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, 2004.
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 10, 2004 there were 19,170,936 shares of common
stock, par value $.001 per share, outstanding.
INDEX
Part I. Financial Information
Part II. Other Information
Signatures Certifications | Page Number 1
5
17 17 17 17 19 20 | ||||
CONSOLIDATED BALANCE SHEETS | ||||
ASSETS | ||||
|
|
|
|
|
|
|
|
| |
Current assets: |
|
| ||
Cash and cash | $ 56,393,000 | $ 58,958,000 | ||
Account | 62,284,000 | 63,467,000 | ||
Inventories | 57,070,000 | 54,255,000 | ||
Receivables, | | | ||
Other current | | | ||
Income tax | | | ||
Deferred tax | | | ||
|
|
| ||
Total | 181,214,000 | 182,440,000 | ||
|
|
| ||
Equipment and leasehold improvements, net | | | ||
|
| |||
Trademarks and licenses, net | | | ||
|
| |||
Other assets | | | ||
|
| |||
$ 192,831,000 | $ 194,001,000 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
| ||||
Current liabilities: | ||||
Loans payable - | $ | $ | ||
Accounts payable | 36,113,000 | 45,152,000 | ||
Accrued expenses | 15,753,000 | 17,403,000 | ||
Income taxes | | | ||
Dividends | | | ||
| ||||
Total | 62,060,000 | 66,470,000 | ||
| ||||
Deferred tax liability | | | ||
Minority interest | 22,125,000 | 21,198,000 | ||
Shareholders' equity: | ||||
| ||||
| 19,000 | | ||
Additional paid-in capital | 34,387,000 | 34,363,000 | ||
Retained earnings | 91,580,000 | 87,376,000 | ||
Accumulated other comprehensive income | |
| ||
|
|
| ||
107,266,000 | 104,916,000 | |||
$ 192,831,000 | $ 194,001,000 | |||
See
notes to consolidated financial statements.
CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
| $ 37,564,000 |
|
|
|
|
|
Cost of sales |
| |
|
|
|
|
|
| |
Gross margin |
| |
| |
|
|
|
| |
Selling, general and administrative |
| |
| |
|
|
|
| |
Income from operations |
| |
| |
|
|
|
|
|
Other expenses |
|
|
|
|
Interest |
| 103,000 |
| |
Loss (gain) |
| |
| |
Interest |
| (232,000) |
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
| | |
|
|
|
|
|
Income before income taxes |
| |
| |
|
|
|
|
|
Income taxes |
| |
| |
|
|
|
|
|
Income before minority interest |
|
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Net income |
| $ |
| $ |
|
|
|
|
|
Net income per |
|
|
|
|
Basic |
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
|
|
Basic |
| |
| |
Diluted |
| |
| |
See
notes to consolidated financial statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from |
|
|
|
|
|
Net income |
| $ |
| $ |
|
|
|
|
|
|
|
|
| |
| |
|
|
| |
| |
|
|
| |
| |
|
|
|
|
| |
|
Changes in: |
|
|
|
|
|
|
| |
| |
|
|
| |
| |
|
|
| |
| |
|
|
| |
| |
|
|
| |
| |
|
|
|
|
|
|
|
Net |
| |
| |
|
|
|
|
|
| |
Cash flows from |
|
|
|
|
|
Purchase of |
| |
| |
|
|
|
|
|
|
|
Net |
| |
| |
|
|
|
|
|
|
|
Cash flows from |
|
|
|
|
|
Increase |
| |
| |
|
Proceeds from |
|
|
|
|
|
Proceeds from |
| |
|
|
|
Dividends paid |
| |
| |
|
|
|
|
|
|
|
Net |
| |
| |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
| |
| |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
| |
| |
|
|
|
|
|
|
|
Cash and cash equivalents - beginning of period |
| |
| |
|
|
|
|
|
|
|
Cash and cash equivalents - end of period |
| $ |
| $ |
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
| $ |
| $ |
|
|
| |
| |
|
See notes to
consolidated financial statements.
