UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(
MARK ONE )
x Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of
1934
for the quarterly period ended March 31, 2006.
OR
o 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
incorporation or organization)
|
|
(I.R.S.
Employer
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
o
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule
12b-2 of the Exchange Act). Yes x
No o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
At
May 8,
2006 there were 20,312,310 shares of common stock, par value $.001 per share,
outstanding.
INDEX
|
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Page
Number |
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Part
I. Financial Information
|
|
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Item
1. Financial Statements
|
|
|
1
|
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|
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|
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Consolidated
Balance Sheets
|
|
|
|
|
as
of March 31, 2006 (unaudited)
|
|
|
|
|
and
December 31, 2005
|
|
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2
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|
|
|
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Consolidated
Statements of Income
|
|
|
|
|
for
the Three Months Ended
|
|
|
|
|
March
31, 2006 (unaudited)
|
|
|
|
|
and
March 31, 2005 (unaudited)
|
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3
|
|
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|
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Consolidated
Statements of Cash Flows
|
|
|
|
|
for
the Three Months Ended
|
|
|
|
|
March
31, 2006 (unaudited) and
|
|
|
|
|
March
31, 2005 (unaudited)
|
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4
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|
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|
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|
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Notes
to Consolidated Financial Statements
|
|
|
5
|
|
|
|
|
|
|
Item
2. Management's Discussion and Analysis of
|
|
|
|
|
Financial
Condition and Results of Operations
|
|
|
10
|
|
|
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures
|
|
|
|
|
About
Market Risk
|
|
|
18
|
|
|
|
|
|
|
Item
4. Controls and Procedures
|
|
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19
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Part
II. Other Information
|
|
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20 |
|
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Item
2. Changes in Securities and Use of Proceeds
|
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20
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Item
6. Exhibits
|
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|
20 |
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Signatures
|
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21 |
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Certifications
|
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22 |
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INTER
PARFUMS, INC. AND SUBSIDIARIES
Part
I. Financial
Information
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. Therefore, such financial statements do not include all disclosures
required by accounting principles generally accepted in the United States of
America. These financial statements should be read in conjunction with our
audited financial statements for the year ended December 31, 2005 included
in our annual report filed on Form 10-K.
The
results of operations for the three months ended March 31, 2006 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)
ASSETS
|
|
|
|
March
31,
2006
|
|
December
31,
2005
|
|
|
|
(unaudited)
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
48,946
|
|
$
|
42,132
|
|
Short-term
investments
|
|
|
16,000
|
|
|
17,400
|
|
Accounts
receivable, net
|
|
|
82,729
|
|
|
82,231
|
|
Inventories
|
|
|
58,734
|
|
|
48,631
|
|
Receivables,
other
|
|
|
2,850
|
|
|
2,119
|
|
Other
current assets
|
|
|
5,352
|
|
|
4,213
|
|
Income
tax receivable
|
|
|
110
|
|
|
104
|
|
Deferred
tax assets
|
|
|
3,235
|
|
|
3,011
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
217,956
|
|
|
199,841
|
|
|
|
|
|
|
|
|
|
Equipment
and leasehold improvements, net
|
|
|
6,287
|
|
|
5,835
|
|
|
|
|
|
|
|
|
|
Trademarks,
licenses and other intangible assets, net
|
|
|
31,066
|
|
|
30,136
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
4,588
|
|
|
4,476
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
632
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
$
|
260,529
|
|
$
|
240,910
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
Current
liabilities:
|
|
|
|
|
|
|
|
Loans
payable - banks
|
|
$
|
5,505
|
|
$
|
989
|
|
Current
portion of long-term debt
|
|
|
3,873
|
|
|
3,775
|
|
Accounts
payable
|
|
|
43,464
|
|
|
40,359
|
|
Accrued
expenses
|
|
|
23,533
|
|
|
21,555
|
|
Income
taxes payable
|
|
|
2,175
|
|
|
1,269
|
|
Dividends
payable
|
|
|
812
|
|
|
810
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
79,362
|
|
|
68,757
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
8,715
|
|
|
9,437
|
|
|
|
|
|
|
|
|
|
Deferred
tax liability
|
|
|
1,940
|
|
|
1,783
|
|
|
|
|
|
|
|
|
|
Put
options
|
|
|
763
|
|
|
743
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
35,575
|
|
|
32,463
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par; authorized
1,000,000
shares; none issued
|
|
|
|
|
|
|
|
Common
stock, $.001 par; authorized 100,000,000 shares;
outstanding
20,304,810 and 20,252,310 shares at
March
31, 2006 and December 31, 2005, respectively
|
|
|
20
|
|
|
20
|
|
Additional
paid-in capital
|
|
|
36,933
|
|
|
36,640
|
|
Retained
earnings
|
|
|
116,410
|
|
|
112,802
|
|
Accumulated
other comprehensive income
|
|
|
6,120
|
|
|
3,574
|
|
Treasury
stock, at cost, 6,302,768 common
shares
at March 31, 2006 and December 31, 2005
|
|
|
(25,309
|
)
|
|
(25,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
134,174
|
|
|
127,727
|
|
|
|
|
|
|
|
|
|
|
|
$
|
260,529
|
|
$
|
240,910
|
|
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
March
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
70,900
|
|
$
|
71,087
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
30,604
|
|
|
30,510
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
40,296
|
|
|
40,577
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
31,063
|
|
|
31,563
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
9,233
|
|
|
9,014
|
|
|
|
|
|
|
|
|
|
Other
expenses (income):
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
201
|
|
|
215
|
|
(Gain)
loss on foreign currency
|
|
|
(161
|
)
|
|
79
|
|
Interest
income
|
|
|
(514
|
)
|
|
(246
|
)
|
(Gain)
on subsidiary’s issuance of stock
|
|
|
(73
|
)
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
(547
|
)
|
|
48
|
|
|
|
|
|
|
|
|
|
Income
before income taxes and minority interest
|
|
|
9,780
|
|
|
8,966
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
3,342
|
|
|
3,156
|
|
|
|
|
|
|
|
|
|
Income
before minority interest
|
|
|
6,438
|
|
|
5,810
|
|
|
|
|
|
|
|
|
|
Minority
interest in net income
of
consolidated subsidiary
|
|
|
2,018
|
|
|
1,406
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,420
|
|
$
|
4,404
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
$
|
0.22
|
|
Diluted
|
|
$
|
0.22
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
20,267
|
|
|
19,701
|
|
Diluted
|
|
|
20,544
|
|
|
20,420
|
|
See
notes to consolidated financial statements.
