,729,097 3,820,348
------------- ------------
Other charges (income):
Interest 136,744 79,950
(Gain) on foreign currency (54,728) (876)
Interest and dividend (174,706) (87,763)
(income)
Loss on subsidiary's 10,731
issuance of stock
------------- ------------
(81,959) (8,689)
------------- ------------
Income before income taxes 4,811,056 3,829,037
Income taxes 1,710,715 1,385,572
------------- ------------
Net income before minority interest 3,100,341 2,443,465
Minority interest in net income
of consolidated subsidiary 597,350 433,769
------------- ------------
Net income $2,502,991 $2,009,696
============ ============
Net income per common
share:
Basic $0.13 $0.11
Diluted $0.13 $0.10
============ ============
Number of common shares outstanding:
Basic 18,816,503 18,750,327
Diluted 19,907,660 19,961,367
============ ============
See notes to financial statements.
Page 3
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
March 31,
2003 2002
------------ ------------
Operating activities:
Net income $2,502,991 $2,009,696
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 487,114 383,316
Minority interest in net income of consolidated 597,350 431,591
subsidiary
Deferred tax provision 394,605 340,000
Loss on subsidiary's issuance of stock 10,731
Increase (decrease) in cash from changes in:
Accounts receivable, net (1,400,682) 50,884
Inventories (3,515,369) (627,331)
Other assets (758,481) (148,202)
Accounts payable and accrued expenses 4,519,044 801,573
Income taxes payable 145,587 362,433
------------ ------------
Net cash provided by operating activites 2,982,890 3,603,960
------------ ------------
Investing activities:
Purchase of equipment and leasehold improvements (770,882) (361,777)
------------ ------------
Net cash (used in) investing activities (770,882) (361,777)
------------ ------------
Financing activities:
(Decrease) in loan payable, bank (719,921) (338,364)
Proceeds from sale of stock of subsidiary 4,292
Proceeds from exercise of options 5,200 216,062
Dividends paid (284,644)
------------ ------------
Net cash (used in) financing activities (995,073) (122,302)
------------ ------------
Effect of exchange rate changes on cash 912,531 (190,198)
------------ ------------
Increase in cash and cash equivalents 2,129,466 2,929,683
Cash and cash equivalents at beginning of period 38,289,774 28,562,296
------------ ------------
Cash and cash equivalents at end of period $40,419,240 $31,491,979
============ ============
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $137,000 $81,000
Income taxes 1,254,000 746,000
See notes to financial statements.
Page 4
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Unaudited Financial Statements
1. Significant Accounting Policies:
The accounting policies we follow are set forth in the notes to our
financial statements included in our Form 10-K which was filed with
the Securities and Exchange Commission for the year ended
December 31, 2002. We also discuss such policies in Part I, Item
2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, included in this Form 10-Q.
2. Comprehensive Income:
Three months ended Three months ended
March 31, 2003 March 31, 2002
----------------- ------------------
Comprehensive income:
Net income $ 2,502,991 $ 2,009,696
Other comprehensive income, net of tax:
Foreign currency
translation adjustment 1,618,303 ( 461,756)
Loss (gain) on derivatives reclassified
into earnings 96,268 ( 4,382)
Change in fair value of derivatives ( 73,616) ( 10,128)
-------------- -------------
Comprehensive income $ 4,143,946 $ 1,553,686
============== =============
3. Geographic Areas:
Segment information related to domestic and foreign operations
is as follows:
Three months ended Three months ended
March 31, 2003 March 31, 2002
------------------ ------------------
Net sales:
United States $ 10,412,029 $ 8,639,503
Europe 27,214,889 19,813,143
Eliminations ( 63,000) ( 35,000)
------------------ ------------------
$ 37,563,918 $ 28,417,646
================== ==================
Net Income:
United States $ 498,598 $ 534,007
Europe 2,005,624 1,475,689
Eliminations ( 1,231) 0
------------------ ------------------
$ 2,502,991 $ 2,009,696
================== ==================
4. Earnings Per Share:
We computed basic earnings per share using the weighted average
number of shares outstanding during each period. We computed
diluted earnings per share using the weighted average number of
shares outstanding during each period, plus the incremental shares
outstanding assuming the exercise of dilutive stock options.
