1
TABLE OF CONTENTS
Financial Highlights 02
Letter to Shareholders 04
The Company 08
The Products 14
The Organization 52
INTER PARFUMS, INC. 2014 ANNUAL REPORT 2
financial
Highlights
$ 131.1
$ 407.2
$ 381.5
$ 382.1
$ 654.1
$ 615.2
$ 563.6
$ 499.3
$ 460.4
$ 252.7
$ 235.0
$ 39.2
$ 29.4
$ 32.3
$ 26.6
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
NET SALES
(In millions )
NET INCOME ATTRIBUTABLE TO
INTER PARFUMS, INC.
(In millions )
INTER PARFUMS, INC.
STOCKHOLDERS’ EQUITY
(In millions )
financial highlights
3
SELECTED FINANCIAL DATA
The following selected financial data have been derived from our financial statements, and should be read in conjunction with those
financial statements, including the related footnotes.
(In thousands, except per share data)
INCOME STATEMENT DATA:
Net Sales
Cost of Sales
Selling, General and Administrative
Expenses
Operating Income
Income Before Taxes
2014
$499,261
212,224
233,634
53,403
56,715
Net Income Attributable to the
7,909
Noncontrolling Interest
Net Income Attributable to Inter Parfums, Inc. 29,436
Net Income Attributable to Inter Parfums, Inc.
Common Shareholders’ per Share:
Basic
Diluted
Average Common Shares Outstanding:
Basic
Diluted
Depreciation and Amortization
BALANCE SHEET AND OTHER DATA:
Cash and Cash Equivalents
Short-Term Investments
Working Capital
Total Assets
Short-Term Bank Debt
Long-Term Debt (including current portion)
Inter Parfums, Inc. Shareholders’ Equity
Dividends Declared per Share
0.95
0.95
30,931
31,060
10,166
90,138
190,152
382,935
604,506
298
–
382,065
0.48
2013
2012
Years Ended December 31,
2010
2011
$563,579
$654,117
$615,220
$460,411
234,800
246,931
231,746
187,501
250,025
78,754
80,646
11,755
39,211
1.27
1.27
30,764
30,954
11,110
125,650
181,677
399,344
664,058
6,104
–
325,799
278,414
274,765
45,754
131,136
4.29
4.26
30,575
30,716
15,554
315,698
216,474
66,939
67,393
10,646
32,303
1.06
1.05
30,515
30,678
13,073
56,436
53,840
9,082
26,593
0.88
0.87
30,361
30,482
9,188
307,335
35,856
37,548
–
366,680
759,920
27,776
–
–
205,730
516,034
11,826
4,480
–
183,594
438,105
5,250
16,129
407,211
381,476
252,674
234,976
0.96
0.32
0.32
0.26
INTER PARFUMS, INC. 2014 ANNUAL REPORT
4
2014
letter to our
Shareholders
DEAR FELLOW SHAREHOLDERS,
2014 was a highly successful and productive year for Inter Parfums
2013 first quarter sales, gross margin, operating margin and
as exemplified by:
net margin. Then, in the 2013 second quarter, our sale to
• Our ongoing brands delivering excellent growth;
Burberry of the remaining Burberry inventory depressed gross
• Achieving top line growth in all the geographic markets
margins for that period. So please keep that in mind in the
we serve;
following comparative review and again, note that ongoing
• Enlarging our portfolio of brands with two very promising
brand sales exclude Burberry brand sales from 2013. Starting
new names, Abercrombie & Fitch and Hollister;
in the second half of 2013 and for all of 2014, our net sales
• The launch of our first new fragrances for the
were exclusively ongoing brand sales.
Karl Lagerfeld and Agent Provocateur brands; and,
• Bringing to market new scents for the Montblanc, Lanvin,
2014 COMPARED TO 2013
Jimmy Choo, Paul Smith, S.T. Dupont, Balmain, Anna Sui,
• Net sales increased 15.3% to $499.3 million compared to
Dunhill and bebe brands.
FINANCIAL OVERVIEW
2013’s net sales of ongoing brands of $433.3 million.
In 2013, reported net sales of $563.6 million included
$130.3 million of Burberry brand sales recorded in the first
Prefacing our financial review with a little history is once again
half of the year. At comparable foreign currency exchange
in order. In the 2012 fourth quarter, we agreed to terminate
rates, net sales increased 16% in 2014, compared to 2013’s
our license with Burberry, and Burberry paid us a $240 mil-
ongoing brand sales.
lion early termination fee. We also entered into a transition
• Sales by European-based operations were $394.0 million
agreement to operate certain aspects of the business during
in 2014, up 18% from of ongoing brand sales of $334.0
the first quarter of 2013, which resulted in unusually high
million in 2013.
letter to shareholders
5
BUSINESS OVERVIEW
EUROPEAN-BASED OPERATIONS
A combination of new product launches and the enduring appeal
of our several star performers produced stellar sales growth for
our European-based operations. The Montblanc brand exem-
plified both drivers with steady gains from Legend fragrances
which debuted in 2011 along with the 2014 launch of Emblem.
Once again, Montblanc brand sales continued to outperform
expectations and became our best selling brand with 2014
brand sales rising 33% in 2014 to $110 million.
2014 was a year of “firsts”. Our first creation for Karl Lager-
feld, featuring a fragrance duo for men and women, launched in
the spring of 2014. Another new initiative was our first product
for men under the Jimmy Choo brand, aptly named Jimmy Choo
Man. Among the other firsts was the collaboration between the
S.T. Dupont brand and the very popular Paris Saint-Germain
football team. Other 2014 new product launches for European-
operations include Extatic, a women’s scent for the Balmain brand;
S.T. Dupont So Dupont, one each for men and women, and
Paul Smith Extreme Sport for men.
The new fragrance line-up is rich in 2015 and has already
begun with a men’s and women’s fragrance, Boucheron Quatre.
There will also be a women’s version of Emblem by Montblanc, a
new Jimmy Choo women’s scent, and still another for Van Cleef
Philippe Benacin and Jean Madar
& Arpels. New entrants for men are also in the works. We will be
unveiling one for Balmain, the first new men’s scent created by
Inter Parfums, and one each for men and women for Lanvin, our
• U.S.-based operations generated net sales of $105.3 million,
second largest brand.
up 6% from $99.3 million.
The big news for our European-based operations is our pend-
• Gross margin was 57.5% compared to 58.3% in 2013.
ing acquisition of the Rochas brand and trademarks, which we
• S, G & A expense as a percentage of sales was 46.8%
announced in the first quarter of 2015. Founded as a luxury
compared to 44.4% in 2013.
fashion house by Marcel Rochas in 1925, the brand expanded
• Net income attributable to Inter Parfums, Inc. was $29.4
into fragrance in the 1950s, which remains the largest part of
million or $0.95 per diluted share as compared to $39.2
the Rochas business, with, among others, the enduring Eau de
million or $1.27 per diluted share in 2013.
Rochas fragrance line. In addition to the fragrance business, we
• Our business generated cash flows from operating
will be acquiring the fashion and accessory business operating
activities of approximately $36.6 million in 2014.
through a portfolio of license agreements.
We closed the year with no long-term debt and $383
For the first time for our company, the Rochas acquisition will
million in working capital including $280 million in cash,
integrate both fragrances and fashion, opening new opportuni-
cash equivalents and short-term investments resulting
ties in terms of creativity as well as aesthetic design and mar-
in a working capital ratio of 4.7 to 1.
keting choices. It will also allow us to apply a global approach
to managing a fragrance brand. This acquisition has generated
One final point in this financial overview; our strong balance
enormous enthusiasm within our ranks along with the motivation
sheet and consistent cash flows were among the reasons why
to reawaken the sleeping beauty within the Rochas brand, much as
in early 2015, our Board of Directors increased our regular
we’ve done with the Lanvin name since 2004. Before year end, we
quarterly cash dividend by 8% to $0.13 per share, or $0.52
intend to develop a business plan on which to build the Rochas
per share annually.
business, without the demands of third party brand owners.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
6
This acquisition will be payable in cash on the closing date
retailer of high-quality, casual apparel for men, women and kids
for US $108 million, financed through a medium term loan, to
with an active, youthful lifestyle under its Abercrombie & Fitch
take advantage of low interest rates. This transaction should be
and Hollister brands, among others.
completed within the first half of 2015, subject to customary
Initially, we will distribute the fragrances we develop and
closing conditions.
produce for these brands internationally in high-end department
Still another major event took place in April 2015, when we
stores and duty free shops. With our global distribution network,
announced an 11-year exclusive worldwide fragrance license
we plan to build this fragrance enterprise by capitalizing on the
agreement with Coach, Inc., a leading New York design house
popularity of the brands in international markets. Work has begun
of modern luxury accessories and lifestyle collections. Under
on developing new scents that capture the essence and energy
this agreement, we will create and produce new Coach perfumes
of both the Abercrombie & Fitch and Hollister brands, with new
and related products for men and women, which we will distrib-
men’s and women’s fragrances planned for both brands in 2016.
ute globally to department and specialty stores and duty free
Longer term, we hope that the Abercrombie & Fitch and
shops, as well as in Coach retail stores. Based upon our track
Hollister fragrance business will evolve into one where Inter
record of cultivating and growing fragrance lines for fashion and
Parfums becomes the development arm for fragrances that will
luxury goods brands, Coach entrusted us with its fragrance en-
also be sold in their North American stores.
terprise with confidence in our ability to leverage this category
2015 is gearing up to be a year of great promise for our U.S.-
into a much larger global opportunity. We look forward to devel-
based operations. Already unveiled at Harrod’s in London, Icon,
oping new fragrances that capture the spirit of the Coach brand,
Dunhill’s new men’s scent, is generating strong sales right out
and taking the portfolio to a larger audience by expanding the
of the gate. A new women’s fragrance for which we have high
distribution globally and capitalizing on the growing recognition
expectations is Oscar de la Renta’s Extraordinary, which debuts
of the brand in international markets. We contemplate new fra-
domestically this spring. Among the other highlights of 2015
grance launches for the Coach brand in the fall of 2016.
are new women’s scents for Anna Sui and bebe, along with the
rollout of the Shanghai Tang Silk Road Collection.
U.S.-BASED OPERATIONS
Our U.S.-based operations have become an increasingly promi-
CONCLUSION
nent contributor to our success, thanks in great part to many of
We are extremely enthusiastic about the future of our Company.
the newer prestige brands in the portfolio. For example, Dunhill
We are growing our business with creative discipline, planting new
legacy scents added $16.2 million to 2014 sales, up 25%
roots on which to extend our reach, while nurturing the contin-
from 2013, while sales of Oscar de la Renta legacy products,
ued growth of our well-established names. At the same time,
which began in 2014, aggregated $15.8 million. In addition,
we remain on the lookout for additional suitable brands and
the spring 2014 launches of Fatale and Fatale Pink for Agent
related opportunities.
Provocateur added $5.3 million in incremental sales. That said,
Finally, our deepest thanks go out to the nearly 300 members
we faced a difficult market in Asia which is where the Anna Sui
of the Inter Parfums team. We are very fortunate to have such a
brand is most popular, that resulted in a 16% year over year de-
talented, hardworking group of people committed to the success
cline in brand sales to $21.5 million in 2014. As noted, prestige
of our company and to our growth in the years to come.
product sales represent a larger piece of our U.S.-based opera-
tions. While we are looking to partner with additional specialty
Sincerely yours,
retailers, our model is evolving by the realization that certain
specialty retail names are in fact prestige brands. Naturally, this
is dependant upon the brand, its geographic reach, and demo-
graphic appeal, as was the case with the latest additions to our
Jean Madar
Philippe Benacin
U.S.-based operations fragrance operations, the Abercrombie &
Chairman of the Board
Vice Chairman of the Board
Fitch and Hollister brands.
Chief Executive Officer
& President
In December we entered into a 7-year agreement to create,
produce and distribute new perfumes and fragrance related
products under the Abercrombie & Fitch and Hollister brand
names. Abercrombie & Fitch Co. is a leading global specialty
letter to shareholders
7
Philippe Benacin
Vice Chairman of the Board
& President
Montblanc Emblem for Men
INTER PARFUMS, INC. 2014 ANNUAL REPORT
8
the
Company
Oscar de la Renta Extraordinary
W E AR E INTER PAR FUMS, INC. W E OPER ATE IN THE FR AGR ANCE BUSINESS, AND M ANUFACTUR E, M ARK ET
AND DISTRIBUTE A WIDE ARR AY OF FR AGR ANCES AND FR AGR ANCE RELATED PRODUCTS. ORGANIZED UNDER
THE LAWS OF THE STATE OF DELAWARE IN MAY 1985 AS JEAN PHILIPPE FR AGR ANCES, INC., WE CHANGED OUR
NAME TO INTER PARFUMS, INC. IN JULY 1999. W E HAVE ALSO RETAINED OUR BR AND NAME, JEAN PHILIPPE
FRAGRANCES, FOR SOME OF OUR MASS MARKET PRODUCTS.
Our worldwide headquarters and the office of our three
one (1) distribution subsidiary, Interparfums Deutschland Gmbh,
(3) wholly-owned United States subsidiaries, Jean Philippe
covering territory in Germany, and is the sole owner of three
Fragrances, LLC and Inter Parfums USA, LLC, both New York
(3) distribution subsidiaries, Interparfums srl, covering the terri-
limited liability companies, and IP Beauty, Inc. (formerly
tory of Italy, Inter España Parfums et Cosmetiques, SL, covering
Nickel USA, Inc.), a Delaware corporation, are located at 551
the territory of Spain and Interparfums Luxury Brands, Inc., a
Fifth Avenue, New York, New York 10176, and our telephone
Delaware corporation, for distribution of prestige brands in the
number is 212.983.2640. We also own 100% of Inter Par-
United States. Interparfums SA is also the sole owner of Inter-
fums USA Hong Kong Limited indirectly through our 100%
parfums (Suisse) SARL, a company formed to hold and manage
owned subsidiary, Inter Parfums USA, LLC.
certain brand names, and Interparfums Singapore Pte., Ltd., an
Our consolidated wholly-owned subsidiary, Inter Parfums
Asian sales and marketing office.
Holdings, S.A., and its majority-owned subsidiary, Interparfums
Our common stock is listed on The Nasdaq Global Select
SA, maintain executive offices at 4, Rond Point des Champs
Market under the trading symbol “IPAR”. The common
Elysees, 75008 Paris, France. Our telephone number in Paris
shares of our subsidiary, Interparfums SA, are traded on the
is 331.5377.0000. Interparfums SA is the majority owner of
NYSE Euronext.
the company
9
Dunhill ICON
We maintain our internet website at www.interparfumsinc.com,
as a general contractor and source our needed components
which is linked to the Securities and Exchange Commission
from our suppliers. These components are received at one of
Edgar database. You can obtain through our website, free of
our distribution centers and then, based upon production needs,
charge, our annual reports on Form 10-K, quarterly reports on
the components are sent to one of several third party fillers which
Form 10-Q, interactive data files, current reports on Form 8-K,
manufacture the finished product for us and deliver them to one
beneficial ownership reports (Forms 3, 4 and 5) and amend-
of our distribution centers.
ments to those reports filed or furnished pursuant to Section
Our prestige products focus on niche brands, each with a
13(a) of the Securities Exchange Act of 1934 as soon as
devoted following. By concentrating in markets where the brands
reasonably practicable after they have been electronically filed
are best known, we have had many successful launches. We
with or furnished to the SEC.
typically launch new fragrance families for our brands every year
We operate in the fragrance business and manufacture, market
or two, with some frequent “seasonal” fragrances introduced
and distribute a wide array of fragrances and fragrance related
as well.
products. We manage our business in two segments, European-
The creation and marketing of each product family is intimately
based operations and United States-based operations. Certain
linked with the brand’s name, its past and present positioning,
prestige fragrance products are produced and marketed by our
customer base and, more generally, the prevailing market
European operations through our 73% owned subsidiary in Paris,
atmosphere. Accordingly, we generally study the market for each
Interparfums SA, which is also a publicly traded company, as
proposed family of fragrance products for almost a full year
27% of Interparfums SA shares trade on the NYSE Euronext.
before we introduce any new product into the market. This study
Our business is not capital intensive, and it is important
is intended to define the general position of the fragrance family
to note that we do not own manufacturing facilities. We act
and more particularly its scent, bottle, packaging and appeal to
INTER PARFUMS, INC. 2014 ANNUAL REPORT
10
the buyer. In our opinion, the unity of these four elements of
fragrances utilizing internationally renowned brand names. By
the marketing mix makes for a successful product.
identifying and concentrating in the most receptive market seg-
As with any business, many aspects of our operations are
ments and territories where our brands are known, and executing
subject to influences outside our control. We discuss in great-
highly targeted launches that capture the essence of the brand,
er detail risk factors relating to our business in Item 1A of
we have had a history of successful launches. Certain fashion
our Annual Report on Form 10-K for the fiscal year ended
designers and other licensors choose us as a partner because
December 31, 2014, and the reports that we file from time to
our Company’s size enables us to work more closely with them
time with the Securities and Exchange Commission.
in the product development process as well as our successful
EUROPEAN OPERATIONS
track record.
We produce and distribute prestige fragrance products
GROW PORTFOLIO BRANDS THROUGH
primarily under license agreements with brand owners, and
NEW PRODUCT DEVELOPMENT AND MARKETING
prestige product sales through our European operations
We grow through the creation of fragrance family extensions
represented approximately 79% of net sales for 2014. We have
within the existing brands in our portfolio. Every year or two, we
built a portfolio of prestige brands, which include Balmain,
create a new family of fragrances for each brand in our portfo-
Boucheron, Jimmy Choo, Karl Lagerfeld, Lanvin, Montblanc,
lio. We frequently introduce “seasonal” fragrances as well. With
Paul Smith, S.T. Dupont, Repetto and Van Cleef & Arpels,
new introductions, we leverage our ability and experience to gauge
whose products are distributed in over 100 countries around
trends in the market and further leverage the brand name into
the world.
different product families in order to maximize sales and profit
Burberry was our most significant license, and net sales
potential. We have had success in introducing new fragrance fami-
of Burberry products represented 0%, 23% and 46% of net
lies (sub-brands, or flanker brands) within our brand franchises.
sales for the years ended December 31, 2014, 2013 and
Furthermore, we promote the smooth and consistent performance
2012, respectively. As discussed below, Burberry exercised
of our prestige perfume operations through knowledge of the market,
its option to buy-out the license rights effective December 31,
detailed analysis of the image and potential of each brand name,
2012 and we entered into a transition agreement that provided
a “good dose” of creativity and a highly professional approach to
for certain license rights and obligations to continue through
international distribution channels.
March 31, 2013. In addition, we own the Lanvin brand name
for our class of trade, and license the Montblanc and Jimmy
CONTINUE TO ADD NEW BRANDS
Choo brand names; for the year ended December 31, 2014,
TO OUR PORTFOLIO THROUGH NEW LICENSES
sales of product for these brands represented 18%, 22% and
OR ACQUISITIONS
16% of net sales, respectively.
Prestige brands are the core of our business and we intend to add
new prestige beauty brands to our portfolio. Over the past twenty
UNITED STATES OPERATIONS
years, we have built our portfolio of well-known prestige brands
Prestige brand and specialty retail fragrance and fragrance
through acquisitions and new license agreements. We intend to further
related products are marketed through our United States
build on our success in prestige fragrances and pursue new licenses
operations and represented 21% of sales for the year ended
and acquire new brands to strengthen our position in the prestige
December 31, 2014. These fragrance products are sold under
beauty market. To that end, as of December 31, 2014, we had cash,
trademarks owned by us or pursuant to license or other agree-
cash equivalents and short-term investments of approximately $280
ments with the owners of brands, which include Abercrombie
million, which we believe should assist us in entering new brand
& Fitch, Agent Provocateur, Anna Sui, Banana Republic, bebe,
licenses or outright acquisitions. However, we cannot assure you
Dunhill, Gap, Hollister, Oscar de la Renta, and Shanghai Tang
that we will be able to enter into any future agreements, or acquire
brands.
