1
table of contents
financial highlights 02
letter to our shareholders 04
the company 08
the products 14
the organization 58
2
Financial
Highlights
NET SALES
(in millions )
2018
2017
2016
2015
2014
NET INCOME ATTRIBUTABLE
TO INTER PARFUMS, INC.
(in millions )
2018
2017
2016
2015
2014
$53.8
$41.6
$33.3
$30.4
$29.4
INTER PARFUMS, INC.
SHAREHOLDERS’ EQUITY
(in millions )
2018
2017
2016
2015
2014
$675.6
$591.3
$521.1
$468.5
$499.3
$447.6
$433.3
$370.4
$365.6
$382.1
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)
Years Ended December 31,
INCOME STATEMENT DATA:
Net Sales
Cost of Sales
Selling, General and Administrative
Expenses
Operating Income
Income Before Taxes
Net Income Attributable to the
Noncontrolling Interest
Net Income Attributable to Inter Parfums, Inc.
Net Income Attributable to Inter Parfums, Inc.
Common Shareholders’ per Share:
Basic
Diluted
Weighted 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
2018
2017
2016
2015
2014
$675,574
248,012
$591,251
214,965
$521,072
194,601
$468,540
179,069
$499,261
212,224
332,831
94,731
95,859
15,922
53,793
$1.72
$1.71
31,308
31,522
$11,031
295,540
78,623
78,065
13,659
41,594
$1.33
$1.33
31,172
31,305
$11,914
258,787
66,678
67,074
9,917
33,331
$1.07
$1.07
31,072
31,176
228,268
61,203
60,496
8,532
30,437
$0.98
$0.98
30,996
31,100
233,634
53,403
56,715
7,909
29,436
$0.95
$0.95
30,931
31,060
$15,341
$9,078
$10,166
$193,136
67,870
382,425
799,167
-0-
46,061
447,607
$0.905
$208,343
$161,828
$176,967
69,899
382,171
777,772
-0-
60,579
433,298
$0.72
94,202
337,977
682,409
-0-
74,562
370,391
$0.62
82,847
337,674
687,659
-0-
98,606
365,587
$0.52
$90,138
190,152
382,935
604,506
298
-0-
382,065
$0.48
4
2018
Letter to our
Shareholders
DEAR FELLOW SHAREHOLDERS,
2018 was one of the best years in the history of Inter Parfums.
Jean Madar and Philippe Benacin
letter to shareholders
5
Among the year’s highlights are:
strong, coming in 9% and 24% ahead of 2017, respectively. Gains
• Record net sales
were also achieved in the Middle East and Eastern Europe with
• Growth in all the regions where we operate
sales up 17% and 7%, respectively. Even sales in Central and
• Market share expansion
South America were slightly ahead of 2017.
• The addition of three new brands to our portfolio
Based upon available data, Inter Parfums has been gaining
• Our official entry into the direct-to-consumer e-commerce
market share. According to market research, in 2018 the glob-
arena via a partnership with a premier modeling management
al fragrance industry grew 6.5% to $52.7 billion while our sales
company
rose 14.3%, or more than twice the rate of growth of our in-
dustry. These analysts estimated that the five-year compound
YEAR-OVER-YEAR FINANCIAL OVERVIEW
annual growth rate for fragrance market was 5.2% while our
• Net sales increased 14.3% to $675.6 million as compared
rate was 7.4%.
to $591.3 million. At comparable foreign currency exchange
rates, net sales increased 12.8%.
OUR EUROPEAN BASED OPERATIONS
• Sales by European based operations rose 12.8% to $537.6
While Montblanc and Jimmy Choo brand sales held their place
million from $476.5 million, at comparable foreign currency
as our first and second largest brands, Coach overtook Lanvin
exchange rates net sales for European based operations
for third place. Year-over-year sales growth was achieved by
were up 16%.
all four brands. This growth was primarily due to continuing
• U.S. based operations generated net sales of $138.0 million,
sales of established scents supplemented by brand extensions
up 20.2 % from $114.8 million in 2017.
and flankers that expand and/or refresh existing pillars rather
• Gross margin was 63.3% compared to 63.6%.
than major new product launches. Compared to 2017, brand
• S, G & A expense as a percentage of sales was 49.3% com-
sales by Montblanc rose 1.4%, Jimmy Choo by 8.5%, Coach by
pared to 49.9%.
73% and Lanvin by 7%. A short discussion of Coach is warrant-
• Our effective tax rate was 27.3% compared to 29.2%.
ed in light of the its extraordinary and rapid growth. We took
• Net income attributable to Inter Parfums, Inc. increased 29.3%
over the Coach license in 2015, discontinued its preexisting
to $53.8 million from $41.6 million.
fragrance portfolio, and then in 2016, launched our first wom-
• On a per diluted share basis, net income attributable to Inter
en’s scent, followed in the fall of 2017 with our first men’s sig-
Parfums, Inc. rose 28.6% to $1.71 from $1.33.
nature collection. Then in 2018, we filled the channels with a
flanker for each, Coach Floral and Coach Platinum. Going from
OTHER 2018 FINANCIAL HIGHLIGHTS
zero to just under $100 million in brand sales in two years is a
• Our business generated cash flow from operating activities
very exciting first for us.
of approximately $63 million.
In 2019, we have several major initiatives for our largest
• We closed the year with working capital of $382 million in-
brands underway. For Montblanc, an entirely new pillar, called
cluding approximately $261 million in cash, cash equivalents
Montblanc Explorer, was launched early in the year and all
and short-term investments, resulting in a working capital
indicators point to this being a megahit and a catalyst for a
ratio of over 3 to 1.
meaningful increase in brand sales. For Jimmy Choo, a new
• At year-end, long-term debt including current maturities
men’s scent is scheduled to debut in the second half of the
aggregated $46.1 million.
year. For women, A Girl in Capri, is coming to market under
• Our capital expenditures approximated $4 million.
the Lanvin label later this year. Flankers continue to make up
• Based upon a full-time staff of approximately 300 worlwide,
an important part of our marketing strategy, and in 2019, we
we generated nearly $2.25 million in net sales per employee.
have one debuting for Coach, called Floral Blush, one for Ro-
GROWING OUR MARKETS
AND OUR MARKET SHARE
chas, called Mademoiselle Rochas Couture and several for the
Jimmy Choo fragrance family. We continue to enrich and re-
fresh our smaller brands with brand extensions. For example,
For the second consecutive year, North America was our larg-
Boucheron’s Collection will add two new members, as will La
est market. In 2018, our North American sales were 19% ahead
Collection Extraordinaire by Van Cleef & Arpels. In addition, a
of 2017 building upon the 18% growth over 2016. Our business in
third fragrance duo for Les Parfums Matières by Karl Lager-
Western Europe and Asia, our next two largest markets, were also
feld will debut in 2019.
6
U.S. BASED OPERATIONS
Aldridge’s social channels and large and passionate fan base.
The three new brands added to our portfolio in 2018 all fall un-
Not only is she a beautiful model, Ms. Aldridge is also an exem-
der our U.S. based operations. In February 2018, we entered
plary role model, as a wife, mother and business woman. She
into a 15-year exclusive worldwide license with the legendary
has been fully engaged in the creative and product development
fashion company, GUESS, whose fashions are sold through
decisions of her brand and her initial collection is scheduled to
its more than 1,000 retail stores and another 650 more retail
begin rolling out toward the close of 2019. Ms. Aldridge will also
partnerships. Since its founding in 1980, this iconic American
help fast track the launch and continued sale of her fragranc-
brand has become a global marque, generating sales in 100
es through interaction with her growing social media following.
countries. In fact, 69% of its fiscal 2018 sales came from be-
Over time, we plan to expand our IMG collaboration, by partner-
yond U.S. shores. GUESS leadership has ambitious plans to
ing with other high profile IMG clients as they create their own
expand its retail network further. Capitalizing upon GUESS’s
direct-to-consumer fragrance and beauty lines, as well as ex-
global reach is at the heart of our brand strategy as we dis-
plore the myriad crossover opportunities.
tribute GUESS fragrances throughout the world at GUESS
In addition to incremental GUESS brand sales starting in the
stores, as well as better department stores, specialty stores
spring of 2018, the growth in sales by U.S. based brands was
and travel retail. Shortly after signing the license agreement,
led by Anna Sui and Abercrombie & Fitch fragrances. 2019 will
we began producing and selling many of the brand’s legacy
be an active year for our U.S. operations. Authentic for men and
scents, and that effort alone placed GUESS fragrances among
women is a fragrance duo unveiling for Abercrombie & Fitch,
our best-selling U.S. based brands. For 2019, we have flankers
and there is a new signature scent for men debuting for Dunhill
unveiling for the 1981 and Seductive pillars, and then in 2020,
as is a brand extension for the Dunhill Century fragrance fam-
the global launch of a women’s blockbuster fragrance should
ily. Following on the successful launch of Fantasia by Anna Sui
knock it out of the park for this fragrance brand.
in 2018, we are introducing Fantasia Mermaid, along several
In April 2018, we partnered with London-based Graff by en-
other brand extensions. Bella Rosa comes to market for Os-
tering into an exclusive, worldwide license agreement under
car de la Renta on the heels of 2018’s launch of Bella Blanca.
which we are creating and developing, and will distribute fra-
Brand extensions for the Wave and Festival pillars will debut in
grances under the Graff brand. The House of Graff has earned
2019 under the Hollister label.
its reputation as the premier source for many of the world’s
most rarefied and superb gemstones. To meet our responsibil-
IN CLOSING
ity to this aspirational brand, we are creating exceptional and
Coming off one of the best years in our history, we are geared up
distinctive fragrances along with exquisite packaging. These
for further growth and greater profitability in 2019 and beyond.
products will be sold at a higher price point in select distribu-
We’ve established and filled senior and mid-level positions with
tion including Graff stores, exclusive department and specialty
stellar individuals. We have made enhancements across rele-
stores and upscale travel retail. We are far along in developing
vant disciplines and functions. With three new brands we have
a multi-scent collection, with the first entrant or two sched-
three new growth trajectories that build upon our already rich
uled to debut late in 2019 or early 2020. We also see this brand
portfolio of brands that ignite both global and regional loyalty.
as a natural for travel amenities for five star hotels and for air-
Our brands embrace consumers of different ages and eco-
lines’ first and business class passengers, and this is an area
nomic brackets and are well suited to our distribution network
we are pursuing.
encompassing 100 countries. We also have a very strong bal-
Finally, our third new business opportunity is quite different
ance sheet, which, among other things, makes us an attractive
from our traditional model, but definitely within our wheel-
partner to prospective brand owners. Our financial strength and
house. In September 2018, we established a strategic partner-
great talent and resource reservoir have enabled us to build
ship with IMG Worldwide Models to develop direct-to-consumer
new brand associations into vibrant enterprises.
e-commerce fragrance and beauty businesses for its diverse
and dynamic client base. We believe this partnership is a first
in our industry. The first such collaboration is with supermodel Lily
Aldridge. Ms. Aldridge, best known for her work with Bulgari,
Ralph Lauren, Levi’s and Victoria’s Secret, has been working
closely with us to develop a unique, namesake fragrance line
Chairman of the Board
Vice Chairman of the Board
and e-commerce site that will be connected directly to Ms.
Chief Executive Officer
President
letter to shareholders
7
Guess Seductive Homme Noir
8
The
Company
We are Inter Parfums, Inc. We operate in the
fragrance business, and manufacture, mar-
ket and distribute a wide array of fragrance
and fragrance related products. Organized
under the laws of the State of Delaware in
May 1985 as Jean Philippe Fragrances, Inc., we
changed our name to Inter Parfums, Inc. in
July 1999. We have also retained our brand
name, Jean Philippe Fragrances, for some of
our mass market products.
Our worldwide headquarters and the office of our four (4) whol-
ly-owned United States subsidiaries, Jean Philippe Fragrances,
LLC, Inter Parfums USA, LLC and Interstellar Brands LLC, all
New York limited liability companies, and IP Beauty, Inc. (for-
merly Nickel USA, Inc.), a Delaware corporation, are located at
551 Fifth Avenue, New York, New York 10176, and our telephone
number is 212.983.2640. We also own 100% of Inter Parfums
USA Hong Kong Limited indirectly through our 100% owned
subsidiary, Inter Parfums USA, LLC.
Our consolidated wholly-owned subsidiary, Inter Parfums
Holdings, S.A., and its majority-owned subsidiary, Interpar-
fums SA, maintain executive offices at 4 Rond Point des Champs
Elysees, 75008 Paris, France. Our telephone number in Paris is
331.5377.0000. Interparfums SA is the sole owner of three (3)
distribution subsidiaries: Inter Parfums srl for Italy, Inter Es-
paña Parfums et Cosmetiques, SL, for Spain and Interparfums
Luxury Brands, Inc., a Delaware corporation, for distribution of
prestige brands in the United States. Interparfums SA is also
the majority owner of Parfums Rochas Spain, SL, a Spanish
limited liability company, which specializes in the distribution
of Rochas fragrances. In addition, Interparfums SA is also the
sole owner of Interparfums (Suisse) SARL, a company formed
to hold and manage certain brand names, and Interparfums
Singapore Pte., Ltd., an Asian sales and marketing office.
Our common stock is listed on The Nasdaq Global Select
Market under the trading symbol “IPAR”. The common shares
of our subsidiary, Interparfums SA, are traded on the NYSE
Euronext Exchange.
The Securities and Exchange Commission (“SEC”) maintains
an internet site at http://www.sec.gov that contains financial
reports, proxy and information statements, and other informa-
tion regarding issuers that file electronically with the SEC. We
Coach Coach Platinum
maintain our internet website at www.interparfumsinc.com,
which is linked to the SEC internet site. You can obtain through
our website, free of charge, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, interactive data files, current
the company
9
reports on Form 8-K, beneficial ownership reports (Forms 3,
brands are best known, we have had many successful product
4 and 5) and amendments to those reports filed or furnished
launches. We typically launch new fragrance families for our
pursuant to Section 13(a) of the Securities Exchange Act of 1934
brands every year or two, and more frequently seasonal and
as soon as reasonably practicable after they have been elec-
limited edition fragrances are introduced as well.
tronically filed with or furnished to the SEC.
The creation and marketing of each product family is inti-
We operate in the fragrance business and manufacture, mar-
mately linked with the brand’s name, its past and present po-
ket and distribute a wide array of fragrance and fragrance related
sitioning, customer base and, more generally, the prevailing
products. We manage our business in two segments, European
market atmosphere. Accordingly, we generally study the market
based operations and United States based operations. Certain
for each proposed family of fragrance products for almost a full
prestige fragrance products are produced and marketed by our
year before we introduce any new product into the market. This
European operations through our 73% owned subsidiary in Paris,
study is intended to define the general position of the fragrance
Interparfums SA, which is also a publicly traded company as 27%
family and more particularly its scent, bottle, packaging and ap-
of Interparfums SA shares trade on the NYSE Euronext.
peal to the buyer. In our opinion, the unity of these four elements
Our business is not capital intensive, and it is important to
of the marketing mix makes for a successful product.
note that we do not own manufacturing facilities. We act as a
As with any business, many aspects of our operations are
general contractor and source our needed components from
subject to influences outside our control. We believe we have a
our suppliers. These components are received at one of our
strong brand portfolio with global reach and potential. As part
distribution centers and then, based upon production needs,
of our strategy, we plan to continue to make investments behind
the components are sent to one of several third party fillers
fast-growing markets and channels to grow market share. We
which manufacture the finished product for us and deliver
discuss in greater detail risk factors relating to our business in
them to one of our distribution centers.
Item 1A of our Annual Report on Form 10-K for the fiscal year
Our fragrance products focus on prestige brands, each with
ended December 31, 2018, and the reports that we file from
a devoted following. By concentrating in markets where the
time to time with the SEC.
Montblanc Explorer
10
European Operations
We produce and distribute our fragrance products pri-
marily under license agreements with brand owners, and
Grow Portfolio Brands Through
New Product Development And Marketing
We grow through the creation of fragrance family extensions
fragrance product sales through our European operations
within the existing brands in our portfolio. Every year or two, we
represented approximately 80% of net sales for 2018. We
create a new family of fragrances for each brand in our portfolio.
have built a portfolio of prestige brands, which include
We frequently introduce seasonal and limited edition fragrances
Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Lanvin,
as well. With new introductions, we leverage our ability and ex-
Montblanc, Paul Smith, Repetto, Rochas, S.T. Dupont and
perience to gauge trends in the market and further leverage the
Van Cleef & Arpels, whose products are distributed in over
brand name into different product families in order to maximize
100 countries around the world.
sales and profit potential. We have had success in introducing
With respect to the Company’s largest brands, we own
new fragrance families (sub-brands, flanker brands or flankers)
the Lanvin brand name for our class of trade, and license
within our brand franchises. Furthermore, we promote the per-
the Montblanc, Jimmy Choo and Coach brand names. As a
formance of our prestige fragrance operations through knowl-
percentage of net sales, product sales for the Company’s
edge of the market, detailed analysis of the image and potential of
largest brands were as follows:
each brand name, and a highly professional approach to interna-
tional distribution channels.
