UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2001. 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. At November 6, 2001 there were 18,649,094 shares of common stock, par value $.001 per share, outstanding.
INTER PARFUMS, INC. AND SUBSIDIARIES INDEX Page Number Part I. Financial Information Item 1. Financial Statements 1 Consolidated Balance Sheets as of September 30, 2001 (unaudited) and December 31, 2000 (audited) 2 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2001 (unaudited) and September 30, 2000 (unaudited) 3 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 (unaudited) and September 30, 2000 (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 11 Part II. Other Information 14 Item 2. Changes in Securities and Use of Proceeds 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Signatures 15
INTER PARFUMS, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented. Such financial statements have been condensed in accordance with the rules and regulations of the Securities and Exchange Commission and therefore, do not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2000 included in the Company's annual report filed on Form 10-K. The results of operations for the nine months ended September 30, 2001 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 <TABLE> <CAPTION> September 30, December 31, 2001 2000 --------------- --------------- <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $29,272,364 $27,598,771 Accounts receivable, net 33,882,682 30,844,146 Inventories 30,718,432 25,340,440 Receivables, other 1,383,196 496,663 Other 1,201,825 1,807,680 Deferred tax benefit 5,226,323 435,211 ---------------- ---------------- Total current assets 101,684,822 86,522,911 EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 3,712,786 3,162,177 OTHER ASSETS 301,174 347,324 INTANGIBLE ASSETS, NET 4,065,871 4,538,663 ---------------- ---------------- $109,764,653 $94,571,075 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Loans payable, banks $6,240,251 $2,542,286 Accounts payable 14,574,898 18,223,812 Accrued expenses 12,142,648 6,961,322 Income taxes payable 1,438,835 1,107,968 ---------------- ---------------- Total current liabilities 34,396,632 28,835,388 ---------------- ---------------- DEFERRED TAXES PAYABLE 672,841 684,304 ---------------- ---------------- LONG-TERM DEBT, LESS CURRENT PORTION 1,459,610 1,416,631 ---------------- ---------------- MINORITY INTERESTS 9,692,340 8,573,594 ---------------- ---------------- SHAREHOLDERS' EQUITY: Common stock, $.001 par; authorized 30,000,000 shares; outstanding 18,649,094 and 17,514,416 shares at September 30, 2001 and December 31, 2000, respectively 18,649 17,514 Additional paid-in capital 32,044,545 27,723,339 Retained earnings 64,562,596 58,667,619 Accumulated other comprehensive income (6,939,310) (6,573,513) Treasury stock, at cost, 7,492,463 and 8,604,608 shares at September 30, 2001 and December 31, 2000, respectively (26,143,250) (24,773,801) ---------------- ---------------- 63,543,230 55,061,158 ---------------- ---------------- $109,764,653 $94,571,075 ================ ================ </TABLE> SEE NOTES TO FINANCIAL STATEMENTS. Page 2
INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> NET SALES $27,628,127 $25,940,175 $84,931,066 $72,385,779 COST OF SALES 14,347,432 13,923,380 43,477,828 38,709,157 -------------- ------------- ------------- ------------- GROSS MARGIN 13,280,695 12,016,795 41,453,238 33,676,622 SELLING, GENERAL AND ADMINISTRATIVE 9,530,447 8,749,909 30,632,839 25,415,844 LITIGATION EXPENSE 556,043 -------------- ------------- ------------- ------------- INCOME FROM OPERATIONS 3,750,248 3,266,886 10,820,399 7,704,735 -------------- ------------- ------------- ------------- OTHER CHARGES (INCOME): Interest 71,382 61,942 201,057 224,328 (Gain) loss on foreign currency 157,867 (1,550) (18,410) 18,936 Interest and dividend (income) (197,380) (236,390) (848,699) (748,172) Loss on sale of stock of subsidiary, net 6,828 85,805 17,071 Realized (gain) on sale of investments (3,860) (1,581,121) -------------- ------------- ------------- ------------- 31,869 (173,030) (580,247) (2,068,958) -------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAXES 3,718,379 3,439,916 11,400,646 9,773,693 INCOME TAXES 1,408,964 1,502,613 4,272,886 4,309,162 -------------- ------------- ------------- ------------- NET INCOME BEFORE MINORITY INTEREST 2,309,415 1,937,303 7,127,760 5,464,531 MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY 387,094 302,426 1,232,783 899,441 -------------- ------------- ------------- ------------- NET INCOME $1,922,321 $1,634,877 $5,894,977 $4,565,090 ============== ============= ============= ============= NET INCOME PER COMMON SHARE: BASIC $0.11 $0.09 $0.34 $0.26 DILUTED $0.10 $0.08 $0.30 $0.23 ============== ============= ============= ============= NUMBER OF COMMON SHARES OUTSTANDING: BASIC 17,788,416 17,589,924 17,560,866 17,624,095 DILUTED 20,166,681 19,520,422 19,930,546 19,482,579 ============== ============= ============= ============= </TABLE> SEE NOTES TO FINANCIAL STATEMENTS. Page 3
INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Nine months ended September 30, 2001 2000 ------------- ------------ <S> <C> <C> OPERATING ACTIVITIES: Net income $5,894,977 $4,565,090 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,331,297 1,494,745 Realized (gain) on sale of marketable securities (1,581,122) Loss on sale of stock of subsidiary 85,266 17,071 Minority interest in net income 1,233,288 899,441 Increase (decrease) in cash from changes in: Accounts receivable (3,374,239) (6,841,938) Inventories (5,622,394) (9,903,451) Other assets (198,094) (392,557) Accounts payable and accrued expenses 439,360 6,442,992 Income taxes payable 327,196 489,633 ------------- -------------- Net cash provided by (used in) operating activites 116,657 (4,810,096) ------------- -------------- INVESTING ACTIVITIES: Purchase of equipment and leasehold improvements (1,503,227) (1,321,174) Trademark and license acquisitions (950) Purchase of marketable securities (3,773,490) Proceeds from sale of marketable securities 6,095,395 ------------- -------------- Net cash provided by (used in) investing activities (1,503,227) 999,781 ------------- -------------- FINANCING ACTIVITIES: Increase in loan payable, bank 3,680,628 4,092,153 Proceeds from sale of stock of subsidiary 105,866 42,031 Proceeds from exercise of stock options 77,188 136,250 Dividends paid (197,144) (134,543) Purchases of treasury stock (425,456) (1,501,852) ------------- -------------- Net cash provided by financing activities 3,241,082 2,634,039 ------------- -------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (180,919) (1,361,390) ------------- -------------- INCREASE IN CASH AND CASH EQUIVALENTS 1,673,593 (2,537,666) Cash and cash equivalents at beginning of period 27,598,771 24,936,361 ------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $29,272,364 $22,398,695 ============= ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid during the period for: Interest $191,000 $245,000 Income taxes 3,290,000 2,503,000 </TABLE> SEE NOTES TO FINANCIAL STATEMENTS. Page 4
INTER PARFUMS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES: The accounting policies followed by the Company are set forth in the notes to the Company's financial statements included in its Form 10-K which was filed with the Securities and Exchange Commission for the year ended December 31, 2000. 2. COMPREHENSIVE INCOME: <TABLE> <CAPTION> Nine months ended Nine months ended September 30, 2001 September 30, 2000 ------------------ ------------------ <S> <C> <C> Comprehensive income: Net income $ 5,894,977 $ 4,565,090 Other comprehensive income, net of tax: Foreign currency translation adjustment (397,134) (3,433,088) Cumulative effect of adopting SFAS 133 as of January 1, 2001 274,201 Gains on derivatives reclassified into earnings (274,201) Change in fair value of derivatives 31,337 Unrealized gains on securities: Unrealized holding gains arising during period 306,914 Less: reclassification adjustment for gains realized in net income (738,068) ------------- ------------ Comprehensive income $ 5,529,180 $ 700,848 ============= ============ </TABLE> 3. GEOGRAPHIC AREAS: Segment information related to domestic and foreign operations is as follows: Nine months ended Nine months ended September 30, 2001 September 30, 2000 ------------------ ------------------ Net sales: United States $ 24,499,860 $ 23,537,320 Europe 60,536,206 48,938,459 Eliminations (105,000) (90,000) ------------ ------------ $ 84,931,056 $ 72,385,779 ============ ============ Net Income: United States $ 1,693,559 $ 1,419 173 Europe 4,201,418 3,150,050 South America (0) (4,133) ------------ ------------ $ 5,894,977 $ 4,565,090 ============ ============ Page 5
INTER PARFUMS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED FINANCIAL STATEMENTS 4. EARNINGS PER SHARE: Basic earnings per share are computed using the weighted average number of shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of shares outstanding during each period, plus the incremental shares outstanding assuming the exercise of dilutive stock options. 5. INVENTORIES: Inventories consist of the following: <TABLE> <CAPTION> September 30, 2001 December 31, 2000 ------------------ ----------------- <S> <C> <C> Raw materials and component parts $ 12,471,369 $ 8,775,558 Finished goods 18,247,063 16,564,882 ------------- ------------ $ 30,718,432 $ 25,340,440 ============= ============ </TABLE> 6. RECENT ACCOUNTING DEVELOPMENTS: The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended, is effective for all quarters of fiscal years beginning after June 15, 2000 and does not permit retroactive restatement of prior period financial statements. This statement requires the recognition of all derivative instruments 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. 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. 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 as defined by SFAS No. 133 is recognized in the income statement. On January 1, 2001 we adopted SFAS No. 133. The transition adjustment for derivatives in cash flow hedges was to record an asset in the amount of $274,000 and was recognized as a cumulative-effect-type adjustment in accumulated other comprehensive income. Page 6