INTER
PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
Three
months ended
March
31,
|
|
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
4,420
|
|
$
|
4,404
|
|
Adjustments
to reconcile net income to
net
cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,221
|
|
|
1,423
|
|
Provision
for doubtful accounts
|
|
|
12
|
|
|
28
|
|
Minority
interest in net income of consolidated subsidiary
|
|
|
2,018
|
|
|
1,406
|
|
Deferred
tax (benefit) provision
|
|
|
(62
|
)
|
|
268
|
|
Change
in fair value of put options
|
|
|
--
|
|
|
(39
|
)
|
Loss
on subsidiary’s issuance of stock
|
|
|
(73
|
)
|
|
--
|
|
Changes
in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,465
|
|
|
(6,366
|
)
|
Inventories
|
|
|
(9,070
|
)
|
|
(1,212
|
)
|
Other
assets
|
|
|
(1,705
|
)
|
|
(413
|
)
|
Accounts
payable and accrued expenses
|
|
|
3,625
|
|
|
8,475
|
|
Income
taxes payable, net
|
|
|
859
|
|
|
564
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
2,710
|
|
|
8,538
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of short-term investments
|
|
|
--
|
|
|
(1,300
|
)
|
Proceeds
from sale of short-term investments
|
|
|
1,400
|
|
|
--
|
|
Purchase
of equipment and leasehold improvements
|
|
|
(926
|
)
|
|
(932
|
)
|
Payment
for intangible assets acquired
|
|
|
(911
|
)
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(437
|
)
|
|
(2,590
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Increase
in loans payable - bank
|
|
|
4,477
|
|
|
4,107
|
|
Repayment
of long-term debt
|
|
|
(961
|
)
|
|
(1,049
|
)
|
Proceeds
from sale of stock of subsidiary
|
|
|
303
|
|
|
--
|
|
Proceeds
from exercise of options
|
|
|
294
|
|
|
119
|
|
Dividends
paid
|
|
|
(810
|
)
|
|
(581
|
)
|
Purchases
of treasury stock
|
|
|
--
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
3,303
|
|
|
2,446
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
1,238
|
|
|
(1,270
|
)
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
6,814
|
|
|
7,124
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of period
|
|
|
42,132
|
|
|
23,372
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of period
|
|
$
|
48,946
|
|
$
|
30,496
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
222
|
|
$
|
260
|
|
Income
taxes
|
|
|
2,577
|
|
|
2,346
|
|
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, 2005. 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.
New
Accounting Pronouncements:
Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) 123(R), Share-Based
Payment,
(“SFAS
123(R)”), using the modified prospective method. See Note 3 for additional
information regarding stock-based compensation.
The
Financial Accounting Standards Board released SFAS 156, Accounting
for Servicing of Financial Assets,
to
simplify accounting for separately recognized servicing assets and servicing
liabilities. SFAS 156 amends SFAS 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.
SFAS
156 permits an entity to choose either the amortization method or the fair
value
measurement method for measuring each class of separately recognized servicing
assets and servicing liabilities after they have been initially measured at
fair
value. SFAS 156 applies to all separately recognized servicing assets and
liabilities acquired or issued after the beginning of an entity’s fiscal year
that begins after September 15, 2006. SFAS 156 will be effective as of January
1, 2007. The Company does not believe the adoption of SFAS 156 will have a
material impact on the Company’s consolidated financial position or results of
operations.
3. Share-Based
Payments:
Prior
to
January 1, 2006, we applied the disclosure-only provisions of SFAS 123,
"Accounting for Stock-Based Compensation" (“SFAS 123”). In accordance with the
provisions of SFAS 123, we applied Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for our stock based compensation plans
and, accordingly, did not recognize compensation expense for stock options
because we issued options at an exercise price equal to the market value at
date
of grant.
Effective
January 1, 2006, we adopted SFAS 123(R), “Share-Based Payment” (“SFAS 123(R)”),
which revises SFAS 123 and supersedes APB 25. SFAS 123(R) requires all
share-based payments to be recognized in the financial statements based on
the
fair values using an option-pricing model at the date of grant. We have elected
to use the modified prospective method for adoption, which requires compensation
expense to be recorded for all unvested stock options beginning in the first
quarter of adoption, based on the fair value at the original grant date. Prior
year financial statements have not been restated.