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, 2003. 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. 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.
|
| |
|
|
|
|
|
|
Reported net income |
|
|
Stock-based employee |
|
|
Stock-based employee |
|
|
|
|
|
Pro forma net income |
|
|
|
|
|
Income per share, as |
|
|
Basic |
|
|
Diluted |
|
|
Pro forma net income | ||
Basic |
|
|
Diluted |
|
|
The weighted
average fair values of the options granted during the 2004 and 2003 periods
are estimated as $6.85 and $2.07 per share, respectively, on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
dividend yield 0.5% in 2004 and 1.0% in 2003; volatility of 50% in both 2004
and 2003; risk-free interest rates at the date of grant, 1.81% in 2004 and
1.70% in 2003; and an expected life of the option of two years.
Notes to
Consolidated Financial Statements
3. Comprehensive
Income:
|
| |
|
|
|
Comprehensive Income: |
|
|
Net income |
|
|
Other comprehensive |
|
|
Foreign |
|
|
Change in | (11,000) | 23,000 |
|
|
|
Comprehensive income | $ 2,902,000 | $ 4,144,000 |
4.
Geographic Areas:
Segment information related to
domestic and foreign operations is as follows:
|
| |
|
|
|
|
|
|
|
|
|
| 48,289,000 |
|
| (35,000) | (63,000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,579,000 |
|
| 2,000 | (1,000) |
|
|
|
|
|
|
Notes to
Consolidated Financial Statements
5. 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.
The following table sets
forth the computation of basic and diluted earnings per share:
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 19,169,477 |
|
| ||
Stock | 1,444,831 | 929,833 |
|
|
|
| 20,614,308 | 19,907,660 |
6.
Inventories:
Inventories consist of the following:
|
|
|
|
|
|
Raw materials and |
|
|
Finished goods |
|
|
|
|
|
|
|
|
7. Acquisition of Business:
In
April 2004, the Company's French subsidiary, Inter Parfums, S.A., ("IPSA")
acquired a 64% interest in Nickel S.A. ("Nickel") for approximately $5.6 million
in cash. The purchase agreement contains a provision for a follow-on cash
infusion by IPSA of approximately $3.7 million, which would bring IPSA's
ownership to 74%. In addition, minority shareholders have the right to sell
their remaining interest in Nickel to IPSA from January 2007 through June 2007.
The purchase price will be based upon a formula applied to Nickel's sales for
the year ending December 31, 2006, pro rated for the minority holders' equity in
Nickel. The acquisition will be accounted for under purchase accounting and the
results of Nickel will be included in the Company's consolidated financial
statements beginning at the date of acquisition.
Item 2:
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Information
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 renewal of
existing license agreements, 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 in a single segment in
the fragrance and cosmetic industry, and manufacture, market and distribute a
wide array of fragrances, cosmetics and health and beauty aids. We specialize in
prestige perfumes and cosmetics and mass market perfumes, cosmetics and health
and beauty aids. Most of our prestige products are produced and marketed by our
76% owned subsidiary in Paris, Inter Parfums, S.A., which is also a publicly
traded company as 24% of Inter Parfums, S.A. shares trade on the Paris Bourse.
Our prestige
product lines, which are manufactured and distributed by us primarily under
license agreements with brand owners, represented approximately 82% of net sales
for the three-month period ended March 31, 2004. Since 1992 we have built a
portfolio of brands under licenses which include Burberry, S.T. Dupont, Paul
Smith, Christian Lacroix, Celine, and Diane von Furstenberg, which are
distributed in over 120 countries around the world. In terms of sales, Burberry
is our most significant license, and sales of Burberry products represented 67%
and 43% of net sales for the three month periods ended March 31, 2004 and 2003,
respectively. Our current Burberry license takes us through December 31, 2006.
We believe it is important to have a long term relationship with Burberry at
this time, because product development and marketing strategies, including
planning for product launches can, and often do, extend over several years.
Accordingly, a new license agreement is under serious discussion with Burberry.
We are hopeful for a positive outcome by the summer of 2004.
We have two licenses with
affiliates of our strategic partner, LV Capital, USA Inc. ("LV Capital"), a
wholly-owned subsidiary of LVMH Moet Hennessy Louis Vuitton S.A. LV Capital
owns approximately 18% of our outstanding common shares. 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. We believe that our association with LV Capital has enhanced our
credibility in the cosmetic industry, which should lead us to additional
opportunities in our industry that might not have been otherwise available to
us.
