<PAGE>
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, 2000.
OR
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from___________
to ________.
Commission File No. 0-16469
-------
INTER PARFUMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3275609
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
551 Fifth Avenue, New York, New York 10176
-------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 983-2640
-------------------------------------------
(Registrants telephone number, including area code:)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes X No
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.
At May 9, 2000 there were 7,835,981 shares of common stock, par value $.001 per
share, outstanding.
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements 1
Consolidated Balance Sheets as
of March 31, 2000 (unaudited)
and December 31, 1999 (audited) 2
Consolidated Statements of
Income for the Three Months
Ended March 31, 2000 (unaudited)
and March 31, 1999 (unaudited) 3
Consolidated Statements of
Cash Flows for the
Three Months Ended
March 31, 2000 (unaudited) and
March 31, 1999 (unaudited) 4
Notes to Unaudited Financial
Statements 5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7
Part II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and
Use of Proceeds 12
Item 5. Other Information 12
Signatures 13
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
of the Company and its results of operations and cash flows for the interim
periods presented. Such financial statements have been condensed in accordance
with the rules and regulations of the Securities and Exchange Commission and
therefore, do not include all disclosures required by generally accepted
accounting principles. These financial statements should be read in conjunction
with the Company's audited financial statements for the year ended December 31,
1999 included in the Company's annual report filed on Form 10-K.
The results of operations for the three months ended March 31, 2000 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
Page 1
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2000 1999
----------- ------------
Current assets:
Cash and cash equivalents $ 26,527,596 $ 24,936,361
Marketable securities 4,381,945 4,424,043
Accounts receivable, net 24,825,526 26,032,673
Inventories 22,968,604 19,450,212
Receivables, other 1,049,514 874,829
Other 1,256,505 1,168,480
Deferred tax benefit 1,161,323 858,035
------------ ------------
Total current assets 82,171,013 77,744,633
Equipment and leasehold improvements, net 3,564,055 3,126,162
Other assets 431,917 508,184
Intangible assets, net 5,480,647 5,843,720
------------ ------------
$ 91,647,632 $ 87,222,699
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable, banks $ 2,920,665 $ 786,217
Accounts payable 18,651,681 18,449,190
Accrued expenses 5,528,557 4,351,536
Income taxes payable 1,707,056 768,940
Deferred taxes payable 947,517 987,654
------------ ------------
Total current liabilities 29,755,476 25,343,537
------------ ------------
Long-term debt, less current portion 1,458,364 1,531,394
------------ ------------
Minority interests 8,014,729 7,988,208
------------ ------------
Shareholders' equity:
Common stock, $.001 par; authorized
30,000,000 shares; outstanding
7,832,481 and 7,888,481 shares at
March 31, 2000 and December 31, 1999,
respectively 7,832 7,888
Additional paid-in capital 26,579,517 26,522,027
Retained earnings 53,500,634 52,078,296
Accumulated other comprehensive
income (5,028,097) (4,289,854)
Treasury stock, at cost, 3,661,203
and 3,595,203 shares at March 31,
2000 and December 31, 1999,
respectively (22,640,823) (21,958,797)
------------ ------------
52,419,063 52,359,560
------------ -------------
$ 91,647,632 $ 87,222,699
============ =============
See notes to financial statements.
Page 2
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
2000 1999
------ ------
Net sales $22,168,514 $19,583,551
Cost of sales 12,244,820 10,099,031
----------- -----------
Gross margin 9,923,694 9,484,520
Selling, general and administrative 7,466,092 7,133,969
----------- -----------
Income from operations 2,457,602 2,350,551
----------- -----------
Other charges (income):
Interest 57,905 105,852
Loss on foreign currency 39,157 68,464
Interest and dividend (income) (227,98) (199,335)
Realized (gain) on sale of investments (500,151)
----------- -----------
(631,077) (25,019)
----------- -----------
Income before income taxes 3,088,679 2,375,570
Income taxes 1,413,329 977,956
----------- -----------
Net income before minority interest 1,675,350 1,397,614
Minority interest in net income
of consolidated subsidiary 253,012 240,684
----------- -----------
Net income $1,422,338 $1,156,930
=========== ============
Net income per common share:
Basic $0.18 $0.15
Diluted $0.17 $0.15
=========== ============
Number of common shares outstanding:
Basic 7,844,833 7,888,373
Diluted 8,616,785 7,975,223
=========== ============
See notes to financial statements.