Compensation
cost for share-based arrangements and the impact of the adoption of SFAS 123(R)
during the first quarter of 2006 decreased income before income taxes by $0.24
million, decreased net income by $0.15 million, and had no significant effect
on
basic and diluted earnings per share. The adoption of SFAS 123(R) had no impact
on cash flow from operating activities or financing activities in the
accompanying statement of cash flows.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
3. Share-Based
Payments (continued):
The
effect on net income and earnings per share if we had applied the fair value
recognition provisions of SFAS 123 to stock-based compensation for the three
months ended March 31, 2005 was as follows:
(In
thousands except per share data)
|
|
Three
months ended
March
31,
|
|
|
|
2005
|
|
|
|
|
|
Reported
net income
|
|
$
|
4,404
|
|
Less:
Stock-based employee compensation determined under SFAS 123, net
of
taxes
|
|
|
(151
|
)
|
|
|
|
|
|
Pro
forma net income
|
|
$
|
4,253
|
|
|
|
|
|
|
Income
per share, as reported:
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
Diluted
|
|
$
|
0.22
|
|
|
|
|
|
|
Pro
forma net income per share:
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
Diluted
|
|
$
|
0.21
|
|
The
Company maintains a stock option program 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 vest immediately and are exercisable for a period of
five years. It is generally the Company’s policy to issue new shares upon
exercise of stock options. A summary of the Company’s stock option activity and
related information follows:
The
following table summarizes stock option information as of March 31, 2006 and
does not include information relating to options of Inter Parfums, S.A. granted
by Inter Parfums, S.A., our majority owned subsidiary:
|
|
Shares
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2006
|
|
|
985,550
|
|
$
|
14.03
|
|
Granted
|
|
|
10,000
|
|
|
18.97
|
|
Exercised
|
|
|
(52,500
|
) |
|
7.58
|
|
Forfeited
or expired
|
|
|
(5,500
|
) |
|
16.51
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2006
|
|
|
937,550
|
|
$
|
14.43
|
|
At
March
31, 2006, options for 974,079 shares were available for future grant under
the
plans.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
3. Share-Based
Payments (continued):
The
weighted average remaining contractual life of options outstanding as of March
31, 2006 is 2.7 years and the aggregate intrinsic value is $5.9
million.
As
of
March 31, 2006, there was no unrecognized compensation cost related to stock
options outstanding on Inter Parfums, Inc. stock as all options were fully
vested upon grant. The amount of unrecognized compensation cost related to
stock
options outstanding of our majority owned subsidiary, Inter Parfums, S.A.,
was
1.1 million euro. Options under these plans vest over a four year
period.
Cash
proceeds, tax benefits and intrinsic value related to stock options exercised
during the three months ended March 31, 2006 and March 31, 2005 were as
follows:
|
|
March
31,
2006
|
|
March
31,
2005
|
|
|
|
|
|
|
|
Cash
proceeds from stock options exercised
|
|
$
|
397,980
|
|
$
|
119,258
|
|
Tax
benefits
|
|
|
0
|
|
|
0
|
|
Intrinsic
value of stock options exercised
|
|
|
543,154
|
|
|
11,558,554
|
|
No
tax
benefit was recognized from stock options exercised as valuation reserves were
allocated to those potential benefits.
The
weighted average fair values of the options granted by Inter Parfums, Inc.
during the three months ended March 31, 2006 and 2005 were $6.63 and $5.01
per
share, respectively, on the date of grant using the Black-Scholes option pricing
model with the following assumptions: dividend yield 0.9% in 2006 and 1.0%
in
2005; volatility of 40% in 2006 and 2005; risk-free interest rates at the date
of grant, 4.6% in 2006 and 3.3% in 2005; and an expected life of the option
of
four years in 2006 and 2005.
Stock-based
employee compensation determined under the fair value based method, net of
related tax effects, includes compensation incurred by Inter Parfums, S.A.,
our
majority owned subsidiary whose stock is publicly traded in France. There were
no options granted by Inter Parfums, S.A. during the three months ended March
31, 2006 and 2005.
4. Comprehensive
Income (Loss):
(In
thousands)
|
|
Three
months ended
March
31,
|
|
|
|
2006
|
|
2005
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
Net
income
|
|
$
|
4,420
|
|
$
|
4,404
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
2,567
|
|
|
(4,602
|
)
|
Change
in fair value of derivatives
|
|
|
(21
|
)
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
$
|
6,966
|
|
$
|
(333
|
)
|
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
5. Segment
and Geographic Areas:
The
Company manages its business in two segments, European based operations and
United States based operations. The European assets are located, and operations
are conducted, in France. European operations primarily represent the sale
of
prestige brand name fragrances and United States operations primarily represent
the sale of mass-market products. Information on the Company’s operations by
geographical areas is as follows.
(In
thousands)
|
|
Three
months ended
March
31,
|
|
|
|
2006
|
|
2005
|
|
Net
Sales:
|
|
|
|
|
|
United
States
|
|
$
|
8,006
|
|
$
|
9,590
|
|
Europe
|
|
|
63,506
|
|
|
61,929
|
|
Eliminations
|
|
|
(612
|
)
|
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
70,900
|
|
$
|
71,087
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss):
|
|
|
|
|
|
|
|
United
States
|
|
$
|
(823
|
)
|
$
|
243
|
|
Europe
|
|
|
5,286
|
|
|
4,173
|
|
Eliminations
|
|
|
(43
|
)
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
4,420
|
|
$
|
4,404
|
|
We
computed basic earnings per share using the weighted average number of shares
outstanding during each period. We computed diluted earnings per share using
the
weighted average number of shares outstanding during each period, plus the
incremental shares outstanding assuming the exercise of dilutive stock
options.
The
following table sets forth the computation of basic and diluted earnings per
share:
(In
thousands)
|
|
Three
months ended
March
31,
|
|
|
|
2006
|
|
2005
|
|
Numerator:
|
|
|
|
|
|
Net
income
|
|
$
|
4,420
|
|
$
|
4,404
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
20,267
|
|
|
19,701
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Stock
options
|
|
|
277
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
20,544
|
|
|
20,420
|
|
INTER
PARFUMS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
7. Inventories:
Inventories
consist of the following:
(In
thousands)
|
|
March
31,
2006
|
|
December
31, 2005
|
|
|
|
|
|
|
|
Raw
materials and component parts
|
|
$
|
24,592
|
|
$
|
19,529
|
|
Finished
goods
|
|
|
34,142
|
|
|
29,102
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,734
|
|
$
|
48,631
|
|
In
July
2004, Inter Parfums, S.A. entered into a 16 million euro five-year credit
agreement. The long-term credit facility, which bears interest at 0.60% above
the three month EURIBOR rate, provides for principal to be repaid in 20 equal
quarterly installments and requires the maintenance of a debt equity ratio
of
less than one. At March 31, 2006 exchange rates, maturities of long-term debt
subsequent to March 31, 2006 are $2.9 million in 2006, $3.9 million in 2007
and
2008, and $1.9 million in 2009.
