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, 2000. 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 issuers classes of common stock, as of the latest practicable date. At August 5, 2000 there were 11,754,002 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, 2000 (unaudited) and December 31, 1999 (audited) 2 Consolidated Statements of Income for the Three Month and Six Month Periods Ended June 30, 2000 (unaudited) and June 30, 1999 (unaudited) 3 Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2000 (unaudited) and June 30, 1999 (unaudited) 4 Notes to Unaudited Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 16
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, 1999 included in the Company's annual report filed on Form 10-K. The results of operations for the six months ended June 30, 2000 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 <TABLE> <CAPTION> ASSETS June 30, December 31, 2000 1999 ------------------ ------------------ <S> <C> <C> Current assets: Cash and cash equivalents $ 25,016,988 $ 24,936,361 Marketable securities 1,904,790 4,424,043 Accounts receivable, net 26,273,927 26,032,673 Inventories 27,306,126 19,450,212 Receivables, other 979,231 874,829 Other 1,768,065 1,168,480 Deferred tax benefit 943,498 858,035 ------------------ ------------------ Total current assets 84,192,625 77,744,633 Equipment and leasehold improvements, net 3,357,505 3,126,162 Other assets 504,621 508,184 Intangible assets, net 5,256,465 5,843,720 ------------------ ------------------ $ 93,311,216 $ 87,222,699 ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable, banks $ 3,178,810 $ 786,217 Accounts payable 20,480,011 18,449,190 Accrued expenses 6,058,160 4,351,536 Income taxes payable 385,893 768,940 Deferred taxes payable 937,678 987,654 ------------------ ------------------ Total current liabilities 31,040,552 25,343,537 ------------------ ------------------ Long-term debt, less current portion 1,451,379 1,531,394 ------------------ ------------------ Minority interests 7,958,345 7,988,208 ------------------ ------------------ Shareholders' equity: Common stock, $.001 par; authorized 30,000,000 shares; outstanding 11,754,002 and 11,832,721 shares at June 30, 2000 and December 31, 1999, respectively 11,754 11,833 Additional paid-in capital 26,654,336 26,518,082 Retained earnings 55,008,509 52,078,296 Accumulated other comprehensive income (6,054,545) (4,289,854) Treasury stock, at cost, 5,506,805 and 5,392,805 shares at June 30, 2000 and December 31, 1999, respectively (22,759,114) (21,958,797) ------------------ ------------------ 52,860,940 52,359,560 ------------------ ------------------ $ 93,311,216 $ 87,222,699 ================== ================== </TABLE> See notes to financial statements. Page 2
INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------------ ------------------ ------------------ ------------------ <S> <C> <C> <C> <C> Net sales $ 24,277,090 $ 22,192,297 $ 46,445,604 $ 41,775,848 Cost of sales 12,540,957 11,740,839 24,785,777 21,839,870 ------------------ ------------------ ------------------ ------------------ Gross margin 11,736,133 10,451,458 21,659,827 19,935,978 Selling, general and administrative 9,199,843 8,259,920 16,665,935 15,393,889 Litigation expense 556,043 556,043 ------------------ ------------------ ------------------ ------------------ Income from operations 1,980,247 2,191,538 4,437,849 4,542,089 ------------------ ------------------ ------------------ ------------------ Other charges (income): Interest 104,481 83,620 162,386 189,472 (Gain) loss on foreign currency (18,671) 48,342 20,486 116,806 Interest and dividend (income) (283,794) (145,925) (511,782) (345,260) Loss on sale of stock of subsidiary, net 10,243 26,214 10,243 26,214 Realized (gain) on sale of investments (1,077,110) (1,577,261) ------------------ ------------------ ------------------ ------------------ (1,264,851) 12,251 (1,895,928) (12,768) ------------------ ------------------ ------------------ ------------------ Income before income taxes 3,245,098 2,179,287 6,333,777 4,554,857 Income taxes 1,393,220 845,704 2,806,549 1,823,660 ------------------ ------------------ ------------------ ------------------ Net income before minority interest 1,851,878 1,333,583 3,527,228 2,731,197 Minority interest in net income of consolidated subsidiary 344,003 249,593 597,015 490,277 ------------------ ------------------ ------------------ ------------------ Net income $ 1,507,875 $ 1,083,990 $ 2,930,213 $ 2,240,920 ================== ================== ================== ================== Net income per common share: Basic $0.13 $0.10 $0.25 $0.20 Diluted $0.12 $0.09 $0.23 $0.19 ================== ================== ================== ================== Number of common shares outstanding: Basic 11,754,490 11,149,728 11,760,787 11,491,145 Diluted 13,026,453 11,784,033 12,975,711 11,873,435 ================== ================== ================== ================== </TABLE> See notes to financial statements. Page 3
INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Six months ended June 30, 2000 1999 ---------------- ------------------ <S> <C> <C> Operating activities: Net income $ 2,930,213 $ 2,240,920 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,019,675 788,777 Realized (gain) on sale of marketable securities (1,577,261) Loss on sale of stock of subsidiary 10,243 26,214 Minority interest in net income 597,015 490,277 Increase (decrease) in cash from changes in: Accounts receivable (1,263,368) (754,800) Inventories (8,659,074) 583,967 Other assets (812,136) (271,490) Accounts payable and accrued expenses 4,769,727 23,478 Income taxes payable (129,377) (1,495,646) ---------------- ------------------ Net cash provided by (used in) operating activites (3,114,343) 1,631,697 ---------------- ------------------ Investing activities: Purchase of equipment and leasehold improvements (1,001,751) (364,352) Trademark and license acquisitions (950) (336,001) Purchase of marketable securities (1,895,083) Sale of marketable securities 4,992,684 ---------------- ------------------ Net cash provided by (used in) investing activities 2,094,900 (700,353) ---------------- ------------------ Financing activities: Increase in loan payable, bank 2,450,337 1,464,892 Proceeds from sale of stock of subsidiary 27,802 31,192 Proceeds from exercise of stock options 136,250 23,000 Dividends paid (134,543) (92,371) Purchase of treasury stock (800,392) (6,760,696) ---------------- ------------------ Net cash provided by (used in) financing activities 1,679,454 (5,333,983) ---------------- ------------------ Effect of exchange rate changes on cash (579,384) (1,261,842) ---------------- ------------------ Increase (decrease) in cash and cash equivalents 80,627 (5,664,481) Cash and cash equivalents at beginning of period 24,936,361 23,355,915 ---------------- ------------------ Cash and cash equivalents at end of period $ 25,016,988 $ 17,691,434 ================ ================== Supplemental disclosure of cash flows information: Cash paid during the period for: Interest $ 197,000 $ 189,000 Income taxes 2,262,000 3,116,000 </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, 1999. 2. Comprehensive Income: <TABLE> <CAPTION> Six months ended Six months ended June 30, 2000 June 30, 1999 ---------------- ----------------- <S> <C> <C> Comprehensive income: Net income $ 2,930,213 $ 2,240,920 Other comprehensive income, net of tax: Foreign currency translation adjustment (1,383,951) (3,100,031) Unrealized gains on securities: Unrealized holding gains arising during period 347,954 Less: reclassification adjustment for gains realized in net income ( 728,694) ---------- ---------- Comprehensive income $ 1,165,522 $( 859,111) ========== ========== </TABLE> 3. Geographic areas: Segment information related to domestic and foreign operations is as follows: <TABLE> <CAPTION> Six months ended Six months ended June 30, 2000 June 30, 1999 ---------------- ----------------- <S> <C> <C> Net sales: United States $ 15,362,350 $ 12,332,884 Europe 31,143,254 29,492,964 Eliminations ( 60,000) ( 50,000) ----------- ----------- $ 46,445,604 $ 41,775,848 =========== =========== Net Income: United States $ 840,258 $ 453,401 Europe 2,094,088 1,824,894 South America ( 4,133) ( 37,375) ----------- ----------- $ 2,930,213 $ 2,240,920 =========== =========== </TABLE> 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> June 30, 2000 December 31, 1999 ------------- ----------------- <S> <C> <C> Raw materials and component parts $ 10,202,871 $ 8,239,528 Finished goods 17,103,255 11,210,684 ------------ ------------- $ 27,306,126 $ 19,450,212 ============ ============= </TABLE> 6. Shareholders' Equity: In May 2000, the Company's Board of Directors authorized a 3 for 2 stock split for shareholders' of record on June 1, 2000, payable June 15, 2000. The effect of the stock split has been retroactively reflected in the accompanying financial statements. 7. Income taxes: Income taxes for the six months ended June 30, 2000 includes a $470,000 addition to the accrual, originally established in 1999, to cover the potential exposure related to a tax audit of Inter Parfums, S.A. commenced by the French Tax Authorities. The original accrual of $260,000 was established to cover an estimate of potential exposure based on an assessment issued by the French Tax Authorities for the 1996 tax year. This additional accrual covers, what we believe could be our exposure for the 1997 and 1998 tax years on issues similar to that of the 1996 tax year. 8. Litigation: As previously reported, Inter Parfums, S.A., the Company's majority owned French subsidiary is a party to litigation with Jean Charles Brosseau, S.A. ("Brosseau"), the licensor of the Ombre Rose trademark. The licensor has claimed damages of approximately $7.0 million and is seeking termination of the license agreement. Page 6
INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Unaudited Financial Statements 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. The payment of the judgment has been stayed, and Inter Parfums, S.A. can continue to operate under the license agreement during the appeal process. In June 2000, the president of the Court of Appeal granted a petition filed by Brosseau regarding ongoing payments for minimum royalties due to Brosseau. In the same intermediary judgment, the president of the Court of Appeal rejected Inter Parfums, S.A.'s request for the appointment of a new judicial expert. Such request was made by Inter Parfums, S.A. to refute the findings of the judicial expert originally appointed by the Commercial Court which resulted in the $600,000 judgement against the Inter Parfums, S.A. As a result of these further developments, Inter Parfums, S.A. and its special litigation counsel consider it likely that the judgment will be sustained and has therefore taken a charge against earnings for $600,000, the full amount of the judgment. Inter Parfums, S.A. will continue its appeal as it still denies the claims of Brosseau as well as the findings of the judicial expert originally appointed by the Commercial Court. Management does not believe that such litigation will have any further material adverse effect on the financial condition or operations of the Company. In 1999 the Company had set up a reserve of approximately $275,000 against the unamortized portion of the license agreement. After such reserve the remaining unamortized portion of the license agreement is approximately $234,000 as of June 30, 2000. Page 7
INTER PARFUMS, INC. AND SUBSIDIARIES Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our Company is 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 specialize in the production of both prestige fragrances and mass market fragrances and cosmetics: O Prestige products -- For each prestige brand, owned or licensed, 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 and mass market cosmetics. Three and Six Months Ended June 30, 2000 as Compared to the Three and Six Months Ended June 30, 1999 Net sales for the three months ended June 30, 2000 increased 9% to $24.3 million, as compared to $22.2 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 20% for the period. Net sales for the six months ended June 30, 2000 increased 11% to $46.4 million, as compared to $41.8 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 21% for the period. The increase in net sales represents the third consecutive quarter of revenue growth and is attributable to across-the-board increases in both our prestige and mass market product lines. The precipitous rise of the US dollar relative to the French franc masks the reality of our real revenue growth rate. Growth in net sales of prestige products, which was up approximately 20% in constant dollars for the six months ended June 30, 2000, was fueled in part by the tremendous success of the launch of our S.T. Dupont "Signature" line. Our "Signature" line, was designed around the theme of writing, for which S.T. Dupont is famous, and is a perfect complement to our S.T. Dupont "Paris" fragrance line. Page 8
INTER PARFUMS, INC. AND SUBSIDIARIES The introduction of our first Paul Smith fragrance line, and our newest Burberry offering are scheduled to roll out in the third and fourth quarter making the remainder of 2000 look very favorable for revenue growth. Management believes that a better than 20% constant dollar growth rate can be maintained throughout the remainder of this year as a result of the strong market conditions we are experiencing with existing products and all the new product offerings we have planned. Net sales of mass market products achieved a 25% growth rate for the six months ended June 30, 2000 as compared to the corresponding period of the prior year. For three straight quarters we have been able to capitalize on the economic recoveries of certain Latin American countries. Sales growth from our wide selection of mass market fragrances continue to exceed our expectations. Our new Aziza II line of eye shadow kits, mascaras, colorful lip gloss products and pencils have also achieved widespread acceptance and reorders with distribution in over 12,000 doors. As a result, we are expanding our product offerings to include liquid eyeliners, liquid lipsticks as well as a coordinating lipstick and nail polish duo. These new products which have also been created primarily for the "Discount Store" market, will be available in time for the Christmas selling season. Growing sales within existing product lines, new product launches and an active new business development program is how we plan to continue to grow our business. With respect to new business development, our company has been