Item
1.
Financial Statements
In
our opinion, the accompanying unaudited consolidated 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 (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles
generally accepted in the United States of America. In preparing these consolidated financial statements, the Company has evaluated
events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued
by filing with the SEC. These financial statements should be read in conjunction with our audited financial statements for the
year ended December 31, 2016 included in our annual report filed on Form 10-K.
The
results of operations for the six months ended June 30, 2017 are not necessarily indicative of the results to be expected for
the entire fiscal year.
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands except share and per share data)
(Unaudited)
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
ASSETS
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
116,772
|
|
|
$
|
161,828
|
|
Short-term investments
|
|
|
123,805
|
|
|
|
94,202
|
|
Accounts receivable, net
|
|
|
119,364
|
|
|
|
104,819
|
|
Inventories
|
|
|
136,909
|
|
|
|
96,977
|
|
Receivables, other
|
|
|
1,810
|
|
|
|
7,433
|
|
Other current assets
|
|
|
10,246
|
|
|
|
6,240
|
|
Income tax receivable
|
|
|
765
|
|
|
|
626
|
|
Total current assets
|
|
|
509,671
|
|
|
|
472,125
|
|
|
|
|
|
|
|
|
|
|
Equipment and leasehold improvements, net
|
|
|
10,370
|
|
|
|
10,076
|
|
|
|
|
|
|
|
|
|
|
Trademarks, licenses and other intangible assets, net
|
|
|
195,596
|
|
|
|
183,868
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
8,649
|
|
|
|
8,090
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
8,184
|
|
|
|
8,250
|
|
Total assets
|
|
$
|
732,470
|
|
|
$
|
682,409
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
23,262
|
|
|
$
|
21,498
|
|
Accounts payable – trade
|
|
|
67,456
|
|
|
|
49,507
|
|
Accrued expenses
|
|
|
52,397
|
|
|
|
62,609
|
|
Income taxes payable
|
|
|
3,489
|
|
|
|
3,331
|
|
Dividends payable
|
|
|
5,299
|
|
|
|
5,293
|
|
Total current liabilities
|
|
|
151,903
|
|
|
|
142,238
|
|
Long-term debt, less current portion
|
|
|
45,881
|
|
|
|
53,064
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
4,286
|
|
|
|
3,449
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Inter Parfums, Inc. shareholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par;
authorized 1,000,000 shares; none issued
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $.001 par; authorized 100,000,000 shares; outstanding 31,171,908 and 31,138,318 shares at June 30, 2017 and December
31, 2016, respectively
|
|
|
31
|
|
|
|
31
|
|
Additional paid-in capital
|
|
|
64,196
|
|
|
|
63,103
|
|
Retained earnings
|
|
|
412,580
|
|
|
|
402,714
|
|
Accumulated other comprehensive loss
|
|
|
(33,406
|
)
|
|
|
(57,982
|
)
|
Treasury stock, at cost, 9,864,805 common shares at June 30, 2017 and December 31, 2016, respectively
|
|
|
(37,475
|
)
|
|
|
(37,475
|
)
|
Total Inter Parfums, Inc. shareholders’ equity
|
|
|
405,926
|
|
|
|
370,391
|
|
Noncontrolling interest
|
|
|
124,474
|
|
|
|
113,267
|
|
Total equity
|
|
|
530,400
|
|
|
|
483,658
|
|
Total liabilities and equity
|
|
$
|
732,470
|
|
|
$
|
682,409
|
|
See
notes to consolidated financial statements.
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands except per share data)
(Unaudited)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
129,136
|
|
|
$
|
117,157
|
|
|
$
|
272,194
|
|
|
$
|
228,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
45,193
|
|
|
|
42,729
|
|
|
|
98,181
|
|
|
|
82,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
83,943
|
|
|
|
74,428
|
|
|
|
174,013
|
|
|
|
145,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
69,468
|
|
|
|
62,969
|
|
|
|
133,367
|
|
|
|
116,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
14,475
|
|
|
|
11,459
|
|
|
|
40,646
|
|
|
|
28,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
727
|
|
|
|
693
|
|
|
|
999
|
|
|
|
1,666
|
|
(Gain) loss on foreign currency
|
|
|
817
|
|
|
|
(661
|
)
|
|
|
973
|
|
|
|
53
|
|
Interest income
|
|
|
(900
|
)
|
|
|
(602
|
)
|
|
|
(2,173
|
)
|
|
|
(1,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
644
|
|
|
|
(570
|
)
|
|
|
(201
|
)
|
|
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
13,831
|
|
|
|
12,029
|
|
|
|
40,847
|
|
|
|
29,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
4,620
|
|
|
|
4,300
|
|
|
|
13,469
|
|
|
|
12,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
9,211
|
|
|
|
7,729
|
|
|
|
27,378
|
|
|
|
17,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to the noncontrolling interest
|
|
|
2,467
|
|
|
|
1,898
|
|
|
|
7,261
|
|
|
|
4,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Inter Parfums, Inc.
|
|
$
|
6,744
|
|
|
$
|
5,831
|
|
|
$
|
20,117
|
|
|
$
|
13,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Inter Parfums, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
0.19
|
|
|
$
|
0.65
|
|
|
$
|
0.42
|
|
Diluted
|
|
$
|
0.22
|
|
|
$
|
0.19
|
|
|
$
|
0.64
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,169
|
|
|
|
31,055
|
|
|
|
31,157
|
|
|
|
31,047
|
|
Diluted
|
|
|
31,281
|
|
|
|
31,160
|
|
|
|
31,268
|
|
|
|
31,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
0.17
|
|
|
$
|
0.15
|
|
|
$
|
0.34
|
|
|
$
|
0.30
|
|
See
notes to consolidated financial statements.
INTER PARFUMS,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In
thousands except per share data)
(Unaudited)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,211
|
|
|
$
|
7,729
|
|
|
$
|
27,378
|
|
|
$
|
17,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative instrument gain, net of tax
|
|
|
279
|
|
|
|
—
|
|
|
|
621
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer from OCI into earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments, net of tax
|
|
|
27,529
|
|
|
|
(10,779
|
)
|
|
|
33,572
|
|
|
|
8,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
37,019
|
|
|
|
(3,050
|
)
|
|
|
61,593
|
|
|
|
25,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to the noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,467
|
|
|
|
1,898
|
|
|
|
7,261
|
|
|
|
4,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative instrument gain, net of tax
|
|
|
72
|
|
|
|
—
|
|
|
|
168
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer from OCI into earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments, net of tax
|
|
|
8,003
|
|
|
|
(2,806
|
)
|
|
|
9,466
|
|
|
|
2,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to the noncontrolling interests
|
|
|
10,542
|
|
|
|
(908
|
)
|
|
|
16,900
|
|
|
|
6,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Inter Parfums, Inc.
|
|
$
|
26,477
|
|
|
$
|
(2,142
|
)
|
|
$
|
44,693
|
|
|
$
|
18,835
|
|
See
notes to consolidated financial statements.
INTER
PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
(In
thousands)
(Unaudited)
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Common stock, beginning and end of period
|
|
$
|
31
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital, beginning of period
|
|
|
63,103
|
|
|
|
62,030
|
|
Shares issued upon exercise of stock options
|
|
|
625
|
|
|
|
402
|
|
Share based compensation
|
|
|
468
|
|
|
|
421
|
|
Sale of subsidiary shares to noncontrolling interest
|
|
|
—
|
|
|
|
(35
|
)
|
Additional paid-in capital, end of period
|
|
|
64,196
|
|
|
|
62,818
|
|
|
|
|
|
|
|
|
|
|
Retained earnings, beginning of period
|
|
|
402,714
|
|
|
|
388,434
|
|
Net income
|
|
|
20,117
|
|
|
|
13,165
|
|
Dividends
|
|
|
(10,598
|
)
|
|
|
(9,315
|
)
|
Share based compensation
|
|
|
347
|
|
|
|
—
|
|
Retained earnings, end of period
|
|
|
412,580
|
|
|
|
392,284
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, beginning of period
|
|
|
(57,982
|
)
|
|
|
(48,091
|
)
|
Foreign currency translation adjustment, net of tax
|
|
|
24,106
|
|
|
|
5,670
|
|
Transfer from other comprehensive income into earnings
|
|
|
17
|
|
|
|
—
|
|
Net derivative instrument gain, net of tax
|
|
|
453
|
|
|
|
—
|
|
Accumulated other comprehensive loss, end of period
|
|
|
(33,406
|
)
|
|
|
(42,421
|
)
|
|
|
|
|
|
|
|
|
|
Treasury stock, beginning and end of period
|
|
|
(37,475
|
)
|
|
|
(36,817
|
)
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest, beginning of period
|
|
|
113,267
|
|
|
|
110,800
|
|
Net income
|
|
|
7,261
|
|
|
|
4,012
|
|
Foreign currency translation adjustment, net of tax
|
|
|
9,466
|
|
|
|
2,443
|
|
Transfer from other comprehensive income into earnings
|
|
|
5
|
|
|
|
—
|
|
Net derivative instrument gain, net of tax
|
|
|
168
|
|
|
|
—
|
|
Share based compensation
|
|
|
254
|
|
|
|
—
|
|
Sale of subsidiary shares to noncontrolling interest
|
|
|
—
|
|
|
|
463
|
|
Dividends
|
|
|
(5,947
|
)
|
|
|
(4,863
|
)
|
Noncontrolling interest, end of period
|
|
|
124,474
|
|
|
|
112,855
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
$
|
530,400
|
|
|
$
|
488,750
|
|
See
notes to consolidated financial statements.