INTER PARFUMS, INC. AND SUBSIDIARIES 7. SHAREHOLDERS EQUITY: In August 2001, the Board of Directors authorized a 3 for 2 stock split in the form of a 50% dividend for shareholders of record on August 31, 2001, payable September 14, 2001. The effect of the stock split has been retroactively reflected in the accompanying financial statements. In September 2001, the Chief Executive Officer and the President each exercised 899,625 outstanding stock options of the Company's common stock. The aggregate exercise price of $2,334,690 each, was paid by each of them tendering to the Company 233,469 shares of the Company's common stock, previously owned by them, valued at $10.00 per share, the fair market value on the date of exercise. All shares issued pursuant to these option exercises were issued from treasury stock of the Company. In addition, the Chief Executive Officer tendered an additional 149,884 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 $4,800,000, which has been reflected as an increase to additional paid-in capital in the accompanying 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 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: X Prestige products -- For each prestige brand, owned or licensed by us, we create an original concept for the perfume consistent with world market trends; X Mass market products -- We design, market and distribute inexpensive fragrances and personal care products including alternative designer fragrances, health and beauty aids and mass market cosmetics. Statements in this document, which are not historical in nature, are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from projected results. Given these risks, uncertainties and other factors, persons are cautioned not to place undue reliance on the forward-looking statements. Such factors include effectiveness of sales and marketing efforts and product acceptance by consumers, dependence upon management, competition, currency fluctuation and international tariff and trade barriers, governmental regulation and possible liability for improper comparative advertising or "Trade Dress". THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AS COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 Net sales for the three months ended September 30, 2001 increased 7% to $27.6 million, as compared to $25.9 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 8% for the period. Net sales for the nine months ended September 30, 2001 increased 17% to $84.9 million, as compared to $72.4 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 22% for the period. Page 8
INTER PARFUMS, INC. AND SUBSIDIARIES The increase in net sales represents the eighth consecutive quarter of revenue growth and is attributable to across-the-board increases in both our prestige and mass market product lines. On the prestige side of our business, our PAUL SMITH and BURBERRY TOUCH fragrance lines continued to perform very well. Our BURBERRY TOUCH fragrance line was recently augmented with a new bath line for men and women, and initial indications are very favorable. In addition, we have new prestige product launches scheduled to roll out during the remainder of 2001 and early 2002. In the fourth quarter of 2001, we commenced the initial launch of two new Celine fragrances, and a completely new line of Christian Lacroix fragrances is planned for early 2002. Our FUBU fragrance line is in the final stages of development and is expected to debut at select men's and ladies specialty stores in January 2002. Full department store and international distribution is planned for the second quarter of 2002. Net sales of our mass market products were up 6% for the three months ended September 30, 2001, as compared to the corresponding period of the prior year. This is the result of the recent launch of our new line of health and beauty aids ("HBA"), which are being sold under our Intimate brand name. Further HBA line expansion is in the works. Sales generated from our mass market fragrance lines are experiencing some weakness; however, our Aziza cosmetic line, continues to perform very well. Additional Aziza product line extensions are also in progress. Although we have not experienced any significant downturn as a result of the current economic environment, results for the fourth quarter of 2001 may reflect some impact of a cutback in discretionary consumer spending. Many luxury goods manufacturers have experienced the effect of declining consumer sales at the department store level as well as lower traffic levels at duty free stores in airports and other select vacation destinations. In addition, our sales forecast for the fourth quarter of 2001 are includes the debut of our CELINE fragrance launch, is coming off the heels of last years exceptionally successful launches of PAUL SMITH and BURBERRY TOUCH. As a result we are now forecasting that sales for the year ended December 31, 2001 are expected to reach approximately $111 million generating net income of approximately $8.1 million. Growing sales within existing product lines, new product launches and an active new business development program are how we plan to continue 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. Page 9
INTER PARFUMS, INC. AND SUBSIDIARIES Gross profit margin was 48% and 49% of net sales for the three and nine month periods ended September 30, 2001, respectively, as compared to 46% and 47% 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 a result of the strength of the US dollar in relation to the Euro, as certain European sales are denominated in US dollars. In addition, 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 $9.5 million for the three months ended September 30, 2001, as compared to $8.7 million for the corresponding period of the prior year. As a percentage of sales, selling, general and administrative expenses was 34% of sales for both the three months ended September 30, 2001 and September 30, 2000. Selling, general and administrative expenses aggregated $30.6 million for the nine months ended September 30, 2001, as compared to $25.4 million for the corresponding period of the prior year. As a percentage of sales, selling, general and administrative expenses was 36% for the nine months ended September 30, 2001, as compared to 35% for the corresponding period of the prior year. 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. We typically budget advertising and promotion expenditures based upon sales of each of our product lines. 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. As previously reported, our French subsidiary, Inter Parfums, S.A., is a party to litigation with Jean Charles Brosseau, S.A. ("Brosseau"), the licensor 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 $600,000 and which directed Inter Parfums, S.A. to turn over its license to Brosseau within six months. Inter Parfums, S.A. is appealing the judgment as it vigorously and categorically denies 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 $600,000, 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 $142,000 as an advance for damages claimed by Brosseau. Page 10