Our mass market product lines,
which represent 18% of sales for the three-month period ended March 31, 2004,
are comprised of alternative designer fragrances, cosmetics, health and beauty
aids and personal care products. These lines are sold under trademarks owned by
us or pursuant to license agreements we have for the trademarks Jordache,
Tatiana and FUBU.
We grow our business in two
distinct ways. First, we grow by adding new brands to our portfolio, either
through new licenses or out-right acquisitions of brands. Second, we grow
through the creation of product line extensions for the existing brands in our
portfolio. Every two to three years, we create a new family of fragrances for
each brand in our portfolio.
Our business is not very capital
intensive, and it is important to note that we do not own any manufacturing
facilities. Rather, 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 outside fillers which manufacture the finished good for
us and ship it back to our distribution center.
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. 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 our
domestic subsidiaries are denominated in U.S. dollars and sales of such products
by our 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 our analysis of the customer's financial
position as well as previously established buying patterns. Generally, we do not
bill customers for shipping and handling costs and, accordingly, we classify
such costs as selling and administrative expenses. 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, and trade discounts and
allowances.
Sales Returns
Generally, we do not permit
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 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 to reimburse them for all or a portion of
their promotional activities related to our products. These arrangements
primarily allow customers to take deductions against amounts owed to us for
product purchases. Estimated accruals for promotions and co-operative
advertising programs are recorded in the period in which the related revenue is
recognized. We review and revise the estimated accruals for the projected costs
for these promotions. Actual costs incurred may differ significantly, either
favorably or unfavorably, from estimates if factors such as the level and
success of the retailers' programs or other conditions differ from our
expectations.
Inventories
Inventories are stated at the
lower of cost or market value. Cost is principally determined by the first-in,
first-out method. We record adjustments to the cost of inventories based upon
our sales forecast and the physical condition of the inventories. These
adjustments are estimates, which could vary significantly, either favorably or
unfavorably, from actual requirements if future economic conditions or
competitive conditions differ from our expectations.
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.
Long-lived
assets, including trademarks and licenses, 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, then 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.
Results of Operations
Three Months Ended March 31, 2004 as Compared to the
Three Months Ended March 31, 2003
Net sales | Three months ended March 31, | ||||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
Net sales for the three months ended
March 31, 2004
increased 55% to a record $58.4 million, as compared to $37.6
million for the corresponding period of the prior year. At comparable foreign
currency exchange rates, net sales increased 43% for the period.
Prestige
product sales surged 80% to $48.0 million for the three months ended March 31,
2004, as compared to $26.7 for the corresponding period of the prior year.
Growth in prestige product sales is primarily attributable to the global rollout
of Burberry Brit for women, which began in the third quarter of 2003, and has
expanded during the first quarter of 2004 to Asia, South America and the Middle
East. We anticipate that Burberry Brit for women will be the best selling
fragrance in our history. We are also looking forward to the launch in the fall
of the Burberry Brit for men line in selected markets.
In September
2003, we launched our first prestige cosmetics line, Diane von Furstenberg
Beauty, at about 33 of the finest retail doors in the United States as well as
in the designer's boutiques in New York and Miami. Initial sales have been
satisfactory and efforts are being made to increase consumer awareness. During
the first quarter of 2004, we undertook many promotional events including
personal appearances, free makeovers and gift with purchase programs in an
attempt to increase sell through at store level. Diane von Furstenberg products
are now available on Sephora.com and will be available at several Sephora retail
locations this summer.
The year 2004,
will not be without its share of brand extensions. During the second quarter of
2004, we plan to launch a limited edition warm weather, seasonal fragrance for
our Celine and Christian Lacroix brands. In July, we will unveil new fragrance
families for both S.T. Dupont and Paul Smith. Les Eaux
De S.T. Dupont will be available in versions for both men and women, as will
Paul Smith London. Late 2004 or in early 2005, we will introduce a new Christian
Lacroix fragrance fragrance family for men and women.
With respect
to our mass market product lines, net sales were off 5%
for the three months ended
March 31, 2004, as
compared to the corresponding period of the prior year. Sales gains were
achieved in the US dollar store retail environment as our customers continued to
open additional doors and carry more of our product offerings. These gains
however, were more than offset by a decline in export sales primarily to Mexico
and Central and South America. We continue to closely monitor our credit risk in
those territories and are willing to forego some sales volume to minimize our
overall credit exposure.