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,378
|
|
|
$
|
17,177
|
|
Adjustments to reconcile net income to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,683
|
|
|
|
4,705
|
|
Provision for doubtful accounts
|
|
|
248
|
|
|
|
197
|
|
Share based compensation
|
|
|
1,022
|
|
|
|
421
|
|
Deferred tax provision (benefit)
|
|
|
609
|
|
|
|
(862
|
)
|
Change in fair value of derivatives
|
|
|
(3,357
|
)
|
|
|
338
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(7,103
|
)
|
|
|
(4,460
|
)
|
Inventories
|
|
|
(32,591
|
)
|
|
|
(24,417
|
)
|
Other assets
|
|
|
734
|
|
|
|
(611
|
)
|
Accounts payable and accrued expenses
|
|
|
(1,925
|
)
|
|
|
3,633
|
|
Income taxes, net
|
|
|
(396
|
)
|
|
|
(2,021
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(10,698
|
)
|
|
|
(5,900
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of short-term investments
|
|
|
(25,018
|
)
|
|
|
(37,119
|
)
|
Proceeds from sale of short-term investments
|
|
|
4,328
|
|
|
|
5,576
|
|
Purchases of equipment and leasehold improvements
|
|
|
(1,419
|
)
|
|
|
(2,963
|
)
|
Payment for intangible assets acquired
|
|
|
(402
|
)
|
|
|
(370
|
)
|
Proceeds from sale of trademark
|
|
|
5,886
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(16,625
|
)
|
|
|
(34,876
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(10,679
|
)
|
|
|
(11,085
|
)
|
Proceeds from exercise of stock options
|
|
|
625
|
|
|
|
402
|
|
Proceeds from sale of shares of subsidiary
|
|
|
—
|
|
|
|
428
|
|
Dividends paid
|
|
|
(10,592
|
)
|
|
|
(8,691
|
)
|
Dividends paid to noncontrolling interest
|
|
|
(5,947
|
)
|
|
|
(4,863
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing activities
|
|
|
(26,593
|
)
|
|
|
(23,809
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
8,860
|
|
|
|
3,468
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(45,056
|
)
|
|
|
(61,117
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - beginning of period
|
|
|
161,828
|
|
|
|
176,967
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of period
|
|
$
|
116,772
|
|
|
$
|
115,850
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
896
|
|
|
$
|
1,100
|
|
Income taxes
|
|
|
10,905
|
|
|
|
13,985
|
|
See
notes to consolidated financial statements.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
|
1.
|
Significant
Accounting Policies:
|
The
accounting policies we follow are set forth in the notes to our financial statements included in our Form 10-K, which was filed
with the Securities and Exchange Commission for the year ended December 31, 2016. We also discuss such policies in Part I,
Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this Form 10-Q.
|
2.
|
Recent
Accounting Pronouncements:
|
In
August 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”)
to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statement of
cash flows, by adding or clarifying guidance on eight specific cash flow issues. This ASU is effective for annual and interim
periods beginning after December 15, 2017 and early adoption is permitted. We have evaluated the standard and determined that
there will be no material impact on our consolidated financial statements.
In
February 2016, the FASB issued an ASU which requires lessees to recognize lease assets and lease liabilities arising from operating
leases on the balance sheet. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018
using a modified retrospective approach, with early adoption permitted. We are currently evaluating the standard to determine
the impact of its adoption on our consolidated financial statements.
In
November 2015, the FASB issued an ASU that requires all deferred tax liabilities and assets to be classified as noncurrent on
the balance sheet. This ASU is effective for annual and interim reporting periods beginning after December 15, 2016. In January 2017, the Company
adopted the standard retrospectively, which resulted in reclassifications among accounts on the consolidated balance
sheet, but had no other impact on our results of operations, financial condition or cash flows. The effect of the adoption on
prior periods was a reclassification from current assets to noncurrent assets of approximately $8 million.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
In
May 2014, the FASB issued an ASU which superseded the most current revenue recognition requirements. This new revenue recognition
standard requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers in an amount
that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services. The new standard
also includes enhanced disclosure requirements. This guidance is effective for annual and interim reporting periods beginning
after December 15, 2017, with early adoption permitted for annual periods after December 31, 2016. We have evaluated the standard
and determined that there will be no material impact on our consolidated financial statements.
There
are no other recent accounting pronouncements issued but not yet adopted that would have a material effect on our consolidated
financial statements.
Inventories
consist of the following:
(In thousands)
|
|
June
30,
2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Raw
materials and component parts
|
|
$
|
50,015
|
|
|
$
|
36,821
|
|
Finished
goods
|
|
|
86,894
|
|
|
|
60,156
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
136,909
|
|
|
$
|
96,977
|
|
|
4.
|
Fair
Value Measurement:
|
The
following tables present our financial assets and liabilities that are measured at fair value on a recurring basis and are categorized
using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine
fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements at June 30, 2017
|
|
|
|
Total
|
|
|
Quoted
Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$
|
123,805
|
|
|
$
|
—
|
|
|
$
|
123,805
|
|
|
$
|
—
|
|
Foreign
currency forward exchange contracts accounted for using hedge accounting
|
|
|
2,452
|
|
|
|
|
|
|
|
2,452
|
|
|
|
|
|
Foreign
currency forward exchange contracts not accounted for using hedge accounting
|
|
|
123
|
|
|
|
—
|
|
|
|
123
|
|
|
|
—
|
|
|
|
$
|
126,380
|
|
|
$
|
—
|
|
|
$
|
126,380
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap
|
|
$
|
668
|
|
|
$
|
—
|
|
|
$
|
668
|
|
|
$
|
—
|
|
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
|
|
|
|
|
Fair
Value Measurements at December 31, 2016
|
|
|
|
Total
|
|
|
Quoted
Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$
|
94,202
|
|
|
$
|
—
|
|
|
$
|
94,202
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency forward exchange contracts accounted for using hedge accounting
|
|
$
|
181
|
|
|
$
|
—
|
|
|
$
|
181
|
|
|
$
|
—
|
|
Foreign
currency forward exchange contracts not accounted for using hedge accounting
|
|
|
418
|
|
|
|
—
|
|
|
|
418
|
|
|
|
—
|
|
Interest rate swap
|
|
|
908
|
|
|
|
—
|
|
|
|
908
|
|
|
|
—
|
|
|
|
$
|
1,507
|
|
|
$
|
—
|
|
|
$
|
1,507
|
|
|
$
|
—
|
|
The
carrying amount of cash and cash equivalents including money market funds, accounts receivable, other receivables, and accounts
payable and accrued expenses approximates fair value due to the short terms to maturity of these instruments. The carrying amount
of loans payable approximates fair value as the interest rates on the Company’s indebtedness approximate current market
rates. The fair value of the Company’s long-term debt was estimated based on the current rates offered to companies for
debt with the same remaining maturities and is approximately equal to its carrying value.
Foreign
currency forward exchange contracts are valued based on quotations from financial institutions and the value of interest rate
swaps are the discounted net present value of the swaps using third party quotes obtained from financial institutions.
|
5.
|
Derivative
Financial Instruments:
|
The
Company enters into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign
currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Before entering
into a derivative transaction for hedging purposes, it is determined that a high degree of initial effectiveness exists between
the change in value of the hedged item and the change in the value of the derivative instrument from movement in exchange rates.