Page 3
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
---------------- ------------------
<S> <C> <C>
Operating activities:
Net income $1,422,338 $1,156,930
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 453,199 414,990
Minority interest in net income 253,012 240,684
Deferred tax (benefit) provision 27,209
Increase (decrease) in cash from changes in:
Accounts receivable 289,762 1,088,775
Inventories (4,283,806) (506,585)
Other assets (285,547) (980,840)
Accounts payable and accrued expenses 2,324,156 441,162
Income taxes payable 182,805 481,876
---------------- ------------------
Net cash provided by operating activites 355,919 2,364,201
---------------- ------------------
Investing activities:
Purchase of equipment and leasehold improvements (850,681) (139,344)
Trademark and license acquisitions (950) (1,700)
Sale of marketable securities 1,060,843
---------------- ------------------
Net cash (used in) investing activities 209,212 (141,044)
---------------- ------------------
Financing activities:
Increase in loan payable, bank 2,242,922 192,308
Proceeds from exercise of stock options 57,500
Purchase of treasury stock (682,092) (5,515,649)
---------------- ------------------
Net cash (used in) financing activities 1,618,330 (5,323,341)
---------------- ------------------
Effect of exchange rate changes on cash (592,226) (926,857)
---------------- ------------------
Increase (decrease) in cash and cash equivalents 1,591,235 (4,027,041)
Cash and cash equivalents at beginning of period 24,936,361 23,355,915
---------------- ------------------
Cash and cash equivalents at end of period $26,527,596 $19,328,874
================ ==================
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $60,000 $113,000
Income taxes 550,000 467,000
</TABLE>
See notes to financial statements.
Page 4
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Unaudited Financial Statements
1. Significant Accounting Policies:
The accounting policies followed by the Company are set forth in the
notes to the Company's financial statements included in its Form 10-K
which was filed with the Securities and Exchange Commission for the
year ended December 31, 1999.
2. Comprehensive Income:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 2000 March 31, 1999
------------------ ------------------
<S> <C> <C>
Comprehensive income:
Net income $ 1,422,338 $ 1,156,930
Other comprehensive income, net of tax:
Foreign currency translation adjustment ( 1,274,725) ( 2,166,650)
Unrealized gains on securities:
Unrealized holding gains arising
during period 760,340
Less: reclassification adjustment for
gains realized in net income ( 223,859)
--------------- --------------
Comprehensive income $ 684,094 ( $ 1,009,720)
=============== ==============
</TABLE>
3. Geographic areas:
Segment information related to domestic and foreign operations is as
follows:
Three months ended Three months ended
March 31, 2000 March 31, 1999
------------------ ------------------
Net sales:
United States $ 8,043,092 $ 6,326,329
Europe 14,155,422 13,282,222
Eliminations
( 30,000) ( 25,000)
----------------- -----------------
$ 22,168,514 $ 19,583,551
============= =============
Net Income:
United States $ 569,543 $ 288 664
Europe 856,928 905,641
South America ( 4,133) ( 37,375)
----------------- -----------------
$ 1,422,338 $ 1,156,930
============== ==============
Page 5
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Unaudited Financial Statements
4. Earnings Per Share:
Basic earnings per share are computed using the weighted average number
of shares outstanding during each period. Diluted earnings per share
are computed using the weighted average number of shares outstanding
during each period, plus the incremental shares outstanding assuming
the exercise of dilutive stock options.
5. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Raw materials and component parts $ 8,933,065 $ 8,239,528
Finished goods 14,035,539 11,210,684
------------- -------------
$ 22,968,604 $ 19,450,212
</TABLE>
6. Other matters:
Income taxes for the three months ended March 31, 2000 includes a
$330,000 addition to the accrual, originally established in 1999, to
cover the potential exposure related to a tax audit of Inter Parfums,
S.A. commenced by the French Tax Authorities. The original accrual of
$260,000 was established to cover an estimate of potential exposure
based on an assessment issued by the French Tax Authorities for the
1996 tax year. This additional accrual covers, what we believe could be
our exposure for the 1997 and 1998 tax years on issues similar to that
of the 1996 tax year.