Our new
product development program for all of our product groups is well under way, and
we expect to roll out new products throughout 2004. In addition, we are actively
pursuing other new business opportunities. However, we cannot assure you that
any new license or acquisitions will be consummated.
In April 2004, the
Company's French subsidiary, Inter Parfums, S.A., ("IPSA") acquired a 64%
interest in Nickel S.A. ("Nickel") for approximately $5.6 million in cash. The
purchase agreement contains a provision for a follow-on cash infusion by IPSA of
approximately $3.7 million, which would bring IPSA's ownership to 74%. In
addition, minority shareholders have the right to sell their remaining interest
in Nickel to IPSA from January 2007 through June 2007. The purchase price will
be based upon a formula applied to Nickel's sales for the year ending
December 31, 2006, pro rated for the minority holders' equity in Nickel.
Established in 1996 by
Philippe Dumont, Nickel has developed two innovative concepts in the world of
cosmetics: spas exclusively for male customers and skin care product lines for
men. The Nickel range of some fifteen skin care products for the face and body
is sold through prestige department and specialty stores primarily in France
(500 outlets), the balance of Western Europe (900 outlets) and in the United
States (300 outlets), as well as through its men's spas in Paris, New York and,
most recently, San Francisco.
| Three months ended March 31, | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
margin was 52% for the three-month period ended March 31, 2004, as compared to
48% for the corresponding period of the prior year. Sales of products in our
prestige fragrance lines generate a significantly higher gross profit margin
than sales of our mass-market product lines. The gross margin improvement is
primarily attributable to the 80% net sales growth rate achieved in our prestige
product lines. In addition, it is important to point out that gross margins are
also affected by changes in exchange rates and, since the cost of many
promotional activities are included in cost of sales and the timing of
promotional activities vary, we have experienced, and expect to continue to
experience, fluctuations in our gross margin percentage.
|
| ||||
|
| ||||
| 2004 |
| 2003 |
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
Selling, general and administrative expense increased
52% for the
three-month period ended March 31, 2004, as compared to the corresponding period
of the prior year. As a percentage of sales, however, selling, general and
administrative expense declined to 34% of sales in the 2004 period as compared
to 35% of sales in the 2003 period as a result of spreading fixed costs over a
larger sales base. Sales growth in our prestige
product lines require higher selling, general and administrative expenses
because promotion and advertising are prerequisites for sales of designer
prestige products. We develop a complete marketing and promotional plan to
support our growing portfolio of prestige brands and to build upon each brand's
awareness.
Promotion and advertising included in selling, general
and administrative expenses was approximately 16% of prestige product sales for
the three-month period ended
March 31, 2004
and 13% for the three-month period ended
March 31, 2003
.. Our mass-market product lines do not require extensive
advertising and therefore, more of our selling, general and administrative
expenses are fixed rather than variable.
Income from operations increased
114% or $5.4 million for the three-month period ended March 31, 2004, as
compared to the corresponding period of the prior year. Operating margins were
17.4% of net sales in the current period as compared to 12.6% in the
corresponding period of the prior year. The increase in operating margins
reflects sales growth together with the improvements in gross margins and lower
overall operating expenses.
Interest expense aggregated $0.1
million for both three-month periods ended March 31, 2004 and March 31, 2003.
We use the credit lines available to us, as needed, to finance our working
capital needs.
Foreign currency (losses) gains aggregated ($0.5) million and $0.1
million for the
three-month periods ended March 31, 2004 and March 31, 2003, 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
35.5% for the three months ended March 31, 2004, as compared to 35.6% for the
corresponding period of the prior year. These rates differ from statutory rates
due to the effect of state and local taxes and tax rates in foreign
jurisdictions. No significant changes in tax rates were experienced nor were any
expected in jurisdictions where we operate.
Net income increased 91% to $4.8
million for the three months ended March 31, 2004, as compared to $2.5 million
for the corresponding period of the prior year.
Diluted earnings per share
increased 77% to $0.23 for the three months ended March 31, 2004, as compared to
$0.13 for the corresponding period of the prior year.