High effectiveness means that the change in the cash flows of the derivative instrument will effectively offset the change in
the cash flows of the hedged item. The effectiveness of each hedged item is measured throughout the hedged period and is based
on the dollar offset methodology and excludes the portion of the fair value of the foreign currency forward exchange contract
attributable to the change in spot-forward difference which is reported in current period earnings. Any hedge ineffectiveness
is also recognized as a gain or loss on foreign currency in the income statement. For hedge contracts that are no longer deemed
highly effective, hedge accounting is discontinued and gains and losses accumulated in other comprehensive income are reclassified
to earnings. If it is probable that the forecasted transaction will no longer occur, then any gains or losses accumulated
in other comprehensive income are reclassified to current-period earnings.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
In
connection with the May 2015 Rochas brand acquisition, $108 million of the purchase price was paid in cash on the closing date and was
financed entirely through a 5-year term loan. As the payment at closing was due in dollars and we had planned to finance it with
debt in euro, the Company entered into foreign currency forward contracts to secure the exchange rate for the $108 million purchase
price at $1.067 per 1 euro. This derivative was designated and qualified as a cash flow hedge.
Gains
and losses in derivatives designated as hedges are accumulated in other comprehensive income (loss) and gains and losses in derivatives
not designated as hedges are included in (gain) loss on foreign currency on the accompanying income statements. Such gains and
losses were immaterial for both three month periods ended June 30, 2017 and 2016. For the six months ended June 30, 2017 and 2016,
interest expense includes a gain (loss) of $0.3 million and ($0.4) million, respectively, relating to the interest rate swap.
All
derivative instruments are reported as either assets or liabilities on the balance sheet measured at fair value. The valuation
of interest rate swaps resulted in a liability which is included in long-term debt on the accompanying balance sheets. The valuation
of foreign currency forward exchange contracts at June 30, 2017, resulted in an asset and is included in other current assets
on the accompanying balance sheet.
At
June 30, 2017, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S.
$50.4 million, GB £2.8 million and JPY ¥85.0 million which all have maturities of less than one year.
Accrued
expenses include approximately $14.7 million and $27.2 million in advertising liabilities as of June 30, 2017 and December 31,
2016, respectively.
The
Company maintains stock option programs for key employees, executives and directors. The plans, all of which have been approved
by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans typically
have a six-year term and vest over a four to five-year period. The fair value of shares vested for both the six months ended June 30,
2017 and 2016 aggregated $0.05 million. Compensation cost is recognized on a straight-line basis over the requisite service period
for the entire award. It is generally our policy to issue new shares upon exercise of stock options.
The
following table sets forth information with respect to nonvested options for the six month period ended June 30, 2017:
|
|
Number
of Shares
|
|
|
Weighted
Average Grant Date Fair Value
|
|
Nonvested
options – beginning of period
|
|
|
401,440
|
|
|
$
|
7.14
|
|
Nonvested options
granted
|
|
|
5,000
|
|
|
$
|
7.67
|
|
Nonvested
options vested or forfeited
|
|
|
(14,105
|
)
|
|
$
|
6.92
|
|
Nonvested
options – end of period
|
|
|
392,335
|
|
|
$
|
7.15
|
|
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Share
based payment expense decreased income before income taxes by $0.51 million and $1.02 million for the three and six months ended
June 30, 2017, respectively, as compared to $0.21 million and $0.42 million for the corresponding periods of the prior year. Share
based payment expense decreased income attributable to Inter Parfums, Inc. by $0.28 million and $0.56 million for the three and
six months ended June 30, 2017, respectively, as compared to $0.13 million and $0.25 million for the corresponding periods of
the prior year.
The
following table summarizes stock option information as of June 30, 2017:
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2017
|
|
|
684,540
|
|
|
$
|
26.94
|
|
Options granted
|
|
|
5,000
|
|
|
|
33.95
|
|
Options forfeited
|
|
|
(7,960
|
)
|
|
|
29.74
|
|
Options exercised
|
|
|
(33,590
|
)
|
|
|
18.62
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
|
647,990
|
|
|
$
|
27.39
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
|
|
|
255,655
|
|
|
$
|
24.94
|
|
Options available for future grants
|
|
|
1,082,615
|
|
|
|
|
|
As
of June 30, 2017, the weighted average remaining contractual life of options outstanding is 3.45 years (2.20 years for options
exercisable), the aggregate intrinsic value of options outstanding and options exercisable is $6.0 million and $3.0 million, respectively,
and unrecognized compensation cost related to stock options outstanding aggregated $2.4 million.
Cash
proceeds, tax benefits and intrinsic value related to stock options exercised during the six months ended June 30, 2017 and June
30, 2016 were as follows:
(In thousands)
|
|
June
30,
2017
|
|
|
June
30,
2016
|
|
|
|
|
|
|
|
|
Cash proceeds from stock
options exercised
|
|
$
|
625
|
|
|
$
|
402
|
|
Tax benefits
|
|
|
135
|
|
|
|
—
|
|
Intrinsic value of stock options exercised
|
|
|
600
|
|
|
|
233
|
|
The
weighted average fair values of the options granted by Inter Parfums, Inc. during the six months ended June 30, 2017 and 2016
were $7.67 and $6.50 per share, respectively, on the date of grant using the Black-Scholes option pricing model to calculate the
fair value of options granted.
The
assumptions used in the Black-Scholes pricing model for the periods ended June 30, 2017 and 2016 are set forth in the following
table:
|
|
June
30,
2017
|
|
|
June
30,
2016
|
|
|
|
|
|
|
|
|
Weighted
average expected stock-price volatility
|
|
|
29
|
%
|
|
|
33
|
%
|
Weighted average expected
option life
|
|
|
5 years
|
|
|
|
5 years
|
|
Weighted average risk-free
interest rate
|
|
|
2.0
|
%
|
|
|
1.42
|
%
|
Weighted average dividend
yield
|
|
|
2.1
|
%
|
|
|
2.2
|
%
|
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Expected
volatility is estimated based on historic volatility of the Company’s common stock. The expected term of the option is estimated
based on historic data. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the
option and the dividend yield reflects the assumption that the dividend payout as authorized by the Board of Directors would increase
as the earnings of the Company and its stock price increases.
In
September 2016, Interparfums SA, our 73% owned subsidiary in Paris, approved a plan to grant an aggregate of 15,100 shares of
its stock to employees with no performance condition requirement, and an aggregate of 133,000 shares to officers and managers,
subject to certain corporate performance conditions. The shares will be distributed in September 2019 so long as the individual
is employed by Interparfums SA at the time, and in the case of officers and managers, only to the extent that the performance
conditions have been met. Once distributed, the shares will be unrestricted and the employees will be permitted to trade their
shares.
The
fair value of the grant of €22.46 per share (approximately $25.00 per share) has been determined based on the quoted share
price of Interparfums SA shares as reported by the NYSE Euronext on the date of grant. The estimated number of shares to be distributed
of 137,381 has been determined taking into account employee turnover. The aggregate cost of the grant of €3.1 million (approximately
$3.4 million) will be recognized as compensation cost by Interparfums SA on a straight-line basis over the requisite three year
service period. For the six months ended June 30, 2017, $0.6 million of compensation cost has been recognized in connection with
this plan.