Year ended December 31,
Montblanc
Jimmy Choo
Coach
Lanvin
2018
19%
17%
15%
10%
2017
21%
2016
23%
18%
10%
11%
17%
4%
12%
United States Operations
Prestige brand fragrance products are also marketed
Continue To Add New Brands To Our Portfolio
Through New Licenses Or Acquisitions
Prestige brands are the core of our business and we intend to
add new prestige beauty brands to our portfolio. Over the past 25
years, we have built our portfolio of well-known prestige brands
through acquisitions and new license agreements. We intend to
further build on our success in prestige fragrances and pursue
through our United States operations, and represent-
new licenses and acquire new brands to strengthen our position
ed 20% of sales for the year ended December 31, 2018.
in the prestige beauty market. To that end, in 2017, we extended
These fragrance products are sold under trademarks
our Jimmy Choo license through December 31, 2031 and our Paul
owned by us or pursuant to license or other agreements
Smith license until December 2021. In 2018, we signed new li-
with the owners of brands, which include Abercrombie &
cense agreements with GUESS?, Inc., Graff and Lily Aldridge and
Fitch, Agent Provocateur, Anna Sui, bebe, Dunhill, French
extended our license with Van Cleef & Arpels. As of December 31,
Connection, Graff, GUESS, Hollister, Lily Aldridge and
2018, we had cash, cash equivalents and short-term investments
Oscar de la Renta brands.
of approximately $261 million, which we believe should assist
BUSINESS STRATEGY
Focus On Prestige Beauty Brands
Prestige beauty brands are expected to contribute signifi-
us in entering new brand licenses or out-right acquisitions. We
identify prestige brands that can be developed and marketed into
a full and varied product families and, with our technical knowl-
edge and practical experience gained over time, take licensed
cantly to our growth. We focus on developing and launching
brand names through all phases of concept, development, manu-
quality fragrances utilizing internationally renowned brand
facturing, marketing and distribution.
names. By identifying and concentrating in the most recep-
tive market segments and territories where our brands are
known, and executing highly targeted launches that capture
the essence of the brand, we have had a history of success-
Expand Existing Portfolio
Into New Categories
We selectively broaden our product offering beyond the fra-
ful launches. Certain fashion designers and other licensors
grance category and offer other fragrance related products and
choose us as a partner, because our Company’s size enables
personal care products under some of our existing brands. We
us to work more closely with them in the product develop-
believe such product offerings meet customer needs and further
ment process as well as our successful track record.
strengthen customer loyalty.
the company
11
Continue To Build
Global Distribution Footprint
Our business is a global business and we intend to continue
the creation, development and distribution of fragrances
under the Graff brand. Our rights under such license agree-
ment are subject to certain advertising expenditures and
to build our global distribution footprint. In order to adapt to
royalty payments as are customar y in our industr y. Initial
changes in the environment and our business, in addition to
product development
includes a multi-scent collection
our arrangements with third party distributors globally, we are
planned for a late 2019 launch. Additionally, we are explor-
operating distribution subsidiaries or divisions in the major
ing opportunities for luxur y travel amenities, including five
markets of the United States, France, Italy and Spain for dis-
star hotels.
tribution of prestige fragrances. We may look into future joint
arrangements or acquire distribution companies within other
key markets to distribute certain of our prestige brands. While
Guess License
In February 2018, the Company entered into an exclusive, 15-
building a global distribution footprint is part of our long-term
year worldwide license agreement with GUESS?, Inc. for the
strategy, we may need to make certain decisions based on the
creation, development and distribution of fragrances under
short-term needs of the business. We believe that in certain
the GUESS brand. This license took effect on April 1, 2018,
markets, vertical integration of our distribution network may
and our rights under such license are subject to certain
be one of the keys to future growth of our Company, and own-
minimum advertising expenditures and royalty payments
ership of such distribution should enable us to better serve our
as are customary in our industry. In 2018, our sales efforts
customers’ needs in local markets and adapt more quickly as
were focused on existing fragrances; in 2019, we plan to add
situations may determine.
several flankers to existing product and in 2020, entirely new
fragrances are scheduled for launch.
RECENT DEVELOPMENTS
Lily Aldridge
In September 2018, Interstellar Brands LLC, a wholly-owned
Income Tax Recovery
The French government had introduced a 3% tax on dividends
subsidiary of the Company, announced the development of
or deemed dividends for entities subject to French corporate
a new fragrance line in collaboration with supermodel Lily
income tax in 2012. In 2017, the French Constitutional Court
Aldridge. The license agreement with Lily Aldridge runs
released a decision declaring that the 3% tax on dividends
through December 31, 2023, and is subject to royalty pay-
or deemed dividends is unconstitutional. As a result of that
ments as are customary in our industry. This deal marks the
decision, the Company filed a claim for refund of approximately
beginning of a strategic partnership between Interstellar
$3.9 million for these taxes paid since 2015 including accrued
and IMG Models, which manages Lily Aldridge, to develop
interest of approximately $0.4 million. The Company recorded
direct-to-consumer e-commerce fragrance and beauty busi-
the refund claim as of December 31, 2017 and has received the
nesses for IMG Models’ diverse and dynamic client base. Our
entire refund in 2018.
initial fragrance product launch, a multi-scent collection, is
planned for September 2019.
Impairment Loss
The Company reviews intangible assets with indefinite lives
Van Cleef & Arpels License
In May 2018, the Company renewed its license agreement for
for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
an additional six years with Van Cleef & Arpels for the creation,
Product sales of some of our mass market product lines had
development, and distribution of fragrance products through
been declining for many years and represent a very small
December 2024, without any material changes in terms and
portion of our net sales. In 2017, the Company set in motion
conditions. Our initial 12-year license agreement with Van
a plan to discontinue several of these product lines over the
Cleef & Arpels was signed in 2006.
next few years and as a result, recorded an impairment loss
Graff License
In April 2018, the Company entered into an exclusive, 8-year
of $2.1 million as of December 31, 2017. The Company also
increased its inventory obsolescence reserves by $0.5 million
as of December 31, 2017, to adjust to net realizable value the
worldwide license agreement with London-based Graff for
inventory of the product lines to be discontinued.
12
Settlement with French Tax Authorities
As previously reported, the French Tax Authorities examined the
suppliers’ accounts are primarily settled in U.S. dollars. For our
European operations components for our prestige fragrances
2012 tax return of Interparfums SA. The main issues challenged
are purchased from many suppliers around the world and are
by the French Tax Authorities related to the commission rate and
primarily manufactured in France. For United States opera-
royalty rate paid to Interparfums Singapore Pte. and Interparfums
tions, components for our prestige fragrances are sourced from
(Suisse) SARL, respectively. Due to the subjective nature of
many suppliers around the world and are primarily manufac-
the issues involved, in April 2016, Interparfums SA reached an
tured in the United States.
agreement in principle to settle the entire matter with the French
Tax Authorities. The settlement required Interparfums SA to pay
MARKETING AND DISTRIBUTION
a tax assessment of $1.9 million covering the issues for not only
Our products are distributed in over 100 countries around
the 2012 tax year, but also covering the issues for the tax years
the world through a selective distribution network. For our
ended 2013 through 2015. The settlement, which was finalized
international distribution, we either contract with independent
by the French Tax Authorities in the first quarter of 2017, was
distribution companies specializing in luxury goods or distribute
accrued as of December 31, 2016.
prestige products through our distribution subsidiaries. In each
PRODUCTION AND SUPPLY
country, we designate anywhere from one to three distributors on
an exclusive basis for one or more of our name brands. We also
The stages of the development and production process for all
distribute our products through a variety of duty free operators,
fragrances are as follows:
such as airports and airlines and select vacation destinations.
• Simultaneous discussions with perfume designers and cre-
As our business is a global one, we intend to continue to
ators (includes analysis of esthetic and olfactory trends,
build our global distribution footprint. For distribution of
target clientele and market communication approach)
brands within our European based operations we operate
• Concept choice
through our distribution subsidiaries or divisions in the major
• Produce mock-ups for final acceptance of bottles and packaging
markets of the United States, France, Italy and Spain, in addi-
• Receive bids from component suppliers (glass makers,
tion to our arrangements with third party distributors globally.
plastic processors, printers, etc.) and packaging companies
Our third party distributors vary in size depending on the num-
• Choose suppliers
• Schedule production and packaging
• Issue component purchase orders
ber of competing brands they represent. This extensive and di-
verse network together with our own distribution subsidiaries
provides us with a significant presence in over 100 countries
• Follow quality control procedures for incoming components;
around the world.
and
Over 45% of our European based prestige fragrance net
• Follow packaging and inventory control procedures.
sales are denominated in U.S. dollars. We address certain
financial exposures through a controlled program of risk
Suppliers who assist us with product development include:
management that includes the use of derivative financial in-
• Independent perfumery design companies (Aesthete, Carré
struments. We primarily enter into foreign currency forward
Basset, PI Design, Cent Degres)
exchange contracts to reduce the effects of fluctuating foreign
• Perfumers (IFF, Givaudan, Firmenich, Robertet, Takasago,
currency exchange rates.
Mane) which create a fragrance consistent with our expec-
The business of our European operations has become in-
tations and, that of the fragrance designers and creators
creasingly seasonal due to the timing of shipments by our dis-
• Bottle manufacturers (Pochet du Courval, Verescence,
tribution subsidiaries and divisions to their customers, which
Verreries Brosse, Bormioli Luigi, Stoelzle Masnières ),
are weighted to the second half of the year.
caps (Qualipac, ALBEA, RPC, Codiplas, LF Beauty, Texen
For our United States operations, we distribute product
Group) or boxes (Autajon , MMPP, Nortier, Draeger)
to retailers and distributors in the United States as well as
• Production specialists who carry out packaging (CCI,Edipar,
internationally, including duty free and other travel-related
Jacomo, SDPP, MF Productions,Biopack) or logistics (Bolloré
retailers. We utilize our in-house sales team to reach our third
Logistics for storage, order preparation and shipment)
party distributors and customers outside the United States.
In addition, the business of our United States operations has
Suppliers’ accounts for our European operations are pri-
become increasingly seasonal as shipments are weighted
marily settled in euro and for our United States operations,
toward the second half of the year.
the company
13
Dunhill Century
14
Our licenses for these brands expire on the following dates:
Brand Name
Expiration Date
Abercrombie & Fitch
December 31, 2021
Agent Provocateur
December 31, 2023
Anna Sui
December 31, 2021,
plus two 5-year optional terms
if certain conditions are met
bebe Stores
Boucheron
June 30, 2020
December 31, 2025,
Coach
Dunhill
plus a 5-year optional term
if certain sales targets are met
June 30, 2026
September 30, 2023,
subject to earlier termination
on September 30, 2019,
if certain minimum sales
are not met
French Connection
December 31, 2027, plus a 10-
Graff
GUESS
Hollister
Jimmy Choo
Karl Lagerfeld
Lily Aldridge
Montblanc
year optional term if certain
sales targets are met
December 31, 2026,
plus 3 optional 3-year terms
if certain sales targets are met
December 31, 2033
December 31, 2021
December 31, 2031
October 31, 2032
December 31, 2023
December 31, 2025
Oscar de la Renta
December 31, 2025,
plus a 5-year optional term
if certain sales targets are met
Paul Smith
Repetto
S.T. Dupont
December 31, 2021
December 31, 2024
December 31, 2019
Van Cleef & Arpels
December 31, 2024
In connection with the acquisition of the Lanvin brand names
and trademarks for our class of trade, we granted the seller
the right to repurchase the brand names and trademarks in
2025 for the greater of €70 million (approximately $80 million)
or one times the average of the annual sales for the years
ending December 31, 2023 and 2024.
The
Products
We are the owner of the Rochas brand, and
the Lanvin brand name and trademark for
our class of trade. In addition, we have built
a portfolio of licensed prestige brands where-
by we produce and distribute our prestige fra-
grance products under license agreements
with brand owners. Under license agreements,
we obtain the right to use the brand name, cre-
ate new fragrances and packaging, determine
positioning and distribution, and market and
sell the licensed products, in exchange for
the payment of royalties. Our rights under li-
cense agreements are also generally subject
to certain minimum sales requirements and
advertising expenditures as are customary in
our industry.
the products
15
Fragrance
Portfolio
16
In December 2014, we entered into a 7-year worldwide license
to create, produce and distribute new fragrances and fra-
grance related products under the Abercrombie & Fitch brand
name. The Company distributes these fragrances internation-
ally in specialty stores, high-end department stores and duty
free shops, and in the U.S., in duty free shops and in select
Abercrombie & Fitch retail stores. In 2016 we launched our
initial men’s scent, First Instinct, and during 2017 we launched
a women’s version of First Instinct. In 2018 and early 2019,
we introduced several First Instinct brand extensions. In the
spring of 2019 we will be unveiling a new fragrance family for
Abercrombie & Fitch, Authentic, for men and women.
Abercrombie & Fitch is a specialty retailer of high quality
apparel and accessories for men and women. For more than
125 years, the iconic brand has outfitted innovators, explor-
ers and entrepreneurs. Today, it reflects the updated attitude
of the modern customer, while remaining true to its heri-
tage of creating expertly crafted products with an effortless,
American style.
the products
17
Abercrombie & Fitch Authentic
18
In June 2011, we entered into a 10-year exclusive worldwide fra-
grance license agreement to produce and distribute fragrances
and fragrance related products under the Anna Sui brand. We
work in partnership with American designer, Anna Sui, and her
creative team to build upon the brand’s growing customer ap-
peal, and develop new fragrances that capture the brand’s very
sweet feminine girly aspect, combined with touch of nostalgia,
hipness and rock-and-roll. Anna Sui’s devoted customer base,
which spans the world, is concentrated in Asia.
With the popularity of Anna Sui fragrances throughout Asia,
we enjoyed dramatic increases in brand sales in that region in
both 2017 and 2018. By maintaining a strong advertising and
marketing commitment to Anna Sui over many years, we were
rewarded as the Chinese economy improved. We also took ad-
vantage of the improving economy with a major new product
launch Fantasia by Anna Sui, with distribution concentrated
across Asia. In addition, the brand’s growing popularity in oth-
er Asian countries contributed to the upturn that began in 2017.
In 2018, we introduced Fantasia Mermaid for Anna Sui and a
completely new Anna Sui fragrance family called, Sky, is in the
works for 2020.
the products
19
Anna Sui Fantasia Mermaid
20
In December 2010, we entered into an exclusive 15-year
worldwide license agreement for the creation, development
and distribution of fragrances under the Boucheron brand.
Boucheron is the French jeweler “par excellence”. Founded
by Frederic Boucheron in 1858, the House has produced
some of the world’s most beautiful and precious creations.
Today Boucheron creates jewelry and timepieces and, under
license from global brand leaders, fragrances and sunglass-
es. Currently Boucheron operates through over 40 boutiques
worldwide as well as an e-commerce site.
One of our first new fragrances under the Boucheron
brand, Boucheron Place Vendôme, was released in 2013. In
2015, we launched a new fragrance duo for the Boucheron
brand around its iconic Quatre ring, Boucheron Quatre. A six
scent collection was launched under the Boucheron brand
in 2017, to which two scents were added in 2018, the same
year Boucheron Quatre en Rose made its debut. For 2019,
we are again launching two new fragrances as part of the
Boucheron collection.
the products
21
Boucheron Collection Boucheron
22
In April 2015, we entered into an exclusive 11-year worldwide
license with Coach, Inc. to create, produce and distribute new
men’s and women’s fragrances and fragrance related products
under the Coach brand name. We distribute these fragrances
globally to department stores, specialty stores and duty free
shops, as well as in Coach retail stores.
Coach, established in New York City in 1941, is a leading
design house of modern luxury accessories and lifestyle col-
lections with a rich heritage of pairing exceptional leathers
and materials with innovative design. Coach is sold worldwide
through Coach stores, select department stores and specialty
stores, and through Coach’s website at www.coach.com.
In 2016, we launched our first Coach fragrance, a women’s
scent, and in 2017, a men’s scent, both of which have quickly be-
come top selling prestige fragrances. In 2018, the Coach brand
achieved remarkable sales growth and quickly become one of
the largest brands in our portfolio. Coach sales were driven by
the continued popularity of the Coach signature lines, as well
as the success of flankers, Coach Floral and Coach Platinum,
which rolled out in 2018. We have a new Coach women’s scent
in the works for debut in 2020.
the products
23
Coach Coach Platinum
24
In December 2012, we entered into an exclusive 10-year worldwide
fragrance license to create, produce and distribute fragrances and
fragrance related products under the Dunhill brand.
The house of Dunhill was established in 1893 and since that
time has been dedicated to providing high quality men’s luxury
products, with core collections offered in menswear, leather
goods and accessories. The brand has global reach through
a premium mix of self-managed retail outlets, high-level de-
partment stores and specialty stores. Known for its commit-
ment to elegance and innovation and being a leader of British
men’s style, the brand continues to blend innovation and cre-
ativity with traditional craftsmanship.
Beginning in 2015, we rolled out our new Dunhill scent,
Icon, the success of which has made the Dunhill brand one of
the stars within our United States based operations. Building
upon the established success of the Icon fragrance family, we
launched several product extensions including Icon Absolute,
Icon Elite and Icon Racing. In 2018 we introduced a new Dunhill
scent for men called Century and for 2019, we will debut the
Dunhill Signature Collection, as well as Century Blue.
the products
25
Dunhill Icon Collection
26
In April 2018, the Company entered into an exclusive, 8-year
worldwide license agreement with London-based Graff for the
creation, development and distribution of fragrances under
the Graff brand. The 8-year agreement has three 3-year auto-
matic renewal options, potentially extending the license until
December 31, 2035.
