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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 June 30, 2002.
OR
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___________to
________.
Commission File No. 0-16469
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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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At August 5, 2002 there were 18,760,782 shares of common stock, par value $.001
per share, outstanding.
INTER PARFUMS, INC. AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements 1
Consolidated Balance Sheets as
of June 30, 2002 (unaudited)
and December 31, 2001 (audited) 2
Consolidated Statements of
Income for the Three and Six Months
Ended June 30, 2002 (unaudited)
and June 30, 2001 (unaudited) 3
Consolidated Statements of
Cash Flows for the
Six Months Ended
June 30, 2002 (unaudited) and
June 30, 2001 (unaudited) 4
Notes to Unaudited Financial
Statements 5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
Part II. Other Information 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
INTER PARFUMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
In our opinion, the accompanying unaudited consolidated condensed financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly our financial position, results of
operations and cash flows for the interim periods presented. We have condensed
such financial statements in accordance with the rules and regulations of the
Securities and Exchange Commission. Therefore, such financial statements do not
include all disclosures required by generally accepted accounting principles.
These financial statements should be read in conjunction with our audited
financial statements for the year ended December 31, 2001 included in our annual
report filed on Form 10-K.
The results of operations for the six months ended June 30, 2002 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
Page 1
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2002 2001
------------------ ------------------
Current assets:
Cash and cash equivalents $30,425,861 $28,562,296
Accounts receivable, net 35,386,665 31,222,907
Inventories 36,387,420 27,644,960
Receivables, other 1,291,361 944,220
Other 1,252,050 1,362,352
Income taxes receivable 3,764,144 2,633,000
Deferred tax benefit 1,307,000 1,360,000
------------------ ------------------
Total current assets 109,814,501 93,729,735
Equipment and leasehold improvements, net 4,228,764 3,895,733
Other assets 333,485 304,928
Deferred tax benefit 431,000 767,000
Intangible assets, net 7,093,426 3,841,707
------------------ ------------------
$121,901,176 $102,539,103
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable, banks $4,542,790 $1,308,086
Accounts payable 18,240,145 15,512,938
Accrued expenses 10,426,404 7,960,117
Income taxes payable 1,564,395 746,684
------------------ ------------------
Total current liabilities 34,773,734 25,527,825
------------------ ------------------
Deferred taxes payable 825,017 739,353
------------------ ------------------
Long-term debt, less current portion 1,560,682 1,365,633
------------------ ------------------
Minority interests 11,679,299 9,817,925
------------------ ------------------
Shareholders' equity:
Common stock, $.001 par; authorized
30,000,000 shares; outstanding
18,760,782 and 18,692,269 shares
at June 30, 2002 and
December 31, 2001, respectively 18,761 18,692
Additional paid-in capital 32,686,977 32,469,587
Retained earnings 70,159,989 66,786,620
Accumulated other comprehensive income (3,660,033) (8,043,282)
Treasury stock, at cost, 7,492,463
shares at June 30, 2002 and
December 31, 2001 (26,143,250) (26,143,250)
------------------ ------------------
73,062,444 65,088,367
------------------ ------------------
$121,901,176 $102,539,103
================== ==================
See notes to financial statements.
Page 2
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net sales $27,442,809 $26,259,763 $55,860,455 $57,302,939
Cost of sales 14,635,220 13,701,340 29,346,744 29,130,397
----------- ----------- ----------- -----------
Gross margin 12,807,589 12,558,423 26,513,711 28,172,542
Selling, general and administrative 9,212,038 9,232,698 19,097,812 21,102,392
----------- ----------- ----------- -----------
Income from operations 3,595,551 3,325,725 7,415,899 7,070,150
----------- ----------- ----------- -----------
Other charges (income):
Interest 169,491 80,063 249,441 129,675
(Gain) loss on foreign currency 58,285 (228,353) 57,409 (176,277)
Interest and dividend (income) (242,158) (368,782) (329,921) (651,319)
Loss on sale of stock of subsidiary, net 5,382 85,805 5,382 85,805
----------- ----------- ----------- -----------
(9,000) (431,267) (17,689) (612,116)
----------- ----------- ----------- -----------
Income before income taxes 3,604,551 3,756,992 7,433,588 7,682,266
Income taxes 1,268,633 1,409,509 2,654,205 2,863,922
----------- ----------- ----------- -----------
Net income before minority interest 2,335,918 2,347,483 4,779,383 4,818,344
Minority interest in net income
of consolidated subsidiary 409,424 406,280 843,193 845,689
----------- ----------- ----------- -----------
Net income $1,926,494 $1,941,203 $3,936,190 $3,972,655
=========== =========== =========== ===========
Net income per common share:
Basic $0.10 $0.11 $0.21 $0.23
Diluted $0.10 $0.10 $0.20 $0.20
=========== =========== =========== ===========
Number of common shares outstanding:
Basic 18,760,558 17,446,165 18,755,443 17,447,091
Diluted 20,022,039 19,985,022 19,990,328 19,812,478
=========== =========== =========== ===========
See notes to financial statements.