very active. In May, we announced the signing of an exclusive worldwide license agreement with CELINE for the development of a perfume line. Celine, a division of LVMH Moet Hennessy Louis Vuitton S.A., is a French fashion and accessory company known throughout the world for its luxury and quality products, as well as the unique designs of Michael Kors. We will commence distributing Magic, Celine's existing fragrance line, beginning January 1, 2001. Two new fragrance lines will be created and a launch is planned for late 2001. In June, we announced the signing of an exclusive worldwide license agreement with FUBU for the development of a perfume line. FUBU, founded in 1992, exploded onto the young men's fashion scene. Music, movie, television and sport stars have worn the designs all recognizable by the FUBU logos. Today, FUBU product sales exceed $350 million, and encompass men's sportswear-formalwear, ladies, and children's apparel, as well as footwear and accessory items. The exposure FUBU has received has helped to create a loyal brand following from ages 5-55 in both the U.S. and abroad. Today's FUBU customers are both men and women, living in big cities and small towns, and encompass many diverse ethnic, racial and cultural backgrounds which creates a unique opportunity for a fragrance line. We expect the first FUBU fragrance products will be ready for launch in late 2001. Page 9
INTER PARFUMS, INC. AND SUBSIDIARIES Gross profit margin was 48% and 47% of net sales for the three and six month periods ended June 30, 2000, respectively, as compared to 47% and 48% for the three and six month periods ended June 30, 1999, respectively. Our target gross margin percentage has historically been 45% to 46%. Gross profit margins have remained relatively constant for the past two years and fluctuate mildly as a result of sales mix. However, the Company has seen some gross profit margin improvement as a result of the strength of the US dollar relative to the French franc, as certain European sales are denominated in US dollars. Selling, general and administrative expenses aggregated $9.2 million for the three months ended June 30, 2000, as compared to $8.3 million for the corresponding period of the prior year. As a percentage of sales, selling, general and administrative expenses was 38% for the three months ended June 30, 2000, as compared to 37% for the corresponding period of the prior year. Selling, general and administrative expenses aggregated $16.7 million for the six months ended June 30, 2000, as compared to $15.4 million for the corresponding period of the prior year. As a percentage of sales, selling, general and administrative expenses was 36% for the six months ended June 30, 2000, as compared to 37% for the corresponding period of the prior year. In the United States, selling, general and administrative expenses were $2.3 million for the three months ended June 30, 2000, as compared to $2.1 million for the corresponding period of the prior year. As a percentage of sales, selling, general and administrative expenses declined to 31% for the three months ended June 30, 2000, as compared to 35% for the corresponding period of the prior year. We continue to experience the benefit of cost cutting initiatives put into place in 1999. We are well positioned to grow our sales without incurring significant increases in selling, general and administrative expenses. Selling, general and administrative expenses incurred by our French subsidiary Inter Parfums, S.A. were $6.9 million for the three months ended June 30, 2000, as compared to $6.2 million for the corresponding period of the prior year. As a percentage of sales, selling, general and administrative expenses aggregated 41% of sales for the three months ended June 30, 2000, as compared to 38% for the corresponding period of the prior year. Our existing prestige product lines together with the complete calender of new product launches planned for this year, require a reasonable level of advertising to support their growth and to build upon each brand's awareness. As previously reported, Inter Parfums, S.A., is a party to litigation with Jean Charles Brosseau, S.A. ("Brosseau"), the licensor of the Ombre Rose trademark. The licensor has claimed damages of approximately $7.0 million and is seeking termination of the license agreement. Page 10