In
order
to reduce exposure to rising variable interest rates, the Company entered into
a
swap transaction effectively exchanging the variable interest rate referred
to
above to a variable rate based on the 12 month EURIBOR rate with a floor of
3.25% and a ceiling of 3.85%. This derivative instrument is recorded at fair
value and changes in fair value are reflected in the consolidated statements
of
income.
9.
Entry
into Material Definitive Agreement:
In
March
2006, we entered into an exclusive worldwide license agreement with Quiksilver,
Inc. for the creation, development and distribution of fragrance, suncare,
skincare and related products under the Roxy brand and suncare and related
products under the Quiksilver brand. The agreement, which runs through 2017,
requires advertising expenditures and royalty payments in line with industry
practice. Our plans call for the first new product line under the agreement,
a
Roxy fragrance family, to be introduced in late 2007, followed by a Quiksilver
suncare line.
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, 2005, 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.
Overview
We
operate in the fragrance and cosmetic industry, and manufacture, market and
distribute a wide array of fragrances, cosmetics and health and beauty aids.
We
manage our business in two segments, French based operations and United States
based operations. We specialize in prestige, specialty retail, and mass-market
perfumes, cosmetics and other personal care products. Practically all of our
prestige products are produced and marketed by our 73% owned subsidiary in
Paris, Inter Parfums, S.A., which is also a publicly traded company as 27%
of
Inter Parfums, S.A. shares trade on the Euronext. Prestige cosmetics and
prestige skin care products represent less than 5% of consolidated net sales.
Our specialty retail and mass-market products are produced and marketed by
our
United States operations.
Our
prestige product lines, which are manufactured and distributed by us primarily
under license agreements with brand owners, represented approximately 89% of
net
sales for the three months ended March 31, 2006. We have built a portfolio
of
brands, which includes Burberry, Lanvin, S.T. Dupont, Paul Smith, Christian
Lacroix, Celine, Nickel and Diane von Furstenberg whose products are distributed
in over 120 countries around the world. Burberry is our most significant
license; sales of Burberry products represented 60% and 62% of net sales for
the
three months ended March 31, 2006 and 2005, respectively.
Our
mass-market product lines, which are primarily marketed through our United
States operations represented 11% of sales for the three months ended March
31,
2006, and are comprised of alternative designer fragrances, cosmetics, health
and beauty aids and personal care products. These lines are sold under
trademarks owned by us or pursuant to license agreements we have for the
trademarks Jordache
and
Tatiana.
Our
specialty retail products consist of products under development for Gap and
Banana Republic. These new products are expected to launch at Banana Republic
in
the fall of 2006 and at Gap in 2007.
INTER
PARFUMS, INC. AND SUBSIDIARIES
We
grow
our business in two distinct ways. First, we grow by adding new brands to our
portfolio, either through new licenses or out-right acquisitions of brands.
Second, we grow through the creation of product line extensions within the
existing brands in our portfolio. Every two to three years, we create a new
family of fragrances for each prestige brand in our portfolio.
Our
business is not very capital intensive, and it is important to note that we
do
not own any manufacturing facilities. Rather, we act as a general contractor
and
source our needed components from our suppliers. These components are received
at one of our distribution centers and then, based upon production needs, the
components are sent to one of several outside fillers which manufacture the
finished good for us and ship it back to our distribution center.
Recent
Important Events
Quiksilver/Roxy
In
March
2006, we entered into an exclusive worldwide license agreement with Quiksilver,
Inc. for the creation, development and distribution of fragrance, suncare,
skincare and related products under the Roxy brand and suncare and related
products under the Quiksilver brand. Quiksilver, Inc. is the world’s leading
outdoor sports lifestyle company whose products are sold in 90 countries. The
agreement runs through 2017.
The
Roxy
and Quiksilver names are hugely popular in the global youth market and are
synonymous with the heritage and culture of surfing, skateboarding and
snowboarding. Our goal is to leverage the passion and loyalty of the Roxy and
Quiksilver brands as we bring their customers exciting new products. Our plans
call for the first new product line under the agreement, a Roxy fragrance
family, to be introduced in late 2007, followed by a Quiksilver suncare line.
Gap
and Banana Republic
On
July
14, 2005, we entered into an exclusive agreement with Gap to develop, produce,
manufacture and distribute personal care and home fragrance products for Gap
and
Banana Republic brand names to be sold in Gap and Banana Republic retail stores
in the United States and Canada. On March 2, 2006, the agreement was amended
to
include Gap Outlet and Banana Republic Factory Stores in the United States
and
Canada. This agreement marks our entrée into the specialty retail store
fragrance business.
Our
exclusive rights under the agreement are subject to certain exceptions. The
principal exceptions are that the agreement excludes any rights with respect
to
on-line, catalog and mail-order, and international stores outside Canada,
although Gap has the right to expand the agreement if it chooses.
The
initial term of this agreement expires on August 31, 2009, and the agreement
includes an additional two-year optional term that expires on August 31, 2011,
as well as a further additional two-year term that expires on August 31, 2013,
in each case if certain retail sales targets are met or Gap chooses to extend
the term. In addition, if the agreement is extended for the first optional
term,
then Gap has the right to terminate our rights under the agreement before the
end of that first optional term if Gap pays an amount specified in a formula,
with the right to be exercised during the period beginning on September 1,
2010
and expiring on August 31, 2011.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Although
the initial line has not been finalized, potential products include fragrance
and related personal care products. The new products are expected to launch
at
Banana Republic in the fall of 2006 and at Gap in 2007. We have agreed to
establish a dedicated operating unit to carry out our obligations under the
agreement with Gap. We have incurred and expect to continue to incur staffing,
product development and other start-up expenses, including those of a
third-party design and marketing firm. To propel these programs forward, these
expenses are expected to continue in 2006. In addition, we are currently
transitioning component sourcing and production of Gap’s existing fragrance and
personal care product lines to suppliers and contract fillers of the Company.