Page 3
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30,
2002 2001
------------------ -----------------
Operating activities:
Net income $3,936,190 $3,972,656
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 964,702 935,766
Loss on sale of stock of subsidiary 5,382 85,805
Minority interest in net income 843,180 845,689
Deferred tax provision 389,000
Gain on sale of trademark (82,524)
Increase (decrease) in cash from changes in:
Accounts receivable (1,078,739) (197,517)
Inventories (6,139,179) (7,036,993)
Other assets (22,774) (162,283)
Accounts payable and accrued expenses 2,391,240 2,412,213
Income taxes payable (248,389) (623,455)
----------- -----------
Net cash provided by operating activites 958,089 231,881
----------- -----------
Investing activities:
Purchase of equipment and leasehold improvements (715,489) (818,245)
Trademark and license acquisitions (3,225,199)
Proceeds from the sale of trademark 149,799
----------- -----------
Net cash (used in) investing activities (3,790,889) (818,245)
----------- -----------
Financing activities:
Increase in loan payable, bank 3,087,088 3,463,811
Proceeds from sale of stock of subsidiary 5,382 106,535
Proceeds from exercise of stock options 217,459
Dividends paid (545,126) (197,144)
Purchases of treasury stock (410,296)
----------- -----------
Net cash provided by financing activities 2,764,803 2,962,906
----------- -----------
Effect of exchange rate changes on cash 1,931,562 (1,192,536)
----------- -----------
Increase in cash and cash equivalents 1,863,565 1,184,006
Cash and cash equivalents at beginning of period 28,562,296 27,598,771
----------- -----------
Cash and cash equivalents at end of period $30,425,861 $28,782,777
=========== ===========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $166,000 $105,000
Income taxes 1,906,000 2,547,000
See notes to financial statements.
Page 4
INTER PARFUMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies we follow are set forth in the notes to our
financial statements included in our Form 10-K which was filed with the
Securities and Exchange Commission for the year ended December 31,
2001.
2. COMPREHENSIVE INCOME:
Six months ended Six months ended
June 30, 2002 June 30, 2001
------------- -------------
Comprehensive income
Net income $ 3,936,190 $ 3,972,655
Other comprehensive income, net of tax:
Foreign currency
translation adjustment 4,381,016 (2,742,039)
Cumulative effect of adopting SFAS 133
as of January 1, 2001 274,201
Gains on derivatives reclassified
into earnings (4,717) (274,201)
Change in fair value of derivatives 6,950 (59,370)
----------- -----------
Comprehensive income $ 8,319,439 $ 1,171,246
=========== ===========
3. GEOGRAPHIC AREAS:
Segment information related to domestic and foreign operations is as
follows:
Six months ended Six months ended
June 30, 2002 June 30, 2001
------------- -------------
Net sales:
United States $ 16,956,093 $ 15,837,931
Europe 38,974,362 41,535,008
Eliminations (70,000) (70,000)
------------- -------------
$ 55,860,455 $ 57,302,939
============= =============
Net Income:
United States $ 1,072,024 $ 1,078 916
Europe 2,864,166 $ 2,893,739
------------- -------------
$ 3,936,190 $ 3,972,655
============= =============
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:
June 30, 2002 December 31, 2001
------------- -----------------
Raw materials and component parts $ 12,601,427 $ 8,823,260
Finished goods 23,785,993 18,821,700
------------ ------------
$ 36,387,420 $ 27,644,960
============ ============
6. RECENT ACCOUNTING DEVELOPMENTS:
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires all business combinations after June 30,
2001 to be accounted for using the purchase method. SFAS No. 142
establishes new guidelines for accounting for goodwill and other
intangible assets. In accordance with SFAS No. 142, goodwill and
intangible assets with an indeterminate life associated with
acquisitions are no longer amortized; However, the carrying value of
existing intangible assets with an indeterminate life is assessed for
impairment at least annually. We have implemented the provisions of
SFAS No. 142 on January 1, 2002 and have tested our trademarks for
impairment as of such date and determined that there was no impairment.