Since Laurence Graff OBE founded the company in 1960,
Graff has been dedicated to sourcing and crafting diamonds
and gemstones of untold beauty and rarity, and transforming
them into spectacular pieces of jewelry that move the heart
and stir the soul. Throughout its rich history, Graff has be-
come the world leader for diamonds of rarity, magnitude and
distinction. Most notably, it has dominated the list of historical
and important rough diamonds discovered, cut and polished
this century. Each jewelry creation is designed and manufac-
tured in Graff’s London atelier, where master craftsmen em-
ploy stone-led design techniques to emphasize the beauty of
each individual stone. The company remains a family business,
overseen by Francois Graff, Chief Executive Officer.
Our plan calls for developing a multi-scent collection
launching towards the end of 2019 with distribution earmarked
for Graff stores, high-end department stores, and upscale
travel retail. Additionally, we are exploring opportunities for
luxury travel amenities, including five star hotels.
the products
27
Graff
28
In February 2018, the Company entered into an exclusive, 15-
year worldwide license agreement with GUESS?, Inc. for the
creation, development and distribution of fragrances under
the GUESS brand. This license took effect on April 1, 2018. We
began selling GUESS legacy scents in 2018. For 2019, we have
on tap two GUESS launches, 1981 Los Angeles for men and
women and Seductive Noir for men and women. For 2020, we
have a new line, Bella Vita, in development.
Established in 1981, GUESS began as a jeans company and
has since successfully grown into a global lifestyle brand.
GUESS?, Inc. designs, markets, distributes and licenses a life-
style collection of contemporary apparel, denim, handbags,
watches, footwear and other related consumer products.
GUESS products are distributed through branded GUESS stores
as well as better department and specialty stores around the
world. As of November 3, 2018, GUESS directly operated over
1,100 retail stores in the Americas, Europe and Asia. GUESS’
licensees and distributors operated 584 additional retail stores
worldwide. GUESS and its licensees and distributors operate in
approximately 100 countries worldwide.
the products
29
Guess Seductive Noir
30
In December 2014, we entered into a 7-year worldwide
license to create, produce and distribute new fragrances and
fragrance related products under the Hollister brand name.
The Company distributes these fragrances internationally in
specialty stores, high-end department stores and duty free
shops, and in the U.S., in duty free shops as well as select
Hollister retail stores. In 2016 we launched a new men’s and
women’s scent, Wave, for Hollister. In 2017, we introduced a
fragrance duo, Wave 2, to complement the Wave franchise by
Hollister. During 2018 we debuted an entirely new fragrance
family for Hollister, Festival Vibes, as well as Free Wave, both
for men and women. For 2020, we have a duo in the works,
Festival Party for men and women.
The quintessential apparel brand of the global teen con-
sumer, Hollister Co. celebrates the liberating spirit of the
endless summer inside everyone. Inspired by California’s
laidback attitude, Hollister’s clothes are designed to be lived
in and made your own, for wherever life takes you.
the products
31
Hollister Festival Nite
32
In October 2009, we entered
into an exclusive 12-year
worldwide license agreement for the creation, development
and distribution of fragrances under the Jimmy Choo brand,
and in 2017, we entered into an amended license agreement
which now runs through December 31, 2031.
Jimmy Choo encompasses a complete luxury accessories
brand. Women’s shoes remain the core of the product offering,
alongside handbags, small leather goods, scarves, eyewear,
belts, fragrance and men’s shoes. Chief Executive Officer Pierre
Denis and Creative Director Sandra Choi together share a vision
to create one of the world’s most treasured luxury brands. Jim-
my Choo has a global store network encompassing more than
150 stores and is present in the most prestigious department
and specialty stores worldwide. Jimmy Choo is part of the Mi-
chael Kors Holdings Limited luxury fashion group.
Our first fragrance under the Jimmy Choo brand, a wom-
en’s signature scent, rolled out globally in 2011. In 2013, we
launched our second Jimmy Choo line, Flash, and in 2014, we
debuted Jimmy Choo Man, our first men’s scent which ranked
in 2015 as the 9th best-selling men’s fragrance in the Unit-
ed States. In 2015, the launch of Jimmy Choo Illicit, our third
women’s fragrance under that label hit the market. In 2017,
building on the very strong fragrance family trees of the Jimmy
Choo signature scent for women (2011) and Jimmy Choo Man
(2014), we successfully launched Jimmy Choo L’Eau for women
and Jimmy Choo Man Ice. In 2018 we released a flanker for the
Jimmy Choo Man line, Jimmy Choo Man Blue, and the brand’s
women’s signature scent added still another member to the
family with Jimmy Choo Fever. For 2019, Jimmy Choo will add
a new scent for men in the fall and for 2020, we are expanding
our product line to include a fragrance collection with related
lipstick and nail polish.
the products
33
Jimmy Choo Fever
34
In October 2012, we entered into a 20-year worldwide license
agreement with Karl Lagerfeld B.V., the internationally re-
nowned haute couture fashion house, to create, produce and
distribute fragrances 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
innovative digital strategy and a global 360 degree vision that
reflects the designer’s own style and soul. In 2017, we changed
the strategic positioning and instituting new pricing with the
launch of a new duo called Les Parfums Matières, which de-
buted in the second half of 2017, achieving excellent sales re-
sults. In the second half of 2018, we expanded the Les Parfums
Matières line with another fragrance duo.
the products
35
Karl Lagerfeld Les Parfums Matières
36
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.
Lanvin is currently our fourth largest brand by sales volume.
Lanvin fragrances occupy an important position in the selec-
tive distribution market in France, Eastern Europe and Asia,
and we have several lines currently in distribution, including:
Arpège, Lanvin L’Homme, Éclat d’Arpège, Rumeur 2 Rose,
Jeanne Lanvin, Marry Me and Modern Princess. Our Éclat
d’Arpège line accounts for approximately 50% of this brand’s
sales. To capitalize on the success of our Éclat d’Arpège line,
in 2015 we launched Éclat d’Arpège Homme as well as Éclat de
Fleurs. In late 2016, we released a new Lanvin women’s line,
Modern Princess in limited distribution which rolled out to
broader international distribution in 2017. We added two flank-
ers, Lanvin Modern Princess Eau Sensuelle and Éclat de Nuit
in 2018 and we have a new Lanvin scent called A Girl in Capri
debuting in 2019.
the products
37
Lanvin A girl in Capri
38
In September 2018, Interstellar Brands LLC, a wholly-owned
subsidiary of the Company announced the development of
a new fragrance line in collaboration with supermodel Lily
Aldridge. The license agreement with Lily Aldridge runs
through December 31, 2023. This deal marks the beginning of
a strategic partnership between Interstellar and IMG Models,
which manages Lily Aldridge, to develop direct-to-consumer
e-commerce fragrance and beauty businesses for IMG Models’
diverse and dynamic client base.
Aldridge, best known for her work with Bulgari, Ralph Lau-
ren, Levi’s and Victoria’s Secret, will work closely with In-
terstellar to develop a unique, namesake fragrance line and
e-commerce site that will be connected directly to Aldridge’s
social channels and passionate fan base. Our initial fra-
grance product launch, a multi-scent collection, is planned
for September 2019.
39
Lily Aldridge
40
In October 2015, we extended our license agreement with
Montblanc by five years. The original agreement, signed in
2010, provided us with the exclusive worldwide license rights
to create, produce and distribute fragrances and fragrance re-
lated products under the Montblanc brand through December
31, 2020. The new agreement, which went into effect on
January 1, 2016, extends the partnership through December
31, 2025 without any material changes in operating conditions
from the prior license.
Montblanc has achieved a world-renowned position in the
luxury segment and has become a purveyor of exclusive prod-
ucts, which reflect today’s exacting demands for timeless de-
sign, tradition and master craftsmanship. Through its leadership
positions in writing instruments, watches and leather goods,
promising growth outlook in women’s jewelry, active presence
in more than 70 countries, network of more than 350 boutiques
worldwide and high standards of product design and quality,
Montblanc has grown to be our largest fragrance brand.
In 2011, we launched our first new Montblanc fragrance, Leg-
end, which quickly became our best-selling men’s line. In 2012,
we launched our first women’s fragrance under the Montblanc
brand, and our second men’s line, Emblem was launched in
2014. The Emblem line was expanded in 2015 to include Mont-
blanc Emblem Intense and a new women’s scent, Lady Emblem.
In 2016, we further extended our successful Montblanc Leg-
end line with a new men’s scent, Montblanc Legend Spirit. For
2017, we continued the rollout of the highly successful launch of
Montblanc Legend Spirit and launched Montblanc Legend Night
during the 2017 holiday season with the global rollout continu-
ing into the following year. In early 2019, Montblanc will unveil
Montblanc Explorer, a new men’s scent, with distribution in all
geographic markets around the globe.
the products
41
Montblanc Explorer
42
In October 2013, we entered into a 12-year exclusive worldwide
license to create, produce and distribute fragrances and
fragrance related products under the Oscar de la Renta brand.
In 2014, we took over distribution of fragrances within the
brand’s legacy fragrance portfolio, and our first new women’s
fragrance under the Oscar de la Renta brand, Extraordinary,
was launched in 2015. For 2016, in addition to several flankers
that we launched throughout the year, we debuted a new men’s
fragrance family, Oscar de la Renta Gentlemen. Bella Blanca,
a new Oscar de la Renta scent, debuted in early 2018, and Bella
Rosa is scheduled for a 2019 debut.
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 addition
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, www.oscardelarenta.
com and through wholesale channels. The Oscar de la Renta
brand has a loyal following in the United States, Canada and
Latin America.
the products
43
Oscar de la Renta Bella Rosa
44
In May 2017, the Company renewed its license agreement
for an additional four years with Paul Smith for the creation,
development, and distribution of fragrance products through
December 2021, without any material changes in terms and
conditions. Our initial 12-year license agreement with Paul
Smith was signed in 1998, and had previously been extended
through December 31, 2017.
Paul Smith is an internationally renowned British design-
er 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, Paul Smith
Extrême, and Paul Smith Rose. In 2018, Paul Smith Hello You,
made its debut.
the products
45
Paul Smith Rose Limited Edition
46
In December 2011, we entered into a 13-year exclusive
worldwide license agreement to create, produce and distribute
fragrances 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 Repetto boutiques in several countries throughout the
world, the brand has branched out into Asia, notably China,
Hong Kong, Singapore, Thailand, South Korea and Japan with
a mix of cross-generational appeal and French chic. Our first
Repetto fragrance line was launched in 2013 and a floral scent
was added in 2015. Despite this brand’s success with footwear,
handbags and high-end accessories, fragrance sales have
been modest. A new scent, Dance with Repetto debuted in the
first quarter of 2018.
the products
47
Repetto Dance with Repetto
48
In May 2015, we acquired the Rochas brand from The Procter
& Gamble Company. Founded by Marcel Rochas in 1925, the
brand began as a fashion house and expanded into perfumery
in the 1950s under Hélène Rochas’ direction. This transaction
included all brand names and registered trademarks for
Rochas (Femme, Madame, Eau de Rochas, etc.), mainly for
fragrance, cosmetics and fashion.
This acquisition opened a new page in the Company’s histo-
ry by integrating for the first time both fragrances and fashion,
allowing us to apply a global approach to managing a fra-
grance brand with complete freedom in terms of creativity and
aesthetic choices. At the same time, we enjoy a very high de-
gree of visibility establishing a position of even greater preem-
inence for Rochas in the luxury goods universe. Rochas brand
sales currently include approximately $2.5 million of royalties
generated by the fashion and accessory business via its portfo-
lio of license agreements. Our first new fragrance for Rochas,
Mademoiselle Rochas, had a successful launch that began in
the first quarter of 2017 in its traditional markets of France and
Spain. In 2018, we continued the international rollout of Made-
moiselle Rochas in additional markets, debuted flankers for
Eau de Rochas and Mademoiselle Rochas and in late 2018, we
launched our first new men’s line, Rochas Moustache. We also
have a new men’s line under development for 2020.
the products
49
Rochas Mademoiselle Rochas
50
In June 1997, we signed an exclusive worldwide license
agreement with S.T. Dupont for the creation, manufacture
and distribution of S.T. Dupont fragrances. In 2011, the
agreement was renewed through December 31, 2016, and in
September 2016 was renewed again through December 31,
2019, without any material changes in terms and conditions.
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
Classic, S.T. Dupont Essence Pure, S.T. Dupont Collection and
Be Exceptional (launched in September 2018).
the products
51
S.T. Dupont Collection
52
In May 2018, the Company renewed its license agreement for
an additional six years with Van Cleef & Arpels for the cre-
ation, development, and distribution of fragrance products
through December 2024. Our initial 12-year license agreement
with Van Cleef & Arpels was signed in 2006.
Van Cleef & Arpels fragrances in current distribution
include: First and Collection Extraordinaire. Sales of the
Collection Extraordinaire line have experienced continued
growth since its debut. We continue to annually introduce
new additions to the Van Cleef & Arpels Collection Extraordi-
naire assortment.
the products
53
Van Cleef & Arpels Collection Extraordinaire
26 0 /2018 0 1
54
Rochas Mademoiselle Rochas Couture
quaterly financial data
55
QUARTERLY DATA: (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2018
(In thousands, except per share data)
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Net Sales
Gross Margin
Net Income
Net Income Attributable to
$171,767
105,629
21,862
$149,367
95,654
14,259
$177,213
109,147
24,426
$177,227
117,132
9,168
Full Year
$675,574
427,562
69,715
Inter Parfums, Inc.
15,909
10,899
18,938
8,047
53,793
Net Income Attributable to
Inter Parfums, Inc. per Share:
Basic
Diluted
Weighted Average Common Shares
Outstanding:
Basic
Diluted
$0.51
$0.51
31,267
31,429
$0.35
$0.35
31,299
31,490
$0.60
$0.60
31,326
31,587
$0.26
$0.26
31,340
31,584
QUARTERLY DATA: (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2017
(In thousands, except per share data) 1st Quarter
$143,058
Net Sales
2nd Quarter
$129,136
3rd Quarter
$169,531
4th Quarter
$149,526
Gross Margin
Net Income
Net Income Attributable to
90,070
18,167
83,943
9,211
103,472
22,103
98,801
5,772
$1.72
$1.71
31,308
31,522
Full Year
$591,251
376,286
55,253
Inter Parfums, Inc.
13,373
6,744
17,077
4,400
41,594
Net Income Attributable to
Inter Parfums, Inc. per Share:
Basic
Diluted
Weighted Average Common Shares
Outstanding:
Basic
Diluted
$0.43
$0.43
31,145
31,254
$0.22
$0.22
31,169
31,281
$0.55
$0.55
31,175
31,307
$0.14
$0.14
31,200
31,378
$1.33
$1.33
31,172
31,305
5656
United States export sales were approximately $93.1 million,
$71.4 million and $77.5 million in 2018, 2017 and 2016, respectively.
Consolidated net sales to customers by region are as follows:
CONSOLIDATED NET SALES TO CUSTOMERS BY REGION
(in thousands)
Year Ended December 31,
North America
Europe
Asia
Middle East
Central and
South America
Other
2018
$210,200
233,600
109,000
59,300
51,700
11,800
$675,600
2017
$176,900
2016
$149,000
214,800
194,700
88,000
50,500
51,200
9,900
81,300
41,600
44,000
10,500
$591,300
$521,100
CONSOLIDATED NET SALES TO CUSTOMERS
IN MAJOR COUNTRIES ARE AS FOLLOWS:
(in thousands)
Year Ended December 31,
United States
France
United Kingdom
Russia
2018
$204,000
44,000
36,000
35,000
2017
$173,000
2016
$144,000
44,000
33,000
34,000
47,000
31,000
27,000
5757
58
The
Organization
All Corporate Functions:
Including product analysis and development, production and
sales, and finance are coordinated at the Company’s corpo-
rate headquarters in New York and at the corporate offices
of Interparfums SA in Paris. Each company is organized into
two operational units that report directly to general man-
agement, and European operations ultimately report to
Mr. Benacin and United States operations ultimately report to
Mr. Madar.
Finance, Investor Relations
And Administration:
Russell Greenberg in the United States and Philippe Santi
in France:
• Financial policy and communication, investor relations;
• Financial accounting, cost accounting, budgeting and
cash flow management;
• Disclosure requirements of the Securities and Ex-
change Commission and Commission des Operations
de Bourse;
• Labor relations, tax and legal matters and management
information systems.
Operations:
Brian Gibbons and Alex Canavan in the United States,
and Axel Marot in France:
• Product development;
• Logistics and transportation;
• Purchasing and industrial relations;
• Quality control and inventory cost supervision.
Export Sales:
Herve Bouillonnec in the United States and Frédéric Garcia-
Pelayo in France:
• International development strategy;
• Establishment of distributor networks and negotiation
of contracts;
• Monitoring of profit margins and advertising expenditures.
Domestic (Home Country) Sales:
Michel Bes in the United States and Jérôme Thermoz in France:
• Establish and apply domestic sales strategy and
distribution policy;
• Sales team management and development;
• Monitoring of profit margins and advertising expenditures.
the organization
59
SIMPLIFIED CHART OF THE ORGANIZATION
45%
PHILIPPE BENACIN
JEAN MADAR
55%
PUBLIC
SHAREHOLDERS
100%
100%
100%
100%
INTER PARFUMS
HOLDINGS, SA
JEAN PHILIPPE
FRAGRANCES, LLC
INTER PARFUMS
USA, LLC
INTERSTELLAR
BRANDS, LLC
73%
100%
INTERPARFUMS SA
[ EURONEXT -
PARIS ]
INTER PARFUMS
USA
HONG KONG LTD
100%
100%
100%
100%
100%
INTERPARFUMS
LUXURY BRANDS,
INC
INTERPARFUMS
[ SUISSE ] SARL
INTERPARFUMS
SINGAPORE PTE,
LTD
INTER ESPAÑA
PARFUMS
ET COSMÉTIQUES
SL [ SPAIN ]
INTERPARFUMS
SRL
[ ITALY ]
51%
PARFUMS ROCHAS
SPAIN, SL
60
contents
management’s discussion and analysis of financial
condition and results of operations
report on internal control over financial reporting
report of independent registered
public accounting firm
financial statements
notes to consolidated financial statements
directors and executive officers
corporate and market information
61
73
74
76
81
98
99
management’s discussion and analysis
of financial condition and results of operations
61
Overview
We operate in the fragrance business, and manufacture, mar-
ket and distribute a wide array of fragrances and fragrance
related products. We manage our business in two segments,
European based operations and United States based opera-
tions. Certain prestige fragrance products are produced and
marketed by our European operations through our 73% owned
subsidiary in Paris, Interparfums SA, which is also a publicly
traded company as 27% of Interparfums SA shares trade on
the NYSE Euronext.