INTER PARFUMS, INC. AND SUBSIDIARIES Inter Parfums, S.A. is continuing its appeal as it still denies the claims of Brosseau. Management does not believe that such litigation will have any further material adverse effect on the financial condition or operations of the Company. During the nine month period ended September 30, 2000 we sold a portion of our investment in marketable securities and realized a gain of $1.6 million ($725,000 after taxes and minority interest). On occasion, we invest excess cash in marketable securities which are classified as available-for-sale. These funds are available to support current operations or to take advantage of other investment opportunities. There were no marketable security transactions in 2001. Our effective income tax rate was 37% for the nine months ended September 30, 2001, as compared to 44% for the corresponding period of the prior year. The effective tax rate for the nine month period ended September 30, 2000 includes a $480,000 ($370,000 after minority interest) addition to an accrual to cover the potential exposure related to a tax audit of Inter Parfums, S.A. commenced by the French Tax Authorities. Net income increased 18% to $1.9 million for the three months ended September 30, 2001, as compared to $1.6 million for the corresponding period of the prior year. Net income increased 29% to $5.9 million for the nine months ended September 30, 2001, as compared to $4.6 million for the corresponding period of the prior year. Net income for the nine months ended September 30, 2000 includes charges of $630,000 and a gain of $725,000, all after taxes and minority interest. The charges represent an accrual for exposure relating to the Brosseau litigation of $260,000 and a potential tax assessment of $370,000. The gain represents a realized gain on sale of marketable securities. Diluted earnings per share increased 25% to $0.10 for the three months ended September 30, 2001, as compared to $0.08 for the corresponding period of the prior year. Diluted earnings per share increased 30% to $0.30 for the nine months ended September 30, 2001, as compared to $0.23 for the corresponding period of the prior year. After giving effect to the recent 3 for 2 stock split, weighted average shares outstanding aggregated 17.8 million and 17.6 million for the three and nine month periods ended September 30, 2001, respectively, as compared to 17.6 million for both the three and nine month periods ended September 30, 2000. On a diluted basis, average shares outstanding were 20.2 million and 19.9 million for the three and nine month periods ended September 30, 2001, respectively, as compared to 19.5 million for both the three and nine month periods ended September 30, 2000. Page 11
INTER PARFUMS, INC. AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES Profitable operating results continues to strengthen our financial position. At September 30, 2001, working capital aggregated $67 million and we had a working capital ratio of 3 to 1. Cash and cash equivalents aggregated $29 million and our net book value was $3.41 per outstanding share as of September 30, 2001. Furthermore, we had only $1.5 million in long-term debt. On occasion we use a portion of our cash to make investments in marketable equity securities, which are classified as available-for-sale. These funds are available to support current operations or to take advantage of other investment opportunities. These investments are made to maximize our return on cash. During 2001, we made no investments in marketable equity securities and have no positions presently outstanding. Our short-term financing requirements are expected to be met by available cash at September 30, 2001, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2001 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 $0.1 million for the nine months ended September 30, 2001 as compared to a use of $4.8 million for the corresponding period of the prior year. The 10% increase in accounts receivable from December 31, 2000 to September 30, 2001 is reasonable considering sales are up 17% for the same period. In addition, inventory levels are up to support increased sales levels and new product launches. Cash provided by operating activities continues to be the primary source of funds to finance operating needs and investments in new ventures. 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. In January 1999, certain member countries of the European Union established permanent fixed rates between their existing currencies and the European Union's common currency ("the Euro"). The transition period for the introduction of the Euro is scheduled to phase in over a period ending January 1, 2002. The introduction of the Euro and the phasing out of the other currencies should not have a material impact on our consolidated financial statements. Inflation rates in the U.S. and foreign countries in which we operate have not had a significant impact on operating results for the nine months ended September 30, 2001. Page 12