The effect on net income of amortization of intangible assets with an
indeterminate life for the six months ended June 30, 2001 aggregated
$72,000, after taxes and minority interest.
7. TRISTAR ASSET ACQUISITION:
On May 21, 2002 our wholly-owned subsidiary, Jean Philippe Fragrances,
LLC, purchased certain mass market fragrance brands and inventories of
Tristar Corporation ("Tristar"), a Debtor-in-Possession. Jean Philippe
Fragrances, LLC purchased the trademarks and related intellectual
property of certain brands for approximately $3.2 million, and acquired
certain existing inventory for approximately $3.7 million.
In connection with the acquisition, Jean Philippe Fragrances, LLC
entered into a manufacturing agreement with Fragrance Impressions
Corporation for production of the Tristar brands acquired. In addition,
Tristar and Fragrances Impressions Corporation entered into a
non-competition agreement with Jean Philippe Fragrances, LLC relating
to alternative designer fragrances and certain mass market cosmetics.
Page 6
INTER PARFUMS, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We are a leading manufacturer and distributor of fragrances, cosmetics and
personal care products. Innovation and creativity are combined to produce
quality products for our customers around the world.
We operate in the fragrance and cosmetic industry, specializing in prestige
fragrances and mass market fragrances and cosmetics:
o Prestige products -- For each prestige brand, owned or licensed by us, we
create an original concept for the perfume consistent with world market
trends;
o Mass market products -- We design, market and distribute inexpensive
fragrances and personal care products including alternative designer
fragrances, health and beauty aids and mass market cosmetics.
Statements in this document, which are not historical in nature, are
forward-looking statements. Forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results to be
materially different from projected results. Given these risks, uncertainties
and other factors, persons are cautioned not to place undue reliance on the
forward-looking statements.
Such factors include effectiveness of sales and marketing efforts and product
acceptance by consumers, dependence upon management, competition, currency
fluctuation and international tariff and trade barriers, governmental regulation
and possible liability for improper comparative advertising or "Trade Dress".
Amongst the various license agreements we operate under, two (2) licenses are
with affiliates of our strategic partner, LV Capital USA, Inc. ("LV Capital"), a
wholly-owned subsidiary of LVMH Moet Hennessy Louis Vuitton S.A. In May 2000 we
entered into an exclusive worldwide license for prestige fragrances for the
Celine brand, and in March 1999 we entered into an exclusive worldwide license
for Christian Lacroix fragrances. Both licenses are subject to certain minimum
sales requirements, advertising expenditures and royalty payments as are
customary in our industry.
Page 7
INTER PARFUMS, INC. AND SUBSIDIARIES
THREE AND SIX MONTHS ENDED JUNE 30, 2002 AS COMPARED TO THE THREE AND
SIX MONTHS ENDED JUNE 30, 2001
Net sales for the three months ended June 30, 2002 increased 5% to $27.4
million, as compared to $26.3 million for the corresponding period of the prior
year. At comparable foreign currency exchange rates, net sales were up 1% for
the period.
Net sales for the six months ended June 30, 2002 declined 3% to $55.9 million,
as compared to $57.3 million for the corresponding period of the prior year.
Changes in foreign currency exchange rates had no discernible effect on net
sales for the period.