To
avoid dilution of the Company’s ownership of Interparfums SA, all shares to be distributed pursuant to this plan will be
pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA. As of December 31, 2016, 108,348 shares
have been acquired in the open market at an aggregate cost of $2.9 million, and such amount has been classified as an equity transaction
on the accompanying balance sheet. No additional shares were purchased during the six months ended June 30, 2017.
|
8
.
|
Net
Income Attributable to Inter Parfums, Inc. Common Shareholders:
|
Net
income attributable to Inter Parfums, Inc. per common share (“basic EPS”) is computed by dividing net income attributable
to Inter Parfums, Inc. by the weighted average number of shares outstanding. Net income attributable to Inter Parfums, Inc.
per share assuming dilution (“diluted EPS”), is computed using the weighted average number of shares outstanding,
plus the incremental shares outstanding assuming the exercise of dilutive stock options using the treasury stock method.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
The
reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:
(In thousands)
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Inter Parfums, Inc.
|
|
$
|
6,744
|
|
|
$
|
5,831
|
|
|
$
|
20,117
|
|
|
$
|
13,165
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
31,169
|
|
|
|
31,055
|
|
|
|
31,157
|
|
|
|
31,047
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
112
|
|
|
|
105
|
|
|
|
111
|
|
|
|
90
|
|
Denominator
for diluted earnings per share
|
|
|
31,281
|
|
|
|
31,160
|
|
|
|
31,268
|
|
|
|
31,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Inter Parfums, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
0.19
|
|
|
$
|
0.65
|
|
|
$
|
0.42
|
|
Diluted
|
|
|
0.22
|
|
|
|
0.19
|
|
|
|
0.64
|
|
|
|
0.42
|
|
Not
included in the above computations is the effect of antidilutive potential common shares which consist of outstanding options
to purchase 0.26 million shares and 0.34 million shares of common stock for the six months ended June 30, 2017 and 2016, respectively,
and 0.26 million and 0.27 million shares of common stock for the three months ended June 30, 2017 and 2016, respectively.
|
9.
|
Segment
and Geographic Areas:
|
The
Company manufactures and distributes one product line, fragrances and fragrance related products. The Company manages its business
in two segments, European based operations and United States based operations. The European assets are located, and operations
are primarily conducted, in France. Both European operations and United States operations primarily represent the sale of prestige
brand name fragrances. Information on our operations by geographical areas is as follows:
(In thousands)
|
|
Three months ended
June 30,
|
|
|
Six months ended
June
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
22,598
|
|
|
$
|
28,561
|
|
|
$
|
46,287
|
|
|
$
|
47,946
|
|
Europe
|
|
|
106,806
|
|
|
|
88,656
|
|
|
|
226,533
|
|
|
|
180,812
|
|
Eliminations
|
|
|
(268
|
)
|
|
|
(60
|
)
|
|
|
(626
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,136
|
|
|
$
|
117,157
|
|
|
$
|
272,194
|
|
|
$
|
228,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Inter Parfums,
Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
594
|
|
|
$
|
1,557
|
|
|
$
|
1,466
|
|
|
$
|
1,954
|
|
Europe
|
|
|
6,150
|
|
|
|
4,274
|
|
|
|
18,651
|
|
|
|
11,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,744
|
|
|
$
|
5,831
|
|
|
$
|
20,117
|
|
|
$
|
13,165
|
|
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
|
|
|
|
|
|
|
(In thousands)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
99,500
|
|
|
$
|
89,930
|
|
Europe
|
|
|
642,224
|
|
|
|
602,077
|
|
Eliminations
of investment in subsidiary
|
|
|
(9,254
|
)
|
|
|
(9,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
732,470
|
|
|
$
|
682,409
|
|
License
Renewal:
In
May 2017, the Company, through its majority owned Paris based subsidiary, Interparfums SA, renewed its license agreement for an
additional four years with Paul Smith for creation, development, and distribution of fragrance products through December 2021,
without any material changes in terms and conditions. Our initial 12-year license agreement with Paul Smith was signed in 1998,
and had previously been extended through December 31, 2017.
Buyout
of License:
In
December 2016, the Company reached an agreement with the Balmain brand calling for Balmain to buyout the Balmain license agreement,
effective December 31, 2016, in exchange for a payment aggregating $5.9 million. As a result of the buyout, the Company recognized
a gain of $4.7 million as of December 31, 2016, and received the buyout payment in May 2017. As of March 31, 2017, the three month
inventory sell-off period concluded and Balmain purchased all remaining inventory aggregating $1.4 million.
Settlement
with French Tax Authorities:
As
previously reported, the French Tax Authorities examined the 2012 tax return of Interparfums SA, and in August 2015 issued a $6.9
million tax adjustment. The main issues challenged by the French Tax Authorities related to the commission rate and royalty rate
paid to Interparfums Singapore Pte. and Interparfums (Suisse) SARL, respectively. Due to the subjective nature of the issues involved,
in April 2016, Interparfums SA reached an agreement in principle to settle the entire matter with the French Tax Authorities.
The settlement required Interparfums SA to pay a tax assessment of $1.9 million covering the issues for not only the 2012 tax
year, but also covering the issues for the tax years ended 2013 through 2015. The settlement also includes an agreement as to
future acceptable commission and royalty rates, which is not expected to have a significant impact on cash flow. The settlement,
which was finalized by the French Tax Authorities in the first quarter of 2017, was accrued in March 2016.
INTER
PARFUMS, INC. AND SUBSIDIARIES
|
Item
2:
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Forward
Looking Information
Statements
in this report which are not historical in nature are forward-looking statements. Although we believe that our plans, intentions
and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such plans, intentions
or expectations will be achieved. In some cases you can identify forward-looking statements by forward-looking words such as “anticipate,”
“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,”
“will” and “would” or similar words. You should not rely on forward-looking statements because actual events
or results may differ materially from those indicated by these forward-looking statements as a result of a number of important
factors. These factors include, but are not limited to, the risks and uncertainties discussed under the headings “Forward
Looking Statements” and “Risk Factors” in Inter Parfums’ annual report on Form 10-K for the fiscal year ended
December 31, 2016 and the reports Inter Parfums files from time to time with the Securities and Exchange Commission. Inter Parfums
does not intend to and undertakes no duty to update the information contained in this report.
Regulation
S-K Item 10(e)
Regulation
S-K Item 10(e), “Use of Non-GAAP Financial Measures in commission filings,” prescribes the conditions for use of non-GAAP
financial information in commission filings. Our reported results for the six months ended June 30, 2016, include a provision
of $1.9 million ($1.4 million net of noncontrolling interests) for income taxes resulting from a nonrecurring tax settlement.
Due to the significance of this transaction, as well as its nonrecurring nature, exclusion of such amount in the non-GAAP financial
measures provides a more complete disclosure and facilitates a more accurate comparison of current results to historic results.
Based upon the foregoing, we believe that our presentation of the non-GAAP financial information included on page 27 of this Form
10-Q is an important supplemental measure of operating performance to investors.
Overview
We
operate in the fragrance business, and manufacture, market and distribute a wide array of fragrances and fragrance related products.
We manage our business in two segments, European based operations and United States based operations. Certain prestige fragrance
products are produced and marketed by our European operations through our 73% owned subsidiary in Paris, Interparfums SA, which
is also a publicly traded company as 27% of Interparfums SA shares trade on the NYSE Euronext.
We
produce and distribute our European based fragrance products primarily under license agreements with brand owners, and European
based fragrance product sales represented approximately 83% and 79% of net sales for the six months ended June 30, 2017 and 2016,
respectively. We have built a portfolio of prestige brands, which include
Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Lanvin,
Montblanc, Paul Smith, S.T. Dupont, Repetto, Rochas
and
Van Cleef & Arpels
, whose products are distributed in over
100 countries around the world.
INTER
PARFUMS, INC. AND SUBSIDIARIES
With
respect to our largest brands, we own the Lanvin brand name for its class of trade, and license the Montblanc and Jimmy Choo brand
names; for the six months ended June 30, 2017, sales of product for these brands represented 12%, 23%, and 22% of net sales, respectively.
Through
our United States operations, we also market fragrance and fragrance related products. United States operations represented 17%
and 21% of net sales for the six months ended June 30, 2017 and 2016, respectively. These fragrance products are sold primarily
pursuant to license or other agreements with the owners of the
Abercrombie & Fitch, Agent Provocateur, Anna Sui, bebe,
Dunhill, French Connection, Hollister, Oscar de la Renta,
and
Shanghai Tang
brands.
Quarterly
sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season.
In certain markets where we sell directly to retailers, seasonality is more evident. We sell directly to retailers in France as
well as through our own distribution subsidiaries in Italy, Germany, Spain and the United States.
We
grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses or other
arrangements or out-right acquisitions of brands. Second, we grow through the introduction of new products and by supporting new
and established products through advertising, merchandising and sampling as well as phasing out existing products that no longer
meet the needs of our consumers. The economics of developing, producing, launching and supporting products influence our
sales and operating performance each year. Our introduction of new products may have some cannibalizing effect on sales
of existing products, which we take into account in our business planning.
Our
business is not capital intensive, and it is important to note that we do not own manufacturing facilities. We act as a general
contractor and source our needed components from our suppliers. These components are received at one of our distribution centers
and then, based upon production needs, the components are sent to one of several third party fillers, which manufacture the finished
product for us and then deliver them to one of our distribution centers.