Margins on initial sales to Gap of their existing product lines are expected
to
be minimal, as we are honoring all existing purchase commitments.
Discussion
of Critical Accounting Policies
We
make
estimates and assumptions in the preparation of our financial statements in
conformity with accounting principles generally accepted in the United States
of
America. Actual results could differ significantly from those estimates under
different assumptions and conditions. We believe the following discussion
addresses our most critical accounting policies, which are those that are most
important to the portrayal of our financial condition and results of operations.
These accounting policies generally require our management's most difficult
and
subjective judgments, often as a result of the need to make estimates about
the
effect of matters that are inherently uncertain. The following is a brief
discussion of the more critical accounting policies that we employ.
Revenue
Recognition
We
sell
our products to department stores, perfumeries, mass-market retailers,
supermarkets and domestic and international wholesalers and distributors. Sales
of such products by our domestic subsidiaries are denominated in U.S. dollars
and sales of such products by our foreign subsidiaries are primarily denominated
in either Euros or U.S. dollars. Accounts receivable reflect the granting of
credit to these customers. We generally grant credit based upon our analysis
of
the customer's financial position as well as previously established buying
patterns. Generally, we do not bill customers for shipping and handling costs
and all shipping and handling costs, which aggregated $1.0 million for both
of
the three month periods ended March 31, 2006 and 2005, are included in selling,
general and administrative expense in the consolidated statements of income.
We
recognize revenues when merchandise is shipped and the risk of loss passes
to
the customer. Net sales are comprised of gross revenues less returns, and trade
discounts and allowances.
Sales
Returns
Generally,
we do not permit customers to return their unsold products. However, on a
case-by-case basis we occasionally allow customer returns. We regularly review
and revise, as deemed necessary, our estimate of reserves for future sales
returns based primarily upon historic trends and relevant current data. We
record estimated reserves for sales returns as a reduction of sales, cost of
sales and accounts receivable. Returned products are recorded as inventories
and
are valued based upon estimated realizable value. The physical condition and
marketability of returned products are the major factors we consider in
estimating realizable value. Actual returns, as well as estimated realizable
values of returned products, may differ significantly, either favorably or
unfavorably, from our estimates, if factors such as economic conditions,
inventory levels or competitive conditions differ from our expectations.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Promotional
Allowances
We
have
various performance-based arrangements with certain retailers to reimburse
them
for all or a portion of their promotional activities related to our products.
These arrangements primarily allow customers to take deductions against amounts
owed to us for product purchases. Estimated accruals for promotions and
co-operative advertising programs are recorded in the period in which the
related revenue is recognized. We review and revise the estimated accruals
for
the projected costs for these promotions. Actual costs incurred may differ
significantly, either favorably or unfavorably, from estimates if factors such
as the level and success of the retailers' programs or other conditions differ
from our expectations.
Inventories
Inventories
are stated at the lower of cost or market value. Cost is principally determined
by the first-in, first-out method. We record adjustments to the cost of
inventories based upon our sales forecast and the physical condition of the
inventories. These adjustments are estimates, which could vary significantly,
either favorably or unfavorably, from actual requirements if future economic
conditions or competitive conditions differ from our expectations.
Equipment
and Other Long-Lived Assets
Equipment,
which includes tools and molds, is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets. Changes
in
circumstances such as technological advances, changes to our business model
or
changes in our capital spending strategy can result in the actual useful lives
differing from our estimates. In those cases where we determine that the useful
life of equipment should be shortened, we would depreciate the net book value
in
excess of the salvage value, over its revised remaining useful life, thereby
increasing depreciation expense. Factors such as changes in the planned use
of
equipment, or market acceptance of products, could result in shortened useful
lives.
Long-lived
assets, including trademarks, licenses, goodwill and other rights, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of any such asset may not be recoverable. If the sum of the
undiscounted cash flows (excluding interest) is less than the carrying value,
then we recognize an impairment loss, measured as the amount by which the
carrying value exceeds the fair value of the asset. The estimate of undiscounted
cash flow is based upon, among other things, certain assumptions about expected
future operating performance. Our estimates of undiscounted cash flow may differ
from actual cash flow due to, among other things, economic conditions, changes
to our business model or changes in consumer acceptance of our products. In
those cases where we determine that the useful life of other long-lived assets
should be shortened, we would depreciate the net book value in excess of the
salvage value (after testing for impairment as described above), over the
revised remaining useful life of such asset thereby increasing amortization
expense.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Results
of Operations
Three
Months Ended March 31, 2006 as Compared to the Three Months Ended March 31,
2005
|
|
Three
months ended March 31,
|
|
|
|
2006
|
|
%
Change
|
|
2005
|
|
%
Change
|
|
2004
|
|
(in
millions)
|
|
|
|
|
|
Prestige
product sales
|
|
$
|
63.4
|
|
|
1
|
%
|
$
|
62.7
|
|
|
29
|
%
|
$
|
48.5
|
|
Mass
market product sales
|
|
|
7.5
|
|
|
(11
|
%)
|
|
8.4
|
|
|
(15
|
%)
|
|
9.9
|
|
Total
net sales
|
|
$
|
70.9
|
|
|
0
|
%
|
$
|
71.1
|
|
|
22
|
%
|
$
|
58.4
|
|
Net
sales
for the three months ended March 31, 2006 of $70.9 million were down slightly
from $71.1 million in the first quarter of last year. At comparable foreign
currency exchange rates, net sales for the first quarter are up 5.5%. The
strength of the US dollar in early 2006, gave rise to the difference between
constant dollar and reported net sales for the first quarter.