BUSINESS STRATEGY
brands or assets on terms favorable to us, or if we do, that any such
transaction will be successful. We identify prestige brands that can
be developed and marketed into a full and varied product families
FOCUS ON PRESTIGE BEAUTY BRANDS
and, with our technical knowledge and practical experience gained
Prestige beauty brands are expected to contribute significantly
over time, take licensed brand names through all phases of concept,
to our growth. We focus on developing and launching quality
development, manufacturing, marketing and distribution.
the company
11
Abercrombie & Fitch FIERCE
INTER PARFUMS, INC. 2014 ANNUAL REPORT
12
EXPAND EXISTING PORTFOLIO
INTO NEW CATEGORIES
and fragrance related products under the Abercrombie & Fitch
and Hollister brand names. The Company will distribute these
We intend to continue to broaden our product offering beyond
fragrances internationally in specialty retailers, high-end depart-
the fragrance category and offer other fragrance related prod-
ment stores and duty free shops, and in the U.S., in duty free
ucts and personal care products under some of our existing
shops and potentially in Abercrombie & Fitch and Hollister retail
brands. We believe such product offerings meet customer
stores. The agreement is subject to certain minimum sales,
needs and further strengthen customer loyalty.
advertising expenditures and royalty payments as is customary
CONTINUE TO BUILD
GLOBAL DISTRIBUTION FOOTPRINT
in our industry. New men’s and women’s scents are planned for
both Abercrombie & Fitch and Hollister for 2016.
Our business is a global business and we intend to continue
BURBERRY
to build our global distribution footprint. In order to adapt
Burberry exercised its option to buy-out the license rights effec-
to changes in the environment and our business, we have
tive December 31, 2012. In October 2012, the Company and
modified our distribution model and have formed and are op-
Burberry entered into a transition agreement that provided for
erating joint ventures or distribution subsidiaries in the major
certain license rights and obligations to continue through March
markets of the United States, Italy, Spain and Germany for
31, 2013. The Company continued to operate certain aspects
distribution of prestige fragrances. We may look into future
of the business for the brand including product development,
joint ventures arrangements or acquire distribution companies
testing, and distribution. The transition agreement provided for
within other key markets to distribute certain of our prestige
non-exclusivity for manufacturing, a cap on sales of Burberry
brands. While building a global distribution footprint is part
products, a reduced advertising requirement and no minimum
of our long-term strategy, we may need to make certain deci-
royalty amounts.
sions based on the short-term needs of the business. We
believe that in certain markets, vertical integration of our
PRODUCTION AND SUPPLY
distribution network may be one of the keys to future growth
THE STAGES OF THE DEVELOPMENT AND PRODUCTION
of our Company, and ownership of such distribution should
PROCESS FOR ALL FRAGRANCES ARE AS FOLLOWS:
enable us to better serve our customers’ needs in local markets
• Simultaneous discussions with perfume designers and
and adapt more quickly as situations may determine.
creators (includes analysis of esthetic and olfactory trends,
target clientele and market communication approach);
BUILD SPECIALTY RETAIL BUSINESS
• Concept choice;
We believe that certain specialty retailers are growing their
• Produce mock-ups for final acceptance of bottles
beauty business by partnering with companies like Inter Parfums.
and packaging;
This partnership enables specialty retailers to have a continuous
• Receive bids from component suppliers
pipeline of new fragrance products developed for sale in their
(glass makers, plastic processors, printers, etc.)
stores, while benefitting from worldwide advertising and distri-
and packaging companies;
bution of such products bearing their brand names primarily
• Choose suppliers;
outside the United States.
RECENT DEVELOPMENTS
• Schedule production and packaging;
• Issue component purchase orders;
• Follow quality control procedures for
ABERCROMBIE & FITCH AND HOLLISTER
incoming components; and
In December 2014, the Company entered into a 7-year exclusive
• Follow packaging and inventory control procedures.
worldwide license to create, produce and distribute new perfumes
the company
13
SUPPLIERS WHO ASSIST US WITH PRODUCT
many for distribution of prestige fragrances. In addition we formed
DEVELOPMENT INCLUDE:
Interparfums Luxury Brands, Inc., a Delaware corporation and sub-
• Independent perfumery design companies
sidiary of our French subsidiary Interparfums SA, for distribution
(Aesthete, Carré Basset, PI Design, Cent Degres);
of European-based prestige brands in the United States. It has
• Perfumers (IFF, Givaudan, Firmenich, Robertet,
also entered into an agreement with Clarins Fragrance Group US
Takasago, Mane) which create a fragrance consistent with
(a Division of Clarins Group) effective January 1, 2011 to share
our expectations and, that of the fragrance designers
sales and distribution personnel and facilities.
and creators;
Our third party distributors vary in size depending on the
• Bottle manufacturers (Pochet du Courval, SGD, Verreries
number of competing brands they represent. This extensive
Brosse, Bormioli Luigi, Stoelzle Masnières), caps (Qualipac,
and diverse network together with our own distribution sub-
ALBEA, RPC, Codiplas, Jackel, CMSI) or boxes (Edelmann,
sidiaries provides us with a significant presence in over 100
Autajon, Alliora, Nortier, Draeger);
countries around the world.
• Production specialists who carry out packaging
Approximately 40% of our European-based prestige fra-
(CCI, Edipar, Jacomo, SDPP, MF Productions, Biopack)
grance net sales are denominated in U.S. dollars. We address
or logistics (SAGA for storage, order preparation
certain financial exposures through a controlled program of
and shipment).
risk management that includes the use of derivative financial
instruments. We primarily enter into foreign currency forward
For our prestige products, component and contract filling
exchange contracts to reduce the effects of fluctuating foreign
needs are purchased from many different suppliers located
currency exchange rates.
around the world. The suppliers’ accounts for our European
The business of our European operations has become
operations are primarily settled in euro and for our United
increasingly seasonal due to the timing of shipments by our
States operations, suppliers’ accounts are primarily settled
majority-owned distribution subsidiaries to their customers,
in U.S. dollars. The components for our specialty retail products
which are weighted to the second half of the year.
are sourced and our specialty retail products are primarily
produced and filled in the United States, and our mass market
SPECIALTY RETAIL AND MASS MARKET PRODUCTS
products are primarily manufactured, produced or filled in the
For products sold to specialty retailers for sale in their
United States or China.
MARKETING AND DISTRIBUTION
PRESTIGE PRODUCTS
stores in the United States, we do not typically incur any
marketing and distribution expenses. Such expenses are the
responsibility of the specialty retailer. We do not presently
market and distribute Banana Republic products to third
Our prestige products are distributed in over 100 countries
parties in the United States although we do market and
around the world through a selective distribution network. For the
distribute Banana Republic product internationally, includ-
majority of our international distribution of prestige products, we
ing duty free and other travel-related retailers. With respect
contract with independent distribution companies specializing in
to the Abercrombie & Fitch, Hollister and bebe brands, we
luxury goods. In each country, we designate anywhere from one
have the right to distribute product to their stores as well as
to three distributors on an exclusive basis for one or more of our
to approved retailers and distributors in the United States
name brands. We also distribute our prestige products through a
and internationally, including duty free and other travel-
variety of duty free operators, such as airports and airlines and
related retailers.
select vacation destinations.
We utilize our in house sales team to reach our third party
As our business is a global one, we intend to continue to build
distributors and customers outside the United States. In addi-
our global distribution footprint. For distribution of prestige brands
tion, the business of our United States operations has become
of our European operations we presently operate through our dis-
increasingly seasonal as shipments to our specialty retail cus-
tribution subsidiaries in the major markets of Italy, Spain and Ger-
tomers are weighted toward the second half of the year.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
14
the
Products
W E PRODUCE AND DISTRIBUTE OUR PR ESTIGE FR AGR ANCE PRODUCTS PRIM ARILY UNDER LICENSE
AGR EEMENTS W ITH BR A ND OW NERS. U NDER LICENSE AGR EEMENTS, W E OBTA IN THE R IGHT TO
USE THE BR A ND NA ME , CR E ATE NE W FR AGR A NCE S A ND PACK AGING, DETER MINE POSITIONING
A ND DISTR IBUTION, A ND M A R K ET A ND SELL THE LICENSED PRODUCTS, IN E XCH A NGE FOR THE
PAYMENT OF ROYALTIES. OUR RIGHTS UNDER LICENSE AGREEMENTS ARE ALSO GENER ALLY SUBJECT
TO CERTAIN MINIMUM SALES R EQUIR EMENTS AND ADV ERTISING EXPENDITUR ES.
We are the owner of the Lanvin brand name and trademark for our class of trade and we have built a portfolio of licensed
prestige brands. Our exclusive worldwide licenses for these brands expire on the following dates:
Brand Name
Agent Provocateur
Expiration Date
December 31, 2023
Anna Sui
Balmain
Boucheron
Dunhill
Jimmy Choo
Karl Lagerfeld
Montblanc
December 31, 2021, plus two 5-year optional terms if certain conditions are met
December 31, 2023
December 31, 2025, plus a 5-year optional term if certain sales targets are met
September 30, 2023, subject to earlier termination on September 30, 2019, if certain
minimum sales are not met
December 31, 2021
October 31, 2032
December 31, 2020
Oscar de la Renta
December 31, 2025, plus a 5-year optional term if certain sales targets are met
Paul Smith
Repetto
December 31, 2017
December 31, 2024
Shanghai Tang
December 31, 2025, subject to earlier termination on December 31, 2019, if certain
minimum sales are not met; subject to 2-year extensions unless 1-year advance notice
S.T. Dupont
December 31, 2016
not to renew is provided
Van Cleef & Arpels
December 31, 2018, plus a 5-year optional term if certain sales targets are met
In connection with the acquisition of the Lanvin brand names and trademarks, we granted Lanvin the right to repurchase the
brand names and trademarks in 2025 for the greater of €70 million (approximately $85 million) or one times the average of the
annual sales for the years ending December 31, 2023 and 2024.
the products
15
prestige
Fragrances
INTER PARFUMS, INC. 2014 ANNUAL REPORT
16
Agent Provocateur Fatale Intense
the products
17
AGENT PROVOCATEUR
In July 2013, we entered into a 10.5-year exclusive worldwide
Agent Provocateur is an iconic, globally-recognized brand,
license to create, produce and distribute perfumes and related
breaking new ground with every collection and rightfully earn-
products under London-based luxury lingerie brand, Agent
ing its place as a benchmark brand in the world of lingerie.
Provocateur. The agreement commenced on August 1, 2013
It is a brand that is confident, sensual and irreverent. Agent
and is subject to certain minimum advertising expenditures
Provocateur celebrates and empowers women with a unique
as is customary in our industry and we have taken over dis-
brand image renowned for being provocative and yet always
tribution of selected fragrances within the brand’s current
leaving something to the imagination.
perfume portfolio. Agent Provocateur contributed to our sales
In recent years, Agent Provocateur has been opening doors
in 2014 with the spring launches of Fatale and Fatale Pink in
at a steady growth and plans to continue to grow its door
international markets followed by an exclusive U.S. launch at
count, especially in Asia. Currently, its products which extend
Saks Fifth Avenue.
into swimwear, bridal and accessories, are sold globally, at
Founded in 1994 by Joseph Corré, and Serena Rees and
96 of its own boutiques and shop-in-shops within the finest
acquired by the private equity firm, 3i Group plc in 2007,
department stores, as well as specialty retailers and on-line.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
18
ANNA SUI
In June 2011, we entered into a 10-year exclusive worldwide
devoted customer base, which spans the world, is especially
fragrance license agreement to produce and distribute perfumes
strong in Asia.
and fragrance related products under the Anna Sui brand. Our
We have high expectations for growing the Anna Sui fra-
rights under the agreement commenced on January 1, 2012
grance franchise by developing new products and expanding
when we took over production and distribution of the existing
the brand’s fragrance presence in North America, Europe and
Anna Sui fragrance collections.
the Middle East. With help from the Fall 2013 launch of La Vie
We are working in partnership with American designer,
de Bohème, sales of Anna Sui products were up 29% in 2013,
Anna Sui, and her creative team to build upon the brand’s
reaching approximately $25.8 million. Without a major new
growing customer appeal, and develop new fragrances that
product launch and a difficult Asian market, Anna Sui brand
capture the brand’s very sweet feminine girly aspect, combined
sales declined 16% to approximately $21.5 million in 2014.
with a touch of nostalgia, hipness and rock-and-roll. Anna Sui’s
A new Anna Sui fragrance, Romantica, is in the works for 2015.
the products
19
Anna Sui Romantica
INTER PARFUMS, INC. 2014 ANNUAL REPORT
20
Balmain Homme
the products
21
BALMAIN
In July 2011, we entered into a 12-year exclusive worldwide
license agreement to create, produce and distribute per-
fumes and ancillary products under the Balmain brand. Our
rights under the agreement commenced on January 1, 2012
when we took over the production and distribution of existing
Balmain fragrances for men and women.
The Balmain couture house was founded in 1945 by Pierre
Balmain. In recent years, Balmain has undergone a significant
transformation. With the redefinition of its image in ready-
to-wear, the brand has become a reference for style, while
retaining its distinctive design codes from the haute couture
universe. In doing so, the brand has become a major trend-
setter. Our first new Balmain women’s fragrance, Extatic, made
its debut in 2014 in selective distribution. We also have a men’s
scent launching for Balmain in 2015.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
22
BOUCHERON
In December 2010, we entered into an exclusive worldwide
Our first new fragrance under the Boucheron brand, Jaïpur
license agreement for the creation, development and distribu-
Bracelet, debuted in 2012, and Boucheron Place Vendôme,
tion of fragrance and related bath and body products under
which has a beautiful glasswork bottle with a cabochon, the
the Boucheron brand.
emblematic stone of House Boucheron, was released in Fall
Boucheron is the French jeweler “par excellence”. Founded
2013. Boucheron fragrance sales increased 10% to $23.1
by Frederic Boucheron in 1858, the House has produced some
million in 2013, driven in particular by the launch of the
of the world’s most beautiful and precious creations. Today
Boucheron Place Vendôme line. With a difficult comparison
Boucheron creates jewelry and timepieces and, under license
and no major product launch, brand sales declined 20% in
from global brand leaders, fragrances and sunglasses. Currently
2014. For 2015, we are launching a new fragrance duo for the
Boucheron operates through over 40 boutiques worldwide as
Boucheron brand around its iconic Quatre ring.
well as an e-commerce site.
the products
23
Boucheron Quatre
INTER PARFUMS, INC. 2014 ANNUAL REPORT
24
Dunhill ICON
the products
25
DUNHILL
In December 2012, we entered into a 10-year exclusive world-
British men’s style, the brand continues to blend innovation
wide fragrance license to create, produce and distribute
and creativity with traditional craftsmanship.
perfumes and fragrance related products under the Dunhill
We took over production and distribution of Dunhill legacy
brand, which commenced on April 3, 2013.
fragrances beginning in April 2013, and we introduced a legacy
The house of Dunhill was established in 1893 and since
scent flanker, Desire Black, which launched in the Spring of
that time has been dedicated to providing high quality men’s
2014. We have supported the new men’s scent with a distribution
luxury products, with core collections offered in menswear,
strategy that recognizes and utilizes Dunhill’s luxury position-
leather goods and accessories. The brand has global reach
ing, along with brand appropriate marketing materials and a
through a premium mix of self-managed retail outlets, high-level
media campaign. Dunhill legacy scents added $16.2 million to
department stores and specialty retailers. Known for its com-
2014 sales, up 25% from $13.0 million in 2013. For 2015, we
mitment to elegance and innovation and being a leader of
are rolling out the new Dunhill scent, Icon.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
26
JIMMY CHOO
In October 2009, we entered into an exclusive worldwide license
qualities to ensure the ambitious development of fragrance
agreement for the creation, development and distribution of
lines that will be supported by significant advertising commit-
fragrances under the Jimmy Choo brand.
ments over the coming years.
With a heritage in luxury footwear, Jimmy Choo today en-
Our first fragrance under the Jimmy Choo brand, a signature
compasses a complete luxury lifestyle accessory brand with
scent, rolled out globally in 2011. Jimmy Choo product sales
women’s shoes, handbags, small leather goods, sunglasses
exceeded our expectations and sales topped $40 million in that
and eyewear. Its products are available in the growing network
first year. Sales growth has continued, reaching $51.5 million in
of Jimmy Choo freestanding stores as well as in the most pres-
2012 and $72.4 million in 2013, a year marked by the launch
tigious department, specialty and duty free stores worldwide.
by our second Jimmy Choo line, Flash, in February. The suc-
We believe that this relationship with Jimmy Choo offers a
cessful 2014 launch of Jimmy Choo Man enabled Jimmy Choo
perfect fit with our strategy of expanding our brand portfolio to
brand sales to maintain its positive sales momentum resulting in
include new universes and represents an important milestone
2014 brand sales of $78.5 million, up 8% as compared to 2013.
in our development. This brand possesses the quintessential
the products
27
JC_MAN_INT_ADV_133.indd 1
Jimmy Choo Man
10/06/2014 15:32
INTER PARFUMS, INC. 2014 ANNUAL REPORT
28
Karl Lagerfeld Private Klub
the products
29
K ARL LAGERFELD
In October 2012, we entered into a 20-year exclusive world-
wide license agreement with Karl Lagerfeld B.V., the internation-
ally renowned haute couture fashion house, to create, produce
and distribute perfumes under the Karl Lagerfeld brand.
Under the creative direction of Karl Lagerfeld, one of the
world’s most influential and iconic designers, the Lagerfeld
Portfolio represents a modern approach to distribution, an in-
novative digital strategy and a global 360 degree vision that
reflects the designer’s own style and soul. Our first new line,
a premium namesake duo scent for both men and women,
launched in the Spring of 2014 and yielded $24.2 million in
sales in 2014.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
30
LANVIN
In July 2007, we acquired the worldwide rights to the Lanvin
brand names and international trademarks listed in Class 3, our
class of trade. A synonym of luxury and elegance, the Lanvin
fashion house, founded in 1889 by Jeanne Lanvin, expanded
into fragrances in the 1920s.
With Lanvin brand sales of $90.3 million in 2014, Lanvin now
is our second largest brand. Lanvin fragrances occupy an impor-
tant position in the selective distribution market in France, Europe
and Asia. Current lines in distribution include: Arpège (1927),
Lanvin L’Homme (1997), Eclat d’Arpège (2002), Rumeur 2 Rose
(2007), Jeanne Lanvin (2008), Marry Me! (2010), Jeanne Lanvin
Couture (2012), Lanvin Me (2013), which was designed by Lanvin
designer, Alber Elbaz, and Me L’Eau (2014). Our Eclat d’Arpège
line accounts for approximately 50% of this brand’s sales.
the products
31
Lanvin_ME_EAU_ADV_133.indd 1
Lanvin Me L’Eau
17/12/2013 15:49
INTER PARFUMS, INC. 2014 ANNUAL REPORT
32
Montblanc Legend
the products
33
MONTBLANC
In January 2010, we entered into an exclusive worldwide
worldwide and high standards of product design and quality,
license agreement for the creation, development and distri-
Montblanc has quickly grown to be our largest and fastest
bution of fragrances and fragrance related products under the
growing fragrance brand.
Montblanc brand.
In 2011, we launched our first new Montblanc fragrance,
Montblanc has achieved a world-renowned position in the lux-
Legend, which quickly became our best-selling men’s line. In
ury segment and has become a purveyor of exclusive products,
2012, we launched our first women’s fragrance under the Mont-
which reflect today’s exacting demands for timeless design,
blanc brand, and our second men’s line, Emblem, was launched
tradition and master craftsmanship. Through its leadership
in 2014. Montblanc product sales increased 40% in 2013
positions in writing instruments, watches and leather goods,
to $83.2 million and in 2014 sales of Montblanc fragrances
promising growth outlook in women’s jewelry, active presence
topped $110 million, a 33% increase from 2013. Montblanc
in more than 70 countries, network of more than 350 boutiques
has now become our top selling brand.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
34
OSCAR DE LA RENTA
In October 2013, we entered into a 12-year exclusive worldwide
license to create, produce and distribute perfumes and related
products under the Oscar de la Renta brand, which closed in
December 2013. In 2014, we took over distribution of fragrances
within the brand’s current perfume portfolio generating $15.8
million in sales. Our first new women’s fragrance under the
Oscar de la Renta brand, Extraordinary, is planned for an early
2015 launch.