INTER PARFUMS, INC. AND SUBSIDIARIES 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. The payment of the judgment has been stayed, and Inter Parfums, S.A. can continue to operate under the license agreement during the appeal process. In June 2000, the president of the Court of Appeal granted a petition filed by Brosseau regarding ongoing payments for minimum royalties due to Brosseau. In the same intermediary judgment, the president of the Court of Appeal rejected Inter Parfums, S.A.'s request for the appointment of a new judicial expert. Such request was made by Inter Parfums, S.A. to refute the findings of the judicial expert originally appointed by the Commercial Court which resulted in the $600,000 judgement against the Inter Parfums, S.A. As a result of these further developments, Inter Parfums, S.A. and its special litigation counsel consider it likely that the judgment will be sustained and has therefore taken a charge against earnings for $600,000, the full amount of the judgment. Inter Parfums, S.A. will continue its appeal as it still denies the claims of Brosseau as well as the findings of the judicial expert originally appointed by the Commercial Court. Management does not believe that such litigation will have any further material adverse effect on the financial condition or operations of the Company. In 1999 the Company had set up a reserve of approximately $275,000 against the unamortized portion of the license agreement. After such reserve the remaining unamortized portion of the license agreement is approximately $234,000 as of June 30, 2000. During the three month period ended June 30, 2000 we sold a portion of our investment in marketable securities and realized a gain of $1.1 million ($500,000 after taxes and minority interest). For the six month period ended June 30, 2000 such gain aggregated $1.5 million ($700,000 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. Page 11
INTER PARFUMS, INC. AND SUBSIDIARIES Our effective income tax rate was 43% for the three months ended June 30, 2000, as compared to 39% for the corresponding period of the prior year. Our effective income tax rate was 44% for the six months ended June 30, 2000, as compared to 40% for the corresponding period of the prior year. The effective tax rate for the three and six month periods ended June 30, 2000 includes a $150,000 ($115,000 after minority interest) and $480,000 ($370,000 after minority interest), respectively, addition to an accrual, originally established in 1999, to cover the potential exposure related to a tax audit of Inter Parfums, S.A. commenced by the French Tax Authorities. The original accrual of $260,000 was established to cover, what we believed to be, our exposure based on an assessment issued by the French Tax Authorities for the 1996 tax year. This additional accrual covers, what we believe could be our exposure for the 1997 and 1998 tax years on issues similar to that of the 1996 tax year. Net income increased 39% to $1.5 million for the three months ended June 30, 2000, as compared to $1.1 million for the corresponding period of the prior year. Net income for the three months ended June 30, 2000 includes charges of $375,000 and a gain of $495,000, 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 $115,000. The gain represents a realized gain on sale of marketable securities. Excluding the effects of these charges and the gain, net income increased 27% to $1.4 million for the three months ended June 30, 2000. Net income increased 31% to $2.9 million for the six months ended June 30, 2000, as compared to $2.2 million for the corresponding period of the prior year. Net income for the six months ended June 31, 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. Excluding the effects of these charges and the gain, net income increased 26% to $2.8 million for the six months ended June 30, 2000. Diluted earnings per share increased 33% to $0.12 for the three months ended June 30, 2000, as compared to $0.09 for the corresponding period of the prior year. Excluding the effects of the charges and the gain, referred to above, diluted earnings per share increased 22% to $0.11 for the three months ended June 30, 2000. Diluted earnings per share increased 21% to $0.23 for the six months ended June 30, 2000, as compared to $0.19 for the corresponding period of the prior year. Excluding the effects of the charges and the gain, referred to above, diluted earnings per share increased 16% to $0.22 for the six months ended June 30, 2000. Page 12
INTER PARFUMS, INC. AND SUBSIDIARIES After giving effect to the recent 3 for 2 stock split, weighted average shares outstanding aggregated 11.8 million for both the three and six month periods ended June 30, 2000, as compared to 11.1 million and 11.5 million for the three and six month periods ended June 30, 1999, respectively. On a diluted basis, average shares outstanding were 13.0 million for both the three and six month periods ended June 30, 2000, as compared to 11.8 million and 11.9 million for the three and six month periods ended June 30, 1999, respectively. Shares issued upon exercise of options were offset by shares repurchased pursuant to our stock repurchase program. The increase in our stock price has increased the dilutive effect of outstanding stock options, thereby increasing diluted shares outstanding. Liquidity and Capital Resources Profitable operating results continues to strengthen our financial