We produce and distribute our European based fra-
grance products primarily under license agreements with
brand owners, and European based fragrance product
sales represented approximately 80%, 81% and 78% of net
sales for 2018, 2017 and 2016, respectively. We have built
a por tfolio of prestige brands, which include Boucheron,
Coach, Jimmy Choo, Karl Lagerfeld, Lanvin, Montblanc,
Paul Smith, Repetto, Rochas, S.T. Dupont and Van Cleef &
Arpels, whose products are distributed in over 100 coun-
tries around the world.
Through our United States operations, we also market
fragrance and fragrance related products. United States
operations represented 20%, 19% and 22% of net sales in
2018, 2017 and 2016, respectively. These fragrance products
Management’s Discussion
And Analysis Of
Financial Condition And
Results Of
Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
are sold or to be sold primarily pursuant to license or oth-
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Regulation S-K Item 10(e)
Regulation S-K, Item 10(e), “Use of Non-GAAP Financial
er agreements with the owners of the Abercrombie & Fitch,
Agent Provocateur, Anna Sui, bebe, Dunhill, French Connec-
tion, Graff, GUESS, Hollister, Lily Aldridge and Oscar de la
Measures in commission filings,” prescribes the conditions
Renta brands.
for use of non-GAAP financial information in filings with the
With respect to the Company’s largest brands, we own the
Securities and Exchange Commission.
Lanvin brand name for our class of trade, and license the
Our reported results include an impairment loss net of tax
Montblanc, Jimmy Choo and Coach brand names. As a per-
expense, and inventory reserve adjustment net of tax expense,
centage of net sales, product sales for the Company’s largest
both relating to the discontinuance and wind-down of certain
brands were as follows:
of our mass market product lines, adjustment to deferred tax
benefit due to the Tax Act, and tax recovery for dividends net
Years ended December 31,
of minority interest for 2017, and the nonrecurring tax set-
Montblanc
tlement payment net of minority interest for 2016. Due to the
Jimmy Choo
cumulative effect of these nonrecurring items for 2017 and
Coach
significance and nonrecurring nature of the tax settlement
Lanvin
payment for 2016, exclusion of such amounts in the non-GAAP
2018 2017 2016
23%
21%
19%
17%
15%
10%
18%
10%
11%
17%
4%
12%
financial measures provides a more complete disclosure and
Quarterly sales fluctuations are influenced by the timing of
facilitates a more accurate comparison of current results to
new product launches as well as the third and fourth quarter
historic results.Based upon the foregoing, we believe that
holiday season. In certain markets where we sell directly to
our presentation of the non-GAAP financial information in-
retailers, seasonality is more evident. We sell directly to re-
cluded on pages 49-50 of our Form 10-K is an important sup-
tailers in France as well as through our own distribution sub-
plemental measure of operating performance to investors.
sidiaries in Italy, Spain and the United States.
62
We grow our business in two distinct ways. First, we grow
Our Company addresses certain financial exposures through
by adding new brands to our portfolio, either through new
a controlled program of risk management that includes the
licenses or other arrangements or outright acquisitions of
use of derivative financial instruments. We primarily enter into
brands. Second, we grow through the introduction of new
foreign currency forward exchange contracts to reduce the ef-
products and by supporting new and established products
fects of fluctuating foreign currency exchange rates. We are
through advertising, merchandising and sampling as well
also carefully monitoring currency trends in the United King-
as by phasing out underperforming products so we can de-
dom as a result of the volatility created from the United King-
vote greater resources to those products with greater poten-
dom’s decision to exit the European Union. We have evaluated
tial. The economics of developing, producing, launching and
our pricing models and we do not expect any significant pric-
supporting products influence our sales and operating per-
ing changes. However, if the devaluation of the British Pound
formance each year. Our introduction of new products may
worsens, it may affect future gross profit margins from sales
have some cannibalizing effect on sales of existing products,
in the territory.
which we take into account in our business planning.
Our business is not capital intensive, and it is important to
note that we do not own manufacturing facilities. We act as a
general contractor and source our needed components from
RECENT IMPORTANT EVENTS
Lily Aldridge License
In September 2018, Interstellar Brands LLC, a wholly-owned
our suppliers. These components are received at one of our
subsidiary of the Company, announced the development of
distribution centers and then, based upon production needs,
a new fragrance line in collaboration with supermodel Lily
the components are sent to one of several third party fillers,
Aldridge. The license agreement with Lily Aldridge runs
which manufacture the finished product for us and then deliv-
through December 31, 2023, and is subject to royalty pay-
er them to one of our distribution centers.
ments as are customary in our industry. This deal marks the
As with any global business, many aspects of our opera-
beginning of a strategic partnership between Interstellar
tions are subject to influences outside our control. We believe
and IMG Models, which manages Lily Aldridge, to develop
we have a strong brand portfolio with global reach and po-
direct-to-consumer e-commerce fragrance and beauty busi-
tential. As part of our strategy, we plan to continue to make
nesses for IMG Models’ diverse and dynamic client base. Our
investments behind fast-growing markets and channels to
initial fragrance product launch, a multi-scent collection, is
grow market share.
planned for September 2019.
In years prior to 2017, the economic and political uncertain-
ty and financial market volatility in Eastern Europe, the Middle
East and China had a minor negative impact on our business,
Van Cleef & Arpels License
In May 2018, the Company renewed its license agreement for
but our sales in these regions have been improving and we do
an additional six years with Van Cleef & Arpels for the creation,
not anticipate dramatic changes in business conditions for the
development, and distribution of fragrance products through
foreseeable future. However, if the degree of uncertainty or
December 2024, without any material changes in terms and
volatility worsens or is prolonged, then there will likely be a
conditions. Our initial 12-year license agreement with Van
negative effect on ongoing consumer confidence, demand and
Cleef & Arpels was signed in 2006.
spending and accordingly, our business. We believe general
economic and other uncertainties still exist in select markets in
which we do business, and we monitor these uncertainties and
Graff License
In April 2018, the Company entered into an exclusive, 8-year
other risks that may affect our business.
worldwide license agreement with London-based Graff for
Our reported net sales are impacted by changes in foreign
the creation, development and distribution of fragrances
currency exchange rates. A strong U.S. dollar has a negative
under the Graff brand. Our rights under such license agree-
impact on our net sales. However, earnings are positively af-
ment are subject to certain advertising expenditures and
fected by a strong dollar, because over 45% of net sales of our
royalty payments as are customar y in our industr y. Initial
European operations are denominated in U.S. dollars, while
product development
includes a multi-scent collection
almost all costs of our European operations are incurred in
planned for a late 2019 launch. Additionally, we are explor-
euro. Conversely, a weak U.S. dollar has a favorable impact
ing opportunities for luxur y travel amenities, including five
on our net sales while gross margins are negatively affected.
star hotels.
management’s discussion and analysis
of financial condition and results of operations
63
Guess License
In February 2018, the Company entered into an exclusive,
assessment of $1.9 million covering the issues for not only the
2012 tax year, but also covering the issues for the tax years end-
15-year worldwide license agreement with GUESS?, Inc. for
ed 2013 through 2015. The settlement, which was finalized by the
the creation, development and distribution of fragrances
French Tax Authorities in the first quarter of 2017, was accrued as
under the GUESS brand. This license took effect on April 1,
of December 31, 2016.
2018, and our rights under such license are subject to cer-
tain minimum advertising expenditures and royalty payments
DISCUSSION OF CRITICAL ACCOUNTING POLICIES
as are customary in our industry. In 2018, our sales efforts
We make estimates and assumptions in the preparation of our
were focused on existing fragrances; in 2019, we plan to add
financial statements in conformity with accounting principles
several flankers to existing product and in 2020, entirely new
generally accepted in the United States of America. Actual
fragrances are scheduled for launch.
results could differ significantly from those estimates under
different assumptions and conditions. We believe the follow-
Income Tax Recovery
The French government had introduced a 3% tax on dividends
ing discussion addresses our most critical accounting policies,
which are those that are most important to the portrayal of our
or deemed dividends for entities subject to French corporate
financial condition and results of operations. These accounting
income tax in 2012. In 2017, the French Constitutional Court
policies generally require our management’s most difficult and
released a decision declaring that the 3% tax on dividends or
subjective judgments, often as a result of the need to make esti-
deemed dividends is unconstitutional. As a result of that de-
mates about the effect of matters that are inherently uncertain.
cision, the Company filed a claim for refund of approximately
Management of the Company has discussed the selection of sig-
$3.9 million for these taxes paid since 2015 including accrued
nificant accounting policies and the effect of estimates with the
interest of approximately $0.4 million. The Company record-
Audit Committee of the Board of Directors.
ed the refund claim as of December 31, 2017 and has received
the entire refund in 2018.
Revenue Recognition
We sell our products to department stores, perfumeries, spe-
Impairment Loss
The Company reviews intangible assets with indefinite lives
cialty stores, and domestic and international wholesalers and
distributors. Our revenue contracts represent single perfor-
for impairment whenever events or changes in circumstanc-
mance obligations to sell our products to customers. Sales of
es indicate that the carrying amount may not be recoverable.
such products by our domestic subsidiaries are denominated in
Product sales of some of our mass market product lines had
U.S. dollars and sales of such products by our foreign subsidiar-
been declining for many years and represent a very small
ies are primarily denominated in either euro or U.S. dollars. We
portion of our net sales. In 2017, the Company set in motion
recognize revenues when contract terms are met, the price is
a plan to discontinue several of these product lines over the
fixed and determinable, collectability is reasonably assured and
next few years and as a result, recorded an impairment loss
product is shipped or risk of ownership has been transferred to
of $2.1 million as of December 31, 2017. The Company also in-
and accepted by the customer. Net sales are comprised of gross
creased its inventory obsolescence reserves by $0.5 million
revenues less returns, trade discounts and allowances.
as of December 31, 2017, to adjust to net realizable value the
inventory of the product lines to be discontinued.
Settlement with French Tax Authorities
As previously reported, the French Tax Authorities examined the
Accounts Receivable
Accounts receivable represent payments due to the Company
for previously recognized net sales, reduced by allowances
for sales returns and doubtful accounts. Accounts receivable
2012 tax return of Interparfums SA. The main issues challenged
balances are written-off against the allowance for doubtful
by the French Tax Authorities related to the commission rate and
accounts when they become uncollectible. Recoveries of ac-
royalty rate paid to Interparfums Singapore Pte. and Interparfums
counts receivable previously recorded against the allowance
(Suisse) SARL, respectively. Due to the subjective nature of the
are recorded in the consolidated statement of income when
issues involved, in April 2016, Interparfums SA reached an agree-
received. We generally grant credit based upon our analysis of
ment in principle to settle the entire matter with the French Tax
the customer’s financial position as well as previously estab-
Authorities. The settlement required Interparfums SA to pay a tax
lished buying patterns.
64
Sales Returns
Generally, we do not permit customers to return their unsold
Factors such as changes in the planned use of equipment,
or market acceptance of products, could result in shortened
products. However, for U.S. distribution of our prestige prod-
useful lives.
ucts, we allow returns if properly requested, authorized and
We evaluate indefinite-lived intangible assets for impair-
approved as is customary in the industry. We regularly review
ment at least annually during the fourth quarter, or more fre-
and revise, as deemed necessary, our estimate of reserves for
quently when events occur or circumstances change, such as
future sales returns based primarily upon historic trends and
an unexpected decline in sales, that would more likely than not
relevant current data, including information provided by retail-
indicate that the carrying value of an indefinite-lived intangible
ers regarding their inventory levels. In addition, as necessary,
asset may not be recoverable. When testing indefinite-lived in-
specific accruals may be established for significant future
tangible assets for impairment, the evaluation requires a com-
known or anticipated events. The types of known or anticipated
parison of the estimated fair value of the asset to the carrying
events that we have considered, and will continue to consider,
value of the asset. The fair values used in our evaluations are
include, but are not limited to, the financial condition of our
estimated based upon discounted future cash flow projections
customers, store closings by retailers, changes in the retail en-
using a weighted average cost of capital of 6.21%. The cash
vironment and our decision to continue to support new and ex-
flow projections are based upon a number of assumptions, in-
isting products. We record estimated reserves for sales returns
cluding, future sales levels and future cost of goods and oper-
as a reduction of sales, cost of sales and accounts receivable.
ating expense levels, as well as economic conditions, changes
Returned products are recorded as inventories and are valued
to our business model or changes in consumer acceptance of
based upon estimated realizable value. The physical condition
our products which are more subjective in nature. If the carry-
and marketability of returned products are the major factors
ing value of an indefinite-lived intangible asset exceeds its fair
we consider in estimating realizable value. Actual returns, as
value, an impairment charge is recorded.
well as estimated realizable values of returned products, may
We believe that the assumptions we have made in project-
differ significantly, either favorably or unfavorably, from our es-
ing future cash flows for the evaluations described above are
timates, if factors such as economic conditions, inventory levels
reasonable. However, if future actual results do not meet our
or competitive conditions differ from our expectations.
expectations, we may be required to record an impairment
Inventories
Inventories are stated at the lower of cost and net realizable
charge, the amount of which could be material to our results
of operations.
At December 31, 2018 indefinite-lived intangible assets
value. Cost is principally determined by the first-in, first-out
aggregated $123.3 million. The following table presents the
method. We record adjustments to the cost of inventories
impact a change in the following significant assumptions
based upon our sales forecast and the physical condition of
would have had on the calculated fair value in 2018 assuming
the inventories. These adjustments are estimates, which could
all other assumptions remained constant:
vary significantly, either favorably or unfavorably, from actual
results if future economic conditions or competitive conditions
differ from our expectations.
Increase
(decrease)
$ in millions Change to fair value
$(31.0)
Weighted average cost of capital
+10%
Equipment And Other Long-Lived Assets
Equipment, which includes tools and molds, is recorded at
Weighted average cost of capital
Future sales levels
cost and is depreciated on a straight-line basis over the esti-
Future sales levels
-10%
+10%
-10%
$36.7
$23.3
$(23.3)
mated useful lives of such assets. Changes in circumstances
such as technological advances, changes to our business
Intangible assets subject to amortization are evaluated for
model or changes in our capital spending strategy can re-
impairment testing whenever events or changes in circum-
sult in the actual useful lives differing from our estimates.
stances indicate that the carrying amount of an amortizable
In those cases where we determine that the useful life of
intangible asset may not be recoverable. If impairment indi-
equipment should be shortened, we would depreciate the net
cators exist for an amortizable intangible asset, the undis-
book value in excess of the salvage value, over its revised re-
counted future cash flows associated with the expected service
maining useful life, thereby increasing depreciation expense.
potential of the asset are compared to the carrying value of the
management’s discussion and analysis
of financial condition and results of operations
65
asset. If our projection of undiscounted future cash flows is in
derivative instruments embedded in other contracts, and for
excess of the carrying value of the intangible asset, no impair-
hedging activities. This topic also requires the recognition of
ment charge is recorded. If our projection of undiscounted fu-
all derivative instruments as either assets or liabilities on the
ture cash flows is less than the carrying value of the intangible
balance sheet and that they are measured at fair value.
asset, an impairment charge would be recorded to reduce the
We currently use derivative financial instruments to hedge
intangible asset to its fair value. The cash flow projections are
certain anticipated transactions and interest rates, as well
based upon a number of assumptions, including future sales
as receivables denominated in foreign currencies. We do not
levels and future cost of goods and operating expense lev-
utilize derivatives for trading or speculative purposes. Hedge
els, as well as economic conditions, changes to our business
effectiveness is documented, assessed and monitored by em-
model or changes in consumer acceptance of our products
ployees who are qualified to make such assessments and mon-
which are more subjective in nature. In those cases where we
itor the instruments. Variables that are external to us such as
determine that the useful life of long-lived assets should be
social, political and economic risks may have an impact on our
shortened, we would amortize the net book value in excess of
hedging program and the results thereof.
the salvage value (after testing for impairment as described
above), over the revised remaining useful life of such asset
thereby increasing amortization expense. We believe that the
Income Taxes
The Company accounts for income taxes using an asset and
assumptions we have made in projecting future cash flows for
liability approach that requires the recognition of deferred tax
the evaluations described above are reasonable.
assets and liabilities for the expected future tax consequences
In determining the useful life of our Lanvin brand names and
of events that have been recognized in its financial statements
trademarks, we applied the provisions of ASC topic 350-30-35-
or tax returns. The net deferred tax assets assume sufficient
3. The only factor that prevented us from determining that the
future earnings for their realization, as well as the continued
Lanvin brand names and trademarks were indefinite life intan-
application of currently anticipated tax rates. Included in net
gible assets was Item c. “Any legal, regulatory, or contractual
deferred tax assets is a valuation allowance for deferred tax
provisions that may limit the useful life.” The existence of a re-
assets, where management believes it is more-likely-than-not
purchase option in 2025 may limit the useful life of the Lanvin
that the deferred tax assets will not be realized in the rele-
brand names and trademarks to the Company. However, this
vant jurisdiction. If the Company determines that a deferred
limitation would only take effect if the repurchase option were
tax asset will not be realizable, an adjustment to the deferred
to be exercised and the repurchase price was paid. If the repur-
tax asset will result in a reduction of net income at that time.
chase option is not exercised, then the Lanvin brand names and
Accrued interest and penalties are included within the related
trademarks are expected to continue to contribute directly to
tax asset or liability in the accompanying financial statements.
the future cash flows of our Company and their useful life would
In addition, the Company follows the provisions of uncertain
be considered to be indefinite.
tax positions as addressed in ASC topic 740.