Oscar de la Renta is one of the world’s leading luxury goods
firms. The New York-based company was established in 1965,
and encompasses a full line of women’s accessories, bridal,
childrenswear, fragrance, beauty and home goods, in addi-
tion to its internationally renowned signature women’s ready to
wear collection. Oscar de la Renta products are sold globally in
fine department and specialty stores, oscardelarenta.com and
through wholesale channels.
the products
35
Oscar de la Renta Extraordinary
INTER PARFUMS, INC. 2014 ANNUAL REPORT
36
Paul Smith Extreme Sport
the products
37
PAUL SMITH
We signed an exclusive worldwide license agreement with Paul
Smith in December 1998 for the creation, development and
distribution of Paul Smith perfumes. In 2008, we extended
this license for an additional seven years through December
31, 2017.
Paul Smith is an internationally renowned British designer who
creates fashion with a clear identity. Paul Smith has a modern
style which combines elegance, inventiveness and a sense of
humor and enjoys a loyal following, especially in the UK and
Japan. Fragrances include: Paul Smith (2000), Paul Smith
Extrême (2002), Paul Smith Rose (2007), Paul Smith Man 2
(2010) and Optimistic (2011). A new men’s and women’s line,
Portrait, was released in Spring 2013 and Extreme Sport for
men was introduced in 2014.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
38
REPETTO
In December 2011, we entered into a 13-year exclusive worldwide
license agreement to create, produce and distribute perfumes
and ancillary products under the Repetto brand.
Created in 1947 by Rose Repetto at the request of her son,
dancer and choreographer Roland Petit, Repetto is today a
legendary name in the world of dance. For a number of years it
has developed timeless and must-have collections with a fully
modernized signature style ranging from dance shoes, ballet
slippers, flat shoes, and sandals to more recently handbags and
high-end accessories.
With an ambitious plan of international expansion focusing mainly
on Europe, the brand is now branching out into Asia, notably South
Korea and Japan where its mix of cross-generational appeal and
French chic has been met with unprecedented enthusiasm. Our
first fragrance line was launched in 2013 generating first year
sales of $12 million. Sales reached $12.4 million in 2014 as
our Repetto fragrances experienced gradual sales penetration in
France, and slower acceptance internationally.
the products
39
Repetto Eau Florale
INTER PARFUMS, INC. 2014 ANNUAL REPORT
40
Shanghai Tang Gold Lily
the products
41
SHANGHAI TANG
In July 2013, we created a wholly-owned Hong Kong subsid-
Founded in 1994, Shanghai Tang is the leading Chinese
iary, Inter Parfums USA Hong Kong Limited, which entered
luxury brand with international recognition and distribution.
into a 12-year exclusive worldwide license to create, produce
As the global curator of modern Chinese chic, Shanghai Tang
and distribute perfumes and related products under China’s
champions the richness and beauty of the Chinese culture through
leading luxury brand, Shanghai Tang. The agreement com-
its contemporary lifestyle offer of apparel and accessories for
menced on July 1, 2013 and is subject to certain minimum
men, women and children, as well as home collections. Shang-
sales, advertising expenditures and royalty payments as are
hai Tang supports an international network of 45 boutiques,
customary in our industry. Our first Shanghai Tang fragrance
including the world’s largest lifestyle flagship–The Shanghai
collection for men and women is set for a 2015 rollout.
Tang Mansion in Hong Kong, and its largest flagship Boutique,
The Cathay Mansion in Shanghai, China and on-line.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
42
S.T. DUPONT
In June 1997, we signed an exclusive worldwide license
agreement with S.T. Dupont for the creation, manufacture and
distribution of S.T. Dupont perfumes. In 2011, the agreement
was renewed and now runs through December 31, 2016. S.T.
Dupont is a French luxury goods house founded in 1872,
which is known for its fine writing instruments, lighters and
leather goods.
S.T. Dupont fragrances include: S.T. Dupont (1998),
S.T. Dupont Essence Pure (2002), S.T. Dupont Noir (2006),
S.T. Dupont Blanc (2007), S.T. Dupont Passenger (2008),
S.T. Dupont Intense (2009), S.T. Dupont Passenger Cruise
(2011), and 58 avenue Montaigne (2012). In 2014, we
launched our So Dupont duo, as well as a new men’s line,
Paris Saint Germain.
the products
43
SoDupont_Adv_141_A4.indd 1
S.T. Dupont So Dupont
01/04/2014 13:16
INTER PARFUMS, INC. 2014 ANNUAL REPORT
44
Van Cleef & Arpels RÊVE Elixir
VCAreve_Elixir_ADV_141.indd 1
30/01/2014 08:35
the products
45
VAN CLEEF & ARPELS
In September 2006, we entered into an exclusive worldwide
license agreement for the creation, development and distribu-
tion of fragrance and related bath and body products under
the Van Cleef & Arpels brand and related trademarks.
Van Cleef & Arpels fragrances in current distribution include:
First (1976), Van Cleef pour Homme (1978), Tsar (1989), Van
Cleef (1994), First 1er Bouquet (2008), Féerie (2008), Collection
Extraordinaire (2009), Oriens (2010), Midnight in Paris (2010).
In 2013, sales increased 11% to $25.5 million due to the
launch of the new Rêve line and steady performances by the
First and Collection Extraordinaire. Although overall brand sales
declined 7% in 2014, certain lines like Collection Extraordinaire,
performed exceptionally well. We have a new women’s scent for
Van Cleef & Arpels prepared for a 2015 debut.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
46
Specialty Retail
the products
47
Banana Republic Modern Man
SPECIALTY RETAIL PRODUCTS
In connection with our specialty retail agreements in our United States operations, we design, produce and manufacture
fragrance and fragrance related products for brand name specialty retailers. These agreements are very similar to our prestige
license agreements, as they include a licensing component for worldwide sales to select third party retailers and distributors in
return for royalty payments and required advertising expenditures as are customary in our industry, in addition to the possibility of
selling product we create to the specialty retailer for sale in its retail stores. Our exclusive agreements for specialty retail brands
and their expiration dates are as follows:
Brand Name
Expiration Date
Abercrombie & Fitch
and Hollister
December 31, 2021
The Gap
August 31, 2015 for 1969 Fragrances only
Banana Republic
bebe Stores
December 31, 2016
June 30, 2017, plus three, 3-year optional terms, if certain sales targets are met
INTER PARFUMS, INC. 2014 ANNUAL REPORT
48
ABERCROMBIE & FITCH AND HOLLISTER
In December 2014, the Company entered into a 7-year ex-
clusive worldwide license to create, produce and distrib-
ute new perfumes and fragrance related products under the
Abercrombie & Fitch and Hollister brand names. The Company
will distribute these fragrances internationally in specialty re-
tailers, high-end department stores and duty free shops, and
in the U.S., in duty free shops and potentially in Abercrombie
& Fitch and Hollister retail stores. New men’s and women’s
scents are planned for both Abercrombie & Fitch and Hollister
for 2016.
GAP AND BANANA REPUBLIC
In July 2005, we entered into an exclusive agreement with
The Gap, Inc. to develop, produce, manufacture and distribute
fragrance and fragrance related products for Gap and Banana
Republic brand names to be sold in Gap and Banana Republic
retail stores in the United States and Canada. In March 2006,
the agreement was amended to include fragrance and fra-
grance related products for Gap Outlet and Banana Republic
Factory Stores in the United States and Canada. In 2008, we
expanded our relationship with Gap Inc. to include a licens-
ing agreement for international distribution of personal care
products created for the Gap and Banana Republic brands.
After several renewals, our rights to develop, produce, man-
ufacture and distribute fragrances for Gap brand names to
be sold in Gap retail stores in the United States and Canada
expired in December 2014, and we have a verbal agreement
to retain the right to sell certain products internationally until
August 31, 2015.
Abercrombie & Fitch FIERCE
bebe STORES
In July 2008, we entered into an exclusive 6-year worldwide
agreement with bebe Stores, Inc., under which we design,
In 2015, we reached a verbal agreement to renew our rights
manufacture and supply fragrance, bath and body products
to develop, produce, manufacture and distribute fragrances for
and color cosmetics for company-owned bebe stores in the
Banana Republic brand names to be sold in Banana Republic
United States and Canada, as well as select specialty and
retail stores in the United States and Canada and our license
department stores worldwide. We have incorporated bebe’s
agreement for international distribution of fragrances of
signature look into fragrance and cosmetics for the brand’s
Banana Republic stores as well as select specialty and depart-
strong, hip, sexy, and sophisticated clientele.
ment stores outside the United States, including duty free
Our bebe signature fragrance was unveiled at more than
and other travel related retailers. Banana Republic products
200 bebe stores in the U.S. in August 2009, which was fol-
currently available include: Classic (1995), W (1995), Alabaster
lowed by worldwide distribution shortly thereafter. Scents
(2006), Rosewood (2006), Slate (2006), Black Walnut (2006),
currently available for domestic and international markets in-
Cordovan (2007), Malachite (2007), and Wildbloom (2011). To
clude: bebe (2009), bebe sheer (2010) and bebe gold (2011).
complement the women’s scent Wildbloom, we launched several
In 2012, we introduced a new bebe scent, Wishes & Dreams
brand extensions, Wildbloom Vert and Wildblue in 2012 followed
and we introduced two other scents, bebe Desire and bebe Nou-
in 2013, with Wildbloom Rouge and Wildblue Noir. In 2014, we
veau in 2013. In 2014, we introduced bebe Nouveau Chic and a
launched Modern, a new collection for men and women.
new fragrance family is planned for later in 2015.
quarterly financial data
49
QUARTERLY FINANCIAL DATA: (UNAUDITED)
(In thousands, except per share data)
2014
Q1
Q2
Q3
Q4
Full Year
Net Sales
Gross Margin
Net Income
Net Income Attributable to
Inter Parfums, Inc.
Net Income Attributable to
Inter Parfums, Inc. per Share:
Basic
Diluted
Average Common Shares Outstanding:
Basic
Diluted
2013
Net Sales
Gross Margin
Net Income (Loss)
Net Income (Loss) Attributable to
$121,730
69,230
12,150
$118,192
68,116
7,667
$134,206
75,328
13,764
$125,133
74,363
3,764
$499,261
287,037
37,345
8,894
6,109
11,113
3,320
29,436
$0.29
$0.29
30,900
31,058
$0.20
$0.20
30,938
31,069
$0.36
$0.36
30,941
31,054
$0.11
$0.11
30,945
31,061
$0.95
$0.95
30,931
31,060
Q1
Q2
Q3
Q4
Full Year
$213,810
$117,485
$126,753
$105,531
$563,579
134,643
42,942
63,607
4,521
70,007
9,903
60,522
(6,400)
328,779
50,966
Inter Parfums, Inc.
31,696
3,815
7,854
(4,154)
39,211
Net Income (Loss) Attributable to
Inter Parfums, Inc. per Share:
Basic
Diluted
Average Common Shares Outstanding:
Basic
Diluted
$1.03
$1.03
30,687
30,847
$0.12
$0.12
30,748
30,953
$0.26
$0.25
30,796
30,986
$(0.13)
$(0.13)
30,826
30,826
$1.27
$1.27
30,764
30,954
INTER PARFUMS, INC. 2014 ANNUAL REPORT
50
NORTH AMERICA
27%
United States export sales were approximately $52.3 million,
$50.4 million and $38.8 million in 2014, 2013 and 2012,
respectively. Consolidated net sales to customers by region
are as follows:
CONSOLIDATED NET SALES TO CUSTOMERS BY REGION
(in thousands)
North America
Europe
Central and
South America
Middle East
Asia
Other
2014
$134,600
177,900
49,200
40,300
85,500
11,800
$499,300
Year Ended December 31,
2013
2012
$154,300
$175,400
215,600
241,300
42,400
43,300
53,000
62,100
98,600
115,300
9,400
7,000
$563,600
$654,100
CENTRAL & SOUTH
AMERICA
10%
CONSOLIDATED NET SALES TO CUSTOMERS
IN MAJOR COUNTRIES
(in thousands) Year Ended December 31,
2014
2012
$128,000
37,000
50,000
United Kingdom
United States
$150,000
$167,000
46,000
47,000
46,000
48,000
France
2013
51
ASIA
17%
EUROPE
36%
MIDDLE EAST
8%
INTER PARFUMS, INC. 2014 ANNUAL REPORT 52
the
Organization
ALL CORPORATE FUNCTIONS,
OPERATIONS:
Including product analysis and development, production and
Henry B. Clarke and Alex Canavan in the United States and
sales, and finance are coordinated at the Company’s corpo-
Axel Marot in France:
rate headquarters in New York and at the corporate offices of
• Product development;
Interparfums SA in Paris. Each company is organized into two
• Logistics and transportation;
operational units that report directly to general management,
• Purchasing and industrial relations;
and European operations ultimately report to Mr. Benacin and
• Quality control and inventory cost supervision.
United States operations ultimately report to Mr. Madar.
FINANCE, INVESTOR RELATIONS
AND ADMINISTRATION:
EXPORT SALES:
Herve Bouillonnec in the United States and Frédéric Garcia-
Pelayo in France:
Russell Greenberg in the United States and Philippe Santi
• International development strategy;
in France:
• Establishment of distributor networks and negotiation of
• Financial policy and communication, investor relations;
contracts;
• Financial accounting, cost accounting, budgeting and cash
• Monitoring of profit margins and advertising expenditures.
flow management;
• Disclosure requirements of the Securities and Exchange
DOMESTIC (HOME COUNTRY) SALES:
Commission and Commission des Operations de Bourse;
Michel Bes in the United States and Jérôme Thermoz
• Labor relations, tax and legal matters and management
in France:
information systems.
• Establish and apply domestic sales strategy and
distribution policy;
• Sales team management and development;
• Monitoring of profit margins and advertising expenditures.
the organization
53
SIMPLIFIED CHART OF THE ORGANIZATION
46%
54%
philippe benacin
jean madar
inter parfums, inc.
(nasdaq - “ipar”)
public
shareholders
100%
100%
100%
interparfums
holdings, sa
jean philippe
fragrances, llc
inter parfums
usa, llc
100%
inter parfums
usa hong kong ltd
73%
interparfums sa
(euronext – paris)
100%
100%
100%
100%
100%
interparfums
luxury
brands, inc.
interparfums
(suisse) sarl
interparfums
singapore
pte, ltd
51%
interparfums
deutschland
gmbh
(germany)
pãpãna
inter es
pa
rfums
et cosmetiques, sl
(spain)
interparfums
srl
(italy)
INTER PARFUMS, INC. 2014 ANNUAL REPORT
54
CONTENTS
Management’s Discussion and Analysis of 00
Financial Condition and Results of Operations 55
Reports on Internal Control Over Financial Reporting 67
Report of Independent Registered Public Accounting Firm 68
Financial Statements 69
Directors and Executive Officers 87
Corporate and Market Information 88
management’s discussion and analysis
of financial condition and results of operations
55
management’s discussion
and analysis of
financial condition and
Results of Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REGULATION S-K ITEM 10(e)
Regulation S-K, Item 10(e), “Use of Non-GAAP Financial
traded company as 27% of Interparfums SA shares trade on
Measures in Commission Filings,” prescribes the conditions
the NYSE Euronext.
for use of non-GAAP financial information in filings with the
We produce and distribute our European-based pres-
Securities and Exchange Commission.
tige products primarily under license agreements with brand
In July 2012, Burberry exercised its option to buy-out our
owners, and European-based prestige product sales rep-
license rights effective December 31, 2012. Due to the signif-
resented approximately 79%, 82% and 87% of net sales for
icance of this transaction as well as its non-recurring nature,
2014, 2013 and 2012, respectively. We have built a portfolio
exclusion of such gain in the non-GAAP financial measures
of prestige brands, which include Balmain, Boucheron, Jim-
provides a more complete disclosure and facilitates a more
my Choo, Karl Lagerfeld, Lanvin, Montblanc, Paul Smith, S.T.
accurate comparison of current results to historic results. In
Dupont, Repetto and Van Cleef & Arpels, whose products are
addition, providing comparable sales information excluding
distributed in over 100 countries around the world.
sales relating to a terminated license provides investors with a
Burberry was our most significant license, and net sales
more accurate picture of current sales trends. Based upon the
of Burberry products represented 0%, 23% and 46% of net
foregoing, we believe that our presentation of the non-GAAP
sales for the years ended December 31, 2014, 2013 and
financial information is an important supplemental measure of
2012, respectively. (See Note 2 “Termination of Burberry Li-
operating performance to investors.
cense” in notes to consolidated financial statements on page
OVERVIEW
77 of this Annual Report). In addition, we own the Lanvin brand
name for our class of trade, and license the Montblanc and
We operate in the fragrance business, and manufacture, mar-
Jimmy Choo brand names; for the year ended December 31,
ket and distribute a wide array of fragrances and fragrance
2014, sales of product for these brands represented 18%,
related products. We manage our business in two segments,
22% and 16% of net sales, respectively.
European-based operations and United States-based opera-
Through our United States operations we also market pres-
tions. Certain prestige fragrance products are produced and
tige brands as well as specialty retail fragrance and fragrance
marketed by our European operations through our 73% owned
related products. United States operations represented 21%,
subsidiary in Paris, Interparfums SA, which is also a publicly
18% and 13% of net sales in 2014, 2013 and 2012, respec-
INTER PARFUMS, INC. 2014 ANNUAL REPORT
56
tively. These fragrance products are sold or to be sold under
ens or is prolonged, then there will likely be a negative effect
trademarks owned by us or pursuant to license or other
on ongoing consumer confidence, demand and spending and
agreements with the owners of the Abercrombie & Fitch, Agent
as a result, our business. Currently, we believe general eco-
Provocateur, Anna Sui, Banana Republic, bebe, Dunhill, Gap,
nomic, political and other uncertainties still exist in select
Hollister, Oscar de la Renta, and Shanghai Tang brands.
markets in which we do business and we continue to monitor
Quarterly sales fluctuations are influenced by the timing of
global economic and political uncertainties and other risks
new product launches as well as the third and fourth quarter
that may affect our business.
holiday season. In certain markets where we sell directly to
Our reported net sales are impacted by changes in foreign
retailers, seasonality has been more evident in the past few
currency exchange rates. A strong U.S. dollar has a negative
years. We operate distribution subsidiaries in Italy, Germany,
impact on our net sales. However, earnings are positively
Spain, and the United States. In addition, our specialty retail
affected by a strong dollar, because approximately 40% of
product lines sold to U.S. retailers are also concentrated in
net sales of our European operations are denominated in U.S.
the second half of the year.
dollars, while almost all costs of our European operations are
We grow our business in two distinct ways. First, we grow by
incurred in euro. Our Company addresses certain financial ex-
adding new brands to our portfolio, either through new licens-
posures through a controlled program of risk management that
es or other arrangements or out-right acquisitions of brands.
includes the use of derivative financial instruments. We primarily
Second, we grow through the introduction of new products and
enter into foreign currency forward exchange contracts to reduce
supporting new and established products through advertising,
the effects of fluctuating foreign currency exchange rates.
merchandising and sampling as well as phasing out existing
products that no longer meet the needs of our consumers. The
RECENT IMPORTANT EVENTS
economics of developing, producing, launching and supporting
BURBERRY
products influence our sales and operating performance each
Burberry exercised its option to buy-out the license rights
year. Our introduction of new products may have some can-
effective December 31, 2012. In October 2012, the Company
nibalizing effect on sales of existing products, which we take
and Burberry entered into a transition agreement that provided
into account in our business planning.
for certain license rights and obligations to continue through
Our business is not capital intensive, and it is important to
March 31, 2013. The Company continued to operate certain
note that we do not own manufacturing facilities. We act as a
aspects of the business for the brand including product devel-
general contractor and source our needed components from
opment, testing, and distribution. The transition agreement
our suppliers. These components are received at one of our
provided for non-exclusivity for manufacturing, a cap on sales
distribution centers and then, based upon production needs,
of Burberry products, a reduced advertising requirement and
the components are sent to one of several third party fillers,
no minimum royalty amounts.
which manufacture the finished product for us and then deliver
them to one of our distribution centers.