position. At June 30, 2000, working capital aggregated $53 million and we had a working capital ratio of almost 3 to 1. Cash and marketable securities on hand aggregated $27 million and our net book value was $4.50 per outstanding share as of June 30, 2000. Furthermore, we had only $1.5 million in long-term debt. We recently used a portion of our cash to make an investment 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. This investment was made to maximize our return on cash. During the six months ended June 30, 2000, we continued our stock repurchase program by acquiring 114,000 of our common shares at an average cost of $7.02 per share. Our 77% owned publically traded French subsidiary, Inter Parfums, S.A., has a current market cap of in excess of $130 million, which exceeds that of the Company. Considering the Market cap of Inter Parfums, S.A. and the Company's recent growth trends, management is of the opinion that the current market price of the Company's common shares understates its real value. The Company's short-term financing requirements are expected to be met by available cash at June 30, 2000, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2000 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. Page 13
INTER PARFUMS, INC. AND SUBSIDIARIES During the six month period ended June 30, 2000 the Company used $3.1 million in cash for operating activities, as compared to $1.6 million which was provided by operating activities during the six month period ended June 30, 1999. This cash was used primarily to build up inventory for the upcoming launches of our Paul Smith fragrance line and our new Burberry "Touch" fragrance line. Management of the Company believes that funds generated from operations, supplemented by its present cash position and available credit facilities, will provide it 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 the Company's consolidated financial statements. Inflation rates in the U.S. and foreign countries in which the Company operates have not had a significant impact on operating results for the six months ended June 30, 2000. Statements included herein 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. Such factors include changes in product acceptance by consumers, effectiveness of sales and marketing efforts, currency fluctuations and competition. Given these uncertainties, persons are cautioned not to place undue reliance on the forward looking statements. Part II. Other Information Items 2, 3 and 5 are omitted as they are either not applicable or have been included in Part I. Item 1. Legal Proceedings See Notes 7 and 8 in Notes to Unaudited Financial Statements included in Part I. Page 14
INTER PARFUMS, INC. AND SUBSIDIARIES 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 12 July 2000 at 10:00 a.m., local time, at the offices of the Company, 551 Fifth Avenue, New York, New York 10176. The following information does not give effect to the 3 for 2 stock split effected after the record date for the annual meeting. (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 and Philippe Santi. The results of the voting were as follows: 6,388,580 votes were cast for each director, and 629,700 votes were withheld from each director. 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 adopt an amendment to the Company's Restated Certificate of Incorporation, to provide for unanimous board voting in certain circumstances. The results of the voting on such resolution were as follows: 5,867,697 votes for the resolution, 793,423 votes against and 3,050 votes abstained. A majority of the outstanding shares were cast for the above referenced resolution, and the resolution was duly passed. Page 15
INTER PARFUMS, INC. AND SUBSIDIARIES Item 6. Exhibits and Reports on Form 8-K (a) The following document is filed herewith: Exhibit No. and Description 3.1(e) Amendment to the Company's Restated Certificate of Incorporation, as amended, dated July 12, 2000 (b) The Company filed the following reports on Form 8-K: - ------------------------------------------------------------------------------- Report Date of Event Items Reported - ------------------------------------------------------------------------------- Form 8-K 18 May 2000 5,7 - ------------------------------------------------------------------------------- Form 8-K/A no. 1 18 May 2000 7 - ------------------------------------------------------------------------------- Form 8-K 23 June 2000 5,7 - ------------------------------------------------------------------------------- Form 8-K/A no. 1 23 June 2000 7 - ------------------------------------------------------------------------------- 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 10th day of August 2000. INTER PARFUMS, INC. By: /s/ Russell Greenberg --------------------------------------------- Russell Greenberg, Executive Vice President and Chief Financial Officer Page 16