As
with any global business, many aspects of our operations are subject to influences outside our control. We believe we have a strong
brand portfolio with global reach and potential. As part of our strategy, we plan to continue to make investments behind fast-growing
markets and channels to grow market share.
For
the past several years, the economic and political uncertainty and financial market volatility in Eastern Europe, the Middle East
and China had a minor negative impact on our business, and at this time we do not believe it will significantly affect our overall
business for the foreseeable future. However, if the degree of uncertainty or volatility worsens or is prolonged, then there will
likely be a negative effect on ongoing consumer confidence, demand and spending and accordingly, our business. We believe general
economic and other uncertainties still exist in select markets in which we do business, and we monitor these uncertainties and
other risks that may affect our business.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Our
reported net sales are impacted by changes in foreign currency exchange rates. A strong U.S. dollar has a negative impact on our
net sales. However, earnings are positively affected by a strong dollar, because almost 45% of net sales of our European operations
are denominated in U.S. dollars, while almost all costs of our European operations are incurred in euro. Our Company addresses
certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. We
primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange
rates. We are also carefully monitoring currency trends in the United Kingdom as a result of the volatility created from
the United Kingdom’s decision to exit the European Union. We have evaluated our current pricing models and currently we
do not expect any significant pricing changes. However, if the devaluation of the British Pound worsens, it may affect future
gross profit margins from sales in that territory.
Recent
Important Events
License
Renewal
In
May 2017, the Company, through its majority owned Paris based subsidiary, Interparfums SA, renewed its license agreement for an
additional four years with Paul Smith for creation, development, and distribution of fragrance products through December 2021,
without any material changes in terms and conditions. Our initial 12-year license agreement with Paul Smith was signed in 1998,
and had previously been extended through December 31, 2017.
Buyout
of License
In
December 2016, the Company reached an agreement with the Balmain brand calling for Balmain to buyout the Balmain license agreement,
effective December 31, 2016, in exchange for a payment aggregating $5.7 million. As a result of the buyout, the Company recognized
a gain of $4.7 million as of December 31, 2016, and received the buyout payment in May 2017. As of March 31, 2017, the three month
inventory sell-off period concluded and Balmain purchased all remaining inventory aggregating $1.4 million.
Settlement
with French Tax Authorities
As
previously reported, the French Tax Authorities examined the 2012 tax return of Interparfums SA, and in August 2015 issued a $6.9
million tax adjustment. The main issues challenged by the French Tax Authorities related to the commission rate and royalty rate
paid to Interparfums Singapore Pte. and Interparfums (Suisse) SARL, respectively. Due to the subjective nature of the issues involved,
in April 2016, Interparfums SA reached an agreement in principle to settle the entire matter with the French Tax Authorities.
The settlement required Interparfums SA to pay a tax assessment of $1.9 million covering the issues for not only the 2012 tax
year, but also covering the issues for the tax years ended 2013 through 2015. The settlement also includes an agreement as to
future acceptable commission and royalty rates, which is not expected to have a significant impact on cash flow. The settlement,
which was finalized by the French Tax Authorities in the first quarter of 2017, was accrued in March 2016.
Discussion
of Critical Accounting Policies
We
make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally
accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions
and conditions. We believe the following discussion addresses our most critical accounting policies, which are those that are
most important to the portrayal of our financial condition and results of operations. These accounting policies generally require
our management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain. Management of the Company has discussed the selection of significant accounting policies
and the effect of estimates with the Audit Committee of the Board of Directors.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Revenue
Recognition
We
sell our products to department stores, perfumeries, specialty stores, and domestic and international wholesalers and distributors.
Sales of such products by our domestic subsidiaries are denominated in U.S. dollars and sales of such products by our foreign
subsidiaries are primarily denominated in either euro or U.S. dollars. We recognize revenues when merchandise is shipped and the
risk of loss passes to the customer. Net sales are comprised of gross revenues less returns, trade discounts and allowances.
Accounts
Receivable
Accounts
receivable represent payments due to the Company for previously recognized net sales, reduced by allowances for sales returns
and doubtful accounts. Accounts receivable balances are written-off against the allowance for doubtful accounts when they become
uncollectible. Recoveries of accounts receivable previously recorded against the allowance are recorded in the consolidated statement
of income when received. We generally grant credit based upon our analysis of the customer’s financial position as well
as previously established buying patterns.
Sales
Returns
Generally,
we do not permit customers to return their unsold products. However, for U.S. distribution of our prestige products, we allow
returns if properly requested, authorized and approved. We regularly review and revise, as deemed necessary, our estimate of reserves
for future sales returns based primarily upon historic trends and relevant current data, including information provided by retailers
regarding their inventory levels. In addition, as necessary, specific accruals may be established for significant future known
or anticipated events. The types of known or anticipated events that we have considered, and will continue to consider, include,
but are not limited to, the financial condition of our customers, store closings by retailers, changes in the retail environment
and our decision to continue to support new and existing products. We record estimated reserves for sales returns as a reduction
of sales, cost of sales and accounts receivable. Returned products are recorded as inventories and are valued based upon estimated
realizable value. The physical condition and marketability of returned products are the major factors we consider in estimating
realizable value. Actual returns, as well as estimated realizable values of returned products, may differ significantly, either
favorably or unfavorably, from our estimates, if factors such as economic conditions, inventory levels or competitive conditions
differ from our expectations.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Inventories
Inventories
are stated at the lower of cost and net realizable value. Cost is principally determined by the first-in, first-out method. We
record adjustments to the cost of inventories based upon our sales forecast and the physical condition of the inventories. These
adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual results if future economic
conditions or competitive conditions differ from our expectations.
Equipment
and Other Long-Lived Assets
Equipment,
which includes tools and molds, is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives
of such assets. Changes in circumstances such as technological advances, changes to our business model or changes in our capital
spending strategy can result in the actual useful lives differing from our estimates. In those cases where we determine that the
useful life of equipment should be shortened, we would depreciate the net book value in excess of the salvage value, over its
revised remaining useful life, thereby increasing depreciation expense. Factors such as changes in the planned use of equipment,
or market acceptance of products, could result in shortened useful lives.
We
evaluate indefinite-lived intangible assets for impairment at least annually during the fourth quarter, or more frequently when
events occur or circumstances change, such as an unexpected decline in sales, that would more likely than not indicate that the
carrying value of an indefinite-lived intangible asset may not be recoverable. When testing indefinite-lived intangible assets
for impairment, the evaluation requires a comparison of the estimated fair value of the asset to the carrying value of the asset.
The fair values used in our evaluations are estimated based upon discounted future cash flow projections using a weighted average
cost of capital of 6.2%. The cash flow projections are based upon a number of assumptions, including, future sales levels and
future cost of goods and operating expense levels, as well as economic conditions, changes to our business model or changes in
consumer acceptance of our products which are more subjective in nature. If the carrying value of an indefinite-lived intangible
asset exceeds its fair value, an impairment charge is recorded.
We
believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable and
currently no impairment indicators exist for our indefinite-lived intangible assets. However, if future actual results do not
meet our expectations, we may be required to record an impairment charge, the amount of which could be material to our results
of operations.
INTER
PARFUMS, INC. AND SUBSIDIARIES
At
December 31, 2016 indefinite-lived intangible assets aggregated approximately $116 million. The following table presents the impact
a change in the following significant assumptions would have had on the calculated fair value in 2016 assuming all other assumptions
remained constant:
$
in millions
|
|
Change
|
|
|
Increase (decrease)
to fair value
|
|
|
|
|
|
|
Weighted
average cost of capital
|
|
|
+10
|
%
|
|
$
|
(16.2
|
)
|
Weighted
average cost of capital
|
|
|
-10
|
%
|
|
$
|
20.0
|
|
Future
sales levels
|
|
|
+10
|
%
|
|
$
|
17.0
|
|
Future
sales levels
|
|
|
-10
|
%
|
|
$
|
(17.0
|
)
|
Intangible
assets subject to amortization are evaluated for impairment testing whenever events or changes in circumstances indicate that
the carrying amount of an amortizable intangible asset may not be recoverable. If impairment indicators exist for an amortizable
intangible asset, the undiscounted future cash flows associated with the expected service potential of the asset are compared
to the carrying value of the asset. If our projection of undiscounted future cash flows is in excess of the carrying value of
the intangible asset, no impairment charge is recorded. If our projection of undiscounted future cash flows is less than the carrying
value of the intangible asset, an impairment charge would be recorded to reduce the intangible asset to its fair value. The cash
flow projections are based upon a number of assumptions, including future sales levels and future cost of goods and operating
expense levels, as well as economic conditions, changes to our business model or changes in consumer acceptance of our products
which are more subjective in nature. In those cases where we determine that the useful life of long-lived assets should be shortened,
we would amortize the net book value in excess of the salvage value (after testing for impairment as described above), over the
revised remaining useful life of such asset thereby increasing amortization expense. We believe that the assumptions we have made
in projecting future cash flows for the evaluations described above are reasonable.