ABERCROMBIE & FITCH AND HOLLISTER
As with any global business, many aspects of our operations
In December 2014, the Company entered into a 7-year
are subject to influences outside our control. We believe we
exclusive worldwide license to create, produce and distribute
have a strong brand portfolio with global reach and potential.
new perfumes and fragrance related products under the
As part of our strategy, we plan to continue to make invest-
Abercrombie & Fitch and Hollister brand names. The Company
ments behind fast-growing markets and channels to grow mar-
will distribute these fragrances internationally in specialty
ket share.
retailers, high-end department stores and duty free shops, and
During 2014, the economic and political uncertainty and
in the U.S., in duty free shops and potentially in Abercrombie
financial market volatility taking place in certain European
& Fitch and Hollister retail stores. The agreement is subject to
countries and the Middle East did not have a significant impact
certain minimum sales, advertising expenditures and royalty
on our business, and at this time we do not believe it will
payments as are customary in our industry. New men’s and
have a significant impact on our business for the foreseeable
women’s scents are planned for both Abercrombie & Fitch and
future. However, if the degree of uncertainty or volatility wors-
Hollister for 2016.
management’s discussion and analysis
of financial condition and results of operations
57
DISCUSSION OF CRITICAL ACCOUNTING POLICIES
upon historic trends and relevant current data, including infor-
We make estimates and assumptions in the preparation of our
mation provided by retailers regarding their inventory levels. In
financial statements in conformity with accounting principles
addition, as necessary, specific accruals may be established
generally accepted in the United States of America. Actual
for significant future known or anticipated events. The types
results could differ significantly from those estimates under
of known or anticipated events that we have considered, and
different assumptions and conditions. We believe the follow-
will continue to consider, include, but are not limited to, the
ing discussion addresses our most critical accounting poli-
financial condition of our customers, store closings by retailers,
cies, which are those that are most important to the portrayal
changes in the retail environment and our decision to continue
of our financial condition and results of operations. These
to support new and existing products. We record estimated
accounting policies generally require our management’s most
reserves for sales returns as a reduction of sales, cost of sales
difficult and subjective judgments, often as a result of the
and accounts receivable. Returned products are recorded as
need to make estimates about the effect of matters that
inventories and are valued based upon estimated realizable
are inherently uncertain. Management of the Company has
value. The physical condition and marketability of returned
discussed the selection of significant accounting policies and
products are the major factors we consider in estimating real-
the effect of estimates with the Audit Committee of the Board
izable value. Actual returns, as well as estimated realizable
of Directors.
REVENUE RECOGNITION
values of returned products, may differ significantly, either
favorably or unfavorably, from our estimates, if factors such
as economic conditions, inventory levels or competitive condi-
We sell our products to department stores, perfumeries,
tions differ from our expectations.
specialty retailers, mass market retailers, supermarkets and
domestic and international wholesalers and distributors.
INVENTORIES
Sales of such products by our domestic subsidiaries are de-
Inventories are stated at the lower of cost or market value.
nominated in U.S. dollars and sales of such products by our
Cost is principally determined by the first-in, first-out method.
foreign subsidiaries are primarily denominated in either euro
We record adjustments to the cost of inventories based upon
or U.S. dollars. We recognize revenues when merchandise is
our sales forecast and the physical condition of the inventories.
shipped and the risk of loss passes to the customer. Net sales
These adjustments are estimates, which could vary signifi-
are comprised of gross revenues less returns, trade discounts
cantly, either favorably or unfavorably, from actual require-
and allowances.
ments if future economic conditions or competitive conditions
differ from our expectations.
ACCOUNTS RECEIVABLE
Accounts receivable represent payments due to the Company
EQUIPMENT AND OTHER LONG-LIVED ASSETS
for previously recognized net sales, reduced by allowances
Equipment, which includes tools and molds, is recorded at cost
for sales returns and doubtful accounts. Accounts receivable
and is depreciated on a straight-line basis over the estimated
balances are written-off against the allowance for doubtful
useful lives of such assets. Changes in circumstances such as
accounts when they become uncollectible. Recoveries of ac-
technological advances, changes to our business model or changes
counts receivable previously recorded against the allowance
in our capital spending strategy can result in the actual useful
are recorded in the consolidated statement of income when
lives differing from our estimates. In those cases where we
received. We generally grant credit based upon our analysis of
determine that the useful life of equipment should be short-
the customer’s financial position as well as previously estab-
ened, we would depreciate the net book value in excess of the
lished buying patterns.
SALES RETURNS
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 prod-
Generally, we do not permit customers to return their unsold
ucts, could result in shortened useful lives.
products. However, for U.S. distribution of our prestige prod-
We evaluate indefinite-lived intangible assets for impairment
ucts, we allow returns if properly requested, authorized and
at least annually during the fourth quarter, or more frequently
approved. We regularly review and revise, as deemed necessary,
when events occur or circumstances change, such as an un-
our estimate of reserves for future sales returns based primarily
expected decline in sales, that would more likely than not in-
INTER PARFUMS, INC. 2014 ANNUAL REPORT
58
dicate that the carrying value of an indefinite-lived intangible
levels and future cost of goods and operating expense levels,
asset may not be recoverable. When testing indefinite-lived
as well as economic conditions, changes to our business model
intangible assets for impairment, the evaluation requires a
or changes in consumer acceptance of our products which are
comparison of the estimated fair value of the asset to the carry-
more subjective in nature. We believe that the assumptions we
ing value of the asset. The fair values used in our evaluations
have made in projecting future cash flows for the evaluations
are estimated based upon discounted future cash flow projections
described above are reasonable and currently no impairment
using a weighted average cost of capital of 6.7%. The cash flow
indicators exist for our intangible assets subject to amortiza-
projections are based upon a number of assumptions, including,
tion. In those cases where we determine that the useful life of
future sales levels and future cost of goods and operating expense
long-lived assets should be shortened, we would depreciate the
levels, as well as economic conditions, changes to our business
net book value in excess of the salvage value (after testing for
model or changes in consumer acceptance of our products
impairment as described above), over the revised remaining use-
which are more subjective in nature. If the carrying value of
ful life of such asset thereby increasing amortization expense.
an indefinite-lived intangible asset exceeds its fair value, an
In determining the useful life of our Lanvin brand names
impairment charge is recorded.
and trademarks, we applied the provisions of ASC topic 350-
We believe that the assumptions we have made in projecting
30-35-3. The only factor that prevented us from determining
future cash flows for the evaluations described above are rea-
that the Lanvin brand names and trademarks were indefinite
sonable and currently no impairment indicators exist for our
life intangible assets was Item c. “Any legal, regulatory, or
indefinite-lived intangible assets. However, if future actual
contractual provisions that may limit the useful life.” The exis-
results do not meet our expectations, we may be required to
tence of a repurchase option in 2025 may limit the useful life
record an impairment charge, the amount of which could be
of the Lanvin brand names and trademarks to the Company.
material to our results of operations. The following table presents
However, this limitation would only take effect if the repur-
the impact a change in the following significant assumptions
chase option were to be exercised and the repurchase price
would have had on the calculated fair value in 2014 assuming
was paid. If the repurchase option is not exercised, then the
all other assumptions remained constant:
Lanvin brand names and trademarks are expected to continue
to contribute directly to the future cash flows of our Company
(In millions)
Increase
and their useful life would be considered to be indefinite.
(decrease) to
With respect to the application of ASC topic 350-30-35-8,
Change
fair value
the Lanvin brand names and trademarks would only have a
Weighted average cost of capital
Weighted average cost of capital
Future sales levels
Future sales levels
+10%
-10%
+10%
-10%
$(1.0)
finite life to our Company if the repurchase option were exer-
$ 1.3
$ 1.0
cised, and in applying ASC topic 350-30-35-8, we assumed
that the repurchase option is exercised. When exercised, Lanvin
$(1.0)
has an obligation to pay the exercise price and the Company
would be required to convey the Lanvin brand names and
Intangible assets subject to amortization are evaluated for
trademarks back to Lanvin. The exercise price to be received
impairment testing whenever events or changes in circum-
(Residual Value) is well in excess of the carrying value of the
stances indicate that the carrying amount of an amortizable
Lanvin brand names and trademarks, therefore no amortiza-
intangible asset may not be recoverable. If impairment indica-
tion is required.
tors exist for an amortizable intangible asset, the undiscounted
future cash flows associated with the expected service potential
DERIVATIVES
of the asset are compared to the carrying value of the asset. If
We account for derivative financial instruments in accordance
our projection of undiscounted future cash flows is in excess
with ASC topic 815, which establishes accounting and report-
of the carrying value of the intangible asset, no impairment
ing standards for derivative instruments, including certain
charge is recorded. If our projection of undiscounted future
derivative instruments embedded in other contracts, and for
cash flows is less than the carrying value of the intangible
hedging activities. This topic also requires the recognition of
asset, an impairment charge would be recorded to reduce the
all derivative instruments as either assets or liabilities on the
intangible asset to its fair value. The cash flow projections are
balance sheet and that they are measured at fair value.
based upon a number of assumptions, including future sales
We currently use derivative financial instruments to hedge
management’s discussion and analysis
of financial condition and results of operations
59
certain anticipated transactions and interest rates, as well
QUANTITATIVE ANALYSIS
as receivables denominated in foreign currencies. We do not
During the 3-year period ended December 31, 2014, we have
utilize derivatives for trading or speculative purposes. Hedge
not made any material changes in our assumptions underlying
effectiveness is documented, assessed and monitored by
these critical accounting policies or to the related significant
employees who are qualified to make such assessments and
estimates. The results of our business underlying these assump-
monitor the instruments. Variables that are external to us such
tions have not differed significantly from our expectations.
as social, political and economic risks may have an impact on
While we believe the estimates we have made are proper and
our hedging program and the results thereof.
the related results of operations for the period are presented
INCOME TAXES
fairly in all material respects, other assumptions could reason-
ably be justified that would change the amount of reported
The Company accounts for income taxes using an asset and
net sales, cost of sales, and selling, general and administra-
liability approach that requires the recognition of deferred tax
tive expenses as they relate to the provisions for anticipated
assets and liabilities for the expected future tax consequences
sales returns, allowance for doubtful accounts and inven-
of events that have been recognized in its financial statements
tory obsolescence reserves. For 2014, had these estimates
or tax returns. The net deferred tax assets assume sufficient
been changed simultaneously by 5% in either direction, our
future earnings for their realization, as well as the continued
reported gross profit would have increased or decreased by
application of currently anticipated tax rates. Included in net
approximately $0.5 million and selling, general and admin-
deferred tax assets is a valuation allowance for deferred tax
istrative expenses would have changed by approximately
assets, where management believes it is more-likely-than-not
$0.02 million. The collective impact of these changes on
that the deferred tax assets will not be realized in the relevant
operating income, net income attributable to Inter Parfums,
jurisdiction. If the Company determines that a deferred tax
Inc., and net income attributable to Inter Parfums, Inc. per
asset will not be realizable, an adjustment to the deferred tax
diluted common share would be an increase or decrease of
asset will result in a reduction of net income at that time. In
approximately $0.5 million, $0.26 million and $0.01 mil-
addition, the Company follows the provisions of uncertain tax
lion, respectively.
positions as addressed in ASC topic 740-10-65-1.
RESULTS OF OPERATIONS
See information regarding Regulation S-K Item 10(e), “Use of Non-GAAP Financial Measures in Commission Filings,” on page
55 of this Annual Report.
As a result of the termination of the Burberry license, after declining 14% in 2013, net sales in 2014 declined 11% to $499.3
million, as compared to $563.6 million in 2013. However, with respect to the Company’s ongoing brands (excluding Burberry
brand sales), after increasing 23% in 2013, net sales in 2014 increased 15% to $499.3 million, as compared to $433.3 million
in 2013.
NET SALES
(In millions)
European-based ongoing brand
product sales
United States-based product sales
Total ongoing brand net sales
Burberry brand net sales
Total net sales
2014
$394.0
105.3
499.3
–
$499.3
% Change
2013
Years Ended December 31,
2012
% Change
18%
6%
15%
n/a
(11)%
$334.0
99.3
$433.3
130.3
$563.6
23%
21%
23%
n/a
(14)%
$270.4
82.3
$352.7
301.4
$654.1
At comparable foreign currency exchange rates, ongoing brand net sales increased 16% in 2014, as there was no discernible effect of
currency rates on net sales in 2013. The average U.S. dollar/euro exchange rates were 1.33 in both 2014 and 2013 and 1.28 in 2012.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
60
Ongoing European-based prestige product sales increased
network. For 2015, we expect continued strong performances
18% in 2014 to $394.0 million, as compared to 2013. New
from the existing scents within our major European-based pres-
product launches were the primary catalyst for sales growth
tige brands. In addition, our plans in 2015 call for a number
in 2014. Karl Lagerfeld’s signature scents for both men and
of new product launches including new scents for Montblanc,
women yielded $24.2 million in incremental sales in 2014.
Jimmy Choo, Boucheron, Lanvin, Balmain and Van Cleef & Ar-
Steady gains from Legend fragrances along with the 2014
pels. Lastly, the Company hopes to benefit from its substantial
launch of Emblem, enabled Montblanc brand sales to con-
resources to potentially acquire one or more brands, either on a
tinue to outperform expectations with sales reaching $110.8
proprietary basis or as a licensee.
million in 2014, up 33% as compared to 2013. Montblanc
United States prestige and specialty retail product sales in-
has now become our top selling brand. The successful sum-
creased 6% in 2014 to $105.3 million as compared to $99.3
mer launch of Jimmy Choo Man enabled Jimmy Choo brand
million in 2013. Recently licensed prestige brands within our
sales to resume positive sales momentum resulting in 2014
U.S.-based operations were the stars of 2014. Dunhill legacy
brand sales of $78.5 million, up 8% as compared to 2013.
scents added $16.2 million to 2014 sales, up 25% from $13.0
Lanvin brand sales faced a difficult comparison against the
million in 2013. Sales of Oscar de la Renta legacy products
launch of Lanvin Me in 2013; however, a strong performance
began in 2014 and aggregated $15.8 million for the year. In
by Eclat d’Arpège and the launch of Lanvin Me L’Eau resulted
addition, the spring launches, Fatale and Fatale Pink for Agent
in brand sales increasing 5% to $90.3 million in 2014 as com-
Provocateur, have been well received in international markets,
pared to 2013.
generating $5.3 million in 2014 sales. Declines in our specialty
These 2014 results for ongoing European-based prestige
retail and mass market product lines mitigated some of these
product sales are even more gratifying as they come on the heels
gains. In addition, a difficult Asian market resulted in a 16%
of a very strong 2013 where overall ongoing European-based
decline in Anna Sui brand sales aggregating $21.5 million in
prestige product sales increased 23% as compared to 2012.
2014, as compared to $25.8 million in 2013.
Sales of Montblanc Legend fragrances performed exceptionally
United States prestige brand and specialty retail products,
well with brand sales increasing 40% in 2013. For Jimmy Choo,
sales increased 21% in 2013 and benefited from strong con-
the introduction of its second fragrance line, Jimmy Choo Flash,
sumer demand and expanded retail distribution for Anna Sui
contributed to the 41% increase in brand sales for 2013. With
fragrances. Initial sales of Anna Sui fragrances began in 2012
the continued growth of Eclat d’Arpège along with the launch
and gained further momentum following the launch of La Vie de
of Lanvin Me and the steady performance of the Jeanne Lanvin
Bohème in 2013. Anna Sui fragrance sales increased 29% to
line, Lanvin product sales increased 11% in 2013, as compared
$25.8 million in 2013, as compared to $20.0 million in 2012.
to 2012. In addition, the launches of the Repetto signature
In April 2013, our U.S.-based operations took over the manu-
scent, along with Place Vendôme from Boucheron had exceeded
facture and distribution of legacy Dunhill fragrances, and brand
our expectations and were meaningful contributors to the
sales aggregated $13.0 million, providing an incremental contri-
growth in sales of ongoing brands in 2013.
bution to 2013 growth for our U.S. business.
As expected, sales within our European operations have been
Future growth within our United States-based operations is
affected as a result of the termination of the Burberry license.
expected to come from our prestige fragrance licenses. We plan
In addition, 2015 is expected to be a very challenging year
to grow our brands by launching new products and pursuing ex-
from a currency perspective. As mentioned above, the average
panded distribution. In that regard, we began shipping our first
U.S. dollar/euro exchange rate for 2014 and 2013 was 1.33.
all new Dunhill fragrance, Icon, in January 2015, which will be
However, first quarter 2015 exchange rates have averaged ap-
in selective distribution until spring 2015. We have also recently
proximately 1.15 or 14% below that of 2014. This is expected
launched our inaugural fragrance collection for Shanghai Tang
to have a significant negative impact on 2015 reported sales.
in certain duty free markets, which will be followed by a select
Despite the severe and anticipated continuing change in such
international roll-out throughout 2015. In addition, our plans in
currency exchange rates, we maintain confidence in our future
2015 call for a number of other product launches including new
as we have strengthened advertising and promotional invest-
scents for Oscar de la Renta, Anna Sui and bebe. Finally, we
ments supporting all portfolio brands and accelerated brand
will continue the development process for the new Abercrombie
development. Our expectations reflect plans to continue to build
& Fitch and Hollister fragrance lines planned for international
upon the strength of our brands and our worldwide distribution
distribution in 2016.
management’s discussion and analysis
of financial condition and results of operations
61
ONGOING BRAND NET SALES TO CUSTOMERS BY REGION
inventory, the sale of certain inventory to Burberry at cost, re-
(In millions)
Years Ended December 31,
2012
2013
sulted in a lower gross margin. In addition, the discontinuance
of Burberry product sales, which were sold at higher margins
than ongoing brand sales, had a negative effect on margins.
North America
Western Europe
Eastern Europe
Central & South America
Middle East
Asia
Other
2014
$134.6
130.9
47.0
49.2
40.3
85.5
11.8
$499.3
$118.4
114.4
46.3
33.2
34.1
78.2
8.7
$96.0
For U.S. operations, gross profit margin was 48% in 2014
90.6
38.0
29.4
29.7
63.9
5.1
and 46% for both 2013 and 2012. Sales growth for our U.S.
operations has primarily come from higher margin prestige
product licenses while sales of lower margin specialty retail
and mass market products have been in a decline.
We carefully watch movements in foreign currency ex-
change rates as approximately 40% of our European-based
$433.3
$352.7
operations net sales are denominated in U.S. dollars, while our
costs are incurred in euro. From a profit standpoint, a stronger
In 2014, ongoing brand sales were ahead in all regions. Our
U.S. dollar has a positive effect on our gross margin while
three largest markets Western Europe, North America and
a weak dollar has a negative effect. The average dollar/euro
Asia had sales growth of 14.4%, 13.6% and 9.2%, respec-
exchange rate was 1.33 in both 2014 and 2013. As such,
tively. Eastern Europe, which has been a difficult market all
there was no discernable effect on gross margin in 2014 from
year as a result of political and economic turmoil in the area,
changes in currency exchange rates. However, first quarter
was up 1.4% in 2014. In 2013, ongoing brand sales were also
2015 dollar/euro exchange rates have averaged approximately
ahead in all regions, and our three largest markets Western
1.15 or 14% below that of 2014. Although this is expected to
Europe, North America and Asia had sales growth of 26.3%,
have a significant negative impact on 2015 reported sales, we
23.3% and 22.5%, respectively.
expect to see an increase in our gross margin as over 40% of
Years Ended December 31,
2012
2013
GROSS MARGINS
(In millions)
Net sales
Cost of sales
Gross margin
Gross margin as a
2014
$499.3
212.3
$287.0
net sales of our European operations are denominated in U.S.
dollars, while almost all costs of our European operations are
incurred in euro.
Costs relating to purchase with purchase and gift with
purchase promotions are reflected in cost of sales and
$563.6
234.8
$654.1
aggregated $24.4 million, $25.7 million and $46.5 million in
246.9
2014, 2013 and 2012, respectively, and represented 4.9%,
$328.8
$407.2
4.6% and 7.1% of net sales, respectively. The decline in 2014
and 2013 is the result of the discontinuance of Burberry prod-
percent of net sales
57.5%
58.3%
62.2%
uct sales.