With respect to the application of ASC topic 350-30-35-8, the
Lanvin brand names and trademarks would only have a finite life
to our Company if the repurchase option were exercised, and in
Quantitative Analysis
During the three-year period ended December 31, 2018, we have
applying ASC topic 350-30-35-8, we assumed that the repur-
not made any material changes in our assumptions underlying
chase option is exercised. When exercised, Lanvin has an obliga-
these critical accounting policies or to the related significant esti-
tion to pay the exercise price and the Company would be required
mates. The results of our business underlying these assumptions
to convey the Lanvin brand names and trademarks back to Lan-
have not differed significantly from our expectations.
vin. The exercise price to be received (Residual Value) is well
While we believe the estimates we have made are proper and
in excess of the carrying value of the Lanvin brand names and
the related results of operations for the period are presented
trademarks, therefore no amortization is required.
fairly in all material respects, other assumptions could rea-
Derivatives
We account for derivative financial instruments in accordance
net sales, cost of sales, and selling, general and administra-
tive expenses as they relate to the provisions for anticipated
with ASC topic 815, which establishes accounting and reporting
sales returns, allowance for doubtful accounts and inventory
standards
for derivative
instruments,
including certain
obsolescence reserves. For 2018, had these estimates been
sonably be justified that would change the amount of reported
66
changed simultaneously by 5% in either direction, our reported gross profit would have increased or decreased by approxi-
mately $0.3 million and selling, general and administrative expenses would have changed by approximately $0.07 million. The
collective impact of these changes on 2018 operating income, net income attributable to Inter Parfums, Inc., and net income
attributable to Inter Parfums, Inc. per diluted share would be an increase or decrease of approximately $0.4 million, $0.2 million
and $0.01, respectively.
RESULTS OF OPERATIONS
Net Sales
(in millions)
Years Ended December 31,
European-based product sales
United States-based product sales
Total net sales
2018
$537.6
138.0
$675.6
% Change
13%
20%
14%
2017 % Change
18%
$476.5
114.8 (2%)
2016
$404.0
117.1
$591.3
13%
$521.1
Net sales increased 14% in 2018 to $675.6 million, as compared to $591.3 million in 2017. At comparable foreign currency exchange
rates, net sales increased 13%. Net sales increased 13% in 2017 to $591.3 million, as compared to $521.1 million in 2016. At com-
parable foreign currency exchange rates, net sales increased 12%. The average U.S. dollar/euro exchange rates were 1.18 in 2018
and 1.13 in 2017 and 1.11 in 2016.
European based product sales increased 13% in 2018 to $537.6 million, as compared to $476.5 million in 2017. At comparable
foreign currency exchange rates, European based product sales increased 11% in 2018. European based product sales increased
18% in 2017 to $476.5 million, as compared to $404.0 million in 2016. At comparable foreign currency exchange rates, European
based prestige product sales increased 16% in 2017.
European based product sales in 2018 were stronger than our original expectations even though no new fragrance families
were launched in 2018. Top line growth was primarily attributed to established scents and brand extensions for our largest
brands. Coach brand sales accounted for much of the 2018 upside surprise with brand sales increasing 73% in 2018 to $99.7 mil-
lion, as compared to $57.5 million in 2017, making it our portfolio’s third largest brand. The other largest brands in our European
operations portfolio performed as expected with Montblanc, Jimmy Choo and Lanvin, achieving year-over-year sales growth of
1%, 8%, and 7%, respectively.
Net sales in 2017, for European based operations were also stronger than original expectations, with Coach brand sales con-
tributing much of that gain. Coach brand sales, which had commenced in the second half of 2016, increased 149% in 2017 reaching
$57.5 million, as compared to $23.1 million in 2016. Rochas, another of our newer brands, also performed quite well with the 2017
launch of our first new fragrance, Mademoiselle Rochas. Rochas brand sales aggregated $46.2 million, up 34% in 2017, as com-
pared to $34.6 in 2016.
United States based product sales increased 20% in 2018 to $138.0 million, as compared to $114.8 million in 2017. The inclusion of
legacy GUESS fragrances, which began in the second quarter of 2018, was a major contributor to the increase in net sales. Also fac-
toring into the 2018 increase was the successful launch of brand extensions for Abercrombie & Fitch & Co. and with the popularity of
Anna Sui fragrances throughout Asia, we continue to enjoy dramatic increases in Anna Sui brand sales in that region.
In 2017, there was a slight decline in United States based product sales as compared to 2016. In 2016, sales were boosted by
the international distribution of our first Abercrombie & Fitch men’s scent, First Instinct, and the Hollister duo, Wave, which made
sales comparisons for 2017 difficult. Nonetheless, sales of Oscar de la Renta’s signature scent, and initial shipments of Icon Racing
by Dunhill and Fantasia by Anna Sui, energized U.S. based product sales in 2017.
We maintain confidence in our future as we continue to strengthen advertising and promotional investments supporting
all portfolio brands, accelerate brand development and build upon the strength of our worldwide distribution network. Our
product development teams have been ver y busy and we have new fragrance families being launched throughout 2019. Some
of the highlights include: Abercrombie & Fitch Authentic, Dunhill Signature, Graff Multi-scent collection, a new scent for Jim-
my Choo, Lanvin A Girl in Capri, Montblanc Explorer and Rochas Moustache. With new product development combined with
management’s discussion and analysis
of financial condition and results of operations
67
continued sales of our legacy scents, we look for continued
while a weak U.S. dollar has a negative effect. The average dol-
sales growth in 2019.
lar/euro exchange rate was 1.18 in 2018, as compared to 1.13 in
Lastly, we hope to benefit from our strong financial posi-
2017, accounting for the small fluctuation in gross margin as a
tion to potentially acquire one or more brands, either on a
percentage of sales for our European operations.
proprietary basis or as a licensee. However, we cannot as-
The minor margin fluctuation for European operations in
sure you that any new license or acquisition agreements will
2017 is primarily the result of increased product sales, much
be consummated.
Net Sales to Customers by Region
(in millions)
Years ended December 31,
North America
Western Europe
Asia
Middle East
Eastern Europe
Central & South America
Other
2018
$210.1
180.9
109.0
59.3
52.8
51.7
11.8
$675.6
2017
$176.9
165.4
2016
$149.0
153.6
88.0
50.5
49.4
51.2
9.9
81.3
41.6
41.1
44.0
10.5
of which was through our distribution subsidiaries that sell
product directly to retailers. In addition to increased sales
of Montblanc, Jimmy Choo and Coach product sold through
our United States distribution subsidiary, our Rochas brand
was also a major contributor as its sales are concentrated in
France and Spain, both of which are countries where we dis-
tribute directly to retailers. The average dollar/euro exchange
rate was 1.13 in 2017 and 1.11 in 2016. Currency fluctuation had
only a minor effect on gross margin as a percentage of sales in
our European operations for 2017.
For United States operations, gross profit margin was
51.4%, 49.3% and 49.7% in 2018, 2017 and 2016, respectively.
$591.3
$521.1
Sales growth for our United States operations has primarily
come from increased sales of higher margin prestige products
Virtually all regions registered strong growth for the year
under licenses.
ended December 31, 2018, as compared to 2017. The strongest
Costs relating to purchase with purchase and gift with pur-
gains were achieved by Asia, North America and the Middle
chase promotions are reflected in cost of sales, and aggregat-
East, which increased sales by 24%, 19% and 17%, respectively.
ed $36.4 million, $33.8 million and $30.0 million in 2018, 2017
For the year ended December 31, 2017, as compared to 2016,
and 2016, respectively, and represented 5.4%, 5.7% and 5.8%
the biggest improvement were in lagging regions of years be-
of net sales, respectively.
fore, namely Eastern Europe, the Middle East and Asia, where
Generally, we do not bill customers for shipping and han-
sales increased 20%, 21% and 8%, respectively.
dling costs and such costs, which aggregated $7.1 million, $5.9
Gross Margins
(in millions)
Years ended December 31,
Net sales
Cost of sales
Gross margin
Gross margin as
2018
$675.6
248.0
$427.6
2017
$591.3
215.0
2016
$521.1
194.6
$376.3
$326.5
a percent of net sales
63.3%
63.6%
62.7%
million and $5.1 million in 2018, 2017 and 2016, respectively,
are included in selling, general and administrative expenses
in the consolidated statements of income. As such, our Com-
pany’s gross margins may not be comparable to other com-
panies, which may include these expenses as a component of
cost of goods sold.
Selling, General & Administrative Expenses
(in millions)
Years ended December 31,
2018
2017
2016
As a percentage of net sales, gross profit margin was 63.3%,
Selling, general
63.6%, and 62.7% in 2018, 2017 and 2016, respectively. For
& administrative expenses
$332.8
$295.5 $258.8
European based operations, gross profit margin as a per-
Selling, general
centage of net sales was 66%, 67% and 66% in 2018, 2017 and
& administrative expenses
2016, respectively. We carefully monitor movements in foreign
as a percent of net sales
49%
50%
50%
currency exchange rates as over 45% of our European based
operations net sales is denominated in U.S. dollars, while most
Selling, general and administrative expenses increased 13% in
of our costs are incurred in euro. From a margin standpoint,
2018 as compared to 2017 and increased 14% in 2017 as com-
a strong U.S. dollar has a positive effect on our gross margin
pared to 2016. As a percentage of sales, selling, general and
68
administrative expenses were 49% in 2018 and 50% in both
distribution subsidiary in Germany. Beginning in 2018, we
2017 and 2016. For European operations, selling, general and
switched back to a third party distribution model in that terri-
administrative expenses increased 10% in 2018, as compared
tory. The 2017 increase is in line with increased sales by Euro-
to 2017 and represented 52% of sales in 2018 and 53% of sales
pean operations.
in both 2017 and 2016. As discussed in more detail below, the
fluctuations which are in line with the increase in sales for
European operations, are primarily from variations in promo-
Buyout of License
In December 2016, the Company reached an agreement with
tion and advertising expenditures.
the Balmain brand calling for Balmain to buyout the Balmain
For United States operations, selling, general and admin-
license agreement, effective December 31, 2016, in exchange
istrative expenses increased 25% in 2018 and represented
for a payment aggregating $5.7 million. As a result of the
40% of sales in 2018, as compared to 38% of sales in 2017.
buyout, the Company recognized a gain of $4.7 million as of
The increase in sales of higher margin prestige products un-
December 31, 2016.
der license requires increased royalties and promotional and
advertising expenses. Selling, general and administrative ex-
penses decreased 2% in 2017 and represented 38% of sales
Impairment Loss
The Company reviews intangible assets with finite lives for im-
in both 2017 and 2016. This decrease is in line with the slight
pairment whenever events or changes in circumstances indi-
decline in 2017 sales for our U.S. operations.
cate that the carrying amount may not be recoverable. Product
Promotion and advertising included in selling, general and
sales of some of our mass market product lines have been
administrative expenses aggregated $139.7 million, $123.7
declining for many years. In 2017, the Company set in motion a
million and $99.0 million in 2018, 2017 and 2016, respective-
plan to discontinue several of these product lines over the next
ly. Promotion and advertising as a percentage of sales repre-
few years. As a result, the Company recorded an impairment
sented 20.7%, 20.9% and 19.0% of net sales in 2018, 2017 and
loss of $2.1 million in 2017.
2016, respectively. We continue to invest heavily in promotional
Product sales of our Karl Lagerfeld brand had not met with
spending to support new product launches and to build brand
our original expectations. As a result, the Company recorded
awareness. We anticipated that on a full year basis, promotion
an impairment loss of $5.7 million in 2016.
and advertising expenditure would aggregate approximately
21% of 2018 net sales, which was in line with 2017 annual pro-
motion and advertising expenditures as a percentage of sales.
Income from Operations
As a result of the above analysis regarding net sales, gross
The slight decline in promotion and advertising expense as a
profit margins, selling, general and administrative expenses,
percentage of sales in 2018 is the result of better than expect-
buyout of license and impairment loss, income from opera-
ed sales in the final months of 2018.
tions increased 20% to $94.7 million in 2018 as compared to
Royalty expense included in selling, general and adminis-
2017, after increasing 18% to $78.6 million in 2017 from $66.7
trative expenses aggregated $48.9 million, $39.6 million and
million in 2016. Operating margins aggregated 14.0%, 13.3%
$37.8 million in 2018, 2017 and 2016, respectively. Royalty ex-
and 12.8% for the years ended December 31, 2018, 2017 and
pense as a percentage of sales represented 7.2%, 6.7% and
2016, respectively. Excluding the gain on buyout of license in
7.3% of net sales in 2018, 2017 and 2016, respectively. The
2016 and impairment losses in both 2017 and 2016, as well
increase in 2018, as a percentage of sales, is directly related
as the $0.5 million inventory reserve in 2017, income from
to new licenses and increased royalty based product sales.
operations would have aggregated $80.2 million in 2017 and
The decline in 2017, as a percentage of sales, relates primar-
$67.7 million in 2016. Operating margins would have aggre-
ily to a lower minimum guaranteed royalty in connection with
gated 14.0%, 13.6% and 13.0% for the years ended December
the renewals of two licenses as well as the 2016 exit from the
31, 2018, 2017 and 2016, respectively. In summary, excluding
Balmain license.
nonrecurring items during the past three years, small fluctu-
Service fees, which are fees paid within our European op-
ations in gross margin were mitigated by small fluctuations in
erations to third parties relating to the activities of our dis-
selling, general and administrative expenses, primarily pro-
tribution subsidiaries, aggregated $9.7 million, $11.7 million
motion and advertising expenditures. Overall the Company
and $9.9 million in 2018, 2017 and 2016, respectively. The 2018
has been able to increase sales with a steady increase in its
decrease is primarily the result of the discontinuation of our
operating margin.
management’s discussion and analysis
of financial condition and results of operations
69
Other Income and Expenses
Interest expense aggregated $2.6 million, $2.0 million and
for which the accounting under ASC 740 is complete. To the
extent that a company’s accounting for a certain income tax
$2.3 million in 2018, 2017 and 2016, respectively. Interest
effect of the Tax Act is incomplete, but it is able to determine
expense is primarily related to the financing of brand and li-
a reasonable estimate, it must record a provisional estimate
censing acquisitions. We use the credit lines available to us,
in the financial statements.
as needed, to finance our working capital needs as well as our
In connection with its initial analysis of the impact of the Tax
financing needs for acquisitions. Long-term debt including
Act, the Company recorded a tax expense of $1.1 million for the
current maturities aggregated $46.1 million, $60.6 million
year ended December 31, 2017. This estimate consists of no ex-
and $74.6 million as of December 31, 2018, 2017 and 2016,
pense for the one-time transition tax, and an expense of $1.1
respectively.
million related to revaluation of deferred tax assets and liabili-
Foreign currency losses aggregated $0.3 million, $1.5
ties caused by the lower corporate tax rate. There were no ma-
million and $0.6 million in 2018, 2017 and 2016, respectively.
terial differences between the Company’s 2017 estimates and
We typically enter into foreign currency forward exchange
the final calculated amounts.
contracts to manage exposure related to receivables from
The Company has estimated of the effect of GILTI and has
unaffiliated third parties denominated in a foreign currency
determined that it has no tax liability as of December 31, 2018
and occasionally to manage risks related to future sales ex-
related to GILTI.
pected to be denominated in a foreign currency. Over 45% of
The Tax Act also contains a provision that allows a domestic
2018 net sales of our European operations were denominated
corporation an immediate deduction for a portion of its foreign
in U.S. dollars.
derived intangible income (“FDII”). The Company estimated the
Interest and dividend income aggregated $4.0 million,
effect of FDII as of December 31, 2018, and recorded a tax ben-
$3.0 million and $3.3 million in 2018, 2017 and 2016, respec-
efit of $0.6 million.
tively. Cash and cash equivalents and short-term invest-
Our effective income tax rate was 27.3%, 29.2% and 35.5%
ments are primarily invested in certificates of deposit with
in 2018, 2017 and 2016, respectively. The French government
var ying maturities.
had introduced a 3% tax on dividends or deemed dividends
for entities subject to French corporate income tax in 2012.