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 enter into forward exchange contracts to hedge receivables denominated in foreign currencies 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 French francs. 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. Gains and losses related to qualifying hedges of these exposures are deferred and recognized in operating income when the underlying hedged transaction occurs. We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote and in any event would not be material. The contracts have varying maturities with none exceeding one year. Costs associated with entering into such contracts have not been material to our financial results. At September 30, 2001, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately $0.7 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 September 30, 2001 we had one (1) interest rate swap agreement outstanding to convert $1.5 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 2004. At September 30, 2001, the EURIBOR rate was 4.7%. 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 $45,000. Page 13
INTER PARFUMS, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION Items 1, 3, 5 and 6 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 outstanding stock options is incorporated by reference herein. The transactions were exempt from the registration requirements of Section 5 of the Securities Act under Sections 4(2) and 4(6) of the Securities Act. Both option holders agreed to purchase their common stock for investment and not for resale to the public. On August 29, 2001, we granted options to purchase an aggregate of 9,000 shares for a five year period at the exercise price of $9.60 per share, the fair market value at the time of the grant, to two employees under our 1999 Stock Option Plan. The transactions were exempt from the registration requirements of Section 5 of the Securities Act under Section 4(2) of the Securities Act. Each option holder agreed that, if the option is exercised, the option holder would purchase his common stock for investment and not for resale to the public. The options are not transferable, except to the limited extent permitted in the option plans. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Stockholders of Inter Parfums, Inc. (the "Company"), was held on 6 August 2001 at 10:00 a.m., local time, at the offices of the Company, 551 Fifth Avenue, New York, New York 10176. (b) The following individuals were nominated for election as members of the Board of Directors to hold office for a term of one (1) year until the next annual meeting of stockholders and until their successors are elected and qualify: Jean Madar, Philippe Benacin, Russell Greenberg, Francois Heilbronn, Joseph A. Caccamo, Jean Levy, Robert Bensoussan-Torres, Daniel Piette, Jean Cailliau, Philippe Santi and Serge Rosinoer. Page 14
INTER PARFUMS, INC. AND SUBSIDIARIES The results of the voting to elect the foregoing persons, on a pre split basis, were as follows: - ------------------------------------------------------------------------- Votes For Votes Withheld - ------------------------------------------------------------------------- Jean Madar 10,588,632 1,061,900 - ------------------------------------------------------------------------- Philippe Benacin 10,588,632 1,061,900 - ------------------------------------------------------------------------- Russell Greenberg 10,588,632 1,061,900 - ------------------------------------------------------------------------- Francois Heilbronn 10,651,632 998,900 - ------------------------------------------------------------------------- Joseph A. Caccamo 10,651,632 998,900 - ------------------------------------------------------------------------- Jean Levy 10,651,632 998,900 - ------------------------------------------------------------------------- Robert Bensoussan-Torres 10,651,632 998,900 - ------------------------------------------------------------------------- Daniel Piette 10,651,632 998,900 - ------------------------------------------------------------------------- Jean Cailliau 10,651,632 998,900 - ------------------------------------------------------------------------- Philippe Santi 10,588,632 1,061,900 - ------------------------------------------------------------------------- Serge Rosinoer 10,651,632 998,900 - ------------------------------------------------------------------------- A plurality of the votes having been cast in favor of each of the above-named Directors, they were duly elected to serve a one (1) year term. (c) (i) The final item on the agenda was a proposal to ratify the adoption of the Company's 2000 Nonemployee Director Stock Option Plan. The results of the voting on such resolution, on a pre split basis, were as follows: --------------------------------------------- 10,414,337 votes for the resolution --------------------------------------------- 1,232,070 votes against --------------------------------------------- 4,125 votes abstained --------------------------------------------- A majority of the outstanding shares were cast for the above referenced resolution, and the resolution was duly passed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 7th day of November 2001. INTER PARFUMS, INC. By: /s/ RUSSELL GREENBERG ------------------------------- Russell Greenberg, Executive Vice President and Chief Financial Officer Page 15