In
determining the useful life of our Lanvin brand names and trademarks, we applied the provisions of ASC topic 350-30-35-3. The
only factor that prevented us from determining that the Lanvin brand names and trademarks were indefinite life intangible assets
was Item c. “Any legal, regulatory, or contractual provisions that may limit the useful life.” The existence of a
repurchase option in 2025 may limit the useful life of the Lanvin brand names and trademarks to the Company. However, this limitation
would only take effect if the repurchase option were to be exercised and the repurchase price was paid. If the repurchase option
is not exercised, then the Lanvin brand names and trademarks are expected to continue to contribute directly to the future cash
flows of our Company and their useful life would be considered to be indefinite.
With
respect to the application of ASC topic 350-30-35-8, the Lanvin brand names and trademarks would only have a finite life to our
Company if the repurchase option were exercised, and in applying ASC topic 350-30-35-8, we assumed that the repurchase option
is exercised. When exercised, Lanvin has an obligation to pay the exercise price and the Company would be required to convey the
Lanvin brand names and trademarks back to Lanvin. The exercise price to be received (Residual Value) is well in excess of the
carrying value of the Lanvin brand names and trademarks, therefore no amortization is required.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Derivatives
We
account for derivative financial instruments in accordance with ASC topic 815, which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This
topic also requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet and that
they are measured at fair value.
We
currently use derivative financial instruments to hedge certain anticipated transactions and interest rates, as well as receivables
denominated in foreign currencies. We do not utilize derivatives for trading or speculative purposes. Hedge effectiveness
is documented, assessed and monitored by employees who are qualified to make such assessments and monitor the instruments. Variables
that are external to us such as social, political and economic risks may have an impact on our hedging program and the results
thereof.
Income
Taxes
The
Company accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The
net deferred tax assets assume sufficient future earnings for their realization, as well as the continued application of currently
anticipated tax rates. Included in net deferred tax assets is a valuation allowance for deferred tax assets, where management
believes it is more-likely-than-not that the deferred tax assets will not be realized in the relevant jurisdiction. If the
Company determines that a deferred tax asset will not be realizable, an adjustment to the deferred tax asset will result in a
reduction of net income at that time. In addition, the Company follows the provisions of uncertain tax positions as addressed
in ASC topic 740.
Results
of Operations
Three
and Six Months Ended June 30, 2017 as Compared to the Three and Six Months Ended June 30, 2016
Net
Sales
(In millions)
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
% Change
|
|
|
2017
|
|
|
2016
|
|
|
% Change
|
|
|
|
(in millions)
|
|
European based brand product sales
|
|
$
|
106.8
|
|
|
$
|
88.6
|
|
|
|
20.5
|
%
|
|
$
|
226.5
|
|
|
$
|
180.7
|
|
|
|
25.3
|
%
|
United States based product sales
|
|
|
22.3
|
|
|
|
28.6
|
|
|
|
(21.6
|
)%
|
|
|
45.7
|
|
|
|
48.0
|
|
|
|
(4.6
|
)%
|
Total net sales
|
|
$
|
129.1
|
|
|
$
|
117.2
|
|
|
|
10.2
|
%
|
|
$
|
272.2
|
|
|
$
|
228.7
|
|
|
|
19.0
|
%
|
Net
sales for the three months ended June 30, 2017 increased 10.2% to $129.1 million, as compared to $117.2 million for the corresponding
period of the prior year. At comparable foreign currency exchange rates, net sales increased 11.3%. Net sales for the six months
ended June 30, 2016 increased 19.0% to $272.2 million, as compared to $228.7 million for the corresponding period of the prior
year. At comparable foreign currency exchange rates, net sales increased 20.8% for the period.
INTER
PARFUMS, INC. AND SUBSIDIARIES
European
based product sales increased 20.5% and 25.3% for the three and six months ended June 30, 2017, respectively, as compared to the
corresponding periods of the prior year. For the three and six months ended June 30, 2017, Montblanc, our largest brand, generated
sales of $30.2 million and $61.8 million for the three and six months ended June 30, 2017, respectively, representing an increase
of 15% and 1%, as compared to the corresponding periods of the prior year. The 15% increase in second quarter Montblanc product
sales offset the decline in the first quarter. Therefore, year to date Montblanc product sales are up slightly from the prior
year reflecting the difficult period comparison as there was a 31% increase in 2016 first half sales when the highly successful
scent,
Montblanc Legend Spirit,
was launched. Our second largest brand, Jimmy Choo, generated sales of $25.4 million and
$59.1 million for the three and six months ended June 30, 2017, respectively, representing an increase of 15% and 36%, as compared
to the corresponding periods of the prior year. The increase is due to two recent extensions,
Jimmy Choo L’Eau
for
women and
Jimmy Choo Man Ice,
as well as from solid sales of the brand’s established collections for men and women.
Lanvin brand sales continued its 2017 comeback resulting from gains in the brand’s best performing product line,
Éclat
d’Arpège,
coupled with the international launch of
Modern Princess
. Lanvin brand sales aggregated $15.1
million and $33.0 million for the three and six months ended June 30, 2017, respectively, representing an increase of 22% and
34%, as compared to the corresponding periods of the prior year. Rochas fragrance sales aggregated $11.0 million and $20.1 million
for the three and six months ended June 30, 2017, respectively, representing an increase of 23% and 31%, as compared to the corresponding
periods of the prior year. The increase is the result of the launch of
Mademoiselle Rochas
in approximately ten markets
and the strength of the brand’s established lines. Coach fragrance sales were $9.0 million and $17.0 million for the three and
six months ended June 30, 2017, respectively, as we continue to rollout the brand’s signature scent for women which debuted
in mid-2016.
United
States based product sales decreased 21.6% and 4.6% for the three and six months ended June 30, 2017, respectively, as compared
to the corresponding periods of the prior year. The quarterly comparison is particularly difficult because in the second quarter
of 2016, we commenced international distribution of our first ever Abercrombie & Fitch men’s scent
First Instinct
and the Hollister fragrance duo,
Wave
. The current second quarter was somewhat uneventful in terms of new product launches,
but included international distribution of First Instinct for women and
Wave 2
. More significant launches are scheduled
for the second half of 2017, including
Icon Racing
by Dunhill and
Fantasia
by Anna Sui, which should energize sales
by U.S. operations.
We
maintain confidence in our future and we have strengthened advertising and promotional investments supporting most portfolio brands
and accelerated brand development. We plan to continue to build upon the strength of our brands and our worldwide distribution
network. First half sales were exceptionally strong due in part to the timing of several major launches. However, we do not expect
this growth rate in the second half of the year.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Net Sales to Customers by Region
|
|
Six months ended June 30,
|
|
(In millions)
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Western Europe
|
|
$
|
74.3
|
|
|
$
|
71.6
|
|
North America
|
|
|
72.7
|
|
|
|
58.0
|
|
Asia
|
|
|
48.2
|
|
|
|
40.2
|
|
Middle East
|
|
|
28.3
|
|
|
|
21.6
|
|
Central and South America
|
|
|
26.5
|
|
|
|
22.9
|
|
Eastern Europe
|
|
|
16.7
|
|
|
|
8.6
|
|
Other
|
|
|
5.5
|
|
|
|
5.8
|
|
|
|
$
|
272.2
|
|
|
$
|
228.7
|
|
Virtually
all regions registered strong growth for the six months ended June 30, 2017, as compared to the corresponding period of the prior
year. Some of the strongest performing regions were the laggards of recent years, namely Eastern Europe, the Middle East and Asia
which increased 94%, 31% and 20%, respectively.