Page 5
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Unaudited Financial Statements
5. Inventories:
Inventories consist of the following:
March 31, 2003 December 31, 2002
--------------- -----------------
Raw materials and component $ 15,106,360 $ 11,080,046
Parts
Finished goods 21,358,144 21,117,608
--------------- ---------------
$ 36,464,504 $ 32,197,654
=============== ===============
6. Stock- based Compensation:
The Company accounts for stock-based employee compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations ("APB 25"). The
Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and
Disclosure", which was released in December 2002 as an amendment of
SFAS No. 123.
The Company applies APB No. 25 and related interpretations in
accounting for its stock option incentive plans. The following
table illustrates the effect on net income and earnings per share if
the fair value based method had been applied to all awards.
Three months ended
March 31,
2003 2002
----------- -----------
Reported net income $2,502,991 $2,009,696
Stock-based employee compensation expense
included in reported net income, net of
related tax effects 0 0
Stock-based employee compensation determined
under the fair value based method, net of
related tax effects (21,691) (12,399)
----------- -----------
Pro forma net income $2,481,300 $1,997,297
=========== ===========
Income per share, as reported:
Basic $0.13 $0.11
Diluted $0.13 $0.10
Pro forma net income per share:
Basic $0.13 $0.11
Diluted $0.12 $0.10
Page 6
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Unaudited Financial Statements
6. Stock-based Compensation (continued):
The weighted average fair values of the options granted during 2003
and 2002 are estimated as $2.07 and $2.30 per share, respectively,
on the date of grant using the Black-Scholes option pricing model
with the following assumptions: dividend yield 1.0% in 2003 and
0.8% in 2002; volatility of 50% in both 2003 and 2002; risk-free
interest rates at the date of grant, 1.70% in 2003 and 3.11% in
2002; and an expected life of the option of two years.
7. Shareholders Equity:
In April 2003, the Chief Executive Officer exercised 67,500
outstanding stock options of the Company's common stock. The
aggregate exercise price of $232,475 was paid by him tendering to
the Company 33,692 shares of the Company's common stock, previously
owned by him, valued at $6.90 per share, the fair market value on
the date of exercise. All shares issued pursuant to the option
exercises were issued from treasury stock of the Company. In
addition, the Chief Executive Officer tendered an additional 9,298
shares for payment of withholding taxes resulting from the option
exercises. As a result of this transaction, the Company expects to
receive a tax benefit of approximately $233,000, which will be
reflected as an increase to additional paid-in capital in the
Company's financial statements.
Page 7
INTER PARFUMS, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We are a leading manufacturer and distributor of fragrances, cosmetics
and health and beauty aids. We combine innovation and creativity to
produce quality products for our customers around the world.
We operate in the fragrance and cosmetic industry, specializing in
prestige perfumes and mass market perfumes, cosmetics and health and
beauty aids:
X Prestige products - for each prestige brand, owned or licensed
by us, we create an original concept for the perfume consistent
with world market trends;
X Mass market products - we design, market and distribute
inexpensive fragrances and personal care products including
alternative designer fragrances, mass market cosmetics and health
and beauty aids.
Statements in this document, which are not historical in nature,
are forward-looking statements. Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may
cause the actual results to be materially different from projected
results. Given these risks, uncertainties and other factors,
persons are cautioned not to place undue reliance on the forward-
looking statements.
Such factors include effectiveness of sales and marketing efforts
and product acceptance by consumers, dependence upon management,
competition, currency fluctuation and international tariff and
trade barriers, governmental regulation and possible liability for
improper comparative advertising or "Trade Dress".
We operate under various license agreements, including two licenses
that are with affiliates of our strategic partner, LV Capital USA,
Inc. ("LV Capital"), a wholly-owned subsidiary of LVMH Moet
Hennessy Louis Vuitton S.A. In May 2000 we entered into an
exclusive worldwide license for prestige fragrances for the Celine
brand, and in March 1999 we entered into an exclusive worldwide
license for Christian Lacroix fragrances. Both licenses are
subject to certain minimum sales requirements, advertising
expenditures and royalty payments as are customary in our industry.
Page 8
INTER PARFUMS, INC. AND SUBSIDIARIES
Three Months Ended March 31, 2003 as Compared to the
Three Months Ended March 31, 2002
Net sales for the three months ended March 31, 2003 increased 32%
to a record $37.6 million, as compared to $28.4 million for the
corresponding period of the prior year. At comparable foreign
currency exchange rates, net sales increased 15% for the period.