Page 6
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our Company is a leading manufacturer and distributor of fragrances, cosmetics
and personal care products. Innovation and creativity are combined to produce
quality products for our customers around the world.
We specialize in the production of both prestige fragrances and mass market
fragrances and cosmetics:
o Prestige products -- For each prestige brand, owned or licensed, we
create an original concept for the perfume consistent with world market
trends;
o Mass market products -- We design, market and distribute inexpensive
fragrances and personal care products including alternative designer
fragrances and mass market cosmetics.
Three Months Ended March 31, 2000 as Compared to the Three Months
Ended March 31, 1999
Net sales for the three months ended March 31, 2000 increased 13% to $22.2
million, as compared to $19.6 million for the corresponding period of the prior
year. At comparable foreign currency exchange rates, net sales for the three
months ended March 31, 2000 increased 23% from that of the corresponding period
of the prior year.
The increase in net sales represents the second consecutive quarter of revenue
growth and is attributable to across-the-board increases in both our prestige
and mass market product lines. The precipitous rise of the US dollar relative to
the French franc masks the reality of our real revenue growth rate.
Growth in net sales of prestige products, which was up approximately 20% for the
quarter in constant dollars, was fueled in part by the launch of our new S.T.
Dupont "Signature" line. Our "Signature" line, was designed around the theme of
writing, for which S.T. Dupont is famous, and is a perfect complement to our
successful S.T. Dupont "Paris" fragrance line. New product launches are
scheduled to roll out throughout the year and include the introduction of our
first Paul Smith Fragrance line, and our newest Burberry offering. Management
believes that when you combine the strong market conditions we are experiencing
with existing products, with the new product offerings we have planned, this 20%
constant dollar growth rate can be maintained throughout the remainder of this
year.
Page 7
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
Net sales of mass market products achieved a 27% growth rate for the three
months ended March 31, 2000 as compared to the corresponding period of the prior
year. We first reported signs of a turnaround in our mass market business when
we reported results for the third quarter of 1999. We were well prepared to
capitalize on the economic recoveries of certain Latin American countries, armed
with a strong line of new products available to both our export and domestic
customers. In March 2000, we introduced our newest mass market fragrance line
which is a large size fragrance, packaged in a unique canister decorated using
the latest in graphic arts technology. Priced to sell, this line's success is
presently exceeding our original expectations. During 1999, we also designed our
new Aziza II line of eye shadow kits, mascaras, colorful lip gloss products and
pencils. Aziza II, which hit the stores in February 2000, was created primarily
for the "Discount Store" market, and is achieving widespread acceptance and
reorders with distribution in over 12,000 doors.
Growing sales within existing product lines, new product launches and an active
new business development program is how we plan to continue to grow our
business. With respect to new business development, several licensing and
acquisition opportunities are presently under discussion. We are in the final
stages of negotiation on a licensing venture which we believe could be a new
avenue of growth in sales and earnings. However, no assurance can be given that
such transaction will be completed.
Gross profit margin was 45% of net sales for the three months ended March 31,
2000, as compared to 48% for the corresponding period of the prior year. Our
target gross margin percentage has historically been 45% to 46%. Over the past
three years, increased prestige product sales have enabled us to steadily
improve our gross margins quarter after quarter. During the three months ended
March 31, 2000 a combination of the sales mix together with an increase in mass
market product sales resulted in a gross margin decline.
Selling, general and administrative expenses aggregated $7.5 million for the
three months ended March 31, 2000, as compared to $7.1 million for the
corresponding period of the prior year. As a percentage of sales, selling,
general and administrative expenses declined to 34% for the three months ended
March 31, 2000, as compared to 36% for the corresponding period of the prior
year.