Gross
profit margin
|
|
Three
months ended
June 30,
|
|
|
Six
months ended
June 30,
|
|
(In
millions)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
129.1
|
|
|
$
|
117.2
|
|
|
$
|
272.2
|
|
|
$
|
228.7
|
|
Cost
of sales
|
|
|
45.2
|
|
|
|
42.8
|
|
|
|
98.2
|
|
|
|
83.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
$
|
83.9
|
|
|
$
|
74.4
|
|
|
$
|
174.0
|
|
|
$
|
145.7
|
|
Gross
margin as a percent of net sales
|
|
|
65
|
%
|
|
|
64
|
%
|
|
|
64
|
%
|
|
|
64
|
%
|
Gross
profit margin was 65% and 64% of net sales for the three and six months ended June 30, 2017, respectively, as compared to
64% for both corresponding periods of the prior year. For European operations, gross profit margin was 68% and 67% for the three
and six months ended June 30, 2017, respectively, as compared to 67% for both corresponding periods of the prior year.
We
carefully monitor movements in foreign currency exchange rates as almost 45% of our European based operations net sales are denominated
in U.S. dollars, while most of our costs are incurred in euro. From a margin standpoint, a strong U.S. dollar has a positive effect
on our gross profit margin while a weak U.S. dollar has a negative effect. The average dollar/euro exchange rate for the three
and six months ended June 30, 2017 was 1.10 and 1.08, respectively, as compared to 1.12 and 1.13 for the corresponding periods
of the prior year giving rise to the slight increase in gross margin as a percentage of sales for the three months ended June
30, 2017, as compared to the corresponding period of the prior year.
For
U.S. operations, gross profit margin was 48% and 49% for the three and six months ended June 30, 2017, respectively, as compared
to 53% and 51% for the corresponding periods of the prior year. The decrease for the three and six months ended June 30, 2017
is primarily the result of a shift in product mix, as the second quarter 2017 sales decline for our U.S. operations was due to
the difficult comparison resulting from the second quarter 2016 initial launches of high margin prestige products for Abercrombie
& Fitch and Hollister.
Generally,
we do not bill customers for shipping and handling costs, and such costs, which aggregated $1.0 million and $2.5 million for the
three and six month periods ended June 30, 2017, respectively, as compared to $1.2 million and $2.3 million for the corresponding
periods of the prior year, are included in selling, general and administrative expenses in the consolidated statements of income.
As such, our Company’s gross profit may not be comparable to other companies, which may include these expenses as a component
of cost of goods sold.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Selling,
general and administrative expenses
|
|
Three
months ended
June 30,
|
|
|
Six
months ended
June 30,
|
|
(In
millions)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
$
|
69.5
|
|
|
$
|
63.0
|
|
|
$
|
133.4
|
|
|
$
|
116.8
|
|
Selling,
general and administrative expenses as a percent of net sales
|
|
|
54
|
%
|
|
|
54
|
%
|
|
|
49
|
%
|
|
|
51
|
%
|
Selling,
general and administrative expenses increased 10% and 14% for the three and six months ended June 30, 2017, respectively, as compared
to the corresponding periods of the prior year. Selling, general and administrative expenses were 54% and 49% of net sales for
the three and six months ended June 30, 2017, respectively, as compared to 54% and 51% for the corresponding periods of the prior
year. For European operations sales increased 20% and 25% for the three and six months ended June 30, 2017, respectively, as compared
to the corresponding periods of the prior year, while selling, general and administrative expenses of our European operations
only increased 18% for the same periods. In addition, selling, general and administrative expenses represented 56% and 50% of
sales for the three and six months ended June 30, 2017, respectively, as compared to 57% and 53% for the corresponding periods
of the prior year.
For
U.S. operations sales declined 22% and 5% for the three and six months ended June 30, 2017, respectively, as compared to the corresponding
periods of the prior year. At the same time, selling, general and administrative expenses of our U.S. operations decreased 21%
and 4% for the three and six months ended June 30, 2017, as compared to the corresponding periods of the prior year and represented
44% and 45% of sales for the three and six months ended June 30, 2017, respectively, as compared to 44% for both corresponding
periods of the prior year.
Promotion
and advertising included in selling, general and administrative expenses aggregated $30.4 million and $53.3 million for the three
and six months ended June 30, 2017, respectively, as compared to $24.9 million and $41.0 million for the corresponding periods
of the prior year. Promotion and advertising represented 24% and 20% of net sales for the three and six months ended June 30,
2017, respectively, as compared to 21% and 18% for the corresponding periods of the prior year. The increase in 2017 is the result
of advertising and promotional expenditures incurred in our European operations in connection with the many new product launches
commenced in the first quarter of 2017.
Royalty
expense included in selling, general and administrative expenses aggregated $7.5 million and $18.0 million for the three and six
months ended June 30, 2017, respectively, as compared to $8.5 million and $16.7 million for the corresponding periods of the prior
year. Royalty expense represented 5.8% and 6.6% of net sales for the three and six months ended June 30, 2017, as compared
to 7.2% and 7.3% of net sales for the corresponding period of the prior year. The decline in royalty expense as a percentage of
sales relates primarily to the lowering of the guaranteed minimum royalty in connection with the 2016 renewal of the S.T. Dupont
license and the recent exit from the Balmain license.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Service
fees relating to the activities of our distribution subsidiaries aggregated $2.7 million and $5.3 million for the three and six
months ended June 30, 2017, respectively, as compared to $2.0 million and $4.5 million for the corresponding periods of the prior
year.
As
a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, income
from operations increased 26% to $14.5 million for the three months ended June 30, 2017, as compared to $11.5 million
for the corresponding period of the prior year. Income from operations increased 40% to $40.6 million for the six months ended
June 30, 2017, as compared to $29.0 million for the corresponding period of the prior year. Operating margins were 11.2% and 14.9%
of net sales for the three and six months ended June 30, 2017, respectively, as compared to 9.8% and 12.7% for the corresponding
periods of the prior year.
Other
Income and Expense
Interest
expense aggregated $0.7 million and $1.0 million for the three and six months ended June 30, 2017, respectively, as compared
to $0.7 million and $1.7 million for the corresponding periods of the prior year. Interest expense is primarily related to the
financing of the Rochas brand acquisition and for the six months ended June 30, 2016, includes a $0.4 million loss relating to
the interest rate swap as compared to a $0.3 million gain in the 2017 period. We use the credit lines available to us, as needed,
to finance our working capital needs as well as our financing needs for brand acquisitions. Loans payable – banks and long-term
debt including current maturities aggregated $69.1 million and $89.9 million as of June 30, 2017 and 2016, respectively.
Foreign
currency gain or (loss) aggregated ($0.8) and ($1.0) million for the three and six months ended June 30, 2017, respectively, as
compared to $0.7 million and ($0.1) million for the corresponding periods of the prior year. We typically enter into foreign currency
forward exchange contracts to manage exposure related to receivables from unaffiliated third parties denominated in a foreign
currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Over 40% of
net sales of our European operations are denominated in U.S. dollars.
Interest
income aggregated $0.9 million and $2.2 million for the three and six months ended June 30, 2017, respectively, as compared to
$0.6 million and $2.0 million for the corresponding periods of the prior year. Cash and cash equivalents and short-term investments
are primarily invested in certificates of deposit with varying maturities.
Income
Taxes
As
previously reported, the French Tax Authorities examined the 2012 tax return of Interparfums SA, and in August 2015 issued a $6.9
million tax adjustment. The main issues challenged by the French Tax Authorities related to the commission rate and royalty rate
paid to Interparfums Singapore Pte. and Interparfums (Suisse) SARL, respectively. Due to the subjective nature of the issues involved,
in April 2016, Interparfums SA reached an agreement in principle to settle the entire matter with the French Tax Authorities.
The settlement required Interparfums SA to pay a tax assessment of $1.9 million covering the issues for not only the 2012 tax
year, but also covering the issues for the tax years ended 2013 through 2015. The settlement also includes an agreement as to
future acceptable commission and royalty rates, which is not expected to have a significant impact on cash flow. The settlement,
which was finalized by the French Tax Authorities in the first quarter of 2017, was accrued as of March 31, 2016 and income tax expense for the six
months ended June 30, 2016 includes the $1.9 million settlement.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Excluding
the settlement, our effective income tax rate was 33% for both the three and six months ended June 30, 2017, as compared to 36%
and 35% for the corresponding periods of the prior year. Our effective tax rates differ from statutory rates due to the effect
of state and local taxes and tax rates in foreign jurisdictions. We did not experience any significant changes in tax rates during
the period, and none were expected in jurisdictions where we operate.