The increase in net sales is attributable to increases in both our
prestige and mass market product lines.
Prestige product sales grew 37% (12% in constant dollars) for the
three months ended March 31, 2003, as compared to the 2002 period.
The strong growth achieved in the second half of 2002 continued
through the first quarter of 2003. All of our principal prestige
brands achieved double-digit growth. In addition, the continued
roll out of our Christian Lacroix Bazar fragrance line, as well as
our two fragrance line extensions, Essence Pure by S.T. Dupont and
Paul Smith Extreme also contributed to our top line growth.
We have a strong line-up of new brands and brand extensions in our
2003 new product pipeline. In the second quarter of 2003 we plan
to debut summer seasonal fragrances for both our Celine and
Christian Lacroix fragrance lines. During the fourth quarter of
2003, we plan to unveil a completely new Burberry fragrance line
and in October 2003 we plan to launch a fragrance and cosmetic line
under the Diane von Furstenberg label.
With respect to our mass market product lines, sales were up 21%
for the three months ended March 31, 2003, as compared to the 2002
period. We continue to see growth in our mass market fragrances
lines as a result of our acquisition of certain fragrance brands
from Tristar Corporation ("Tristar"), a Debtor-in-possession in a
Chapter 11 proceeding. In May 2002, we purchased trademarks and
related intellectual property of certain brands for $3.2 million,
and acquired certain existing inventory for approximately $3.7
million. Tristar was one of our most significant competitors in
mass market fragrances and the brands acquired are being sold in
the same distribution channels as that of our other mass market
fragrance lines. New product line extensions and an expanding
distribution network continue to benefit sales volume in our
Intimate health and beauty aids and Aziza cosmetics lines.
Our new product development program for all three of our mass
market product groups is well under way, and we expect to roll out
new mass market products throughout 2003. In addition, we are
actively pursuing other new business opportunities. However, we
cannot assure you that any new license or acquisitions will be
consummated.
Gross profit margins were 47.8% for the three months ended March
31, 2003, as compared to 48.2% for the 2002 period. The declining
rate of the dollar relative to the euro put a bit of pressure on
gross margins during the period ended March 31, 2003. Gross profit
margins remain ahead of our target rates of 45% to 46%. If the
dollar remains weak throughout 2003, gross margins are expected to
hover around our target rates of 45% to 46%.
Page 9
INTER PARFUMS, INC. AND SUBSIDIARIES
Selling, general and administrative expenses aggregated $13.2
million for the three months ended March 31, 2003, as compared to
$9.9 million for the corresponding period of the prior year. As a
percentage of sales, selling, general and administrative expenses
were 35.2% for the three months ended March 31, 2003, as compared
to 34.8% for the 2002 period. Our mass market sales do not require
extensive advertising and therefore, more of our selling, general
and administrative expenses are fixed rather than variable. As a
result, the increase in mass market sales enables us to spread our
fixed costs over a larger net sales base. On the other hand,
promotion and advertising are prerequisites for sales of designer
products. We develop a complete marketing and promotional plan to
support our growing portfolio of prestige fragrance brands and to
build upon each brand's awareness. In addition, recent increases
in certain fixed costs, including insurance, rent and wages, is
expected to cause a slight rise in selling, general and
administrative expenses throughout 2003.
Interest expense aggregated $137,000 and $80,000 for the three
months ended March 31, 2003 and 2002, respectively. We use the
credit lines available to us, as needed, to finance our working
capital needs.
Foreign currency gains aggregated $55,000 and $1,000 for the three
months ended March 31, 2003 and 2002, respectively. Occasionally,
we enter into foreign currency forward exchange contracts to manage
exposure related to certain foreign currency commitments.
Our effective income tax rate was 35.6% for the three months ended
March 31, 2003, as compared to 36.2% for the corresponding period
of the prior year. Tax rates in France declined slightly in 2003.
Net income increased 25% to $2.5 million for the three months ended
March 31, 2003, as compared to $2.0 million for the corresponding
period of the prior year.
Diluted earnings per share increased 30% to $0.13 for the three
months ended March 31, 2003, as compared to $0.10 for the
corresponding period of the prior year.