Page 8
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
In the United States, selling, general and administrative expenses were $2.3
million for both the three months ended March 31, 2000 and March 31, 1999. As a
percentage of sales, selling, general and administrative expenses declined to
29% for the three months ended March 31, 2000, as compared to 36% for the
corresponding period of the prior year. We are experiencing the benefit of the
cost cutting initiatives put into place in 1999. We are well positioned to grow
our sales without incurring significant increases in selling, general and
administrative expenses.
Selling, general and administrative expenses incurred by our French subsidiary
Inter Parfums, S.A. were $5.1 million for the three months ended March 31, 2000,
as compared to $4.8 million for the corresponding period of the prior year. As a
percentage of sales, selling, general and administrative expenses aggregated 36%
of sales for both the three months ended March 31, 2000 and March 31, 1999. Our
existing prestige product lines together with new product launches require a
reasonable level of advertising to support their growth and to build upon each
brand's awareness.
During the three months ended March 31, 2000 we sold a portion of our investment
in marketable securities and realized a gain of $500,000 ($224,000 after taxes
and minority interest) on such sale. On occasion, we invest excess cash in
marketable securities which are classified as available-for-sale. These funds
are available to support current operations or to take advantage of other
investment opportunities.
Our effective income tax rate was 46% for the three months ended March 31, 2000,
as compared to 41% for the corresponding period of the prior year. The effective
tax rate for the three months ended March 31, 2000 includes a $330,000 ($255,000
after minority interest) addition to an accrual, originally established in 1999,
to cover the potential exposure related to a tax audit of Inter Parfums, S.A.
commenced by the French Tax Authorities. The original accrual of $260,000 was
established to cover, what we believed to be, our exposure based on an
assessment issued by the French Tax Authorities for the 1996 tax year. This
additional accrual covers, what we believe could be our exposure for the 1997
and 1998 tax years on issues similar to that of the 1996 tax year.
Net income increased 23% to $1.4 million for the three months ended March 31,
2000, as compared to $1.2 million for the corresponding period of the prior
year. As discussed above, net income for the three months ended March 31, 2000
includes a charge of $255,000 and a gain of $224,000, both after taxes and
minority interest. The charge relates to a potential tax assessment and the gain
represents a realized gain on sale of marketable securities.
Page 9
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
Diluted earnings per share increased 13% to $0.17 for the three months ended
March 31, 2000, as compared to $0.15 for the corresponding period of the prior
year.
Weighted average shares outstanding aggregated 7.8 million for the three month
period ended March 31, 2000, as compared to 7.9 million for the corresponding
period of the prior year. On a diluted basis, average shares outstanding were
8.6 million for the three months ended March 31, 2000, as compared to 8.0
million for the corresponding period of the prior year. Shares issued upon
exercise of options were offset by shares repurchased pursuant to our stock
repurchase program. The increase in our stock price has increased the dilutive
effect of outstanding stock options, thereby increasing diluted shares
outstanding.
Liquidity and Capital Resources
Profitable operating results continues to strengthen our financial position. At
March 31, 2000, working capital aggregated $52 million and we had a working
capital ratio of almost 3 to 1. Cash and marketable securities on hand
aggregated $31 million and our net book value was $6.69 per outstanding share as
of March 31, 2000. Furthermore, we had only $1.5 million in long-term debt.
We recently used a portion of our cash to make an investment in marketable
equity securities which are classified as available-for-sale. These funds are
available to support current operations or to take advantage of other investment
opportunities. This investment was made to maximize our return on cash.
During the three months ended March 31, 2000, we continued our stock repurchase
program by acquiring 66,000 of our common shares at an average cost of $10.33
per share. Our 77% owned publically traded French subsidiary, Inter Parfums,
S.A., has a current market cap in excess of $130 million, which exceeds that of
the Company. Management is of the opinion that the current market price of the
Company's common shares understates its real value.
The Company's short-term financing requirements are expected to be met by
available cash at March 31, 2000, cash generated by operations and short-term
credit lines provided by domestic and foreign banks. The principal credit
facilities for 2000 are a $12.0 million unsecured revolving line of credit
provided by a domestic commercial bank and approximately $12.0 million in credit
lines provided by a consortium of international financial institutions.