Income Taxes
In December 2017, the U.S. government passed the Tax Cuts and
In 2017, the French Constitutional Court released a decision
declaring that the 3% tax on dividends or deemed dividends
Jobs Act (“the Tax Act”). The Tax Act makes broad and complex
is unconstitutional. As a result of that decision, the Compa-
changes to the U.S. tax code, including, but not limited to re-
ny filed a claim for refund of approximately $3.9 million for
ducing the future U.S. federal corporate tax rate from 35% to
these taxes paid since 2015 including accrued interest of ap-
21% and requiring companies to pay a one-time transition tax on
proximately $0.4 million. The Company recorded the refund
certain unremitted earnings of foreign subsidiaries.
claim as of December 31, 2017 and has received the entire
The Tax Act also established new tax laws that affect 2018,
refund in 2018.
including, but not limited to: (i) the reduction of the U.S. federal
As previously reported, the French Tax Authorities exam-
corporate tax rate discussed above; (ii) a general elimination of
ined the 2012 tax return of Interparfums SA. The main issues
U.S. federal income taxes on dividends from foreign subsidiar-
challenged by the French Tax Authorities related to the com-
ies; (iii) a new provision designed to tax global intangible low-
mission rate and royalty rate paid to Interparfums Singapore
taxed income (“GILTI”); and (iv) a new provision that allows a
Pte. and Interparfums (Suisse) SARL, respectively. Due to the
domestic corporation an immediate deduction for a portion of
subjective nature of the issues involved, in April 2016, Inter-
its foreign derived intangible income (“FDII”).
parfums SA reached an agreement in principle to settle the
The Securities and Exchange Commission staff issued
entire matter with the French Tax Authorities. The settlement
Staff Accounting Bulletin (“SAB”) 118, which provides a
required Interparfums SA to pay a tax assessment of $1.9
measurement period that should not extend beyond one year
million covering the issues for not only the 2012 tax year, but
from the Tax Act enactment date for companies to complete
also covering the issues for the tax years ended 2013 through
the related accounting under ASC 740, Accounting for In-
2015. The settlement, which was finalized by the French Tax
come Taxes. In accordance with SAB 118, a company must
Authorities in the first quarter of 2017, was accrued as of De-
reflect the income tax effects of those aspects of the Tax Act
cember 31, 2016.
70
Excluding the 2017 adjustment to deferred tax benefit as a result of the Tax Act, the 2017 claim for refund and the 2016 settle-
ment, our effective tax rate was 27.3%, 32.4% and 32.7% in 2018, 2017 and 2016, respectively.
Lastly, pursuant to an action plan released by the French Prime Minister, the French corporate income tax rate is expected to be
cut from approximately 33% to 25% over a five-year period beginning in 2018. Other than as discussed above, we did not experience
any significant changes in tax rates, and none were expected in jurisdictions where we operate.
Net Income and Earnings per Share
(In thousands, except share and per share data)
Years 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
2018
$56,469
13,246
69,715
15,922
$53,793
2017
$48,236
7,017
55,253
13,659
2016
$35,037
8,211
43,248
9,917
$41,594
$33,331
$1.72
1.71
$1.33
1.33
$1.07
1.07
31,307,991
31,522,371
31,172,285
31,072,328
31,305,101
31,175,598
Net income has continued to increase over the past three years, and aggregated $69.7 million, $55.3 million and $43.2 million in
2018, 2017 and 2016, respectively. Net income attributable to European operations was $56.5 million, $48.2 million and $35.0 mil-
lion in 2018, 2017 and 2016, respectively, while net income attributable to United States operations was $13.2 million, $7.0 million
and $8.2 million in 2018, 2017 and 2016, respectively. The significant fluctuations in net income for European operations are directly
related to the previous discussions relating to changes in sales, gross profit margins, selling, general and administrative expens-
es, buyout of license, impairment loss, the French tax refund as well as the French tax settlement.
For United States operations in 2017, net income, excluding the effect of the $2.1 million impairment loss and $0.5 million
inventory reserve, was in line with that of 2016.
The noncontrolling interest arises primarily from our 73% owned subsidiary in Paris, Interparfums SA, which is also a publicly
traded company as 27% of Interparfums SA shares trade on the NYSE Euronext. Net income attributable to the noncontrolling in-
terest is related to the profitability of our European operations, and aggregated 28.2% of European operations net income in 2018
and 28.3% in both 2017 and 2016. Net income attributable to Inter Parfums, Inc. aggregated $53.8 million, $41.6 million and $33.3
million in 2018, 2017 and 2016, respectively. Net margins attributable to Inter Parfums, Inc. aggregated 8.0%, 7.0% and 6.4% in
2018, 2017 and 2016, respectively.
Adjusted Net Income Attributable to Inter Parfums, Inc.
Adjusted Net Income Attributable to Inter Parfums, Inc., is deemed a “non-GAAP financial measure” under the rules of the
Securities and Exchange Commission. This non-GAAP measure is calculated using GAAP amounts derived from our consolidated
financial statements. Adjusted net income attributable to Inter Parfums, Inc. has limitations and should not be considered in isola-
tion or as a substitute for net income, operating income, cash flow from operations or other consolidated income or cash flow data
prepared in accordance with GAAP. Because not all companies use identical calculations, this presentation of adjusted income may
not be comparable to a similarly titled measure of other companies.
management’s discussion and analysis
of financial condition and results of operations
71
Adjusted Net Income Attributable to Inter Parfums, Inc. Reconciliation
Adjusted net income attributable to Inter Parfums, Inc. is defined as net income attributable to Inter Parfums, Inc., plus the previ-
ously discussed 2017 impairment loss net of tax expense, and inventory reserve adjustment net of tax expense, both relating to the
discontinuance of certain of our mass market product lines, the 2017 adjustment to deferred tax benefit due to the Tax Act, the tax
recovery for dividends net of minority interest for 2017, and the nonrecurring tax settlement net of minority interest for 2016. We
believe that certain investors would consider adjusted net income attributable to Inter Parfums, Inc. a useful means of evaluating
our financial performance.
The following table provides a reconciliation of net income attributable to Inter Parfums, Inc. to adjusted net income attributable
to Inter Parfums, Inc. for the periods indicated.
(In thousands, except share and per share data)
Years ended December 31,
Net income attributable to Inter Parfums, Inc.
Impairment loss (net of tax expense of $828)
Inventory reserve adjustment (net of tax expense of $195)
Adjustment to deferred tax benefit due to Tax Act
Tax recovery for dividends (net of minority interest of $973)
Nonrecurring tax settlement payment (net of minority interest of $500)
Adjusted net income attributable to Inter Parfums, Inc.
Adjusted net income attributable to Inter Parfums, Inc.
common shareholders:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
2018
$53,793
-
-
-
-
-
$53,793
2017
$41,594
2016
$33,331
1,295
305
1,087
(2,590)
-
$41,691
-
-
-
-
1,400
$34,731
$1.72
1.71
$1.34
1.33
$1.12
1.11
31,307,991
31,522,371
31,172,285
31,072,328
31,305,101
31,175,598
Liquidity and Capital Resources
The Company’s financial position remains strong. At December 31, 2018, working capital aggregated $382 million, and we had a
working capital ratio of over 3 to 1. Cash and cash equivalents and short-term investments aggregated $261 million most of which
is held in euro by our European operations and is readily convertible into U.S. dollars. We have not had any liquidity issues to date,
and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments held by our European
operations. Approximately 86% of the Company’s total assets are held by European operations including approximately $180 mil-
lion of trademarks, licenses and other intangible assets.
The Company hopes to benefit from its strong financial position to potentially acquire one or more brands, either on a pro-
prietary basis or as a licensee. Opportunities for external growth continue to be examined, with the priority of maintaining the
quality and homogeneous nature of our portfolio. However, we cannot assure you that any new license or acquisition agreements
will be consummated.
Cash provided by operating activities aggregated $63.0 million, $35.9 million and $54.6 million in 2018, 2017 and 2016, respectively.
In 2018, working capital items used $20.9 million in cash from operating activities, as compared to $32.5 million in 2017 and $0.2 million
in 2016. Although accounts receivable is up from that of the prior year, day’s sales outstanding remained consistent at 71 days in 2018,
as compared to 67 days and 71 days in 2017 and 2016, respectively. Inventory days on hand aggregated 223 days in 2018, as compared
to 189 days in 2017 and 185 days in 2016, respectively. The increase in 2018 is primarily the result of the required buildup of inventory
for new licenses entered into in 2018 where we do not have a full year of sales. Overall inventory levels are up approximately 21% from
72
the prior year, which is reasonable and reflect levels needed to
generated by operations and short-term credit lines provided
support sales expectations and our new product launches.
by domestic and foreign banks. The principal credit facilities for
Cash flows used in investing activities reflect the purchase and
2019 consist of a $20.0 million unsecured revolving line of cred-
sales of short-term investments. These investments are primarily
it provided by a domestic commercial bank and approximately
certificates of deposit with maturities greater than three months.
$28.6 million in credit lines provided by a consortium of inter-
At December 31, 2018, approximately $75 million of certificates of
national financial institutions. There were no balances due from
deposit contain penalties where we would forfeit a portion of the
short-term borrowings as of December 31, 2018 and 2017.
interest earned in the event of early withdrawal.
Purchase of subsidiary shares from noncontrolling interest
Our business is not capital intensive as we do not own any
represents the purchase of treasury shares of Interparfums
manufacturing facilities. On a full year basis, we spent approxi-
SA, which are expected to be issued to Interparfums SA em-
mately $4.0 million on capital expenditures including tools and
ployees in 2019 pursuant to its Free Share Plan.
molds needed to support our new product development calen-
In October 2016, our Board of Directors authorized a 13%
dar. Capital expenditures also include amounts for office fix-
increase in the annual dividend to $0.68 per share. In October
tures, computer equipment and industrial equipment needed
2017, our Board authorized a 24% increase in the annual divi-
at our distribution centers. Payments for licenses, trademarks
dend to $0.84 per share and in October 2018 our Board autho-
and other intangible assets primarily represent upfront entry
rized a further 31% increase in the annual dividend to $1.10 per
fees incurred in connection with new license agreements. In
share. The next quarterly cash dividend of $0.275 per share is
December 2016, the Company agreed to a buyout of its Balmain
payable on April 15, 2019 to shareholders of record on March
license, effective December 31, 2016, for a payment aggregat-
29, 2019. Dividends paid, including dividends paid once per year
ing approximately $5.9 million. The Company received the buy-
to noncontrolling stockholders of Interparfums SA, aggregat-
out payment in May 2017.
ed $35.0 million, $27.2 million and $22.9 million for the years
In 2018, in connection with a new license agreement, we
ended December 31, 2018, 2017 and 2016, respectively. The
agreed to pay $15.0 million in equal annual installments of
cash dividends to be paid in 2019 are not expected to have any
$1.1 million including interest imputed at 4.1%. In 2015, in
significant impact on our financial position.
connection with a brand acquisition, we entered into a 5-year
We believe that funds provided by or used in operations can
term loan payable in equal quarterly installments of €5.0
be supplemented by our present cash position and available
million (approximately $5.7 million) plus interest. In order to
credit facilities, so that they will provide us with sufficient re-
reduce exposure to rising variable interest rates, we entered
sources to meet all present and reasonably foreseeable future
into a swap transaction effectively exchanging the variable
operating needs.
interest rate to a fixed rate of approximately 1.2%.
Inflation rates in the U.S. and foreign countries in which we
Our short-term financing requirements are expected to be
operate did not have a significant impact on operating results
met by available cash on hand at December 31, 2018, cash
for the year ended December 31, 2018.
Contractual Obligations
The following table summarizes our contractual obligations over the periods indicated, as well as our total contractual obligations
($ in thousands):
Contractual Obligations
Long-Term Debt
Operating Leases
Purchase Obligations(1)
Total
Less than Years
Total
$46,061
$44,011
$2,013,948
$2,104,020
1-year
$23,155
$6,448
$166,779
$196,382
2-3
$12,686
$10,862
$366,247
$389,795
Payments Due by Period
Year More than
5-years
$8,078
4-5
$2,142
$8,704
$17,997
$352,890
$1,128,032
$363,736
$1,154,107
(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, 2018, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.
report on internal control over
financial reporting
73
QUANTITATIVE AND QUALITATIVE DISCLOSURES
We believe that our risk of loss as the result of nonperfor-
ABOUT MARKET RISK
General
We address certain financial exposures through a controlled
program of risk management that primarily consists of the
mance by any of such financial institutions is remote.
Interest Rate Risk Management
We mitigate interest rate risk by monitoring interest rates,
use of derivative financial instruments. We primarily enter
and then determining whether fixed interest rates should be
into foreign currency for ward exchange contracts in order to
swapped for floating rate debt, or if floating rate debt should
reduce the effects of fluctuating foreign currency exchange
be swapped for fixed rate debt. We entered into an interest
rates. We do not engage in the trading of foreign currency
rate swap in June 2015 on €100 million of debt, effectively
for ward exchange contracts or interest rate swaps.
exchanging the variable interest rate to a fixed rate of ap-
Foreign Exchange Risk Management
We periodically enter into foreign currency forward exchange
contracts to hedge exposure related to receivables denominated
proximately 1.2%. This derivative instrument is recorded at
fair value and changes in fair value are reflected in the ac-
companying consolidated statements of income.
in a foreign currency and to manage risks related to future sales
MANAGEMENT’S ANNUAL REPORT
expected to be denominated in a currency other than our func-
ON INTERNAL CONTROL
tional currency. We enter into these exchange contracts for peri-
OVER FINANCIAL REPORTING
ods consistent with our identified exposures. The purpose of the
The management of Inter Parfums, Inc. is responsible for
hedging activities is to minimize the effect of foreign exchange rate
establishing and maintaining adequate internal control over
movements on the receivables and cash flows of Interparfums SA,
financial reporting as defined in Rule 13(a)-15(f) under the
our French subsidiary, whose functional currency is the euro. All
Securities Exchange Act of 1934. With the participation of
foreign currency contracts are denominated in currencies of major
the Chief Executive Officer and the Chief Financial Officer,
industrial countries and are with large financial institutions, which
our management conducted an evaluation of the effective-
are rated as strong investment grade.
ness of our internal control over financial reporting based on
All derivative instruments are required to be reflected as
the framework and criteria established in Internal Control
either assets or liabilities in the balance sheet measured at
– Integrated Framework (2013), issued by the Committee of
fair value. Generally, increases or decreases in fair value of
Sponsoring Organizations of the Treadway Commission. Based
derivative instruments will be recognized as gains or losses
on this evaluation, our management has concluded that our
in earnings in the period of change. If the derivative is desig-
internal control over financial reporting was effective as of
nated and qualifies as a cash flow hedge, then the changes in
December 31, 2018.
fair value of the derivative instrument will be recorded in other
Our independent auditor, Mazars USA LLP, a registered
comprehensive income.
public accounting firm, has issued its report on its audit of
Before entering into a derivative transaction for hedging
our internal control over financial reporting. This report ap-
purposes, we determine that the change in the value of the
pears on the following page.
derivative will effectively offset the change in the fair value of
the hedged item from a movement in foreign currency rates.
Then, we measure the effectiveness of each hedge through-
out the hedged period. Any hedge ineffectiveness is recog-
nized in the income statement.
At December 31, 2018, we had foreign currency contracts in
Jean Madar
Russell Greenberg
the form of forward exchange contracts with notional amounts
Chief Executive Officer,
Executive Vice President
of approximately U.S. $33.0 million, GB £2.65 million and JPY
Chairman of the
and Chief Financial Officer
¥75.0 million which all have maturities of less than one year.
Board of Directors
74
report of independent registered
public accounting firm
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To Shareholders and the Board of
Directors of Inter Parfums, Inc.
Opinions on the Financial Statements and
Internal Control over Financial Reporting
control over financial reporting based on our audits. We are
a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and
are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the ap-
plicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We have audited the accompanying consolidated balance
We conducted our audits in accordance with the standards
sheets of Inter Parfums, Inc. (the “Company”) as of December
of the PCAOB. Those standards require that we plan and per-
31, 2018 and 2017, and the related consolidated statements
form the audits to obtain reasonable assurance about whether
of
income, comprehensive
income, shareholders’ equity,
the consolidated financial statements are free of material mis-
and cash flows for each of the years in the three-year peri-
statement, whether due to error or fraud, and whether effec-
od ended December 31, 2018, and the related notes and
tive internal control over financial reporting was maintained in
the schedule listed in the Index in Item 15(a)(2) (collectively
all material respects.
referred to as the “financial statements”). We also have au-
Our audits of the consolidated financial statements in-
dited the Company’s internal control over financial reporting
cluded performing procedures to assess the risks of mate-
as of December 31, 2018, based on criteria established in
rial misstatement of the consolidated financial statements,
Internal Control - Integrated Framework: (2013) issued by
whether due to error or fraud, and performing procedures
the Committee of Sponsoring Organizations of the Treadway
that respond to those risks. Such procedures included exam-
Commission (COSO).
ining, on a test basis, evidence regarding the amounts and
In our opinion, the consolidated financial statements re-
disclosures in the consolidated financial statements. Our au-
ferred to above present fairly, in all material respects, the fi-
dits also included evaluating the accounting principles used
nancial position of the Company as of December 31, 2018 and
and significant estimates made by management, as well as
2017, and the results of its operations and its cash flows for
evaluating the overall presentation of the consolidated finan-
each of the years in the three-year period ended December 31,
cial statements. Our audit of internal control over financial
2018, in conformity with accounting principles generally ac-
reporting included obtaining an understanding of internal
cepted in the United States of America. Also in our opinion, the
control over financial reporting, assessing the risk that a
Company maintained, in all material respects, effective inter-
material weakness exists, and testing and evaluating the de-
nal control over financial reporting as of December 31, 2018,
sign and operating effectiveness of internal control based on
based on criteria established in Internal Control - Integrated
the assessed risk. Our audits also included performing such
Framework: (2013) issued by COSO.
other procedures as we considered necessary in the circum-
stances. We believe that our audits provide a reasonable ba-
Basis for Opinion
sis for our opinions.