Weighted average shares outstanding aggregated 18.8 million for
both the three months ended March 31, 2003 and 2002. On a diluted
basis, average shares outstanding were 19.9 million for the three
months ended March 31, 2003, as compared to 20.0 million for the
corresponding period of the prior year.
..
Page 10
INTER PARFUMS, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
Profitable operating results continue to strengthen our financial
position. At March 31, 2003, working capital aggregated $88
million and we had a working capital ratio of 3.3 to 1. Cash and
cash equivalents aggregated $40 million and our net book value was
$4.46 per outstanding share as of March 31, 2003. Furthermore, we
had no long-term debt.
Our short-term financing requirements are expected to be met by
available cash at March 31, 2003, cash generated by operations and
short-term credit lines provided by domestic and foreign banks.
The principal credit facilities for 2003 are a $12.0 million
unsecured revolving line of credit provided by a domestic
commercial bank and approximately $12.0 million in credit lines
provided by a consortium of international financial institutions.
Cash provided by operating activities aggregated $3.0 million for
the three months ended March 31, 2003 as compared to $3.6 million
for the corresponding period of the prior year. In constant
dollars, accounts receivable and inventories were up 3% and 11%,
respectively, as compared to December 31, 2002. These increases
are very reasonable considering the 15% constant dollar sales
increase for the period. Cash provided by operating activities
continues to be the primary source of funds to finance operating
needs and investments in new ventures.
Commencing in March 2002, our Board of Directors authorized our
first cash dividend of $.06 per share, approximately $1.1 million
per annum, payable $.015 per share quarterly. The first cash
dividend of $.015 per share was paid on April 15, 2002 to
shareholders of record on March 31, 2002.
In March 2003, our board of directors increased the cash dividend
to $.08 per share, approximately $1.5 million per annum, payable
$.02 per share on a quarterly basis. The first cash dividend of
$.02 per share was paid on 15 April 2003 to shareholders of record
on 31 March 2003. This increased cash dividend represents a small
part of our cash position and is not expected to have any
significant impact on our financial position.
We believe that funds generated from operations, supplemented by
our present cash position and available credit facilities, will
provide us with sufficient resources to meet all present and
reasonably foreseeable future operating needs.
Inflation rates in the U.S. and foreign countries in which we
operate have not had a significant impact on operating results for
the three months ended March 31, 2003.
Page 11
INTER PARFUMS, INC. AND SUBSIDIARIES
Discussion of Critical Accounting Policies
We make estimates and assumptions in the preparation of our
financial statements in conformity with accounting principles
generally accepted in the United States of America. Actual results
could differ significantly from those estimates under different
assumptions and conditions. We believe that the following
discussion addresses our most critical accounting policies, which
are those that are most important to the portrayal of our financial
condition and results of operations and which require our
management's most difficult and subjective judgments, often as a
result of the need to make estimates about the effect of matters
that are inherently uncertain. The following is a brief discussion
of the more critical accounting policies that we employ.
Revenue Recognition
We sell our products to department stores, perfumeries, mass market
retailers, supermarkets and domestic and international wholesalers
and distributors. Sales of such products by domestic subsidiaries
are denominated in U.S. dollars and sales of such products by
foreign subsidiaries are primarily denominated in either Euros or
U.S. dollars. Accounts receivable reflect the granting of credit to
these customers. We generally grant credit based upon analysis of
the customer's financial position and previously established buying
patterns. We do not generally bill customers for shipping and
handling costs and, accordingly, classify such costs as selling and
administrative expenses. Revenues are recognized when merchandise
is shipped and the risk of loss passes to the customer. Net sales
are comprised of gross revenues less returns and trade discounts
and allowances.
We do not generally allow customers to return their unsold
products. However, on a case-by-case basis we occasionally allow
customer returns. We regularly review and revise, as deemed
necessary, our estimate of reserves for future sales returns based
primarily upon historic trends and relevant current data. We record
estimated reserves for sales returns as a reduction of sales, cost
of sales and accounts receivable. Returned products are recorded as
inventories and are valued based on 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 estimates if factors such as economic conditions,
inventory levels or competitive conditions differ from
expectations.