Page 10
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
Cash provided by operating activities aggregated $0.4 million for the three
months ended March 31, 2000 as compared to $2.4 million for the corresponding
period of the prior year. In anticipation of growth in net sales we have built
up our inventory levels so as to be in a position to meet our customer demands.
Cash provided by operating activities continues to be the primary source of
funds to finance operating needs, investments in new ventures, as well as to
finance the Company's stock repurchase program.
Management of the Company believes that funds generated from operations,
supplemented by its present cash position and available credit facilities, will
provide it with sufficient resources to meet all present and reasonably
foreseeable future operating needs.
In January 1999, certain member countries of the European Union established
permanent fixed rates between their existing currencies and the European Union's
common currency ("the Euro"). The transition period for the introduction of the
Euro is scheduled to phase in over a period ending January 1, 2002. The
introduction of the Euro and the phasing out of the other currencies should not
have a material impact on the Company's consolidated financial statements.
Inflation rates in the U.S. and foreign countries in which the Company operates
have not had a significant impact on operating results for the three months
ended March 31, 2000.
Statements included herein which are not historical in nature are forward
looking statements. Forward looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results to be
materially different from projected results. Such factors include changes in
product acceptance by consumers, effectiveness of sales and marketing efforts,
currency fluctuations and competition. Given these uncertainties, persons are
cautioned not to place undue reliance on the forward looking statements.
Page 11
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
Part II. Other Information
Items 3,4 and 6 are omitted as they are either not applicable or have
been included in Part I.
Item 1. Legal Proceedings
Income taxes for the three months ended March 31, 2000 includes a
$330,000 addition to the accrual, originally established in 1999, to cover the
potential exposure related to a tax audit of Inter Parfums, S.A. commenced by
the French Tax Authorities. The original accrual of $260,000 was established to
cover an estimate of potential exposure based on an assessment issued by the
French Tax Authorities for the 1996 tax year. This additional accrual covers,
what we believe could be our exposure for the 1997 and 1998 tax years on issues
similar to that of the 1996 tax year.
Item 2. Changes in Securities and Use of Proceeds
The Company issued the following shares of Common Stock upon exercise
of stock options to four (4) employees of the Company. These issuances were
exempt from the registration requirements of Section 5 of the Securities Act of
1933, as amended (the "Securities Act"), under Section 4(2) of the Securities
Act.
Date Number of shares Proceeds received
March 8, 2000 10,000 $ 57,500
April 3, 2000 10,000 $ 57,500
April 27, 2000 3,500 $ 21,250
Item 5. Other Information
Our Board of Directors has approved a three-for-two stock split,
payable on June 15, 2000 to shareholders of record as of the close of business
on June 1, 2000. Fractional shares will be rounded up to the nearest whole
share.
Page 12
<PAGE>
INTER PARFUMS, INC. AND SUBSIDIARIES
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 12th day of May 2000.
INTER PARFUMS, INC.
By: /s/ Russell Greenberg
---------------------
Russell Greenberg
Executive Vice President and
Chief Financial Officer
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 26,527,596
<SECURITIES> 4,381,945
<RECEIVABLES> 24,825,526
<ALLOWANCES> 0
<INVENTORY> 22,968,604
<CURRENT-ASSETS> 82,171,013
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 91,647,632
<CURRENT-LIABILITIES> 29,755,476
<BONDS> 0
0
0
<COMMON> 57,447,160
<OTHER-SE> (5,028,097)
<TOTAL-LIABILITY-AND-EQUITY> 91,647,632
<SALES> 22,168,514
<TOTAL-REVENUES> 22,168,514
<CGS> 12,244,820
<TOTAL-COSTS> 12,244,820
<OTHER-EXPENSES> 7,466,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,905
<INCOME-PRETAX> 3,088,679
<INCOME-TAX> 1,413,329
<INCOME-CONTINUING> 1,675,350
<DISCONTINUED> 0
<EXTRAORDINARY> 253,012
<CHANGES> 0
<NET-INCOME> 1,422,338
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.17
</TABLE>