The 5% net sales increase for the three months ended June 30, 2002 is in line
with our internal expectations. Sales generated by our French subsidiary
increased 4%; in constant dollars sales were down 1%. Domestic sales registered
a 5% increase for the period. These results were achieved despite the current
unfavorable economic climate in South America and the general decline in
prestige product sales as seen by many luxury goods manufacturers.
The slight decline in net sales for the six months ended June 30, 2002 is not
surprising considering the 23% net sales growth reported in the first half of
2001. Sales of our prestige fragrance products were the primary contributor to
the growth in 2001 as we continued the broader geographic rollout of Paul Smith
and Burberry Touch, two new fragrance collections that debuted in the second
half of 2000.
We are very optimistic for the remainder of 2002 and beyond. We will continue
the geographic expansion of our Celine distribution network and we are very
enthusiastic about our new Christian Lacroix fragrance line, Bazar, which has
been launched in select markets during the second quarter of 2002. Our FUBU
Plush line is now available in select specialty stores, certain international
markets and select mid tier department stores. In addition, Essence Pure by S.T.
Dupont and Eaux Extremes by Paul Smith are two new products that are in the
final stages of development for launch in October 2002. Finally, our 2003 plans
include a seasonal perfume under our Celine brand, an alcohol-free Bazar eau de
toilette by Christian Lacroix, a new Burberry women's line, two new fragrances
by Paul Smith and in late 2003 we expect to launch our first prestige fragrance
line under the Diane von Furstenberg label.
With respect to our mass market products, the sales increase is the result of
the product line expansion of our Intimate health and beauty aids and our Aziza
cosmetic line. We have been developing new product line extensions for both
lines throughout 2002. Also in development is the reintroduction of Tatiana by
Diane von Furstenberg. We expect that this mass market fragrance will be ready
for re-launch in September 2002.
Page 8
INTER PARFUMS, INC. AND SUBSIDIARIES
We anticipate our mass market fragrance lines will get a significant boost from
the recent 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 will be sold in the same distribution channel
as that of our other mass market fragrance lines.
Growing sales within existing product lines, new product launches and an active
new business development program are how we plan to grow our business. With
respect to new business development, several licensing and acquisition
opportunities are presently under discussion. However, we cannot assure you that
any such transactions will be completed.
Gross profit margin was 47% of net sales for both the three and six month
periods ended June 30, 2002, as compared to 48% and 49% for the corresponding
periods of the prior year. Our target gross margin percentage has historically
been 45% to 46%. However, gross profit margins have increased recently as our
prestige fragrance lines, which have been growing at a faster rate than our mass
market lines, generate a higher gross profit margin than our mass market product
lines.
Selling, general and administrative expenses aggregated $9.2 million for both
three month periods ended June 30, 2002 and 2001. However, as a percentage of
sales, selling, general and administrative expenses decreased to 34% of net
sales for the three month period ended June 30, 2002, as compared to 35% for the
corresponding period of the prior year. Selling, general and administrative
expenses aggregated $19.1 million for the six months ended June 30, 2002, as
compared to $21.1 million for the corresponding period of the prior year. As a
percentage of sales, selling, general and administrative expenses declined to
34% of net sales for the 2002, as compared to 37% for the 2001 period.
Promotion and advertising are prerequisites for brand-building and sales of
designer products. We develop a complete marketing and promotional plan to
support our growing portfolio of prestige fragrance brands and to build upon
each brand's awareness. We typically budget advertising and promotion
expenditures based upon sales of each of our product lines. For example, as a
result of the success of the Burberry Touch and Paul Smith launches in late
2000, we increased advertising and promotional activities in early 2001 to keep
the momentum of the second half of 2000 going. Conversely, with the softness in
economy, particularly for discretionary consumer products, in recent months, we
intentionally curtailed advertising and marketing expenditures. We plan to again
gear up our promotional programs as the economy improves.
Page 9
INTER PARFUMS, INC. AND SUBSIDIARIES
Interest expense was $169,000 and $249,000 for the three and six month periods
ended June 30, 2002, as compared to $80,000 and $130,000 for the corresponding
periods of the prior year. We use the credit lines available to us, as needed,
to finance our working capital needs.