Promotional Allowances
We have various performance-based arrangements with retailers to
reimburse them for all or a portion of their promotional activities
related to our products. These arrangements primarily allow
customers to take deductions against amounts owed to us for product
purchases. Estimated accruals for promotions and co-operative
advertising programs are recorded in the period in which the
related revenue is recognized. We review and revise the estimated
accruals for the projected costs for these promotions. Actual costs
incurred may differ significantly, either favorably or unfavorably,
from estimates if factors such as the level and success of the
retailers' programs or other conditions differ from our
expectations.
Page 12
INTER PARFUMS, INC. AND SUBSIDIARIES
Inventories
Inventories are stated at the lower of cost or market value. Cost
is principally determined by the first-in, first-out method. We
record adjustments to the cost of inventories based upon our sales
forecast and the physical condition of the inventories. These
adjustments are estimates, which could vary significantly, either
favorably or unfavorably, from actual requirements if future
economic conditions or competitive conditions differ from our
expectations.
Equipment
Equipment, which includes tools and molds, is recorded at cost and
is depreciated on a straight-line basis over the estimated useful
lives of such assets. Changes in circumstances such as
technological advances, changes to our business model or changes in
our capital spending strategy can result in the actual useful lives
differing from our estimates. In those cases where we determine
that the useful life of equipment should be shortened, we would
depreciate the net book value in excess of the salvage value, over
its revised remaining useful life, thereby increasing depreciation
expense. Factors such as changes in the planned use of equipment
could result in shortened useful lives.
Other Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of any
such asset may not be recoverable. If the sum of the undiscounted
cash flows (excluding interest) is less than the carrying value, we
recognize an impairment loss, measured as the amount by which the
carrying value exceeds the fair value of the asset. The estimate of
undiscounted cash flow is based upon, among other things, certain
assumptions about expected future operating performance. Our
estimates of undiscounted cash flow may differ from actual cash
flow due to, among other things, economic conditions, changes to
our business model or changes in consumer acceptance of our
products. In those cases where we determine that the useful life
of other long-lived assets should be shortened, we would depreciate
the net book value in excess of the salvage value (after testing
for impairment as described above), over the revised remaining
useful life of such asset thereby increasing amortization expense.
Item 3: QUANTITIVE 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.
Page 13
INTER PARFUMS, INC. AND SUBSIDIARIES
Foreign Exchange Risk Management
We periodically enter into foreign currency forward exchange
contracts to hedge exposure related to receivables denominated in a
foreign currency and to manage risks related to future sales
expected to be denominated in a foreign currency. We enter into
these exchange contracts for periods consistent with our identified
exposures. The purpose of the hedging activities is to minimize the
effect of foreign exchange rate movements on the receivables and
cash flows of Inter Parfums, S.A., our French subsidiary, whose
functional currency is the Euro. All foreign currency contracts are
denominated in currencies of major industrial countries and are
with large financial institutions, which are rated as strong
investment grade.
All derivative instruments are required to be reflected as either
assets or liabilities in the balance sheet measured at fair value.
Generally, increases or decreases in fair value of derivative
instruments will be recognized as gains or losses in earnings in
the period of change. If the derivative is designated and
qualifies as a cash flow hedge, the changes in fair value of the
derivative instrument will be recorded in other comprehensive
income.
Before entering into a derivative transaction for hedging purposes,
we determine that the change in the value of the derivative will
effectively offset the change in the fair value of the hedged item
from a movement in foreign currency rates. Then, we measure the
effectiveness of each hedge throughout the hedged period. Any
hedge ineffectiveness is recognized in the income statement.
We believe that our risk of loss as the result of nonperformance by
any of such financial institutions is remote and in any event would
not be material. The contracts have varying maturities with none
exceeding one year. Costs associated with entering into such
contracts have not been material to our financial results. At March
31, 2003, we had foreign currency contracts in the form of forward
exchange contracts in the amount of approximately U.S. $18.7
million and GB Pounds 4.2 million.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have
reviewed and evaluated the effectiveness of our disclosure controls
and procedures (as defined in the Securities Exchange Act of 1934
Rule 13a-14(c)) as of a date within 90 days of the filing date of
this quarterly report on Form 10-Q (the "Evaluation Date"). Based
on their review and evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that, as of the Evaluation
Date, our Company's disclosure controls and procedures were
adequate and effective to ensure that material information relating
to our Company and its consolidated subsidiaries would be made
known to them by others within those entities, so that such
material information is recorded, processed and reported in a
timely manner, particularly during the period in which this
quarterly report on Form 10-Q was being prepared, and that no
changes were required at this time.