The Company’s management is responsible for these consol-
idated financial statements, for maintaining effective internal
Definition and Limitations of Internal Control
control over financial reporting, and for its assessment of the
over Financial Reporting
effectiveness of internal control over financial reporting, in-
A company’s internal control over financial reporting is a pro-
cluded in the accompanying Management’s Annual Report on
cess designed to provide reasonable assurance regarding the
Internal Control over Financial Reporting. Our responsibility
reliability of financial reporting and the preparation of consoli-
is to express an opinion on the Company’s consolidated finan-
dated financial statements for external purposes in accordance
cial statements and an opinion on the Company’s internal-
with generally accepted accounting principles.
report of independent registered
public accounting firm
75
A company’s internal control over financial reporting in-
Because of its inherent limitations, internal control over
cludes those policies and procedures that (1) pertain to the
financial reporting may not prevent or detect misstatements.
maintenance of records that, in reasonable detail, accurately
Also, projections of any evaluation of effectiveness to future
and fairly reflect the transactions and dispositions of the as-
periods are subject to the risk that controls may become
sets of the company; (2) provide reasonable assurance that
inadequate because of changes in conditions, or that the
transactions are recorded as necessary to permit preparation
degree of compliance with the policies or procedures may
of consolidated financial statements in accordance with gener-
deteriorate.
ally accepted accounting principles, and that receipts and ex-
penditures of the company are being made only in accordance
with authorizations of management and directors of the com-
pany; and (3) provide reasonable assurance regarding preven-
tion or timely detection of unauthorized acquisition, use, or
We have served as the Company’s auditor since 2004.
disposition of the company’s assets that could have a material
New York, New York
effect on the consolidated financial statements.
March 1, 2019
76
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
Years Ended December 31,
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Receivables, other
Other current assets
Income taxes receivable
Total current assets
Equipment and leasehold improvements, net
Trademarks, licenses and other intangible assets, net
Deferred tax assets
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable - trade
Accrued expenses
Income taxes payable
Dividends payable
Total current liabilities
Long–term debt, less current portion
Deferred tax liability
Equity:
Inter Parfums, Inc. shareholders’ equity:
2018
2017
$193,136
67,870
136,420
160,978
2,112
8,076
810
569,402
9,839
204,325
9,299
6,302
$799,167
23,155
58,328
92,468
4,396
8,630
186,877
22,906
3,538
$208,343
69,899
120,749
137,058
2,405
7,356
3,468
549,278
10,330
200,495
9,658
8,011
$777,772
24,372
52,609
81,843
1,722
6,561
167,107
36,207
3,821
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, 31,382,127 and 31,241,548 shares
at December 31, 2018 and 2017, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 9,864,805 common shares
at December 31, 2018 and 2017
Total Inter Parfums, Inc. shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
(See accompanying notes to consolidated financial statements.)
31
69,970
448,731
(33,650)
(37,475)
447,607
138,139
585,746
$799,167
31
66,004
422,570
(17,832)
(37,475)
433,298
137,339
570,637
$777,772
financial statements
77
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
Years Ended December 31,
Net sales
Cost of sales
Gross margin
Selling, general, and administrative expenses
Gain on buyout of license
Impairment loss
Income from operations
Other expenses (income):
Interest expense
Loss on foreign currency
Interest and dividend income
Income before income taxes
Income taxes
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
2018
$675,574
248,012
427,562
332,831
-
-
94,731
2,578
251
(3,957)
(1,128)
95,859
26,144
69,715
15,922
$53,793
$1.72
1.71
2017
$591,251
214,965
376,286
295,540
-
2,123
78,623
1,992
1,549
(2,983)
558
78,065
22,812
55,253
13,659
2016
$521,072
194,601
326,471
258,787
(4,652)
5,658
66,678
2,340
595
(3,331)
(396)
67,074
23,826
43,248
9,917
$41,594
$33,331
$1.33
1.33
$1.07
1.07
31,307,991
31,522,371
31,172,285
31,305,101
31,072,328
31,175,598
Dividends declared per share
$0.91
$0.72
$0.62
(See accompanying notes to consolidated financial statements.)
78
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except share and per share data)
Years Ended December 31,
Net income
Other comprehensive income:
Net derivative instrument loss, net of tax
Transfer of OCI into earnings
Translation adjustments, net of tax
Comprehensive income
Comprehensive income attributable to noncontrolling interests:
Net income
Net derivative instrument loss, net of tax
Transfer of OCI into earnings
Translation adjustments, net of tax
Comprehensive income attributable to Inter Parfums, Inc.
(See accompanying notes to consolidated financial statements.)
2018
$69,715
175
(37)
(22,555)
(22,417)
47,298
15,922
39
-
(6,638)
9,323
$37,975
2017
$55,253
2016
$43,248
54
(22)
22 -
55,995
56,071
111,324
(13,153)
(13,175)
30,073
13,659
9,917
17
5
15,899
29,580
(5)
-
(3,279)
6,633
$81,744
$23,440
financial statements
79
INTER PARFUMS, INC. AND SUBSIDIARIES
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 year
Additional paid-in capital, beginning of year
Shares issued upon exercise of stock options
Sale of subsidiary shares to noncontrolling interests
Purchase of subsidiary shares from noncontrolling interests
Stock-based compensation
Additional paid-in capital, end of year
Retained earnings, beginning of year
Net income
Dividends
Stock-based compensation
Retained earnings, end of year
Accumulated other comprehensive loss, beginning of year
Foreign currency translation adjustment, net of tax
Transfer from other comprehensive income into earnings
Net derivative instrument gain, net of tax
Accumulated other comprehensive loss, end of year
Treasury stock, beginning of year
Shares issued upon exercise of stock options
Shares received as proceeds of option exercises
Treasury stock, end of year
Noncontrolling interest, beginning of year
Net income
Foreign currency translation adjustment, net of tax
Transfer from other comprehensive income into earnings
Net derivative instrument gain, net of tax
Sale of subsidiary shares to noncontrolling interest
Purchase of subsidiary shares from noncontrolling interest
Dividends
Stock-based compensation
Noncontrolling interest, end of year
2018
$31
66,004
3,406
-
(572)
1,132
$69,970
422,570
53,793
(28,356)
724
448,731
(17,832)
(15,917)
(37)
136
(33,650)
(37,475)
-
-
(37,475)
137,339
15,922
(6,638)
-
39
-
(236)
(8,706)
419
138,139
2017
$31
63,103
1,963
-
-
938
2016
$31
62,030
2,160
(173)
(1,753)
839
$66,004
$63,103
402,714
41,594
(22,460)
722
422,570
388,434
33,331
(19,273)
222
402,714
(57,982) (48,091)
40,096
17
37
(9,874)
-
(17)
(17,832)
(57,982)
(37,475)
(36,817)
-
-
142
(800)
(37,475)
(37,475)
113,267
13,659
15,899
5
17
-
-
(6,039)
531
137,339
110,800
9,917
(3,279)
-
(5)
1,738
(1,188)
(4,863)
147
113,267
Total equity
$585,746
$570,637
$483,658
(See accompanying notes to consolidated financial statements.)
80
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December, 31
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization including impairment loss
Provision for doubtful accounts
Noncash stock compensation
Gain on sale of license
Deferred tax 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
Purchase of equipment and leasehold improvements
Payment for intangible assets acquired
Proceeds from sale of trademark
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Repayment of long-term debt
Purchase of treasury stock
Proceeds from exercise of options
Proceeds from sale of stock of subsidiary
Dividends paid
Dividends paid to noncontrolling interests
Purchase of subsidiary shares from noncontrolling interests
Net cash 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.)
2018
2017 2016
$69,715
$55,253
$43,248
11,031
1,442
2,205
-
(158)
(302)
(23,032)
(29,341)
484
25,592
5,405
63,041
(10,030)
8,859
(3,956)
(8,509)
-
(13,636)
11,914
939
2,093
-
(591)
(1,254)
(6,016)
(28,518)
727
5,696
(4,352)
35,891
(31,874)
66,981
(3,023)
(1,046)
5,886
36,924
15,341
349
1,198
(4,652)
(1,374)
682
(13,156)
(909)
(297)
18,690
(4,556)
54,564
(57,289)
42,604
(4,777)
(965)
-
(20,427)
(23,487)
(22,362)
(21,884)
-
3,406
-
(26,287)
(8,706)
(808)
(55,882)
(8,730)
(15,207)
208,343
$193,136
-
1,963
-
(21,192)
(6,039)
-
(47,630)
21,330
46,515
161,828
$208,343
(77)
1,579
1,565
(18,015)
(4,863)
(2,941)
(44,636)
(4,640)
(15,139)
176,967
$161,828
$1,745
24,995
$1,813
24,337
$2,239
28,124
notes to consolidated financial statements
(in thousands, except share and per share data)
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The Company and its Significant
Foreign Currency Translation
For foreign subsidiaries with operations denominated in a
Accounting Policies
Business Of The Company
Inter Parfums, Inc. and its subsidiaries (the “Company”) are in
foreign currency, assets and liabilities are translated to U.S.
dollars at year end exchange rates. Income and expense
items are translated at average rates of exchange prevailing
the fragrance business and manufacture and distribute a wide
during the year. Gains and losses from translation adjust-
array of fragrances and fragrance related products.
ments are accumulated in a separate component of share-
Substantially all of our prestige fragrance brands are licensed
holders’ equity.
from unaffiliated third parties, and our business is dependent
upon the continuation and renewal of such licenses. With respect
to the Company’s largest brands, we own the Lanvin brand name
for our class of trade, and license the Montblanc, Jimmy Choo,
Cash And Cash Equivalents
And Short-Term Investments
All highly liquid investments purchased with a maturity of
and Coach brand names. As a percentage of net sales, product
three months or less are considered to be cash equivalents.
sales for the Company’s largest brands were as follows:
From time to time, the Company has short-term investments
Year Ended December 31,
Montblanc
Jimmy Choo
Coach
Lanvin
2018
19%
17%
15%
10%
2017 2016
23%
21%
18%
10%
11%
17%
4%
12%
which consist of certificates of deposit with maturities greater
than three months. The Company monitors concentrations of
credit risk associated with financial institutions with which the
Company conducts significant business. The Company believes
its credit risk is minimal, as the Company primarily conducts
business with large, well-established financial institutions.
Substantially all cash and cash equivalents are primarily held
No other brand represented 10% or more of consolidated
at financial institutions outside the United States and are read-
net sales.
ily convertible into U.S. dollars.
Basis Of Preparation
The consolidated financial statements include the accounts of the
Accounts Receivable
Accounts receivable represent payments due to the Company
Company, including 73% owned Interparfums SA, a subsidiary
for previously recognized net sales, reduced by allowances
whose stock is publicly traded in France. In 2018, the Company
for sales returns and doubtful accounts or balances which are
formed Interstellar Brands, LLC, (“Interstellar”), a wholly owned
estimated to be uncollectible, which aggregated $4.0 million
subsidiary in the United States. Interstellar’s partnership with
and $5.1 million as of December 31, 2018 and 2017, respec-
IMG Models allows for the two groups to collaborate on exploring
tively. Accounts receivable balances are written-off against
and developing compelling e-commerce businesses for clients
the allowance for doubtful accounts when they become un-
of IMG Models. All material intercompany balances and transac-
collectible. Recoveries of accounts receivable previously re-
tions have been eliminated.
corded against the allowance are recorded in the consolidated
Management Estimates
Management makes assumptions and estimates to prepare
financial statements in conformity with accounting principles
statement of income when received. We generally grant credit
based upon our analysis of the customer’s financial position,
as well as previously established buying patterns.
generally accepted in the United States of America. Those as-
sumptions and estimates directly affect the amounts reported
Inventories
Inventories, including promotional merchandise, only in-
and disclosures included in the consolidated financial state-
clude inventory considered saleable or usable in future pe-
ments. Actual results could differ from those assumptions and
riods, and is stated at the lower of cost and net realizable
estimates. Significant estimates for which changes in the near
value, with cost being determined on the first-in, first-out
term are considered reasonably possible and that may have a
method. Cost components include raw materials, direct la-
material impact on the financial statements are disclosed in
bor and overhead (e.g., indirect labor, utilities, depreciation,
these notes to the consolidated financial statements.
purchasing, receiving, inspection and warehousing) as well
82
as inbound freight. Promotional merchandise is charged to
recoverable. When testing indefinite-lived intangible assets
cost of sales at the time the merchandise is shipped to the
for impairment, the evaluation requires a comparison of the
Company’s customers.
estimated fair value of the asset to the carrying value of the
Derivatives
All derivative instruments are recorded as either assets or
asset. The fair values used in our evaluations are estimated
based upon discounted future cash flow projections using a
weighted average cost of capital of 6.21% and 6.22% in 2018
liabilities and measured at fair value. The Company uses de-
and 2017, respectively. The cash flow projections are based
rivative instruments to principally manage a variety of market
upon a number of assumptions, including future sales levels,
risks. For derivatives designated as hedges of the exposure
future cost of goods and operating expense levels, as well as
to changes in fair value of the recognized asset or liability
economic conditions, changes to our business model or chang-
or a firm commitment (referred to as fair value hedges), the
es in consumer acceptance of our products which are more
gain or loss is recognized in earnings in the period of change
subjective in nature. If the carrying value of an indefinite-lived
together with the offsetting loss or gain on the hedged item
intangible asset exceeds its fair value, an impairment charge
attributable to the risk being hedged. The effect of that ac-
is recorded.
counting is to include in earnings the extent to which the
Intangible assets subject to amortization are evaluated for
hedge is not effective in achieving offsetting changes in fair
impairment testing whenever events or changes in circum-
value. For cash flow hedges, the effective portion of the de-
stances indicate that the carrying amount of an amortizable
rivative’s gain or loss is initially reported in equity (as a com-
intangible asset may not be recoverable. If impairment indica-
ponent of accumulated other comprehensive income) and is
tors exist for an amortizable intangible asset, the undiscount-
subsequently reclassified into earnings in the same period or
ed future cash flows associated with the expected service
periods during which the hedged forecasted transaction af-
potential of the asset are compared to the carrying value of the
fects earnings. The ineffective portion of the gain or loss of
asset. If our projection of undiscounted future cash flows is in
a cash flow hedge is reported in earnings immediately. The
excess of the carrying value of the intangible asset, no impair-
Company also holds certain instruments for economic pur-
ment charge is recorded. If our projection of undiscounted fu-
poses that are not designated for hedge accounting treatment.
ture cash flows is less than the carrying value of the intangible
For these derivative instruments, changes in their fair value
asset, an impairment charge would be recorded to reduce the
are recorded in earnings immediately.
intangible asset to its fair value.
Equipment And Leasehold Improvements
Equipment and leasehold improvements are stated at cost
Revenue Recognition
The Company sells its products to department stores, perfum-
less accumulated depreciation and amortization. Depreciation
eries, specialty stores and domestic and international whole-
and amortization are provided using the straight line method
salers and distributors. Our revenue contracts represent
over the estimated useful lives for equipment, which range
single performance obligations to sell our products to cus-
between three and ten years and the shorter of the lease term
tomers. Sales of such products by our domestic subsidiaries
or estimated useful asset lives for leasehold improvements.
are denominated in U.S. dollars, and sales of such products by
Depreciation provided on equipment used to produce invento-
our foreign subsidiaries are primarily denominated in either
ry, such as tools and molds, is included in cost of sales.
euro or U.S. dollars. The Company recognizes revenues when
contract terms are met, the price is fixed and determinable,
Long-Lived Assets
Indefinite-lived intangible assets principally consist of trade-
collectability is reasonably assured and product is shipped
or risk of ownership has been transferred to and accepted by
marks which are not amortized. The Company evaluates indef-
the customer. Net sales are comprised of gross revenues less
inite-lived intangible assets for impairment at least annually
returns, trade discounts and allowances. The Company does
during the fourth quarter, or more frequently when events oc-
not bill its customers’ freight and handling charges. All ship-
cur or circumstances change, such as an unexpected decline
ping and handling costs, which aggregated $7.1 million, $5.9
in sales, that would more likely than not indicate that the car-
million and $5.1 million in 2018, 2017 and 2016, respectively,
rying value of an indefinite-lived intangible asset may not be
are included in selling, general and administrative expenses in
notes to consolidated financial statements
(in thousands, except share and per share data)
83
the consolidated statements of income. The Company grants
cluded in selling, general and administrative expenses were
credit to all qualified customers and does not believe it is ex-
$139.7 million, $123.7 million and $99.0 million for 2018, 2017
posed significantly to any undue concentration of credit risk.
and 2016, respectively. Costs relating to purchase with pur-
No one customer represented 10% or more of net sales in
chase and gift with purchase promotions that are reflected in
2018, 2017 or 2016.
cost of sales aggregated $36.4 million, $33.8 million and $30.0
Sales Returns
Generally, the Company does not permit customers to return
their unsold products. However, for U.S. based customers, we
Package Development Costs
Package development costs associated with new products
allow returns if properly requested, authorized and approved.
and redesigns of existing product packaging are expensed
million in 2018, 2017 and 2016, respectively.