Generally, we do not bill customers for shipping and han-
As a percentage of net sales, gross profit margins were
dling costs and such costs, which aggregated $5.2 million,
57.5%, 58.3%, and 62.2% in 2014, 2013 and 2012, respec-
$6.1 million and $8.4 million in 2014, 2013 and 2012,
tively. For European operations, gross profit margin was 60%,
respectively, are included in selling, general and administrative
61% and 64% in 2014, 2013 and 2012, respectively. The
expenses in the consolidated statements of income. As such,
gross margin decline in 2014 and 2013 was directly related
our Company’s gross margins may not be comparable to other
to the resolution of the Burberry inventory and the termination
companies, which may include these expenses as a compo-
of the Burberry license. Although reserves were established in
nent of cost of goods sold.
2012 and used in 2013 to cover losses on the disposition of
INTER PARFUMS, INC. 2014 ANNUAL REPORT
62
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
in 2014, with the decline directly related to the termination of
(In millions)
the Burberry license. In addition, service fees, which are fees
Years Ended December 31,
paid to third parties relating to the activities of our distribution
2014
2013
2012
subsidiaries, aggregated $11.1 million, $15.1 million and $26.3
Selling, general &
million in 2014, 2013 and 2012, respectively. The declines in
administrative expenses
$233.6
$250.0
$325.8
both 2014 and 2013 are directly related to the termination of
Selling, general &
administrative expenses
the Burberry license and related discontinuation of our United
Kingdom distribution subsidiary.
as a percent of net sales
47%
44%
50%
The impairment loss in 2012 related to our Nickel business.
In December 2013, we sold our Nickel brand and trademarks
Selling, general and administrative expenses decreased 7% in
for $3.5 million, which was approximately equal to the then
2014 as compared to 2013 and decreased 23% in 2013 as
current book value of the goodwill and trademark; therefore,
compared to 2012. As a percentage of sales, selling, general
there was no material gain or loss as a result of the sale.
and administrative expenses were 47%, 44% and 50% in 2014,
See information regarding Regulation S-K Item 10(e), “Use of
2013 and 2012, respectively. For European operations, selling,
Non-GAAP Financial Measures in Commission Filings”, on page
general and administrative expenses decreased 9% in 2014, as
55 of this Annual Report. As a result of the termination of the
compared to 2013 and represented 50% of sales in 2014 as
Burberry license, the Company recognized a gain of $198.8 mil-
compared to 47% in 2013. A significant portion of the expenses
lion as of December 31, 2012. On an after tax basis and after
associated with the Burberry brand were variable in nature.
allocation to the noncontrolling interests on an after tax basis,
However, with only limited reorganization measures employed,
the net gain on termination of license attributable to Inter
the Company is attempting to absorb its fixed costs through
Parfums, Inc. common shareholders’ aggregated $93.0 million.
increased sales of other brands in our prestige fragrance
The following analysis excludes the 2012 net gain on termi-
portfolio as well as with the sale of products of recently licensed
nation of license.
new brands. For U.S. operations, selling, general and adminis-
Income from operations decreased 32% to $53.4 million in
trative expenses increased 11% in 2014 and represented 36%
2014 as compared to 2013, and decreased 1% to $78.8 million
of sales, as compared to 34% in 2013.
in 2013 as compared to $79.6 million in 2012. Operating mar-
Promotion and advertising included in selling, general and
gins aggregated 10.7%, 14.0% and 12.2% for the years ended
administrative expenses aggregated $86.7 million, $94.0 mil-
December 31, 2014, 2013 and 2012, respectively. Results for
lion and $132.7 million in 2014, 2013 and 2012, respectively.
2013 were influenced by an exceptional first quarter, whereby
Promotion and advertising as a percentage of sales represent-
operating pursuant to the termination agreement with Burberry,
ed 17.4%, 16.7% and 20.3% of net sales in 2014, 2013 and
profits were extraordinarily strong due to a substantial increase
2012, respectively. In 2013, pursuant to the requirements of
in sales, coupled with low promotional expenses. The remainder
the transition agreement with Burberry, advertising require-
of the 2013 year was influenced by lower sales and profitability
ments were reduced. Almost all promotional spending in 2013
relating to the termination of the Burberry license. Lower gross
was for continuing brands and represented approximately 22%
margins were partially offset by lower promotional spending. In
of continuing brand sales. As planned, we invested heavily in
2014, we experienced a slight decline in gross margin; however,
promotional spending in the latter part of 2013 to support new
and more importantly, we still need higher sales levels to appro-
product launches and continued worldwide building of brand
priately leverage our selling, general and administrative expenses.
awareness of our brand portfolio.
With only limited reorganization measures employed, the Com-
Royalty expense included in selling, general and adminis-
pany’s business model is expected to continue to demonstrate
trative expenses aggregated $35.6 million, $40.5 million and
effectiveness. A significant portion of the expenses associated
$58.8 million in 2014, 2013 and 2012, respectively. Royalty
with the Burberry brand were variable in nature. The Company
expense as a percentage of sales represented 7.1%, 7.2% and
plans to continue to absorb substantially all of its fixed costs
9.0% of net sales in 2014, 2013 and 2012, respectively. Roy-
through increased sales of other brands in our prestige fragrance
alty expense in 2014 includes a $2.3 million increase to the
portfolio as well as with the sale of products of recently licensed
estimated royalty liability due to Burberry. Without this adjust-
new brands. Our goal is to reach an operating margin of at least
ment, royalty expense would have represented 6.7% of net sales
14% in the next several years.
management’s discussion and analysis
of financial condition and results of operations
63
OTHER INCOME AND EXPENSES
INCOME TAXES
Interest expense aggregated $1.5 million, $1.4 million and $1.7
Our effective income tax rate was 34.2%, 36.8% and 35.6%
million in 2014, 2013 and 2012, respectively. We use the credit
in 2014, 2013 and 2012, respectively. Our effective tax rates
lines available to us, as needed, to finance our working capital
differ from statutory rates due to the effect of state and lo-
needs as well as our financing needs for acquisitions. Loans
cal taxes and tax rates in foreign jurisdictions. In 2013, the
payable – banks and long-term debt including current maturi-
Company incurred a new tax levied by the French Government
ties aggregated $0.3 million, $6.1 million and $27.8 million
equal to 3% on any dividend paid by a French company to its
as of December 31, 2014, 2013 and 2012, respectively. In
shareholders. This tax aggregated approximately $0.8 million
October 2012, the Company entered into a 1-year, €20 million
in 2014 and $1.6 million in 2013. Excluding this tax, our ef-
credit facility to finance payments required pursuant to the
fective tax rate of European operations was 31.7%, 34.0% and
Karl Lagerfeld license. This credit facility was repaid in full in
35.4% in 2014, 2013 and 2012, respectively. Profits in lower
2013 and we had no long-term debt as of December 31, 2014
tax rate foreign jurisdictions are the primary factor in the con-
and 2013.
tinued decline in the effective tax rate of our European opera-
Foreign currency gains or (losses) aggregated $0.9 million
tions. In addition, changes in allocation percentages related to
($1.2) million and ($3.1) million in 2014, 2013 and 2012,
state and local taxes of our U.S. operations reduced our U.S.
respectively. We enter into foreign currency forward exchange
operations effective tax rate to 36.5% in 2014 as compared to
contracts to manage exposure related to receivables denomi-
39.8% in 2013. We expect our effective tax rate to continue
nated in a foreign currency as over 40% of net sales of our
to decline as a result of our business interests in lower tax
European operations are denominated in U.S. dollars. However,
rate jurisdictions. Other than as discussed above, we did not
as coverage is never one hundred percent, gains and losses
experience any significant changes in tax rates, and none were
are incurred.
expected in jurisdictions where we operate.
Interest income aggregated $3.9 million, $4.4 million and
See information regarding Regulation S-K Item 10(e), “Use
$1.1 million in 2014, 2013 and 2012, respectively. Cash and
of Non-GAAP Financial Measures in Commission Filings”,
cash equivalents and short-term investments are primarily in-
on page 55 of this Annual Report.
vested in certificates of deposit.
NET INCOME AND EARNINGS PER SHARE (AS REPORTED)
(In thousands, except share and per share data)
Year Ended December 31,
Net income attributable to European operations
Net income attributable to United States operations
Net income
Less: Net income attributable to the noncontrolling interest
Net income attributable to Inter Parfums, Inc.
Net income attributable to Inter Parfums, Inc. common
shareholders:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
2014
$29,276
8,069
$37,345
7,909
$29,436
$0.95
0.95
2013
$44,147
6,819
$50,966
11,755
$39,211
2012
$171,799
5,091
$176,890
45,754
$131,136
$1.27
1.27
$4.29
4.26
30,931,308
31,060,326
30,763,955
30,574,772
30,953,882
30,715,684
INTER PARFUMS, INC. 2014 ANNUAL REPORT
64
ON AN AFTER TAX BASIS (THE TAX RATE OF INTERPARFUMS SA WAS 36.1% IN 2012) AND AFTER ALLOCATION TO THE
NONCONTROLLING INTEREST (26.8%) OF THE AFTER TAX GAIN, THE 2012 NET GAIN ON TERMINATION OF LICENSE
ATTRIBUTABLE TO INTER PARFUMS, INC. COMMON SHAREHOLDERS AGGREGATED $93.0 MILLION. THEREFORE, HAD THIS
TRANSACTION NOT OCCURRED, NET INCOME AND EARNINGS PER SHARE IN 2012 WOULD HAVE BEEN AS FOLLOWS:
(In thousands, except share and per share data)
Year Ended December 31,
Net income attributable to European operations
Net income attributable to United States operations
Net income
Less: Net income attributable to the noncontrolling interest
Net income attributable to Inter Parfums, Inc.
Net income attributable to Inter Parfums, Inc. common
shareholders:
Basic
Diluted
2014
$29,276
8,069
$37,345
7,909
$29,436
$0.95
0.95
2013
$44,147
6,819
$50,966
11,755
$39,211
2012
$44,742
5,091
$49,833
11,741
$38,092
$1.27
1.27
$1.25
1.24
Excluding the 2012 net gain on termination of license, on a
respectively. Net income attributable to Inter Parfums, Inc.
consolidated basis, and after its allocation to the noncontrolling
aggregated $29.4 million, $39.2 million and $38.1 million in
interests on an after tax basis, net income was $37.3 million,
2014, 2013 and 2012, respectively. Net margins attributable to
$51.0 million and $49.8 million in 2014, 2013 and 2012,
Inter Parfums, Inc. aggregated 5.9%, 7.0% and 5.8% in 2014,
respectively. Net income attributable to European operations
2013 and 2012, respectively.
was $29.3 million, $44.1 million and $44.7 million in 2014,
2013 and 2012, respectively, while net income attributable
LIQUIDITY AND CAPITAL RESOURCES
to United States operations was $8.1 million, $6.8 million
The Company’s financial position remains strong. At December
and $5.1 million in 2014, 2013 and 2012, respectively. The
31, 2014, working capital aggregated $383 million and we had a
reasons for significant fluctuations in net income for both
working capital ratio of 4.7 to 1. Cash and cash equivalents and
European operations and United States operations are di-
short-term investments aggregated $280 million, most of which
rectly related to the previous discussions relating to changes
is held in euro by our European operations and is readily con-
in sales, gross margin and selling, general and administrative
vertible into U.S. dollars. We have not had any liquidity issues
expenses. In summary, for European operations in 2014, the
to date, and do not expect any liquidity issues relating to such
absence of Burberry brand sales and related decline in gross
cash and cash equivalents and short-term investments held by
margin as a percentage of sales were partially mitigated by
our European operations. Approximately 88% of the Company’s
the decline in Burberry related selling, general and admin-
total assets are held by European operations. In addition to the
istrative expenses. However, we need higher sales levels to
cash and cash equivalents and short-term investments referred
appropriately leverage our selling, general and administrative
to above, approximately $87 million of trademarks, licenses and
expenses. For United States operations in 2014, higher gross
other intangible assets are held by European operations.
margins combined with a lower effective tax rate mitigated an
The Company hopes to benefit from its substantial resources
11% increase in selling, general and administrative expenses
to potentially acquire one or more brands, either on a proprietary
resulting in net income growth.
basis or as a licensee. Opportunities for external growth con-
The noncontrolling interest arises from our 73% owned
tinue to be examined, with the priority of maintaining the quality
subsidiary in Paris, Interparfums SA, which is also a publicly
and homogeneous nature of our portfolio. However, we cannot
traded company as 27% of Interparfums SA shares trade on
assure you that any new license or acquisition agreements will
the NYSE Euronext. Net income attributable to the noncon-
be consummated.
trolling interest is directly related to the profitability of our
Cash provided by operating activities aggregated $36.6 mil-
European operations, and aggregated 27.0%, 26.6% and 26.4%
lion, $49.2 million and $60.6 million in 2014, 2013 and 2012,
of European operations net income in 2014, 2013 and 2012,
respectively. In 2014, working capital items used $11 million in
management’s discussion and analysis
of financial condition and results of operations
65
cash from operating activities, as compared to $18 million in
In December 2013, the Company sold its Nickel brand and
2013 and $72 million being provided by working capital items
trademarks for $3.5 million, which was approximately equal to
in 2012. The 2014 increase in accounts receivable is consistent
the then current book value of the goodwill and trademark; there-
with the 2014 increase in sales and the accounts receivable bal-
fore, there was no material gain or loss as a result of the sale.
ances in 2014, 2013 and 2012 reflect favorable collection activ-
Our short-term financing requirements are expected to be
ity as day’s sales outstanding declined to 66 days in 2014 as
met by available cash on hand at December 31, 2014, cash
compared to 73 days in 2013 and 90 days in 2012. Inventory
generated by operations and a short-term credit lines provided
day’s on hand has also shown improvement and aggregated 198
by domestic and foreign banks. The principal credit facilities
in 2014, down from 199 in 2013 and 225 in 2012. As noted
for 2015 consist of a $20.0 million unsecured revolving line of
above, in 2013, working capital items used $18 million in cash
credit provided by a domestic commercial bank and approxi-
from operating activities. The primary factor contributing to this
mately $30.0 million in credit lines provided by a consortium
use is the payment of taxes relating to the gain on termination
of international financial institutions. Short-term borrowings
of license. The decline in accounts receivable, inventories and
aggregated $0.3 million and $6.1 million as of December 31,
payables reflects the wind down associated with the termination
2014 and 2013, respectively. Proceeds from sale of stock of
of the Burberry license.
subsidiary reflect the proceeds from shares issued by our French
Cash flows used in investing activities reflect the purchase
subsidiary, Interparfums SA, pursuant to options exercised.
and sales of short-term investments by our European opera-
In January 2013, the Board of Directors authorized a 50% in-
tions. These investments are primarily certificates of deposit
crease in the annual dividend to $0.48 per share. In November
with maturities greater than three months. At December 31,
2013, our Board of Directors authorized a special cash dividend
2014, approximately $79 million of such certificates of deposit
of $0.48 per share, payable in one lump sum on December 16,
contain penalties where we would forfeit a portion of the interest
2013 to shareholders of record on December 2, 2013. In Janu-
earned in the event of early withdrawal.
ary 2014, the Board of Directors authorized the continuation of
Purchases of equipment and leasehold improvements aggre-
the $0.48 per share dividend for 2014 and in January 2015,
gated $3.3 million, $5.0 million and $9.5 million in 2014, 2013
the Board of Directors authorized an 8% increase in the annual
and 2012, respectively. In 2012, the amounts include the pur-
dividend to $0.52 per share. The next quarterly cash dividend
chase of stands and counters for the Burberry cosmetic lines,
of $0.13 per share is payable on April 15, 2015 to sharehold-
some of which were sold for $2.8 million in 2013. Investing
ers of record on March 31, 2015. Dividends paid, including
activities in 2012 reflect the proceeds from the termination of
dividends paid once per year to noncontrolling stockholders
the Burberry license received in December 2012. Our business
of Interparfums SA, aggregated $19.5 million, $36.7 million
is not capital intensive as we do not own any manufacturing
and $13.1 million for the years ended December 31, 2014,
facilities. However, on a full year basis, we spend approximately
2013 and 2012, respectively. The cash dividends to be paid in
$3 million to $4 million on tools and molds, depending on our
2015 are not expected to have any significant impact on our
new product development calendar. Capital expenditures
financial position.
also include amounts for office fixtures, computer equipment
We believe that funds provided by or used in operations can be
and industrial equipment needed at our distribution centers.
supplemented by our present cash position and available credit fa-
Payments for intangible assets aggregated $0.9 million, $7.8
cilities, so that they will provide us with sufficient resources to meet
million and $19.7 million in 2014, 2013 and 2012, respectively.
all present and reasonably foreseeable future operating needs.
When acquiring new licenses for brands that have current dis-
Inflation rates in the U.S. and foreign countries in which we
tribution, we may pay an entry fee in connection with securing
operate did not have a significant impact on operating results for
the license rights.
the year ended December 31, 2014.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
66
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations over the periods indicated, as well as our total contractual obligations
($ in thousands).
Contractual Obligations
Long-Term Debt
Capital Lease Obligations
Operating Leases
Purchase Obligations (1)
Less than
Total
1-year
—
—
—
—
$34,901
$984,309
Years
2-3
—
—
Payments Due by Period
Years
More than
4-5
—
—
5-years
—
—
$5,306
$10,410
$8,884
$10,301
$102,752
$210,181
$217,308
$454,068
Other Long-Term Liabilities Reflected on the
Registrant’s Balance Sheet under GAAP
—
—
—
—
—
Total
$1,019,210
$108,058
$220,591
$226,192
$464,369
(1) Consists of purchase commitments for advertising and promotional items, minimum royalty guarantees, including fixed or minimum obligations, and estimates of
such obligations subject to variable price provisions. Future advertising commitments were estimated based on planned future sales for the license terms that were
in effect at December 31, 2014, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
All derivative instruments are required to be reflected as ei-
ABOUT MARKET RISK
GENERAL
ther assets or liabilities in the balance sheet measured at fair
value. Generally, increases or decreases in fair value of derivative
We address certain financial exposures through a controlled
instruments will be recognized as gains or losses in earnings in
program of risk management that primarily consists of the use of
the period of change. If the derivative is designated and qualifies
derivative financial instruments. We primarily enter into foreign
as a cash flow hedge, then the changes in fair value of the deriva-
currency forward exchange contracts in order to reduce the
tive instrument will be recorded in other comprehensive income.
effects of fluctuating foreign currency exchange rates. We do not
Before entering into a derivative transaction for hedging purpos-
engage in the trading of foreign currency forward exchange
es, we determine that the change in the value of the derivative will
contracts or interest rate swaps.
effectively offset the change in the fair value of the hedged item
from a movement in foreign currency rates. Then, we measure the
FOREIGN EXCHANGE RISK MANAGEMENT
effectiveness of each hedge throughout the hedged period. Any
We periodically enter into foreign currency forward exchange
hedge ineffectiveness is recognized in the income statement.
contracts to hedge exposure related to receivables denominated
At December 31, 2014, we had foreign currency contracts in
in a foreign currency and to manage risks related to future
the form of forward exchange contracts in the amount of approxi-
sales expected to be denominated in a currency other than
mately U.S. $14.8 million, GB £2.6 million and JPY ¥75.0 mil-
our functional currency. We enter into these exchange con-
lion which all have maturities of less than one year. We believe
tracts for periods consistent with our identified exposures. The
that our risk of loss as the result of nonperformance by any of
purpose of the hedging activities is to minimize the effect of
such financial institutions is remote.
foreign exchange rate movements on the receivables and cash
flows of Interparfums SA, our French subsidiary, whose func-
INTEREST RATE RISK MANAGEMENT
tional currency is the euro. All foreign currency contracts are
We mitigate interest rate risk by monitoring interest rates,
denominated in currencies of major industrial countries and
and then determining whether fixed interest rates should be
are with large financial institutions, which are rated as strong
swapped for floating rate debt, or if floating rate debt should be
investment grade.
swapped for fixed rate debt.
reports on internal control over financial reporting
67
MANAGEMENT’S ANNUAL REPORT
We conducted our audit in accordance with the standards
ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective
The management of Inter Parfums, Inc. is responsible for estab-
internal control over financial reporting was maintained in all
lishing and maintaining adequate internal control over financial
material respects. Our audit of internal control over financial
reporting as defined in Rule 13(a)-15(f) under the Securities
reporting included obtaining an understanding of internal control
Exchange Act of 1934. With the participation of the Chief
over financial reporting, assessing the risk that a material weak-
Executive Officer and the Chief Financial Officer, our man-
ness exists, and testing and evaluating the design and operat-
agement conducted an evaluation of the effectiveness of our
ing effectiveness of internal control based on the assessed risk.
internal control over financial reporting based on the framework
Our audit also included performing such other procedures as we
and criteria established in Internal Control – Integrated Framework
considered necessary in the circumstances. We believe that our
(1992), issued by the Committee of Sponsoring Organizations of
audit provides a reasonable basis for our opinion.
the Treadway Commission. Based on this evaluation, our manage-
A company’s internal control over financial reporting is a pro-
ment has concluded that our internal control over financial report-
cess designed to provide reasonable assurance regarding the
ing was effective as of December 31, 2014.
reliability of financial reporting and the preparation of financial
Our independent auditor, WeiserMazars LLP, a registered
statements for external purposes in accordance with generally
public accounting firm, has issued its report on its audit of
accepted accounting principles. A company’s internal control
our internal control over financial repor ting. This repor t
over financial reporting includes those policies and procedures
appears below.
that (1) pertain to the maintenance of records that, in reason-
able detail, accurately and fairly reflect the transactions and dis-
positions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
Jean Madar
Russell Greenberg
preparation of financial statements in accordance with generally
Chief Executive Officer,
Executive Vice President
accepted accounting principles, and that receipts and expendi-
Chairman of the
Board of Directors
and Chief Financial Officer
tures of the company are being made only in accordance with
authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition
REPORT OF INDEPENDENT REGISTERED
of the company’s assets that could have a material effect on the
PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL
financial statements.