Page 14
INTER PARFUMS, INC. AND SUBSIDIARIES
Changes in Internal Controls
There were no significant changes in our Company's internal
controls or in other factors that could significantly affect our
internal controls after the Evaluation Date, or any significant
deficiencies or material weaknesses in such internal controls
requiring corrective actions. As a result, no corrective actions
were taken.
Part II. Other Information
Items 1, 3 and 4 are omitted as they are either not applicable
or have been included in Part I.
Item 2. Changes in Securities and Use of Proceeds
The information contained in note 7 at page 7 relating to the
exercise of an outstanding stock option is incorporated by
reference herein. The transaction was exempt from the registration
requirements of Section 5 of the Securities Act under Sections 4(2)
and 4(6) of the Securities Act. The option holder agreed to
purchase the common stock for investment and not for resale to the
public.
Item 5. Other Information
In accordance with Section 10A(i)(2) of the Securities Exchange Act
of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002,
our Company is responsible for disclosing the "non-audit services"
to be performed by our auditors that were approved by our Company's
Audit Committee during the quarterly period covered by this report.
Non-audit services are defined in the law as services other than
those provided in connection with an audit or a review of the
financial statements of the Company.
During the quarterly period covered by this report, the Audit
Committee authorized our Company to retain our auditors, Eisner
LLP, to perform tax consultation and tax preparation services in
the ordinary course of business for our Company for fiscal year
ending December 31, 2003. In addition it authorized our Company to
retain Eisner LLP for tax consultation services, as may be required
on a project-by-project basis that would not be considered in the
ordinary course of business up to a $5,000 fee limit per project,
subject to an aggregate fee limit of $25,000; and that the approval
of the Audit Committee would be required for any further tax
services.
Page 15
INTER PARFUMS, INC. AND SUBSIDIARIES
During the quarterly period covered by this report, the Audit
Committee also authorized our Company to retain KPMG Audit, a
division of KPMG S.A., the external auditor of our consolidated
wholly-owned subsidiary, Inter Parfums Holdings, S.A., its majority-
owned subsidiary, Inter Parfums, S.A., and its wholly-owned
subsidiaries, to provide tax consultation and tax preparation
services in the ordinary course of business for Inter Parfums,
S.A., for the fiscal year ended December 31, 2003. In addition,
the Audit Committee also authorized our Company to retain KPMG
Audit to provide tax consultation and advice with respect to
repatriation of earnings of our company's French subsidiaries to us
in the United States.
Item 6. Exhibits and Reports on Form 8-K.
The following documents are filed herewith:
Exhibit Description Edgar
No. Page
Number
10.94 Second Amendment of Lease dated for 60 Stults
Road, South Brunswick, NJ among Forsgate
Industrial Complex, a limited partnership,
and Jean Philippe Fragrances, LLC and Inter
Parfums, Inc. dated April 22, 2003
10.95 Contrat De Prestations De Services Entre
Inter Parfums, S.A. and Sagatrans, S.A, le 5
mai 1998 [French original]
10.95.1 Service Contract Between Inter Parfums, S.A.
and Sagatrans,, S.A dated May 5, 1998
[English translation]
10.96 Avenant No. 1 Au Contrat De Prestations De
Services Entre Inter Parfums, S.A. and
Sagatrans, S.A, le 5 mai 1998 [French
original]
10.96.1 Amendment No. 1 to the Service Contract
Between Inter Parfums, S.A. and Sagatrans,
S.A dated May 5, 1998 [English translation]
99.1 Certification Required by Section 906 of the
Sarbanes-Oxley Act
Page 16
INTER PARFUMS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized on the 12th
day of May 2003.
INTER PARFUMS, INC.
By: /s/ Russell Greenberg_____
Russell Greenberg,
Executive Vice President and
Chief Financial Officer
Page 17
INTER PARFUMS, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Jean Madar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Inter
Parfums, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ Jean Madar
Jean Madar
Chief Executive Officer
Page 18
INTER PARFUMS, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Russell Greenberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Inter
Parfums, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ Russell Greenberg
Russell Greenberg
Chief Financial Officer
Page 19