After
increasing 29% in 2005, prestige product sales were up 1% in actual dollars
and
approximately 8% in constant dollars for the three-month period ended March
31,
2006. Lanvin fragrance sales, which performed exceptionally well throughout
2005, continued its growth pattern in the first quarter of 2006. In addition,
the initial launch of Burberry
London
for
women in the United States and much of Europe contributed to first quarter
sales
growth.
Our
2006
new product calendar is very ambitious, with new families of fragrances planned
for all three of our largest brands. As noted above, Burberry
London,
a new
women’s fragrance has recently launched and the men’s counterpart of this new
fragrance family is scheduled for launch later this year. A new Lanvin women’s
scent and a new Paul Smith men’s scent are also in the works. Finally, new men
scents for S.T. Dupont and Nickel will also debut in 2006.
With
respect to our mass-market product lines, net sales were down 11% in the 2006
period after falling 15% in the 2005 period. We thought that the decline in
mass-market sales would begin to subside and it has in terms of rate of decline.
However, mass-market sales were down again in the 2006 first quarter and the
decline remains to be equally distributed between our domestic and export
customers. We continue to believe that oil and gas prices are a significant
cause for declining sales in the dollar store markets, as dollar store customers
have less disposable cash. In addition, sluggish economies in Mexico and Central
and South America continue to affect our customers in those territories.
On
July
14, 2005, we entered into an exclusive agreement with Gap to develop, produce,
manufacture and distribute personal care and home fragrance products for Gap
and
Banana Republic brand names to be sold in Gap and Banana Republic retail stores
in the United States and Canada. On March 2, 2006, the agreement was amended
to
include Gap Outlet and Banana Republic Factory Stores in the United States
and
Canada. This agreement marks our entrée into the specialty retail store
fragrance business.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Although
the initial line has not been finalized, potential products include fragrance
and related personal care products. The new products are expected to launch
at
Banana Republic in the fall of 2006 and at Gap in 2007. We have established
a
dedicated operating unit to carry out our obligations under the agreement with
Gap. We have incurred and expect to continue to incur staffing, product
development and other start-up expenses, including those of a third-party design
and marketing firm. To propel these programs forward, these expenses are
expected to continue throughout 2006. In addition, we are currently
transitioning component sourcing and production of Gap’s existing fragrance and
personal care product lines to suppliers and contract fillers of the Company.
Margins on initial sales to Gap of their existing product lines are minimal,
as
we are honoring all existing purchase commitments.
In
March
2006, we entered into an exclusive worldwide license agreement with Quiksilver,
Inc. for the creation, development and distribution of fragrance, suncare,
skincare and related products under the Roxy brand and suncare and related
products under the Quiksilver brand. The Roxy and Quiksilver names are hugely
popular in the global youth market and are synonymous with the heritage and
culture of surfing, skateboarding and snowboarding. Our goal is to leverage
the
passion and loyalty of the Roxy and Quiksilver brands as we bring their
customers exciting new products. Our plans call for the first new product line
under the agreement, a Roxy fragrance family, to be introduced in late 2007,
followed by a Quiksilver suncare line.
In
addition, we are actively pursuing other new business opportunities. However,
we
cannot assure you that any new license or acquisitions will be
consummated.
Gross
margins |
|
Three
months ended March
31,
|
|
(in
millions)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
70.9
|
|
$
|
71.1
|
|
Cost
of sales
|
|
|
30.6
|
|
|
30.5
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
$
|
40.3
|
|
$
|
40.6
|
|
|
|
|
|
|
|
|
|
Gross
margin as a % of net sales
|
|
|
57
|
%
|
|
57
|
%
|
Gross
profit margin was 57% for both three-month periods ended March 31, 2006 and
2005. As previously reported, in anticipation of the new terms of the Burberry
license, and to mitigate the associated expenses, we fine-tuned our operating
model. This new model, which was put into effect as of the beginning of 2005,
included increased selling prices to distributors, modified cost sharing
arrangements with suppliers and distributors, and will involve the future
formation of joint ventures or Company-owned subsidiaries within key markets
to
handle future distribution.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Selling,
general & administrative
|
|
|
|
(in
millions)
|
|
Three
months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Selling,
general & administrative
|
|
$
|
31.1
|
|
$
|
31.6
|
|
|
|
|
|
|
|
|
|
Selling,
general & administrative
as
a % of net sales
|
|
|
44
|
%
|
|
44
|
%
|
Selling,
general and administrative expense was virtually unchanged for
the
three-month period ended March 31, 2006, as compared to the corresponding period
of the prior year. As a percentage of sales selling, general and administrative
was 44% for both the three-month period ended March 31, 2006 and 2005. The
increased royalties and increased advertising expenditure requirements under
our
new license with Burberry are now reflected in both the 2006 and 2005 periods.
Royalty expense included in selling, general, and administrative expenses
aggregated $7.3 million and $7.7 million, for the three-month period ended
March
31, 2006 and 2005, respectively. Promotion
and advertising included in selling, general and administrative expenses was
approximately $9.6
million and $11.1 million for the three-month period ended March 31, 2006 and
2005, respectively.
In
connection with our agreement with Gap, we continue to incur staff, product
development and other start-up expenses, including those of a third-party design
and marketing firm. For the three months ended March 31, 2006, such expenses
aggregated approximately $1.0 million and are included in selling, general,
and
administrative expenses.
Income
from operations increased slightly to $9.2 million for the three-month period
ended March 31, 2006, as compared to $9.0 for the corresponding period of the
prior year. Operating margins were 13.0% of net sales in the current period
as
compared to 12.7% for the corresponding period of the prior year.
Interest
expense aggregated $0.2 million for both the three-month period ended March
31,
2006 and 2005. We use the credit lines available to us, as needed, to finance
our working capital needs.