Weighted average shares outstanding aggregated
19.2 million for the three months ended March 31, 2004, as compared to 19.0
million for the corresponding period of the prior year. On a diluted basis,
average shares outstanding were 20.6 million for the three months ended
March 31, 2004, as compared to 19.9 million for the corresponding period of the
prior year. The increase is the result of the effect of dilutive securities
resulting from an increase in our stock price. The average stock price of our
common shares was $25.00 per share for the three-month period ended March 31,
2004, as compared to $7.06 per share for the corresponding period of the prior
year.
Liquidity and Financed Resources
Profitable operating results
continue to strengthen our financial position. At March 31, 2004, working
capital aggregated $119 million and we had a working capital ratio of 2.9 to 1.
Cash and cash equivalents aggregated $56.4 million and we had no long-term debt.
Our short-term cash requirements
are expected to be met by available cash at March 31, 2004, cash generated by
operations and short-term credit lines provided by domestic and foreign banks.
The principal credit facilities consist of a $12.0 million unsecured revolving
line of credit provided by a domestic commercial bank and approximately $45.0
million in credit lines provided by a consortium of international financial
institutions. Historically, borrowings under these facilities have been minimal
as we typically use our cash to finance all of our working capital needs.
However, during the three months ended March 31, 2004 we drew down approximately
$4.5 million on our credit lines to help finance our working capital needs.
Cash used in operating activities aggregated
$5.1 million for the three-month period ended March 31, 2004, as compared to
cash provided by operating activities of $3.0 million for the corresponding
period of the prior year. We finance our growth primarily with working capital
and to a lesser extent our available credit lines. Cash used in operating
activities for 2004 reflects the significant decline in accounts payable. As
mentioned in our annual report on Form 10-K for the year ended December 31,
2003, a significant inventory buildup during the fourth quarter of 2003 was made
to meet our sales commitments in early 2004 including the continued rollout of
our Burberry Brit for women line. This buildup was financed primarily through
normal credit terms with our vendors, and therefore did not have any significant
impact on our cash flows from operations for the year ended December 31, 2003.
The impact of that inventory buildup is however being felt in the first quarter
of 2004 as our vendor's bills became due.
Cash flows used in investing
activities, which are primarily capital expenditures, aggregated $0.6 million
and $0.8 million for the three-month periods ended March 31, 2004 and 2003,
respectively. Our business is not capital intensive and we do not own any
manufacturing facilities. We typically spend between $1.0 and $2.0 million per
year on tools and molds, depending on our new product development calendar. The
balance of capital expenditures is for office fixtures, computer equipment and
industrial equipment needed at our distribution centers.
In March 2004, our board of
directors increased our cash dividend to $.12 per share, approximately $2.3
million per annum, payable $.03 per share on a quarterly basis. Our first cash
dividend of $.03 per share was paid on April 15, 2004 to shareholders of record
on March 31, 2004. This increased cash dividend in 2004 represents a small part
of our cash position and is not expected to have any significant impact on our
financial position.
In April 2004, the
Company's French subsidiary, Inter Parfums, S.A., ("IPSA") acquired a 64%
interest in Nickel S.A. ("Nickel") for approximately $5.6 million in cash. The
purchase agreement contains a provision for a follow-on cash infusion by IPSA of
approximately $3.7 million, which would bring IPSA's ownership to 74%. We funded
this acquisition with cash on hand and do not expect it to have any further
significant effect on our financial position.
As previously reported, our
French subsidiary, Inter Parfums, S.A., is a party to litigation with Jean
Charles Brosseau, S.A. ("Brosseau"), the owner of the Ombre Rose trademark. In
October 1999, Inter Parfums, S.A. received notice of a judgment in favor of
Brosseau, which awarded damages of approximately $0.6 million and which directed
Inter Parfums, S.A. to turn over its license to Brosseau within six months.
Inter
Parfums, S.A.
appealed the judgment as it vigorously and categorically denied the claims of
Brosseau. In June 2000, as a result of certain developments, Inter Parfums, S.A.
and its special litigation counsel considered it likely that the judgment would
be sustained and therefore took a charge against earnings for $0.6 million, the
full amount of the judgment. In February 2001, the Court of Appeal confirmed
the Brosseau claim with respect to turning over the license. In addition, the
Court named an expert to proceed with additional investigations and required
Inter Parfums, S.A. to pay $0.14 million as an advance for damages claimed by
Brosseau.