Net
income and earnings per share
(In
thousands except per share data)
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income European operations
|
|
$
|
8,617
|
|
|
$
|
6,172
|
|
|
$
|
25,912
|
|
|
$
|
15,223
|
|
Net
income U.S. operations
|
|
|
594
|
|
|
|
1,557
|
|
|
|
1,466
|
|
|
|
1,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
9,211
|
|
|
|
7,729
|
|
|
|
27,378
|
|
|
|
17,177
|
|
Less:
Net income attributable to the noncontrolling interest
|
|
|
2,467
|
|
|
|
1,898
|
|
|
|
7,261
|
|
|
|
4,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Inter Parfums, Inc.
|
|
$
|
6,744
|
|
|
$
|
5,831
|
|
|
$
|
20,117
|
|
|
$
|
13,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Inter Parfums, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
0.19
|
|
|
$
|
0.65
|
|
|
$
|
0.42
|
|
Diluted
|
|
$
|
0.22
|
|
|
$
|
0.19
|
|
|
$
|
0.64
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,169
|
|
|
|
31,055
|
|
|
|
31,157
|
|
|
|
31,047
|
|
Diluted
|
|
|
31,281
|
|
|
|
31,160
|
|
|
|
31,268
|
|
|
|
31,137
|
|
Net
income was $9.2 million for the three months ended June 30, 2017, as compared to $7.7 million for the corresponding period of
the prior year. Net income was $27.4 million for the six months ended June 30, 2017, as compared to $17.2 million for the corresponding
period of the prior year. The reasons for significant fluctuations in net income for both European operations and United States
operations are directly related to the previous discussions relating to changes in sales, gross margin, selling, general and administrative
expenses and the settlement with the French Tax Authorities. As previously discussed, European based product sales increased 25%
for the six months ended June 30, 2017, as compared to the corresponding period of the prior year, while gross profit margins
for European operations were relatively unchanged and selling general and administrative expenses increased only 18% for the period.
In addition, for our European operations, net income for the 2016 period includes the effect of the $1.9 million income tax settlement
with the French Tax Authorities. For United States operations, in summary, sales, gross margin and selling, general and administrative
expenses for the six months ended June 30, 2017 decreased 5%, 7% and 4% respectively, as compared to the corresponding period
of the prior year.
INTER
PARFUMS, INC. AND SUBSIDIARIES
The
noncontrolling interest arises from our 73% owned subsidiary, Interparfums SA, which is also a publicly traded company as 27%
of Interparfums SA shares trade on the NYSE Euronext. The noncontrolling interest is also affected by the profitability of Interparfums
SA’s 51% owned distribution subsidiaries in Germany and Spain. Net income attributable to the noncontrolling interest aggregated
29% and 28% of European operations’ net income for the three and six months ended June 30, 2017, respectively, as compared
to 31% and 26% for the corresponding periods of the prior year.
Adjusted
Net Income Attributable to Inter Parfums, Inc.
Adjusted
Net Income Attributable to Inter Parfums, Inc., is deemed a “non-GAAP financial measure” under the rules of the Securities
and Exchange Commission. This non-GAAP measure is calculated using GAAP amounts derived from our consolidated financial statements.
Adjusted net income attributable to Inter Parfums, Inc. has limitations and should not be considered in isolation or as a substitute
for net income, operating income, cash flow from operations or other consolidated income or cash flow data prepared in accordance
with GAAP. Because not all companies use identical calculations, this presentation of adjusted income may not be comparable to
a similarly titled measure of other companies.
Adjusted
Net Income Attributable to Inter Parfums, Inc. Reconciliation
Adjusted
net income attributable to Inter Parfums, Inc. is defined as net income attributable to Inter Parfums, Inc., plus the 2016 nonrecurring
tax settlement, net of the portion of the settlement attributable to the noncontrolling interest. We believe that certain investors
consider adjusted net income attributable to Inter Parfums, Inc. a useful means of evaluating our financial performance. The following
table provides a reconciliation of net income attributable to Inter Parfums, Inc. to adjusted net income attributable to Inter
Parfums, Inc.
(in
thousands except per share data)
|
|
Six
Months Ended
June
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net
income attributable to Inter Parfums, Inc.
|
|
$
|
20,117
|
|
|
$
|
13,165
|
|
Nonrecurring
tax settlement (net of portion attributable to the noncontrolling interest of $500)
|
|
|
—
|
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
Adjusted
net income attributable to Inter Parfums, Inc.
|
|
$
|
20,117
|
|
|
$
|
14,565
|
|
|
|
|
|
|
|
|
|
|
Adjusted
net income attributable to Inter Parfums, Inc. common stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.65
|
|
|
$
|
0.47
|
|
Diluted
|
|
$
|
0.64
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,157
|
|
|
|
31,047
|
|
Diluted
|
|
|
31,268
|
|
|
|
31,137
|
|
INTER
PARFUMS, INC. AND SUBSIDIARIES
Liquidity
and Capital Resources
The
Company’s financial position remains strong. At June 30, 2017, working capital aggregated $358 million and we had a working
capital ratio of 3.4 to 1. Cash and cash equivalents and short-term investments aggregated $241 million, most of which is held
in euro by our European operations and is readily convertible into U.S. dollars. We have not had any liquidity issues to date,
and do not expect any liquidity issues relating to cash and cash equivalents and short-term investments held by our European operations.
Approximately 88% of the Company’s total assets are held by European operations and approximately $186 million of trademarks,
licenses and other intangible assets are held by European operations.
The
Company hopes to benefit from its strong financial position to potentially acquire one or more brands, either on a proprietary
basis or as a licensee. Opportunities for external growth continue to be examined, with the priority of maintaining the quality
and homogeneous nature of our portfolio. However, we cannot assure you that any new license or acquisition agreements will be
consummated.
Cash
used in operating activities aggregated $10.7 million and $5.9 million for the six months ended June 30, 2017 and 2016, respectively.
For the six months ended June 30, 2017, working capital items used $41.3 million in cash from operating activities, as compared
to $27.9 million in the 2016 period. Although accounts receivable is up 7% from year end, the balance is reasonable based on second
quarter 2017 sales levels and reflects continued strong collection activity as day’s sales outstanding is 83 days, as compared
to 78 days for the corresponding period of the prior year. We continue to monitor collection activities actively and adjust customer
credit limits as needed. Inventory levels are up approximately 34% from year end and reflect levels needed to support second half
sales expectations and our new product launches.
Cash
flows used in investing activities in 2017 reflect the purchase and sales, in our European operations, of short-term investments.
These investments are primarily certificates of deposit with maturities greater than three months. Approximately $66 million of
such certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal.
Our business is not capital intensive as we do not own any manufacturing facilities. However, on a full year basis, we spend approximately
$4.0 million on tools and molds, depending on our new product development calendar. Capital expenditures also include amounts
for office fixtures, computer equipment and industrial equipment needed at our distribution centers. In December 2016, the Company
agreed to a buyout of its Balmain license, effective December 31, 2016, for a payment aggregating €5.4 million (approximately
$5.9 million). The Company received the buyout payment in May 2017.
In
connection with the 2015 acquisition of the Rochas brand, we entered into a 5-year term loan payable in equal quarterly installments
of €5.0 million ($5.7 million) plus interest. In order to reduce exposure to rising variable interest rates, the Company
entered into a swap transaction effectively exchanging the variable interest rate to a fixed rate of approximately 1.2%. The swap
is a derivative instrument and is therefore recorded at fair value and changes in fair value are reflected in the accompanying
consolidated statements of income.
Our
short-term financing requirements are expected to be met by available cash on hand at June 30, 2017, cash generated by operations
and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2017 consist of a $20.0
million unsecured revolving line of credit provided by a domestic commercial bank and approximately $29.0 million in credit lines
provided by a consortium of international financial institutions. There were no short-term borrowings outstanding as of both June
30, 2017 and June 30, 2016.
INTER
PARFUMS, INC. AND SUBSIDIARIES
In
October 2016, the Board of Directors authorized a 13% increase in the annual dividend to $0.68 per share. The next quarterly cash
dividend of $0.17 per share is payable on October 13, 2017 to shareholders of record on September 29, 2017. Dividends paid also
include dividends paid once per year to the noncontrolling shareholders of Interparfums SA, which aggregated $5.9 million and
$4.9 million for the six months ended June 30, 2017 and 2016, respectively. The annual cash dividends represent a small part of
our cash position and are not expected to have any significant impact on our financial position.
We
believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities,
so that they 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 did not have a significant impact on operating results for the six
months ended June 30, 2017.