OVER FINANCIAL REPORTING
Because of its inherent limitations, internal control over
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
financial reporting may not prevent or detect misstatements.
OF INTER PARFUMS, INC.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become in-
We have audited Inter Parfums, Inc.’s internal control over
adequate because of the changes in conditions, or that the
financial reporting as of December 31, 2014, based on criteria
degree of compliance with the policies or procedures may
established in Internal Control – Integrated Framework (1992)
deteriorate.
issued by the Committee of Sponsoring Organizations of the
In our opinion, Inter Parfums, Inc. maintained, in all mate-
Treadway Commission (the COSO criteria). Inter Parfums, Inc.’s
rial respects, effective internal control over financial report-
management is responsible for maintaining effective internal
ing as of December 31, 2014, based on the COSO criteria.
control over financial reporting, and for its assessment of the
We have also audited, in accordance with the standards
effectiveness of internal control over financial reporting,
of the Public Company Accounting Oversight Board (United
included in the accompanying Management’s Annual Report on
States), the consolidated balance sheet of Inter Parfums,
Internal Control over Financial Reporting. Our responsibility is
Inc. as of December 31, 2014 and the related consolidated
to express an opinion on the company’s internal control over
statements of income, changes in shareholders’ equity, com-
financial reporting based on our audit.
prehensive income and cash flows for the year ended December
INTER PARFUMS, INC. 2014 ANNUAL REPORT
68
report of independent registered public accounting firm
31, 2014 and our report dated March 11, 2015 expressed an
financial statements are free of material misstatement. An
unqualified opinion thereon.
audit includes examining, on a test basis, evidence support-
WeiserMazars LLP
New York, New York
March 11, 2015
ing the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement presenta-
tion. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Inter Parfums, Inc. and subsidiaries as
of December 31, 2014 and 2013, and the results of their
operations and their cash flows for each of the years in the
REPORT OF INDEPENDENT REGISTERED
3-year period ended December 31, 2014, in conformity with
PUBLIC ACCOUNTING FIRM
U.S. generally accepted accounting principles.
BOARD OF DIRECTORS AND SHAREHOLDERS
We also have audited, in accordance with the standards
INTER PARFUMS, INC.
NEW YORK, NEW YORK
of the Public Company Accounting Oversight Board (United
States), Inter Parfums, Inc.’s internal control over financial
reporting as of December 31, 2014, based on criteria es-
We have audited the accompanying consolidated balance sheets
tablished in Internal Control – Integrated Framework (1992)
of Inter Parfums, Inc. and subsidiaries (the “Company”) as of
issued by the Committee of Sponsoring Organizations of the
December 31, 2014 and 2013, and the related consolidated
Treadway Commission (COSO), and our report dated March
statements of income, comprehensive income (loss), changes
11, 2015 expressed an unqualified opinion thereon.
in shareholders’ equity and cash flows for each of the years in
the 3-year period ended December 31, 2014. These financial
WeiserMazars LLP
statements are the responsibility of the Company’s manage-
ment. Our responsibility is to express an opinion on these finan-
cial statements based on our audits.
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform
New York, New York
the audit to obtain reasonable assurance about whether the
March 11, 2015
financial statements
69
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Receivables, other
Other current assets
Income taxes receivable
Deferred tax assets
Total current assets
Equipment and leasehold improvements, net
Trademarks, licenses and other intangible assets, net
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Loans payable – banks
Accounts payable – trade
Accrued expenses
Income taxes payable
Dividends payable
Total current liabilities
Deferred tax liability
Commitments and contingencies
Equity:
Inter Parfums, Inc. shareholders’ equity:
Preferred stock, $0.001 par value. Authorized 1,000,000 shares; none issued
Common stock, $0.001 par value. Authorized 100,000,000 shares;
outstanding, 30,977,293 and 30,863,421 shares,
at December 31, 2014 and 2013, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost, 9,987,995 and 9,940,977 common shares
at December 31, 2014 and 2013
Total Inter Parfums, Inc. shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
(See accompanying notes to consolidated financial statements.)
2014
$90,138
190,152
90,124
102,326
1,542
4,504
929
6,848
486,563
9,187
98,531
10,225
$604,506
$298
46,646
49,194
3,773
3,717
103,628
2,154
31
60,200
374,121
(15,823)
(36,464)
382,065
116,659
498,724
$604,506
December 31,
2013
$125,650
181,677
79,932
117,347
2,418
4,775
6,435
7,257
525,491
10,444
116,243
11,880
$664,058
$6,104
56,736
58,333
1,270
3,704
126,147
2,555
31
57,877
359,459
25,860
(36,016)
407,211
128,145
535,356
$664,058
INTER PARFUMS, INC. 2014 ANNUAL REPORT
70
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
Net sales
Cost of sales
Gross margin
Selling, general, and administrative expenses
Gain on termination of license
Impairment of goodwill
Total operating expenses
Income from operations
Other expenses (income):
Interest expense
(Gain) loss on foreign currency
Interest and dividend income
Income before income taxes
Income taxes
Net income
Less: Net income attributable to the noncontrolling interest
2014
$499,261
212,224
287,037
233,634
–
–
233,634
53,403
1,478
(902)
(3,888)
(3,312)
56,715
19,370
37,345
7,909
Years Ended December 31
2013
2012
$563,579
$654,117
234,800
328,779
250,025
–
–
250,025
78,754
1,380
1,168
(4,440)
(1,892)
80,646
29,680
50,966
11,755
246,931
407,186
325,799
(198,838)
1,811
128,772
278,414
1,654
3,128
(1,133)
3,649
274,765
97,875
176,890
45,754
Net income attributable to Inter Parfums, Inc.
$29,436
$39,211
$131,136
Net income attributable to Inter Parfums, Inc. common shareholders:
Basic
Diluted
$0.95
0.95
$1.27
1.27
$4.29
4.26
Weighted average number of shares outstanding:
Basic
Diluted
Dividends declared per share
(See accompanying notes to consolidated financial statements.)
30,931,308
30,060,326
30,763,955
30,574,772
30,953,882
30,715,684
$0.48
$0.96
$0.32
financial statements
71
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share data
Years Ended December 31,
Net income
Other comprehensive income (loss):
Net derivative instrument gain, net of tax
Transfer from OCI into earnings
Translation adjustments, net of tax
Comprehensive income (loss)
Comprehensive income (loss) attributable to noncontrolling interests:
Net income
Net derivative instrument gain, net of tax
Transfer from OCI into earnings
Translation adjustments, net of tax
2014
$37,345
–
–
(57,806)
(57,806)
(20,461)
7,909
–
–
(16,123)
(8,214)
2013
$50,966
2012
$176,890
–
(327)
19,027
18,700
69,666
22
–
6,419
6,441
183,331
11,755
45,754
–
(87)
5,425
17,093
6
–
1,684
47,444
Comprehensive income (loss) attributable to Inter Parfums, Inc.
$(12,247)
$52,573
$135,887
(See accompanying notes to consolidated financial statements.)
INTER PARFUMS, INC. 2014 ANNUAL REPORT
72
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands except share and per share data)
Years Ended December 31,
Common stock, beginning and end of period
Additional paid-in capital, beginning of period
Shares issued upon exercise of stock options
Sale of subsidiary shares to noncontrolling interests
Stock compensation
Additional paid-in capital, end of period
Retained earnings, beginning of period
Net income
Dividends
Stock compensation
Retained earnings, end of period
Accumulated other comprehensive income, beginning of period
Foreign currency translation adjustment
Transfer from OCI into earnings
Net derivative instrument gain, net of tax
Accumulated other comprehensive income (loss), end of period
Treasury stock, beginning of period
Shares issued upon exercise of stock options
Shares received as proceeds of option exercises
Treasury stock, end of period
Noncontrolling interest, beginning of period
Net income
Foreign currency translation adjustment
Net derivative instrument gain, net of tax
Transfer from OCI into earnings
Sale of subsidiary shares to noncontrolling interest
Dividends
Stock-based compensation
Noncontrolling interest, end of period
2014
$31
57,877
1,981
(335)
677
60,200
359,459
29,436
(14,855)
81
374,121
25,860
(41,683)
–
–
(15,823)
(36,016)
219
(667)
(36,464)
128,145
7,909
(16, 123)
–
–
1,365
(4,667)
30
116,659
2013
$31
54,679
2,882
(173)
489
2012
$31
50,883
2,568
737
491
57,877
54,679
349,672
39,211
(29,582)
158
359,459
12,498
13,602
(240)
–
228,164
131,136
(9,789)
161
349,672
7,747
4,735
–
16
25,860
12,498
(35,404)
203
(815)
(36,016)
118,505
11,755
5,425
–
(87)
830
(8,341)
58
(34,151)
409
(1,662)
(35,404)
71,676
45,754
1,684
6
–
2,659
(3,333)
59
128,145
118,505
Total equity
$498,724
$535,356
$499,981
(See accompanying notes to consolidated financial statements.)
financial statements
73
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Impairment of goodwill
Provision for doubtful accounts
Noncash stock compensation
Gain on termination of license
Excess tax benefits from stock-based compensation
arrangements
Deferred tax expense (benefit)
Change in fair value of derivatives
Changes in:
Accounts receivable
Inventories
Other assets
Accounts payable and accrued expenses
Income taxes, net
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of short-term investments
Proceeds from sale of short-term investments
Proceeds from termination of license,
net of transaction fees and other settlements
Purchase of equipment and leasehold improvements
Payment for intangible assets acquired
Proceeds from sale of equipment
Proceeds from sale of trademark
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from (repayments of) loans payable – banks
Repayment of long-term debt
Purchase of treasury stock
Proceeds from exercise of options
Excess tax benefits from stock-based compensation arrangements
Proceeds from sale of stock of subsidiary
Dividends paid
Dividends paid to noncontrolling interests
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
Supplemental disclosures of cash flow information:
Cash paid for:
Interest
Income taxes
(See accompanying notes to consolidated financial statements.)
2014
$37,345
10,166
–
412
856
–
(670)
(557)
–
(19,607)
4,344
780
(4,996)
8,540
36,613
(245,810)
212,762
–
(3,302)
(922)
–
–
(37,272)
(5,765)
–
(90)
953
670
1,030
(14,841)
(4,667)
(22,710)
(12,143)
(35,512)
125,650
$90,138
$1,508
10,430
Years Ended December 31,
2013
2012
$50,966
$176,890
11,110
–
574
838
–
(700)
4,844
–
71,776
29,240
426
(33,156)
(86,724)
49,194
(381,843)
207,082
–
(5,015)
(7,769)
2,801
3,481
15,554
1,811
914
832
(198,838)
(100)
(7,903)
(68)
27,302
13,568
(9,611)
(40,773)
81,063
60,641
–
–
235,650
(9,474)
(19,717)
–
–
(181,263)
206,459
(21,835)
–
(98)
1,668
700
657
(28,331)
(8,341)
15,300
(4,379)
(90)
1,305
100
3,396
(9,780)
(3,333)
(55,580) 2,519
5,964 1,860
(181,685)
307,335
$125,650
271,479
35,856
$307,335
$1,524
104,992
$1,799
20,584
INTER PARFUMS, INC. 2014 ANNUAL REPORT
74
notes to consolidated financial statements
(in thousands except share and per share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
are translated at average rates of exchange prevailing during
(1) The Company and its Significant Accounting Policies
the year. Gains and losses from translation adjustments are
BUSINESS OF THE COMPANY
accumulated in a separate component of shareholders’ equity.
Inter Parfums, Inc. and its subsidiaries (the “Company”) are in
the fragrance business, and manufacture and distribute a wide
CASH AND CASH EQUIVALENTS
array of fragrances and fragrance related products.
AND SHORT-TERM INVESTMENTS
Substantially all of our prestige fragrance brands are
All highly liquid investments purchased with a maturity of
licensed from unaffiliated third parties, and our business is
three months or less are considered to be cash equivalents.
dependent upon the continuation and renewal of such licenses.
From time to time, the Company has short-term investments
Burberry was our most significant license and net sales of
which consist of certificates of deposit with maturities greater
Burberry products represented 0%, 23% and 46% of net sales
than three months. The Company monitors concentrations of
in 2014, 2013 and 2012, respectively (see Note (2) “Termi-
credit risk associated with financial institutions with which
nation of Burberry License”). In addition, the Company owns
the Company conducts significant business. The Company
the Lanvin brand name for its class of trade, and licenses the
believes its credit risk is minimal, as the Company primarily
Montblanc and Jimmy Choo brand names among others. As a
conducts business with large, well-established financial insti-
percentage of net sales, product sales for the Company’s larg-
tutions. Substantially all cash and cash equivalents are held at
est brands were as follows:
financial institutions outside the United States and are readily
Year Ended December 31,
convertible into U.S. dollars.
Montblanc
Lanvin
Jimmy Choo
2014
22%
18%
16%
2013
2012
15%
15%
13%
9%
12%
8%
ACCOUNTS RECEIVABLE
Accounts receivable represent payments due to the Company
for previously recognized net sales, reduced by allowances for
sales returns and doubtful accounts or balances which are
No other brand represented 10% or more of consolidated net sales.
estimated to be uncollectible, which aggregated $6.9 million
BASIS OF PREPARATION
and $6.4 million as of December 31, 2014 and 2013, respec-
tively. Accounts receivable balances are written-off against
The consolidated financial statements include the accounts
the allowance for doubtful accounts when they become
of the Company, including 73% owned Interparfums SA
uncollectible. Recoveries of accounts receivable previously
(“IPSA”), a subsidiary whose stock is publicly traded in France.
recorded against the allowance are recorded in the consoli-
All material intercompany balances and transactions have
dated statement of income when received. We generally grant
been eliminated.
MANAGEMENT ESTIMATES
credit based upon our analysis of the customer’s financial
position, as well as previously established buying patterns.
Management makes assumptions and estimates to prepare financial
INVENTORIES
statements in conformity with accounting principles generally ac-
Inventories, including promotional merchandise, only include
cepted in the United States of America. Those assumptions and esti-
inventory considered saleable or usable in future periods, and
mates directly affect the amounts reported and disclosures included
is stated at the lower of cost or market, with cost being de-
in the consolidated financial statements. Actual results could differ
termined on the first-in, first-out method. Cost components
from those assumptions and estimates. Significant estimates for
include raw materials, components, direct labor and overhead
which changes in the near term are considered reasonably possible
(e.g., indirect labor, utilities, depreciation, purchasing, receiv-
and that may have a material impact on the financial statements are
ing, inspection and warehousing) as well as inbound freight.
disclosed in these notes to the consolidated financial statements.
Promotional merchandise is charged to cost of sales at the
FOREIGN CURRENCY TRANSLATION
Overhead included in inventory aggregated $3.3 million, $3.6
For foreign subsidiaries with operations denominated in a
million and $4.0 million as of December 31, 2014, 2013 and
foreign currency, assets and liabilities are translated to U.S.
2012, respectively. Included in inventories is an inventory
dollars at year end exchange rates. Income and expense items
reserve, which represents the difference between the cost
time the merchandise is shipped to the Company’s customers.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
notes to consolidated financial statements
(in thousands except share and per share data)
75
of the inventory and its estimated realizable value, based upon
testing indefinite-lived intangible assets for impairment, the
sales forecasts and the physical condition of the inventories.
evaluation requires a comparison of the estimated fair value of
In addition, and as necessary, specific reserves for future known
the asset to the carrying value of the asset. The fair values used
or anticipated events may be established. Inventory reserves
in our evaluations are estimated based upon discounted future
aggregated $6.0 million and $6.8 million as of December 31,
cash flow projections using a weighted average cost of capital of
2014 and 2013, respectively.
6.7%. The cash flow projections are based upon a number of as-
DERIVATIVES
sumptions, including, future sales levels and future cost of goods
and operating expense levels, as well as economic conditions,
All derivative instruments are recorded as either assets or li-
changes to our business model or changes in consumer accep-
abilities and measured at fair value. The Company uses derivative
tance of our products which are more subjective in nature. If the
instruments to principally manage a variety of market risks. For
carrying value of an indefinite-lived intangible asset exceeds its
derivatives designated as hedges of the exposure to changes in
fair value, an impairment charge is recorded.
fair value of the recognized asset or liability or a firm commitment
Intangible assets subject to amortization are evaluated for
(referred to as fair value hedges), the gain or loss is recognized in
impairment testing whenever events or changes in circumstanc-
earnings in the period of change together with the offsetting loss
es indicate that the carrying amount of an amortizable intangible
or gain on the hedged item attributable to the risk being hedged.
asset may not be recoverable. If impairment indicators exist for
The effect of that accounting is to include in earnings the extent
an amortizable intangible asset, the undiscounted future cash
to which the hedge is not effective in achieving offsetting changes
flows associated with the expected service potential of the asset
in fair value. For cash flow hedges, the effective portion of the
are compared to the carrying value of the asset. If our projection
derivative’s gain or loss is initially reported in equity (as a com-
of undiscounted future cash flows is in excess of the carrying
ponent of accumulated other comprehensive income) and is sub-
value of the intangible asset, no impairment charge is recorded.
sequently reclassified into earnings in the same period or periods
If our projection of undiscounted future cash flows is less than
during which the hedged forecasted transaction affects earnings.
the carrying value of the intangible asset, an impairment charge
The ineffective portion of the gain or loss of a cash flow hedge is
would be recorded to reduce the intangible asset to its fair value.
reported in earnings immediately. The Company also holds cer-
tain instruments for economic purposes that are not designated
CONCENTRATION OF CREDIT RISK
for hedge accounting treatment. For these derivative instruments,
The Company is a worldwide manufacturer, marketer and dis-
changes in their fair value are recorded in earnings immediately.
tributor of fragrance and fragrance related products, and sells its
products to department stores, perfumeries, specialty retailers,
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
mass market retailers, supermarkets and domestic and interna-
Equipment and leasehold improvements are stated at cost less
tional wholesalers and distributors. The Company grants credit
accumulated depreciation and amortization. Depreciation and
to all qualified customers and does not believe it is exposed
amortization are provided using the straight line method over
significantly to any undue concentration of credit risk.
the estimated useful lives for equipment, which range between
No one customer represented 10% or more of net sales in
three and ten years and the shorter of the lease term or estimated
2014, 2013 or 2012.
useful asset lives for leasehold improvements. Depreciation pro-
vided on equipment used to produce inventory, such as tools
REVENUE RECOGNITION
and molds, is included in cost of sales.