In February 2004, the Court of
Appeal ordered Inter Parfums, S.A. to pay total damages of $0.39 million of
which $0.14 million has already been advanced. Brosseau has until the end of May
2004 to appeal this decision and, therefore Inter Parfums, S.A. will maintain
its current reserves until such time as all rights to appeal have expired. We do
not believe that such litigation will have any further material adverse effect
on our financial condition or operations.
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.
Contractual Obligations
We lease our office and warehouse facilities under
operating leases expiring through 2013. Obligations pursuant to these leases for
the years ended December 31, 2004, 2005, 2006, 2007, 2008 and thereafter are
$3.2 million, $2.3 million, $1.2 million, $1.1 million, $1.1 million and $2.6
million, respectively.
We are obligated under a number
of license agreements for the use of trademarks and rights in connection with
the manufacture and sale of our products. Obligations pursuant to these license
agreements for the years ended December 31, 2004, 2005, 2006, 2007, 2008 and
thereafter are $5.4 million, $5.6 million, $5.7 million, $3.2 million, $2.7
million and $6.9 million, respectively.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
We address certain financial exposures through a controlled program
of risk management that primarily consists of the use of derivative financial
instruments. Our French subsidiary primarily enters into foreign currency
forward exchange contracts in order to reduce the effects of fluctuating foreign
currency exchange rates. We do not engage in the trading of foreign currency
forward exchange contracts or interest rate swaps.
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, 2004
, we had foreign currency contracts in the form of forward exchange
contracts in the amount of approximately U.S. $4.0 million and GB Pounds 6.5
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 the end of the period
covered by this quarterly report on Form 10-Q (the "Evaluation Date"). Based on
their review and evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of the Evaluation Date, our Company's disclosure
controls and procedures were adequate and effective to ensure that material
information relating to our Company and its consolidated subsidiaries would be
made known to them by others within those entities, so that such material
information is recorded, processed and reported in a timely manner, particularly
during the period in which this quarterly report on Form 10-Q was being
prepared, and that no changes were required at this time.
Changes
in Internal Controls
There
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, 2, 3 and 4 are omitted as they are either not applicable or have
been included in Part I.
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 did not authorize any
non-audit services to be performed by our auditors.
Item 6. Exhibits and Reports on Form
8-K.
(a) Exhibits:
The following documents are filed herewith:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
We furnished the following Current Reports on Form 8-K:
(1)
Date of event - January 7, 2004, reporting Items 4 and 7 and
(2)
Date of event - January 14, 2004, reporting Items 7 and 9 and
(3)
Date of event - January 7, 2004, amending on February 16, 2004 Form 8-K
date of event - January 9, 2004, reporting Item 4 and 7 and
(4)
Date of event - March 9, 2004, reporting Items 7 and 12 and
(5)
Date of event - April 7, 2004, reporting Items 5 and 7 and
(6)
Date of event - April 13, 2004, reporting Items 7, 9 and 12.
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 11 day of May
2004.
INTER PARFUMS, INC.
By: /s/ Russell Greenberg
Executive Vice President and
Chief Financial Officer
Exhibit 31
CERTIFICATIONS
I, Jean Madar,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Inter Parfums, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this annual 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)) 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) [omitted]
c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures
as of the end of the period covered by this report based upon such evaluation;
and
d) Disclosed in this report any
change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's
fourth quarter in case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses
in the design or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: May 11, 2004
/s/ Jean Madar
Jean Madar, Chief Executive Officer
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 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 annual 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)) 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) [omitted]
c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures
as of the end of the period covered by this report based upon such evaluation;
and
d) Disclosed in this report any
change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's
fourth quarter in case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses
in the design or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: May 11, 2004
/s/ Russell Greenberg
Russell Greenberg
Chief Financial Officer and
Principal Accounting Officer
Exhibit 32
CERTIFICATION
Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his
capacity as an officer of Inter Parfums, Inc., that the Quarterly Report of
Inter Parfums, Inc. on Form 10-Q for the period ended March 31, 2004, fully
complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934 and that the information contained in such report fairly presents, in
all material respects, the financial condition and results of operation of Inter
Parfums, Inc.
Date: May 11, 2004 By:
/s/Jean Madar
Jean Madar
Chief Executive Officer
Date: May 11, 2004 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.