We recorded a loss on foreign currency of $58,000 and $57,000 for the three and
six month periods ended June 30, 2002, as compared to a gain $228,000 and
$176,000 for the corresponding periods of the prior year. 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% for the three months ended June 30, 2002,
as compared to 38% for the corresponding period of the prior year. Our effective
income tax rate was 36% for the six months ended June 30, 2002, as compared to
37% for the corresponding period of the prior year. The small decline in our
effective tax rate is the result of slightly lower foreign tax rates.
Net income was $1.9 million for both the three months ended June 30, 2002 and
2001. After giving effect to the 3-for-2 stock split effected in September 2001,
diluted earnings per share aggregated $0.10 for both three month periods. Net
income was $3.9 million for the six months ended June 30, 2002, as compared to
$4.0 million for the corresponding period of the prior year. After giving effect
to the 3-for-2 stock split, diluted earnings per share aggregated $0.20 for both
six month periods.
Weighted average shares outstanding aggregated 18.8 million for both the three
and six month periods ended June 30, 2002, as compared to 17.4 million for both
the three and six month periods ended June 30, 2001. On a diluted basis, average
shares outstanding were 20.0 million for both the three and six month periods
ended June 30, 2002, respectively, as compared to 20.0 million and 19.8 million
for the three and six month periods ended June 30, 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Profitable operating results continue to strengthen our financial position. At
June 30, 2002, working capital aggregated $75 million and we had a working
capital ratio of greater than 3 to 1. Cash and cash equivalents aggregated $30
million and our net book value was $3.89 per outstanding share as of June 30,
2002. Furthermore, we had only $1.6 million in long-term debt.
Page 10
INTER PARFUMS, INC. AND SUBSIDIARIES
Our short-term financing requirements are expected to be met by available cash
at June 30, 2002, cash generated by operations and short-term credit lines
provided by domestic and foreign banks. The principal credit facilities for 2002
are a $12.0 million unsecured revolving line of credit provided by a domestic
commercial bank and approximately $12.0 million in credit lines provided by a
consortium of international financial institutions.
Cash provided by operating activities aggregated $1.0 million for the six months
ended June 30, 2002 as compared to $0.2 million for the corresponding period of
the prior year. As previously discussed, in connection with the May 2002
acquisition of certain Tristar fragrance brands, we purchased existing inventory
aggregating $3.7 million. This is reflected as a use of cash by operating
activities in the accompanying cash flow statement. In addition, throughout the
month of June, and continuing into July and August, we purchased additional raw
materials to balance our inventory of Tristar brand products. This was done
without the benefit of significant Tristar brand sales during the period. Cash
provided by operating activities continues to be the primary source of funds to
finance operating needs and investments in new ventures.
Cash used in investing activities includes the $3.2 million paid for the Tristar
brands and related intellectual property.
Our Board of Directors approved a cash dividend program and our first 1.5 cent
per share quarterly dividend was paid on April 15, 2002. This cash dividend,
which totals $1.1 million on an annual basis, represents a small part of our
cash position and is not expected to have any significant impact on our
financial position.
We believe that funds generated from operations, supplemented by our present
cash position and available credit facilities, will provide us with sufficient
resources to meet all present and reasonably foreseeable future operating needs.
Inflation rates in the U.S. and foreign countries in which we operate have not
had a significant impact on operating results for the three months ended June
30, 2002.
Page 11
INTER PARFUMS, INC. AND SUBSIDIARIES
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GENERAL
We address certain financial exposures through a controlled program of risk
management that primarily consists of the use of derivative financial
instruments. We primarily enter into foreign currency forward exchange contracts
in order to reduce the effects of fluctuating foreign currency exchange rates.
We have entered into one (1) interest rate swap in an attempt to take advantage
of low variable interest rates as compared to the fixed rate on our long-term
debt. We do not engage in the trading of foreign currency forward exchange
contracts or interest rate swaps.
FOREIGN EXCHANGE RISK MANAGEMENT
We periodically enter into foreign currency forward exchange contracts to hedge
exposure related to receivables denominated in a foreign currency and to manage
risks related to future sales expected to be denominated in a foreign currency.