Foreign
currency gains or (losses) aggregated $0.2 million and ($0.1) million for the
three-month period ended March 31, 2006 and 2005, respectively. We enter into
foreign currency forward exchange contracts to manage exposure related to
certain foreign currency commitments.
Our
effective income tax rate was 34.2% and 35.2% for the three-month period ended
March 31, 2006 and 2005, respectively. For the three months ended March 31,
2006, tax benefits, including state and local tax benefits, from losses in
the
United States are at higher effective rates than taxes on foreign profits,
resulting in a slightly lower overall effective tax rate. No significant changes
in tax rates were experienced nor were any expected in jurisdictions where
we
operate.
Net
income was $4.4 million for both the three months ended March 31, 2006 and
2005.
Diluted earnings per share were $0.22 for both three months ended March 31,
2006
and 2005.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Weighted
average shares outstanding aggregated 20.3 million for the three months ended
March 31, 2006, as compared to 19.7 million for the corresponding period of
the prior year. On a diluted basis, average shares outstanding were 20.5 million
for the three months ended March 31, 2006, as compared to 20.4 million for
the corresponding period of the prior year. The increase in weighted average
shares outstanding without a corresponding increase in diluted shares
outstanding is the result of employees’ exercise of outstanding stock
options.
Liquidity
and Financed Resources
Our
financial position remains strong. At March 31, 2006, working capital aggregated
$139 million and we had a working capital ratio of 2.7 to 1. Cash and
cash equivalents and short-term investments aggregated $65 million.
In
April
2004, Inter Parfums, S.A. acquired a 67.5% interest in Nickel for approximately
$4.5 million, net of cash acquired. We funded this acquisition with cash on
hand. In accordance with the purchase agreement, each of the minority
shareholders has an option to put their remaining interest in Nickel to Inter
Parfums, S.A. from January 2007 through June 2007. Based on an
independent valuation, management has valued the put options as of the date
of
acquisition. These options are carried at fair value as determined by
management.
The
purchase price for the minority shares will be based upon a formula applied
to
Nickel’s sales for the year ending December 31, 2006, pro rated for the
minority holders’ equity in Nickel or at a price approximately 7% above the
April 2004 purchase price.
In
July
2004, Inter Parfums, S.A. entered into a 16 million euro, five-year credit
agreement. In order to reduce exposure to rising variable interest rates, Inter
Parfums, S.A. entered into a swap transaction effectively exchanging a
three-month variable interest rate to a variable rate based on the 12 month
EURIBOR rate with a floor of 3.25% and a ceiling of 3.85%. This derivative
instrument is recorded at fair value and changes in fair value are reflected
in
the accompanying consolidated statements of income.
Cash
provided by operating activities aggregated $2.7 million and $8.5 million for
the three-month period ended March 31, 2006 and 2005, respectively. At March
31,
2006, cash flows from operating activities shows inventories increased 19%
from
December 31, 2005. Inventories were at an unusually low level as of December
31,
2005 as no major new product launches were on the calendar. As previously
mentioned, our 2006 new product calendar is very ambitious, with new families
of
fragrances planned for all three of our largest brands, thus requiring an
increased level of inventories.
Cash
flows used in investing activities, reflects proceeds from the sale of
short-term investments, approximately $0.9 million in payments for intangible
assets and approximately $0.9 million in capital expenditures. Our business
is
not capital intensive and we do not own any manufacturing facilities. We
typically spend between $2.0 and $3.0 million per year on tools and molds,
depending on our new product development calendar. The balance of capital
expenditures is for office fixtures, computer equipment and industrial equipment
needed at our distribution centers.
INTER
PARFUMS, INC. AND SUBSIDIARIES
In
March
2006, our board of directors approved the continuation of our cash dividend
of
$.16 per share, approximately $3.3 million per annum, payable $.04 per share
on
a quarterly basis. Our cash dividend of $.04 per share was paid on April 14,
2006 to shareholders of record on March 31, 2006. Dividends paid aggregated
$0.8
million and $0.6 million for the three-month period ended March 31, 2006 and
2005, respectively. The cash dividend for 2006 represents a small part of our
cash position and is not expected to have any significant impact on our
financial position.
Our
short-term financing requirements are expected to be met by available cash
at
March 31, 2006, cash generated by operations and short-term credit lines
provided by domestic and foreign banks. The principal credit facilities for
2006
consist of a $12.0 million unsecured revolving line of credit provided by a
domestic commercial bank and approximately $45.0 million in credit lines
provided by a consortium of international financial institutions. Actual
borrowings under these facilities have been minimal as we typically use our
working capital to finance all of our cash needs.
We
believe that funds generated from operations, supplemented by our present cash
position and available credit facilities, will provide us with sufficient
resources to meet all present and reasonably foreseeable future operating
needs.
Inflation
rates in the U.S. and foreign countries in which we operate did not have a
significant impact on operating results for the period ended March 31,
2006.
Contractual
Obligations
We
lease
our office and warehouse facilities under operating leases expiring through
2013. Obligations pursuant to these leases for the years ended December 31,
2006, 2007, 2008, 2009, 2010 and thereafter are $5.5 million, $5.5 million, $5.6
million, $5.7 million, $5.5 million and $6.6 million, respectively.
We
are
obligated under a number of license agreements for the use of trademarks and
rights in connection with the manufacture and sale of our products. Obligations
pursuant to these license agreements for the years ended December 31, 2006,
2007, 2008, 2009, 2010 and thereafter are $24.0 million, $26.6 million, $26.9
million, $28.0 million, $28.1 million and $184.6 million, respectively.
Item
3: QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
We
address certain financial exposures through a controlled program of risk
management that primarily consists of the use of derivative financial
instruments. Our French subsidiary primarily enters into foreign currency
forward exchange contracts in order to reduce the effects of fluctuating foreign
currency exchange rates. We do not engage in the trading of foreign currency
forward exchange contracts or interest rate swaps.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Foreign
Exchange Risk Management
We
periodically enter into foreign currency forward exchange contracts to hedge
exposure related to receivables denominated in a foreign currency and to manage
risks related to future sales expected to be denominated in a foreign currency.