The Company sells its products to department stores, perfumer-
LONG-LIVED ASSETS
ies, specialty retailers, mass market retailers, supermarkets and
domestic and international wholesalers and distributors. Sales
Indefinite-lived intangible assets principally consist of trademarks
of such products by our domestic subsidiaries are denominated in
which are not amortized. The Company evaluates indefinite-lived
U.S. dollars and sales of such products by our foreign subsidiar-
intangible assets for impairment at least annually during the
ies are primarily denominated in either euro or U.S. dollars. The
fourth quarter, or more frequently when events occur or circum-
Company recognizes revenues when merchandise is shipped and
stances change, such as an unexpected decline in sales, that
the risk of loss passes to the customer. Net sales are comprised
would more likely than not indicate that the carrying value of an
of gross revenues less returns, trade discounts and allowances.
indefinite-lived intangible asset may not be recoverable. When
The Company does not bill its customers’ freight and handling
INTER PARFUMS, INC. 2014 ANNUAL REPORT
76
charges. All shipping and handling costs, which aggregated
chase promotions that are reflected in cost of sales aggregated
$5.2 million, $6.1 million and $8.4 million in 2014, 2013 and
$24.4 million, $25.7 million and $46.5 million in 2014, 2013
2012, respectively, are included in selling, general and admin-
and 2012, respectively. Accrued expenses include approximately
istrative expenses in the consolidated statements of income.
$16.5 million and $22.4 million in advertising liabilities as of
December 31, 2014 and 2013, respectively.
SALES RETURNS
Generally, the Company does not permit customers to return their
PACKAGE DEVELOPMENT COSTS
unsold products. However, for United States-based customers,
Package development costs associated with new products and
we allow returns if properly requested, authorized and approved.
redesigns of existing product packaging are expensed as incurred.
The Company regularly reviews and revises, as deemed neces-
sary, its estimate of reserves for future sales returns based pri-
OPERATING LEASES
marily upon historic trends and relevant current data including
The Company recognizes rent expense from operating leases
information provided by retailers regarding their inventory levels.
with various step rent provisions, rent concessions and escalation
In addition, as necessary, specific accruals may be established
clauses on a straight-line basis over the applicable lease term.
for significant future known or anticipated events. The types of
The Company considers lease renewals in the useful life of its
known or anticipated events that we consider include, but are not
leasehold improvements when such renewals are reasonably
limited to, the financial condition of our customers, store closings
assured. In the event the Company receives capital improve-
by retailers, changes in the retail environment and our decision
ment funding from its landlord, these amounts are recorded as
to continue to support new and existing products. The Company
deferred liabilities and amortized over the remaining lease term
records estimated reserves for sales returns as a reduction of
as a reduction of rent expense.
sales, cost of sales and accounts receivable. Returned products
are recorded as inventories and are valued based upon estimated
LICENSE AGREEMENTS
realizable value. The physical condition and marketability of re-
The Company’s license agreements provide the Company with
turned products are the major factors we consider in estimating
worldwide rights to manufacture, market and sell fragrance and
realizable value. Actual returns, as well as estimated realizable
fragrance related products using the licensors’ trademarks. The
values of returned products, may differ significantly, either
licenses typically have an initial term of approximately 5 years to
favorably or unfavorably, from our estimates, if factors such
15 years, and are potentially renewable subject to the Company’s
as economic conditions, inventory levels or competitive condi-
compliance with the license agreement provisions. The remaining
tions differ from our expectations.
terms, including the potential renewal periods, range from ap-
PAYMENTS TO CUSTOMERS
proximately 1 year to 14 years. Under each license, the Company
is required to pay royalties in the range of 5% to 10% to the
The Company records revenues generated from purchase with
licensor, at least annually, based on net sales to third parties.
purchase and gift with purchase promotions as sales and the
In certain cases, the Company may pay an entry fee to acquire,
costs of its purchase with purchase and gift with purchase pro-
or enter into, a license where the licensor or another licensee was
motions as cost of sales. Certain other incentive arrangements
operating a pre-existing fragrance business. In those cases, the
require the payment of a fee to customers based on their
entry fee is capitalized as an intangible asset and amortized
attainment of pre-established sales levels. These fees have
over its useful life.
been recorded as a reduction of net sales.
Most license agreements require minimum royalty payments,
incremental royalties based on net sales levels and minimum
ADVERTISING AND PROMOTION
spending on advertising and promotional activities. Royalty
Advertising and promotional costs are expensed as incurred and
expenses are accrued in the period in which net sales are rec-
recorded as a component of cost of goods sold (in the case of free
ognized while advertising and promotional expenses are accrued
goods given to customers) or selling, general and administrative
at the time these costs are incurred.
expenses. Advertising and promotional costs included in selling,
In addition, the Company is exposed to certain concentra-
general and administrative expenses were $86.7 million, $94.0
tion risk. Substantially all of our prestige fragrance brands
million and $132.7 million for 2014, 2013 and 2012, respec-
are licensed from unaffiliated third parties, and our business is
tively. Costs relating to purchase with purchase and gift with pur-
dependent upon the continuation and renewal of such licenses.
notes to consolidated financial statements
(in thousands except share and per share data)
77
LOSS CONTINGENCY
revenue in a way that depicts the transfer of goods or services
The Company has accrued a loss contingency based on best
to customers in an amount that reflects the consideration which
estimates relating to a dispute with a former licensor. It is pos-
the entity expects to be entitled to in exchange for those goods
sible, that when the loss contingency is resolved, actual costs
or services. This guidance is effective for annual and interim
could exceed amounts in reserve. However, the potential impact
reporting periods beginning after December 15, 2016, with early
of such exposure, if any, is deemed to be immaterial to the
adoption not permitted. We are currently evaluating the standard
overall financial statements.
to determine the impact of its adoption on our consolidated
financial statements.
INCOME TAXES
In July 2013, new accounting guidance was issued regarding
The Company accounts for income taxes using an asset and
financial statement presentation of an unrecognized tax benefit
liability approach that requires the recognition of deferred tax
when a net operating loss carry-forward, a similar tax loss, or a
assets and liabilities for the expected future tax consequences of
tax credit exists. This guidance is effective for interim and annual
events that have been recognized in its financial statements or
periods beginning after December 15, 2014. The adoption of this
tax returns. The net deferred tax assets assume sufficient future
new guidance did not have a material effect on the Company’s
earnings for their realization, as well as the continued applica-
financial position, results of operations or cash flows.
tion of currently anticipated tax rates. Included in net deferred
There are no other recent accounting pronouncements issued
tax assets is a valuation allowance for deferred tax assets, where
but not yet adopted that would have a material effect on our
management believes it is more-likely-than-not that the deferred
consolidated financial statements.
tax assets will not be realized in the relevant jurisdiction. If the
Company determines that a deferred tax asset will not be
(2) Termination of Burberry License
realizable, an adjustment to the deferred tax asset will result
Burberry exercised its option to buy-out the license rights effec-
in a reduction of net earnings at that time.
tive December 31, 2012. In October 2012, the Company and
ISSUANCE OF COMMON STOCK BY
CONSOLIDATED SUBSIDIARY
Burberry entered into a transition agreement that provided for
certain license rights and obligations to continue through March
31, 2013. The Company continued to operate certain aspects
The difference between the Company’s share of the proceeds
of the business for the brand including product development,
received by the subsidiary and the carrying amount of the por-
testing, and distribution. The transition agreement provided for
tion of the Company’s investment deemed sold, is reflected as
non-exclusivity for manufacturing, a cap on sales of Burberry
an equity adjustment in the consolidated balance sheets.
products, a reduced advertising requirement and no minimum
royalty amounts.
TREASURY STOCK
The Company had determined that the transaction was sub-
The Board of Directors may authorize share repurchases of the
stantially completed as of December 31, 2012. The following
Company’s common stock (Share Repurchase Authorizations).
table sets forth a summary of the gain on termination of license
Share repurchases under Share Repurchase Authorizations
which is included in income from operations on the accompany-
may be made through open market transactions, negotiated
ing statement of income for the year ended December 31, 2012:
purchase or otherwise, at times and in such amounts within
the parameters authorized by the Board. Shares repurchased
under Share Repurchase Authorizations are held in treasury for
Exit payment
(received December 21, 2012)
general corporate purposes, including issuances under various
Expenses of termination:
employee stock option plans. Treasury shares are accounted for
Inventory reserves
under the cost method and reported as a reduction of equity.
Wages including $13.8 million in
$239,075
10,037
Share Repurchase Authorizations may be suspended, limited or
Interparfums SA profit sharing requirements
14,391
terminated at any time without notice.
Write-off of intangible assets
Writedown of fixed assets
RECENT ACCOUNTING PRONOUNCEMENTS
Write-off of unused modeling rights
7,675
3,483
1,226
In May 2014, the Financial Accounting Standards Board
Legal, professional and other agreed settlements
3,425
(“FASB”) issued an Accounting Standards Update which super-
sedes the most current revenue recognition requirements. The
Gain on termination of license
new revenue recognition standard requires entities to recognize
40,237
$198,838
INTER PARFUMS, INC. 2014 ANNUAL REPORT
78
(3) Recent Agreements
ing expenditures and royalty payments as are customary in our
ABERCROMBIE & FITCH AND HOLLISTER
industry. The Company is in the process of launching its initial
In December 2014, the Company entered into a 7-year exclusive
fragrance collection under the Shanghai Tang brand.
worldwide license to create, produce and distribute new
perfumes and fragrance related products under the Abercrombie
DUNHILL
& Fitch and Hollister brand names. The Company will distribute
In December 2012, we entered into a 10-year exclusive world-
these fragrances internationally in specialty retailers, high-end
wide license to create, produce and distribute perfumes and
department stores and duty free shops, and in the U.S., in duty
fragrance-related products under the Alfred Dunhill Limited
free shops and potentially in Abercrombie & Fitch and Hollister
(“Dunhill”) brand. Our rights under the agreement commenced
retail stores. The agreement is subject to certain minimum sales,
on April 3, 2013 when we took over production and distribution
advertising expenditures and royalty payments as are customary
of the existing Dunhill fragrance collections. The agreement is
in our industry. New men’s and women’s scents are planned for
subject to certain minimum sales, advertising expenditures and
both Abercrombie & Fitch and Hollister for 2016.
royalty payments as are customary in our industry. The Company
paid an upfront entry fee of $0.9 million. The Company is
OSCAR DE LA RENTA
launching a new men’s scent for Dunhill in 2015.
In October 2013, the Company entered into a 12-year exclusive
worldwide license to create, produce and distribute perfumes
KARL LAGERFELD
and related products under the Oscar de la Renta brand. The
In October 2012, we entered into a 20-year exclusive worldwide
agreement closed on December 2, 2013 and is subject to cer-
license agreement to create, produce and distribute perfumes
tain minimum advertising expenditures as is customary in our
under the Karl Lagerfeld brand. Our rights under such license
industry. The Company purchased certain inventories and paid
agreement are subject to certain minimum sales, advertising
an up-front entry fee of $5.0 million. Upon closing, the Company
expenditures and royalty payments as are customary in our indus-
took over distribution of fragrances within the brand’s existing
try. In connection with our entry into this license, the Company
perfume portfolio and is launching its first fragrance under the
paid a license entry fee to the licensor of €9.6 million, (approxi-
Oscar de la Renta brand in 2015.
mately $12.5 million). In addition, the Company has made an
AGENT PROVOCATEUR
advance royalty payment to the licensor of €9.6 million,
(approximately $12.5 million). This advance royalty payment is
In July 2013, the Company entered into a 10.5-year exclusive
to be credited against future royalty payments as follows: every
worldwide license to create, produce and distribute perfumes
year in which the royalties due are higher than €0.5 million, the
and related products under London-based luxury lingerie brand,
amount of royalties exceeding €0.5 million will be credited up
Agent Provocateur. The agreement commenced on August 1,
to €0.5 million in each such year.
2013 and is subject to certain minimum advertising expen-
The advance royalty has been discounted to its net present value
ditures as is customary in our industry. The Company took over
which is included in other assets on the accompanying balance
distribution of selected fragrances within the brand’s existing
sheet and the resulting discount of approximately $4.4 million has
perfume portfolio and launched its first fragrances under the
been added to intangible assets and will be amortized together
Agent Provocateur brand in 2014.
with the license entry fee, over the initial term of the license.
SHANGHAI TANG
(4) Inventories
In July 2013, the Company created a wholly-owned Hong Kong
subsidiary, Inter Parfums USA Hong Kong Limited, which entered
into a 12-year exclusive worldwide license to create, produce and
Raw materials and
distribute perfumes and related products under China’s leading
component parts
luxury brand, Shanghai Tang. The agreement commenced on
Finished goods
July 1, 2013 and is subject to certain minimum sales, advertis-
2014
$36,383
65,943
$102,326
December 31,
2013
$47,800
69,547
$117,347
notes to consolidated financial statements
(in thousands except share and per share data)
79
(5) Fair Value of Financial Instruments
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 DECEMBER 31, 2014
Quoted Prices In
Significant Other
Significant
Active Markets for
Observable
Unobservable
Identical Assets
Total
(Level 1)
Assets:
Short-term investments
$190,152
Liabilities:
Foreign currency forward
exchange contracts not accounted
for using hedge accounting
355
FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2013
–
–
Inputs
(Level 2)
$190,152
355
Inputs
(Level 3)
–
–
Assets:
Short-term investments
Foreign currency forward
exchange contracts not accounted
for using hedge accounting
Quoted Prices In
Significant Other
Significant
Active Markets for
Observable
Unobservable
Identical Assets
Total
(Level 1)
$181,677
157
$181,834
–
–
–
Inputs
(Level 2)
$181,677
157
$181,834
Inputs
(Level 3)
–
–
–
The carrying amount of cash and cash equivalents including money market funds, short-term investments, accounts receivable,
other receivables, 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.
Foreign currency forward exchange contracts are valued based on quotations from financial institutions.
(6) 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.
The Company did not enter into any cash flow hedges during the 3-year period ended December 31, 2014. Gains and losses
in derivatives not designated as hedges are included in (gain) loss on foreign currency on the accompanying income statement
and were immaterial in each of the years in the 3-year period ended December 31, 2014.
All derivative instruments are reported as either assets or liabilities on the balance sheet measured at fair value. The valuation
of foreign currency forward exchange contracts not accounted for using hedge accounting in 2014 resulted in a liability that is
included in accrued expenses and in 2013 resulted in an asset that is included in other current assets on the accompanying bal-
ance sheets. Generally, increases or decreases in the fair value of derivative instruments will be recognized as gains or losses in
earnings in the period of change. If the derivative instrument is designated and qualifies as a cash flow hedge, the changes in fair
value of the derivative instrument will be recorded as a separate component of shareholders’ equity.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
80
At December 31, 2014, the Company had foreign currency
Amortization expense was $6.6 million, $6.2 million and $7.0
contracts in the form of forward exchange contracts in the
million for 2014, 2013 and 2012, respectively. Amortization
amount of approximately U.S. $14.8 million, GB £2.6 million
expense is expected to approximate $6.2 million in 2015
and JPY ¥75.0 million, which all have maturities of less than
and 2016, and $5.4 million in 2017, 2018 and 2019. The
one year.
weighted average amortization period for trademarks, licenses
and other intangible assets with finite lives are 18 years, 14
(7) Equipment and Leasehold Improvements
years and 2 years, respectively, and 15 years in the aggregate.
Equipment
Leasehold Improvements
Less accumulated
depreciation and amortization
2014
$26,006
1,581
27,587
18,400
$9,187
December 31,
There were no impairment charges for trademarks with in-
2013
definite useful lives in 2014, 2013 and 2012. The fair values
$25,597
used in our evaluations are estimated based upon discounted
2,952
future cash flow projections using a weighted average cost of
28,549
capital of 6.7%. The cash flow projections are based upon
a number of assumptions, including, future sales levels and
18,105
future cost of goods and operating expense levels, as well
$10,444
as economic conditions, changes to our business model or
changes in consumer acceptance of our products which are
Depreciation and amortization expense was $3.6 million, $4.9
more subjective in nature. The Company believes that the
million and $8.6 million for 2014, 2013 and 2012, respectively.
assumptions the Company has made in projecting future cash
(8) Trademarks, Licenses and Other Intangible Assets
2014
flows for the evaluations described above are reasonable and
currently no impairment indicators exist for our indefinite-
lived assets. However, if future actual results do not meet our
Gross
Accumulated
Net Book
expectations, the Company may be required to record an
Amount
Amortization
Value
impairment charge, the amount of which could be material to
Trademarks
(indefinite lives)
$4,252
Trademarks
(finite lives)
Licenses
(finite lives)
46,889
our results of operations.
$–
53
$4,252
46,836
The cost of trademarks, licenses and other intangible assets
with finite lives is being amortized by the straight line method
over the term of the respective license or the intangible assets
estimated useful life which range from three to twenty years.
72,171
26,976
45,195
If the residual value of a finite life intangible asset exceeds
Other intagible assets
(finite lives)
Subtotal
Total
11,572
130,632
$134,884
9,324
36,353
$36,353
2,248
94,279
$98,531
its carrying value, then the asset is not amortized. The Company
reviews intangible assets with finite lives for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
Trademarks (finite lives) primarily represent Lanvin brand
names and trademarks and in connection with their purchase,
2013
Trademarks
Gross
Accumulated
Net Book
Lanvin was granted the right to repurchase the brand names
Amount
Amortization
Value
and trademarks in 2025 for the greater of €70 million (approxi-
mately $85 million) or one times the average of the annual sales
(indefinite lives)
$4,257
$–
$4,257
for the years ending December 31, 2023 and 2024 (residual
Trademarks
value). Because the residual value of the intangible asset
(finite lives)
53,319
102
53,217
exceeds its carrying value, the asset is not amortized.
Licenses
(finite lives)
80,842
24,747
56,095
(9) Loans Payable – Banks
Other intagible assets
Loans payable – banks consist of the following:
(finite lives)
Subtotal
Total
11,964
146,125
9,290
2,674
The Company and its domestic subsidiaries have available a
34,139
111,986
$20 million unsecured revolving line of credit due on demand,
$150,382
$34,139
$116,243
which bears interest at the prime rate minus 0.5% (the prime
notes to consolidated financial statements
(in thousands except share and per share data)
81
rate was 3.25% as of December 31, 2014). The line of credit
Future advertising commitments are estimated based on
which has a maturity date of May 1, 2015 is expected to be
planned future sales for the license terms that were in effect at
renewed on an annual basis. Borrowings outstanding pursu-
December 31, 2014, without consideration for potential
ant to this line of credit were zero as of December 31, 2014
renewal periods. The above figures do not reflect the fact that
and $5.8 million as of December 31, 2013.
our distributors share our advertising obligations. Royalty
The Company’s foreign subsidiaries have available credit
expense included in selling, general, and administrative expenses,
lines, including several bank overdraft facilities totaling
aggregated $35.6 million, $40.5 million and $58.8 million, in
approximately $30 million. These credit lines bear interest
2014, 2013 and 2012, respectively, and represented 7.1%,
at EURIBOR plus between 0.5% and 0.8% (EURIBOR was
7.2% and 9.0% of net sales for the years ended December 31,
0.2% at December 31, 2014). Outstanding amounts were
2014, 2013 and 2012.
$0.3 million as of both December 31, 2014 and December
31, 2013.
(11) Equity
The weighted average interest rate on short-term bor-
SHARE-BASED PAYMENTS:
rowings was 0.8% and 2.8% as of December 31, 2014 and
The C ompany maintains a stock option program for key
2013, respectively.