We enter into these exchange contracts for periods consistent with our
identified exposures. The purpose of the hedging activities is to minimize the
effect of foreign exchange rate movements on the receivables and cash flows of
Inter Parfums, S.A., our French subsidiary, whose functional currency is the
Euro. All foreign currency contracts are denominated in currencies of major
industrial countries and are with large financial institutions, which are rated
as strong investment grade.
All derivative instruments are required to be reflected as either assets or
liabilities in the balance sheet measured at fair value. Generally, increases or
decreases in fair value of derivative instruments will be recognized as gains or
losses in earnings in the period of change. If the derivative is designated and
qualifies as a cash flow hedge, the changes in fair value of the derivative
instrument will be recorded in other comprehensive income.
Before entering into a derivative transaction for hedging purposes, we determine
that a high degree of initial effectiveness exists between the change in the
value of the hedged item and the change in the value of the derivative from a
movement in foreign currency rates. High effectiveness means that the change in
the value of the derivative will effectively offset the change in the fair value
of the hedged item. We measure the effectiveness of each hedge throughout the
hedged period. Any hedge ineffectiveness is recognized in the income statement.
Page 12
INTER PARFUMS, INC. AND SUBSIDIARIES
We believe that our risk of loss as the result of nonperformance by any of such
financial institutions is remote and in any event would not be material. The
contracts have varying maturities with none exceeding one year. Costs associated
with entering into such contracts have not been material to our financial
results. At June 30, 2002, we had foreign currency contracts in the form of
forward exchange contracts in the amount of approximately $10.0 million. The
foreign currencies included in these contracts are principally the U.S. dollar.
INTEREST RATE RISK MANAGEMENT
We mitigate interest rate risk by continually monitoring interest rates, and
then determining whether fixed interest rates should be swapped for floating
rate debt, or if floating rate debt should be swapped for fixed rate debt. We
have entered into one (1) interest rate swap to take advantage of declining
interest rates. At June 30, 2002 we had one (1) interest rate swap agreement
outstanding to convert $1.6 million of principal fixed rate debt with an
interest rate of 4.56% to floating interest rate debt, at the EURIBOR rate, over
the life of our long-term debt due in 2005. At June 30, 2002, the EURIBOR rate
was 3.3%. If interest rates were to rise 1% per annum over the remaining term of
the long-term debt, then we would incur a loss of $30,000.
PART II. OTHER INFORMATION
Items 1, 3, 4, and 5 are omitted as they are either not applicable or
have been included in Part I.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 2, 2002, two (2) executive officers exercised outstanding stock
options to purchase an aggregate of 20,000 shares of Common Stock and we
received approximately $51,000 in proceeds as a result of such exercises, as
well as $36,000 in required withholding taxes.
The transactions were exempt from the registration requirements of
Section 5 of the Securities Act under Section 4(2) of the Securities Act. Each
shareholder, an executive officer, agreed to purchase his common stock for
investment and not for resale to the public.
Page 13
INTER PARFUMS, INC. AND SUBSIDIARIES
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
10.91 Bail entre SCI et Inter Parfums, S.A. [Original in French]
10.91.1 Lease between SCI and Inter Parfums, S.A. [English Translation
Version]
10.92 Third Modification of Lease dated June 17, 2002 between Metropolitan
Life Insurance Company, and Jean Philippe Fragrances, LLC
(b) We filed the following Current Reports on Form 8-K
(1) Date of event - 21 May 2002, reporting Item 2; and
(2) Date of event - 29 May 2002, reporting Item 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 8th day of August 2002.
INTER PARFUMS, INC.
By: /s/ RUSSELL GREENBERG
----------------------------------
Russell Greenberg,
Executive Vice President and
Chief Financial Officer
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INTER PARFUMS, INC. AND SUBSIDIARIES
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 June 30, 2002, fully
complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934 and that the information contained in such report fairly presents, in
all material respects, the financial condition and results of operation of Inter
Parfums, Inc.
Date: August 8, 2002 By: /s/ JEAN MADAR
--------------
Jean Madar
Chief Executive Officer
Date: August 8, 2002 By: /s/ RUSSELL GREENBERG
---------------------
Russell Greenberg
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
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