We enter into these exchange contracts for periods consistent with our
identified exposures. The purpose of the hedging activities is to minimize
the
effect of foreign exchange rate movements on the receivables and cash flows
of
Inter Parfums, S.A., our French subsidiary, whose functional currency is the
Euro. All foreign currency contracts are denominated in currencies of
major industrial countries and
are
with large financial
institutions, which are rated as strong investment grade.
All
derivative instruments are required to be reflected as either assets or
liabilities in the balance sheet measured at fair value. Generally, increases
or
decreases in fair value of derivative instruments will be recognized as gains
or
losses in earnings in the period of change. If the derivative is designated
and
qualifies as a cash flow hedge, the changes in fair value of the derivative
instrument will be recorded in other comprehensive income.
Before
entering into a derivative transaction for hedging purposes, we determine that
the change in the value of the derivative will effectively offset the change
in
the fair value of the hedged item from a movement in foreign currency rates.
Then, we measure the effectiveness of each hedge throughout the hedged period.
Any hedge ineffectiveness is recognized in the income statement.
We
believe that our risk of loss as the result of nonperformance by any of such
financial institutions is remote and in any event would not be material. The
contracts have varying maturities with none exceeding one year. Costs associated
with entering into such contracts have not been material to our financial
results. At March 31, 2006, we had foreign currency contracts in the form of
forward exchange contracts in the amount of approximately U.S. $34.3 million
and
GB Pounds 2.6 million.
Interest
Rate Risk Management
We
mitigate interest rate risk by continually monitoring interest rates, and then
determining whether fixed interest rates should be swapped for floating rate
debt, or if floating rate debt should be swapped for fixed rate debt. We have
entered into one (1) interest rate swap to reduce exposure to rising variable
interest rates, by effectively exchanging the variable interest rate of 0.6%
above the three month EURIBOR rate on our long-term to a variable rate based
on
the 12 month EURIBOR rate with a floor of 3.25% and a ceiling of 3.85%. This
derivative instrument is recorded at fair value and changes in fair value are
reflected in the accompanying consolidated statements of income.
Item
4. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
Chief
Executive Officer and Chief Financial Officer have reviewed and evaluated the
effectiveness of our disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rule 13a-14(c)) as of the end of the period
covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based on
their review and evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of the Evaluation Date, our Company's disclosure
controls and procedures were adequate and effective to ensure that material
information relating to our Company and its consolidated subsidiaries would
be
made known to them by others within those entities, so that such material
information is recorded, processed and reported in a timely manner, particularly
during the period in which this quarterly report on Form 10-Q was being
prepared, and that no changes were required at this time.
INTER
PARFUMS, INC. AND SUBSIDIARIES
Changes
in Internal Controls
There
has
been no change in our internal control over financial reporting (as defined
in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the
quarterly period covered by this report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Part
II. Other Information
Items
1, 3, 4 and 5 are omitted as they are either not applicable or have been
included in Part I.
Item
2. Changes in Securities and Use of Proceeds
For
the
period consisting of the date of the filing, March 13, 2006, of our annual
report on Form 10-K for the year ended December 31, 2005, through the date
of
this report, we issued the following unregistered equity
securities.
A
former
executive officer and a former consultant to the company exercised stock options
and purchased 36,000 and 15,000 shares of our common stock, respectively, in
transactions exempt from the registration requirements of Section 5 of the
Securities Act under Sections 4(2) of the Securities Act. All of such persons
agreed to purchase our common stock for investment and not for resale to the
public.
Item
6. Exhibits.
The
following documents are filed herewith:
Exhibit
No.
|
Description
|
|
|
10.126
|
Contrat
de Licence de Marques entre QS Holdings SARL and Inter Parfums, S.A.,
executed on 23 March 2006 - French original (Certain confidential
information in this Exhibit 10.126 was omitted and filed separately
with
the Securities and Exchange Commission with a request for confidential
treatment by Inter Parfums, Inc).
|
|
|
10.126.1
|
Trademark
License Agreement between QS Holdings SARL and Inter Parfums, S.A.,
executed on 23 March 2006 - English translation (Certain confidential
information in this Exhibit 10.126.1 was omitted and filed separately
with
the Securities and Exchange Commission with a request for confidential
treatment by Inter Parfums, Inc).
|
INTER
PARFUMS, INC. AND SUBSIDIARIES
|
|
10.127
|
Avenant
No. 1 Au Contrat de Licence Exclusive du 20 Juin 1997 entre ST Dupont,
S.A. et Inter Parfums, S.A., dated 20 March 2006- French original
(Certain
confidential information in this Exhibit 10.127 was omitted and filed
separately with the Securities and Exchange Commission with a request
for
confidential treatment by Inter Parfums, Inc).
|
|
|
10.127.1
|
Amendment
No.1 to Exclusive License of 20 June 1997 between ST Dupont, S.A.
et Inter
Parfums, S.A., dated 20 March 2006- English translation (Certain
confidential information in this Exhibit 10.127.1 was omitted and
filed
separately with the Securities and Exchange Commission with a request
for
confidential treatment by Inter Parfums, Inc).
|
|
|
31.1
|
Certifications
required by Rule 13a-14(a) of Chief Executive Officer
|
|
|
31.2
|
Certifications
required by Rule 13a-14(a) of Chief Financial Officer
|
|
|
32
|
Certification
required by Section 906 of the Sarbanes-Oxley
Act
|
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 9th day of May 2006.
|
|
|
|
INTER
PARFUMS, INC. |
|
|
|
|
By: |
/s/ Russell
Greenberg |
|
Executive
Vice President and |
|
Chief
Financial Officer |