(10) Commitments
LEASES
employees, executives and directors. The plans, all of which
have been approved by shareholder vote, provide for the grant-
ing of both nonqualified and incentive options. Options granted
under the plans typically have a 6-year term and vest over a
The Company leases its office and warehouse facilities un-
four to five-year period. The fair value of shares vested in 2014
der operating leases which are subject to various step rent
and 2013 aggregated $0.7 million and $0.5 million, respec-
provisions, rent concessions and escalation clauses expiring
tively. Compensation cost is recognized on a straight-line basis
at various dates through 2023. Escalation clauses are not
over the requisite service period for the entire award. It is
material and have been excluded from minimum future an-
generally the Company’s policy to issue new shares upon
nual rental payments. Rental expense, which is calculated on
exercise of stock options.
a straight-line basis, amounted to $10.1 million, $10.8 mil-
The following table sets forth information with respect to
lion and $11.8 million in 2014, 2013 and 2012, respectively.
nonvested options for 2014:
Minimum future annual rental payments are as follows:
2015
2016
2017
2018
2019
Thereafter
LICENSE AGREEMENTS
$5,306
$5,343
$5,067
$4,663
$4,221
$10,301
$34,901
Number of Shares
Weighted Average
Grant Date
Fair Value
Nonvested options –
beginning of year
Nonvested options
granted
Nonvested options
vested or forfeited
Nonvested options –
367,470
139,250
(121,215)
385,505
$6.68
7.42
6.06
$7.14
The Company is party to a number of license and other agree-
end of year
ments for the use of trademarks and rights in connection with
the manufacture and sale of its products expiring at various
Share-based payment expenses decreased income before
dates through 2032. In connection with certain of these
income taxes by $0.9 million in 2014 and $0.8 million in
license agreements, the Company is subject to minimum
2013 and 2012, decreased net income attributable to Inter
annual advertising commitments, minimum annual royalties
Parfums, Inc. by $0.5 million in 2014, 2013 and 2012 and,
and other commitments as follows:
reduced diluted earnings per share attributable to Inter
2015
2016
2017
2018
2019
Thereafter
$102,752
$103,899
$106,282
$110,639
$106,669
$454,068
$984,309
Parfums, Inc. by $0.01 in 2014, 2013 and 2012.
INTER PARFUMS, INC. 2014 ANNUAL REPORT
82
The following table summarizes stock option activity and
related information for the years ended December 31, 2014,
Year Ended December 31,
2013
2012
2014
2013 and 2012:
Weighted average expected
2014
Shares under option-
beginning of year
Options granted
Options exercised
Options cancelled
Shares under option-
end of year
Year Ended December 31,
stock-price volatility
34%
37%
38%
Weighted Average
Weighted average expected
Options
Exercise Price
option life
5.0 yrs
5.0 yrs
5.0 yrs
643,595
139,250
(136,640)
(6,710)
639,495
$19.58
27.93
11.19
19.37
$23.19
Weighted average risk-free
interest rate
Weighted average
dividend yield
1.7%
1.8%
1.7%
0.7%
2.7%
1.7%
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
Year Ended December 31,
the U.S. Treasury yield curve in effect at the time of the grant of
Weighted Average
the option and the dividend yield reflects the assumption that
2013
Options
Exercise Price
the dividend payout as authorized by the Board of Directors would
maintain its current payout ratio as a percentage of earnings.
$14.41
Proceeds, tax benefits and intrinsic value related to stock
options exercised were as follows:
Shares under option-
beginning of year
Options granted
Options exercised
Options cancelled
Shares under option-
716,235
136,350
(204,240)
(4,750)
34.84
11.68
17.47
end of year
643,595
$19.58
options exercised
Tax benefits
Year Ended December 31,
Intinsic value of
Weighted Average
stock options
Proceeds from stock
2014
$1,529
670
Year Ended December 31,
2013
2012
$1,668
$1,305
700
100
2012
Shares under option-
beginning of year
Options granted
Options exercised
Options cancelled
Shares under option-
Options
Exercise Price
exercised
$2,733
4,088
1,359
$13.20
The following table summarizes additional stock option infor-
823,275
128,850
(226,160)
(9,730)
mation as of December 31, 2014:
19.25
12.72
15.37
end of year
716,235
$14.41
Options
Outstanding
Weighted
Average
Remaining
At December 31, 2014, options for 329,535 shares were
Exercise
Number
Contractual
Options
available for future grant under the plans. The aggregate
Prices Outstanding
Life Exercisable
intrinsic value of options outstanding is $3.8 million as of
December 31, 2014 and unrecognized compensation cost
$12.14
13.45
57,440
1.00 Years
57,440
250
0.08 Years
250
related to stock options outstanding aggregated $2.6 million,
15.59 - 15.62
100,370
2.98 Years
55,810
which will be recognized over the next five years.
17.07 - 17.94
4,375
1.71 Years
2,000
The weighted average fair values of options granted by
19.03 - 19.33
203,410
3.13 Years
111,410
Inter Parfums, Inc. during 2014, 2013 and 2012 were $7.42,
$9.20 and $5.54 per share, respectively, on the date of grant
21.76
22.20
4,000
4,000
3.09 Years
4.09 Years
1,000
800
using the Black-Scholes option pricing model to calculate the
27.80
133,750
6.00 Years
fair value. The assumptions used in the Black-Scholes pricing
model are set forth in the following table:
29.36
32.12
2,000
3,500
4.69 Years
4.09 Years
—
—
—
35.75
126,400
5.00 Years
25,280
Totals
639,495
3.89 Years
253,990
notes to consolidated financial statements
(in thousands except share and per share data)
83
As of December 31, 2014, the weighted average exercise
pursuant to these option exercises were issued from treasury
price of options exercisable was $18.43 and the weighted
stock of the Company. In addition, the Chief Executive Officer
average remaining contractual life of options exercisable is 2.64
tendered in 2014, 2013 and 2012 an additional 3,112, 2,573
years. The aggregate intrinsic value of options exercisable at
and 4,710 shares, respectively, for payment of certain withhold-
December 31, 2014 is $2.5 million.
ing taxes resulting from his option exercises.
The Chief Executive Officer and the President each exercised
32,875, 28,500 and 60,000 outstanding stock options of the
DIVIDENDS:
Company’s common stock in 2014, 2013 and 2012, respectively.
The quarterly dividend of $3.7 million ($0.12 per share)
The aggregate exercise prices of $0.6 million in 2014, $0.7
declared in December 2013 was paid in Januar y 2014.
million in 2013 and $1.6 million in 2012 were paid by them
Furthermore, in January 2015, the Board of Directors of the
tendering to the Company in 2014, 2013 and 2012, an aggre-
Company authorized an 8% increase in the annual dividend to
gate of 19,656, 18,880 and 82,322 shares, respectively, of the
$0.52 per share. The next quarterly dividend of $0.13 per
Company’s common stock, previously owned by them, valued
share will be paid on April 15, 2015 to shareholders of record
at fair market value on the dates of exercise. All shares issued
on March 31, 2015.
(12) 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 and warrants using the treasury stock method.
The reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:
Numerator:
Net income attributable to Inter Parfums, Inc.
Effect of dilutive securities of consolidated subsidiary
Numerator for diluted earnings per share
Denominator:
Weighted average shares
Effect of dilutive securities: Stock options
Denominator for diluted earnings per share
Earnings per share:
Net income attributable to Inter Parfums, Inc. common shareholders:
2014
$29,436
–
29,436
Year Ended December 31,
2013
2012
$39,211
$131,136
–
39,211
(168)
130,968
30,931,308
129,018
31,060,326
30,763,955
30,574,772
189,927
140,912
30,953,882
30,715,684
Basic
Diluted
$0.95
0.95
$1.27
1.27
$4.29
4.26
Not included in the above computations is the effect of anti dilutive potential common shares, which consist of outstanding
options to purchase 130,000, 32,000, and 230,000 shares of common stock for 2014, 2013, and 2012, respectively.
(13) Segments 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. European operations primarily represent the sale of the prestige brand name
fragrances, and United States operations represent the sale of prestige brand name and specialty retail fragrances. Information
on the Company’s operations by segments is as follows:
INTER PARFUMS, INC. 2014 ANNUAL REPORT
84
SEGMENTS AND GEOGRAPHICAL AREAS
Net sales:
United States
Europe
Eliminations of intercompany sales
Net income attributable to Inter Parfums, Inc.:
United States
Europe
Eliminations
Depreciation and amortization expense:
United States
Europe
Interest and dividend income:
United States
Europe
Interest expense:
United States
Europe
Income tax expense:
United States
Europe
Eliminations
Total assets:
United States
Europe
Eliminations of investment in subsidiary
Additions to long-lived assets:
United States
Europe
Total long-lived assets:
United States
Europe
Deferred tax assets:
United States
Europe
Eliminations
2014
$105,270
394,164
(173)
$499,261
$8,069
$21,367
–
$29,436
$1,554
8,612
$10,166
$3
3,885
$3,888
$73
1,405
$1,478
$4,643
14,727
–
$19,370
$78,740
535,049
(9,283)
$604,506
$1,165
3,059
$4,224
$13,433
94,285
$107,718
$396
6,452
–
$6,848
Year Ended December 31,
2013
2012
$99,158
464,562
(141)
$83,106
571,877
(866)
$563,579
$654,117
$6,806
32,392
$5,078
126,045
13 13
$39,211
$131,136
$1,216
9,894
$11,110
$16
4,424
$4,440
$13
1,367
$1,380
$4,512
25,159
9
$958
14,596
$15,554
$7
1,126
$1,133
$38
1,616
$1,654
$3,804
94,063
8
$29,680
$97,875
$76,980
596,153
(9,075)
$64,278
704,464
(8,822)
$664,058
$759,920
$7,629
5,155
$12,784
$13,823
112,864
$126,687
$341
6,916
–
$7,257
$3,131
26,060
$29,191
$7,572
118,712
$126,284
$762
12,361
9
$13,132
notes to consolidated financial statements
(in thousands except share and per share data)
85
SEGMENTS AND GEOGRAPHICAL AREAS continued
United States export sales were approximately $52.3 million, $50.4 million and $38.8 million in 2014, 2013 and 2012,
respectively. Consolidated net sales to customers by region are as follows:
Year Ended December 31,
North America
Europe
Central and South America
Middle East
Asia
Other
2014
$134,600
177,900
49,200
40,300
85,500
11,800
$499,300
2013
$154,300
215,600
42,400
43,300
98,600
9,400
2012
$175,400
241,300
53,000
62,100
115,300
7,000
$563,600
$654,100
Consolidated net sales to customers in major countries are as follows:
Year Ended December 31,
United States
United Kingdom
France
(14) Income Taxes
2014
$128,000
$37,000
$50,000
2013
2012
$150,000
$167,000
$46,000
$47,000
$48,000
$46,000
The Company or its subsidiaries file income tax returns in the U.S. federal, and various states and foreign jurisdictions. The Company
is no longer subject to U.S. federal, state, and local or non-U.S. income tax examinations by tax authorities for years before 2011.
The Company follows the provisions of uncertain tax positions as addressed in FASB Accounting Standards Codification
740-10-65-1. The Company did not recognize any increase in the liability for unrecognized tax benefits and has no uncertain tax
position at December 31, 2014. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense
and penalties as a component of the provision for income taxes. No interest or penalties were recognized during the periods
presented and there is no accrual for interest and penalties at December 31, 2014.
The components of income before income taxes consist of the following:
U.S. operations
Foreign operations
2014
$12,712
44,003
$56,715
Year Ended December 31,
2013
$11,340
69,306
$80,646
2012
$8,904
265,861
$274,765
The provision for current and deferred income tax expense (benefit) consists of the following:
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Total income tax expense
2014
$4,374
323
15,229
19,926
(84)
30
(502)
(556)
$19,370
Year Ended December 31,
2013
2012
$3,638
454
20,744
24,836
370
59
4,415
4,844
$2,511
558
102,717
105,786
703
40
(8,654)
(7,911)
$29,680
$97,875
INTER PARFUMS, INC. 2014 ANNUAL REPORT
86
The tax effects of temporary differences that give rise to
(15) Accumulated Other Comprehensive Income (Loss)
significant portions of the deferred tax assets and deferred tax
The components of accumulated other comprehensive income
liabilities are as follows:
(loss) consists of the following:
2014
December 31,
2013
2014
Year Ended December 31,
2013
2012
Deferred tax assets:
Foreign net operating loss
carry-forwards
Inventory and accounts receivable
Profit sharing
Stock option compensation
Effect of inventory profit
elimination
Other
Total gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities (long-term):
Trademarks and licenses
Other
Total deferred tax liabilities
Net deferred tax assets
419
2,655
2,570
545
1,757
(679)
7,267
(419)
6,848
(2,154)
–
(2,154)
$4,694
Net derivative instruments,
707
626
4,805
526
beginning of year
Transfer from OCI into
earnings
Gain on derivative
instruments
Net derivative instruments,
1,710
end of year
(410)
Cumulative translation
7,964
adjustments,
(707)
beginning of year
7,257
Translation adjustments
Cumulative translation
(2,555)
adjustments,
–
–
–
–
$240
$224
(240)
–
–
–
16
240
25,860
(41,683)
12,258
13,602
7,523
4,735
–
end of year
(15,823)
25,860
12,258
(2,555)
Accumulated other
$4,702
comprehensive income
(loss)
$(15,823)
$25,860
$12,498
Valuation allowances are provided for foreign net operating
loss carry-forwards, as future profitable operations from certain
(16) Net Income Attributable to Inter Parfums, Inc.
foreign subsidiaries might not be sufficient to realize the full
and Transfers from the Noncontrolling Interest
amount of net operating loss carry-forwards. In 2014, as a
result of a tax examination in a foreign jurisdiction, foreign net
2014
Year Ended December 31,
2013
2012
operating loss carry-forwards were reduced.
Net income attributable
No other valuation allowances have been provided as man-
to Inter Parfums, Inc. $29,436
$39,211
$131,136
agement believes that it is more likely than not that the asset
Increase (decrease) in
will be realized in the reduction of future taxable income.
Inter Parfums, Inc.’s
The Company has not provided for U.S. deferred income taxes
additional paid-in capital
on $339 million of undistributed earnings of its non-U.S. sub-
for subsidiary share
sidiaries as of December 31, 2014 since the Company intends
transactions
(335)
(173)
737
to reinvest most of these earnings in its foreign operations
Change from net income
indefinitely and the Company believes it has sufficient foreign tax
attributable to
credits available to offset any potential tax on amounts that have
Inter Parfums, Inc.
been and are planned to be repatriated.
and transfers from
Differences between the United States Federal statutory in-
noncontrolling
come tax rate and the effective income tax rate were as follows:
interest
$29,101
$39,038
$131,873
2014
34.0%
Year Ended December 31,
2013
34.0%
2012
34.0%
Statutory rates
State and local taxes,
net of Federal benefit
0.1
0.4 0.1
Effect of foreign taxes
greater than
U.S. statutory rates
Other
Effective rates
0.4
(0.3)
34.2%
2.0 1.4
0.4
0.1
36.8%
35.6%
directors and executive officers
87
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS:
Jean Madar
Jean Madar
Chief Executive Officer,
Chief Executive Officer,
EXECUTIVE OFFICERS:
CORPORATE INFORMATION:
Inter Parfums, Inc.
551 Fifth Avenue
and Chairman of the Board of Directors
and Chairman of the Board of Directors
New York, NY 10176
Inter Parfums, Inc.
Inter Parfums, Inc.
Tel. (212) 983-2640
Fax: (212) 983-4197
Philippe Benacin
Philippe Benacin
www.interparfumsinc.com
President, and Vice Chairman of the
President, and Vice Chairman of the
Board of Directors, Inter Parfums, Inc.
Board of Directors, Inter Parfums, Inc.
Interparfums SA
Chief Executive Officer,
Chief Executive Officer,
4 Rond Point des Champs Elysées
Interparfums SA
Interparfums SA
Russell Greenberg
Russell Greenberg
Executive Vice President,
Executive Vice President,
75008 Paris, France
Tel. (1) 53-77-00-00
Fax: (1) 40-76-08-65
and Chief Financial Officer
and Chief Financial Officer
Auditors
Inter Parfums, Inc.
Inter Parfums, Inc.
Henry B. Clarke
President,
Inter Parfums USA, LLC
Transfer Agent
WeiserMazars, LLP
135 West 50th Street
New York, NY 10020
Philippe Santi
Executive Vice President
Director General Delegue
Interparfums SA
Francois Heilbronn
Executive Vice President
Managing Partner M.M. Friedrich,
Director General Delegue
Heilbronn & Fiszer
Interparfums SA
Philippe Santi
Jean Levy
Frédéric Garcia-Pelayo
Business Consultant - Former President
Director of Export Sales
and Chief Executive Officer, Cosmair
Interparfums SA
Former President and Chief Executive
Officer, Sanofi Beauté (France)
Axel Marot
Robert Bensoussan-Torres
Interparfums SA
Director of Production & Logistics
Co-founder of Sirius Equity, a retail
and branded luxury goods
investment company
Patrick Choël
Business Consultant and Former
President and Chief Executive Officer
Parfums Christian Dior
and the LVMH Perfume and
Cosmetics Division
Michel Dyens
Chairman, and Chief Executive Officer,
Michel Dyens & Co.
American Stock Transfer
and Trust Company
6201 15th Avenue
Brooklyn, NY 11219
INTER PARFUMS, INC. 2014 ANNUAL REPORT
88
corporate and market information
THE MARKET FOR OUR COMMON STOCK
Our Company’s common stock, $.001 par value per share, is
one lump sum on December 16, 2013 to shareholders of record
traded on The Nasdaq Global Select Market under the symbol
on December 2, 2013.
“IPAR”. The following table sets forth in dollars, the range of
In January 2014, our Board of Directors determined to main-
high and low closing prices for the past two fiscal years for our
tain the quarterly dividend of $0.12 per share, or $0.48 on an
common stock.
fiscal 2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal 2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
annual basis and in January 2015, our Board of Directors autho-
rized an 8% increase in the annual dividend to $0.52 per share.
High Closing Low Closing
The next quarterly cash dividend of $0.13 per share is payable
Price Price
24.81
29.98
25.62
31.39
27.59
36.78
30.38
37.74
on April 15, 2015 to shareholders of record on March 31, 2015.
FORM 10K
A copy of the company’s 2014 Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission, is available
without charge to shareholders upon request (except for exhibits)
High Closing Low Closing
To: Inter Parfums, Inc. 551 Fifth Avenue New York, NY 10176
Price
38.94
34.96
33.19
25.71
Price
28.94
26.02
24.43
19.55
Attention: Corporate Secretary.
CORPORATE PERFORMANCE GRAPH
The following graph compares the performance for the periods
indicated in the graph of our common stock with the performance
of the Nasdaq Market Index and the average performance of
As of February 20, 2015, the number of record holders,
a group of the Company’s peer corporations consisting of:
which include brokers and broker’s nominees, etc., of our com-
Avon Products Inc., Blyth Inc., CCA Industries, Inc., Colgate-
mon stock was 47. We believe there are approximately 6,500
Palmolive Co., Elizabeth Arden, Inc., Estee Lauder Cosmetics,
beneficial owners of our common stock.
Inc., Inter Parfums, Inc., Kimberly Clark Corp., Natural Health
DIVIDENDS
Trends Corp., Revlon, Inc., Spectrum Brands, Inc., Stephan
Company, Summer Infant, Inc., The Procter & Gamble Company
In January 2013, our Board of Directors authorized a 50%
and United Guardian, Inc. The graph assumes that the value of
increase in the cash dividend to $0.48 per share on an annual
the investment in our common stock and each index was $100
basis. In November 2013, our Board of Directors declared a
at the beginning of the period indicated in the graph, and that
special cash dividend of $0.48 per share, which was payable in
all dividends were reinvested.
COMPARISON 0F 5 YEAR CUMULATIVE TOTAL RETURN*
Among Inter Parfums, Inc., The NASDAQ Composite Index, and a Peer Group
$350
$300
$250
$200
$150
$100
$50
$0
12/09
12/10
12/11
12/12
12/13
12/14
INTER PARFUMS INC
NASDAQ COMPOSITE
PEER GROUP
*$100 INVESTED ON DECEMBER 31, 2009 IN STOCK OR INDEX, INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
Below is the list of the data points for each year that corresponds to the lines on the above graph
Inter Parfums, Inc.
NASDAQ Composite
Peer Group
12/09
100.00
100.00
100.00
12/10
157.33
117.61
107.99
12/11
132.30
118.70
117.98
12/12
168.51
139.00
127.68
12/13
319.38
196.83
159.90
12/14
248.79
223.74
180.24