The Company regularly reviews and revises, as deemed nec-
as incurred.
essary, its estimate of reserves for future sales returns based
primarily upon historic trends and relevant current data
including information provided by retailers regarding their
Operating Leases
The Company recognizes rent expense from operating leases
inventory levels. In addition, as necessary, specific accruals
with various step rent provisions, rent concessions and es-
may be established for significant future known or anticipat-
calation clauses on a straight-line basis over the applicable
ed events. The types of known or anticipated events that we
lease term. The Company considers lease renewals in the use-
consider include, but are not limited to, the financial condition
ful life of its leasehold improvements when such renewals are
of our customers, store closings by retailers, changes in the
reasonably assured. In the event the Company receives capital
retail environment and our decision to continue to support
improvement funding from its landlord, these amounts are re-
new and existing products. The Company records estimated
corded as deferred liabilities and amortized over the remain-
reserves for sales returns as a reduction of sales, cost of sales
ing lease term as a reduction of rent expense.
and accounts receivable. Returned products are recorded as
inventories and are valued based upon estimated realizable
value. The physical condition and marketability of returned
License Agreements
The Company’s license agreements generally provide the
products are the major factors we consider in estimating re-
Company with worldwide rights to manufacture, market and
alizable value. Actual returns, as well as estimated realizable
sell fragrance and fragrance related products using the licen-
values of returned products, may differ significantly, either
sors’ trademarks. The licenses typically have an initial term
favorably or unfavorably, from our estimates, if factors such
of approximately 5 to 15 years, and are potentially renewable
as economic conditions, inventory levels or competitive condi-
subject to the Company’s compliance with the license agree-
tions differ from our expectations.
ment provisions. The remaining terms, including the poten-
Payments to Customers
The Company records revenues generated from purchase with
tial renewal periods, range from approximately 1 to 15 years.
Under each license, the Company is required to pay royalties in
the range of 5% to 10% to the licensor, at least annually, based
purchase and gift with purchase promotions as sales and the
on net sales to third parties.
costs of its purchase with purchase and gift with purchase
In certain cases, the Company may pay an entry fee to ac-
promotions as cost of sales. Certain other incentive arrange-
quire, or enter into, a license where the licensor or another
ments require the payment of a fee to customers based on
licensee was operating a pre-existing fragrance business. In
their attainment of pre-established sales levels. These fees
those cases, the entry fee is capitalized as an intangible asset
have been recorded as a reduction of net sales.
and amortized over its useful life.
Advertising and Promotion
Advertising and promotional costs are expensed as incurred
ments,
incremental royalties based on net sales
levels
and minimum spending on advertising and promotional
and recorded as a component of cost of goods sold (in the case
activities. Royalty expenses are accrued in the period in which
of free goods given to customers) or selling, general and ad-
net sales are recognized while advertising and promotional ex-
ministrative expenses. Advertising and promotional costs in-
penses are accrued at the time these costs are incurred.
Most license agreements require minimum royalty pay-
84
In addition, the Company is exposed to certain concentration
Treasury shares are accounted for under the cost method
risk. Most of our prestige fragrance brands are licensed from
and reported as a reduction of equity. Share Repurchase
unaffiliated third parties, and our business is dependent upon
Authorizations may be suspended, limited or terminated at
the continuation and renewal of such licenses.
any time without notice.
Income Taxes
The Company accounts for income taxes using an asset and
Recent Accounting Pronouncements
In August 2017, the Financial Accounting Standards Board
liability approach that requires the recognition of deferred
(“FASB”) issued an Accounting Standards Update (“ASU”) to
tax assets and liabilities for the expected future tax conse-
improve accounting for hedging activities. The objective of
quences of events that have been recognized in its financial
the ASU is to improve the financial reporting of hedging rela-
statements or tax returns. The net deferred tax assets as-
tionships in order to better portray the economic results of an
sume sufficient future earnings for their realization, as well
entity’s risk management activities in its financial statements
as the continued application of currently enacted tax rates.
and to make certain targeted improvements to simplify the ap-
Included in net deferred tax assets is a valuation allowance
plication of hedge accounting guidance. This ASU is effective
for deferred tax assets, where management believes it is
for annual and interim periods beginning after December 15,
more-likely-than-not that the deferred tax assets will not
2018 and early adoption is permitted. We are currently evalu-
be realized in the relevant jurisdiction. If the Company de-
ating the standard to determine the impact of its adoption on
termines that a deferred tax asset will not be realizable, an
our consolidated financial statements.
adjustment to the deferred tax asset will result in a reduction
In February 2016, the FASB issued an ASU which requires
of net earnings at that time. Accrued interest and penalties
lessees to recognize lease assets and lease liabilities arising
are included within the related tax asset or liability in the ac-
from operating leases on the balance sheet. This ASU is effec-
companying financial statements.
tive for annual and interim reporting periods beginning after
December 15, 2018. The standard requires entities to recog-
Issuance of Common Stock by
Consolidated Subsidiary
The difference between the Company’s share of the proceeds
nize a lease liability to cover lease payments and a lease asset
representing its right to use the underlying asset for the lease
term. The Company has adopted the standard on January 1,
received by the subsidiary and the carrying amount of the por-
2019 using the modified retrospective method in the year of
tion of the Company’s investment deemed sold, is reflected as
adoption with certain transition practical expedients with no
an equity adjustment in the consolidated balance sheets.
restatement of prior period amounts. The Company is in the
process of evaluating the impact of the adoption of the stan-
Treasury Stock
The Board of Directors may authorize share repurchas-
dard, which will relate primarily to our operating leases for
office and warehouse spaces. While the Company continues
es of the Company’s common stock (Share Repurchase
to assess the impact of the adoption, it currently expects to
Authorizations). Share repurchases under Share Repurchase
record lease-related assets and liabilities on our consolidated
Authorizations may be made through open market transac-
balance sheets of approximately $40 million. Adoption of the
tions, negotiated purchase or otherwise, at times and in such
new standard will not have a material impact on the Company’s
amounts within the parameters authorized by the Board.
consolidated statements of income or Cash Flows.
Shares repurchased under Share Repurchase Authorizations
There are no other recent accounting pronouncements is-
are held in treasury for general corporate purposes, includ-
sued but not yet adopted that would have a material effect on
ing issuances under various employee stock option plans.
our consolidated financial statements.
notes to consolidated financial statements
(in thousands, except share and per share data)
85
(2) Recent Agreements
Lily Aldridge
In September 2018, Interstellar Brands LLC, a wholly-owned
subsidiary of the Company, announced the development of
December 31, 2031, without any material changes in operat-
ing conditions from the prior license. Our initial Jimmy Choo
license was signed in 2009.
a new fragrance line in collaboration with supermodel Lily
Aldridge. The license agreement with Lily Aldridge runs
Paul Smith License Renewal
In May 2017, the Company renewed its license agreement with
through December 31, 2023, and is subject to royalty pay-
Paul Smith by an additional four years. The original agreement,
ments as are customary in our industry. This deal marks the
signed in December 1998, together with previous extensions,
beginning of a strategic partnership between Interstellar
provided the Company with the exclusive worldwide license
and IMG Models, which manages Lily Aldridge, to develop
rights to create, produce and distribute fragrances and fra-
direct-to-consumer e-commerce fragrance and beauty busi-
grance related products under the Paul Smith brand through
nesses for IMG Models’ diverse and dynamic client base.
December 31, 2017. The recent extension extends the partner-
Van Cleef & Arpels
In May 2018, the Company renewed its license agreement for
ship through December 31, 2021 without any material changes
in operating conditions from the prior license.
an additional six years with Van Cleef & Arpels for the creation,
(3) Buyout of License
development, and distribution of fragrance products through
In December 2016, the Company reached an agreement with
December 2024, without any material changes in terms and
the Balmain brand calling for Balmain to buyout the Balmain li-
conditions. Our initial 12-year license agreement with Van
cense agreement, effective December 31, 2016, in exchange for
Cleef & Arpels was signed in 2006.
a payment aggregating $5.7 million. As a result of the buyout,
Graff
In April 2018, the Company entered into an exclusive, 8-year
the Company recognized a gain of $4.7 million as of December
31, 2016, and received the buyout payment in May 2017.
worldwide license agreement with London-based Graff for the
(4) Inventories
creation, development and distribution of fragrances under
the Graff brand. Our rights under such license agreement are
Year Ended December 31,
2018
2017
subject to certain advertising expenditures and royalty pay-
Raw materials and
ments as are customary in our industry.
GUESS
In February 2018, the Company entered into an exclusive, 15-year
component parts
Finished goods
$67,508
93,470
$160,978
$46,884
90,174
$137,058
worldwide license agreement with GUESS?, Inc. for the creation,
Overhead included in inventory aggregated $4.2 million and $5.0
development and distribution of fragrances under the GUESS brand.
million as of December 31, 2018 and 2017, respectively. Included
This license took effect on April 1, 2018, and our rights under such li-
in inventories is an inventory reserve, which represents the
cense are subject to certain minimum advertising expenditures and
difference between the cost of the inventory and its estimated
royalty payments as are customary in our industry.
realizable value, based upon sales forecasts and the physical
Jimmy Choo License Renewal
In December 2017, the Company and J Choo Ltd amended their
condition of the inventories. In addition, and as necessary, spe-
cific reserves for future known or anticipated events may be es-
tablished. Inventory reserves aggregated $4.9 million and $5.4
license agreement and extended their partnership through
million as of December 31, 2018 and 2017, respectively.
86
(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, 2018
Quoted Prices in
Significant
Significant
Active Markets for Other Observable
Unobservable
Total
Identical Assets Inputs Inputs
(Level 3)
(Level 2)
(Level 1)
Assets:
Short-term investments
Foreign currency forward exchange contracts
accounted for using hedge accounting
Liabilities:
Foreign currency forward exchange contracts
not accounted for using hedge accounting
Interest rate swap
FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2017
$67,870
179
$68,049
45
$207
$252
$-
-
-
-
$-
$-
$67,870
179
$68,049
45
$207
$252
$-
-
-
-
$-
$-
Quoted Prices in
Significant
Significant
Active Markets for Other Observable
Unobservable
Assets:
Total
Identical Assets Inputs Inputs
(Level 3)
(Level 2)
(Level 1)
Short-term investments
$69,899
$-
$69,899
Foreign currency forward exchange contracts
accounted for using hedge accounting
Foreign currency forward exchange contracts
not accounted for using hedge accounting
Liabilities:
Interest rate swap
26
119
$70,044
$529
-
-
-
$-
26
119
$70,044
$529
$-
-
-
-
$-
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 variable interest rates on the Company’s in-
debtedness approximate current market rates.
Foreign currency forward exchange contracts are valued based on quotations from financial institutions and the value of inter-
est rate swaps are the discounted net present value of the swaps using third party quotes 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 for-
eign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Before entering
notes to consolidated financial statements
(in thousands, except share and per share data)
87
into a derivative transaction for hedging purposes, it is deter-
million and JPY ¥75.0 million, which all have maturities of less
mined that a high degree of initial effectiveness exists between
than one year.
the change in value of the hedged item and the change in the value
of the derivative instrument from movement in exchange rates.
(7) Equipment and Leasehold Improvements
High effectiveness means that the change in the cash flows of
the derivative instrument will effectively offset the change in the
Year Ended December 31,
cash flows of the hedged item. The effectiveness of each hedged
Equipment
item is measured throughout the hedged period and is based on
Leasehold Improvements
the dollar offset methodology and excludes the portion of the fair
value of the foreign currency forward exchange contract attrib-
Less accumulated
utable to the change in spot-forward difference which is report-
depreciation and amortization
ed in current period earnings. Any hedge ineffectiveness is also
recognized as a gain or loss on foreign currency in the income
2018
$36,465
1,639
38,104
28,265
$9,839
2017
$37,074
1,639
38,713
28,383
10,330
statement. For hedge contracts that are no longer deemed highly
Depreciation and amortization expense was $4.1 million, $3.8
effective, hedge accounting is discontinued and gains and losses
million and $3.7 million in 2018, 2017, and 2016, respectively.
accumulated in other comprehensive income are reclassified to
earnings. If it is probable that the forecasted transaction will no
(8) Trademarks, Licenses and Other Intangible Assets
longer occur, then any gains or losses accumulated in other com-
prehensive income are reclassified to current-period earnings.
In connection with a 2015 brand acquisition, $108 million of
the purchase price was paid in cash on the closing date and was
2018
Trademarks
Gross Accumulated Net Book
Amount
Amortization
Value
financed entirely through a 5-year term loan. As the payment at
(indefinite lives) $123,287
$-
$123,287
closing was due in dollars and we had planned to finance it with
Trademarks
debt in euro, the Company entered into foreign currency for-
(finite lives)
44,300
69
44,231
ward contracts to secure the exchange rate for the $108 million
Licenses
purchase price at $1.067 per 1 euro. This derivative was desig-
(finite lives)
85,100
50,539
34,561
nated and qualified as a cash flow hedge.
Other intangible assets
Gains and losses in derivatives designated as hedges are
(finite lives)
accumulated in other comprehensive income (loss) and gains
and losses in derivatives not designated as hedges are includ-
ed in (gain) loss on foreign currency on the accompanying in-
Subtotal
Total
13,619
143,019
$266,306
11,373
61,981
$61,981
2,246
81,038
$204,325
come statements. Such gains and losses were immaterial in
Gross Accumulated Net Book
each of the years in the three-year period ended December 31,
2017
Amount Amortization Value
2018. For the years ended December 31, 2018 and 2017, inter-
Trademarks
est expense includes a gain of $0.3 million and $0.5 million,
(indefinite lives)
$129,033
$-
$129,033
respectively, relating to an interest rate swap.
Trademarks
All derivative instruments are reported as either assets or
(finite lives)
46,461
72
46,389
liabilities on the balance sheet measured at fair value. The val-
Licenses
uation of interest rate swaps resulted in a liability which is in-
(finite lives)
69,439
46,857
22,582
cluded in long-term debt on the accompanying balance sheets.
Other intangible assets
The valuation of foreign currency forward exchange contracts
(finite lives)
at December 31, 2018 and December 31, 2017, resulted in an
asset and is included in other current assets on the accompa-
Subtotal
Total
14,949
130,849
12,458
59,387
2,491
71,462
$259,882
$59,387
$200,495
nying balance sheets.
At December 31, 2018, the Company had foreign currency
Amortization expense was $7.0 million, $6.0 million and $5.9
contracts in the form of forward exchange contracts with no-
million in 2018, 2017 and 2016, respectively. Amortization
tional amounts of approximately U.S. $33.0 million, GB £2.65
expense is expected to approximate $5.0 million, $4.6 million,
88
and $4.0 million in 2019, 2020, 2021, respectively, and $3.7
Trademarks (finite lives) primarily represent Lanvin
million 2022 and 2023. The weighted average amortization
brand names and trademarks and in connection with their
period for trademarks, licenses and other intangible assets
purchase, Lanvin was granted the right to repurchase the
with finite lives are 18 years, 14 years and 2 years, respectively,
brand names and trademarks in 2025 for the greater of €70
and 14 years on average.
million (approximately $80 million) or one times the average
The Company reviews intangible assets with indefinite
of the annual sales for the years ending December 31, 2023
lives for impairment whenever events or changes in cir-
and 2024 (residual value). Because the residual value of the
cumstances indicate that the carrying amount may not be
intangible asset exceeds its carr ying value, the asset is not
recoverable. In 2017, the Company set in motion a plan to dis-
amortized.
continue some of its mass market product lines over the next
few years. As a result, the Company recorded an impairment
(9) Accrued Expenses
loss of $2.1 million as of December 31, 2017. There were no
Accrued expenses consist of the following:
impairment charges for trademarks with indefinite use-
ful lives in 2018 and 2016. The fair values used in our eval-
Year Ended December 31,
uations are estimated based upon discounted future cash
Advertising liabilities
flow projections using a weighted average cost of capital of
Salary (including bonus
6.21% as of December 31, 2018 and 6.22% as of December
and related taxes)
31, 2017 and 2016. The cash flow projections are based upon
Royalties
a number of assumptions, including, future sales levels and
Due vendors (not yet invoiced)
future cost of goods and operating expense levels, as well
Retirement reserves
as economic conditions, changes to our business model or
Other
changes in consumer acceptance of our products which are
more subjective in nature. The Company believes that the as-
2018 2017
$27,418
$14,868
19,939
14,533
29,790
9,616
3,722
$92,468
18,488
11,409
11,228
9,113
4,187
81,843
sumptions it has made in projecting future cash flows for the
(10) Loans Payable – Banks
evaluations described above are reasonable and currently
Loans payable – banks consist of the following:
no other impairment indicators exist for our indefinite-lived
The Company and its domestic subsidiaries have available a
assets. However, if future actual results do not meet our ex-
$20 million unsecured revolving line of credit due on demand,
pectations, the Company may be required to record an im-
which bears interest at the daily one-month LIBOR plus 2% (the
pairment charge, the amount of which could be material to
one-month LIBOR was 2.51% as of December 31, 2018). The
our results of operations.
line of credit which has a maturity date of December 18, 2019
The cost of trademarks, licenses and other intangible as-
is expected to be renewed on an annual basis. Borrowings out-
sets with finite lives is being amortized by the straight line
standing pursuant to lines of credit were zero as of December
method over the term of the respective license or the intan-
31, 2018 and 2017.
gible assets estimated useful life which range from three to
The Company’s foreign subsidiaries have available credit
twenty years. If the residual value of a finite life intangible as-
lines, including several bank overdraft facilities totaling ap-
set exceeds its carrying value, then the asset is not amortized.
proximately $30 million. These credit lines bear interest at
The Company reviews intangible assets with finite lives for im-
EURIBOR plus between 0.5% and 0.8% (EURIBOR was minus
pairment whenever events or changes in circumstances indi-
0.36% at December 31, 2018). Outstanding amounts were zero
cate that the carrying amount may not be recoverable. Product
as of December 31, 2018 and 2017.
sales of our Karl Lagerfeld brand did not met with our original
As there were no borrowings outstanding as of December
expectations. Accordingly, in 2016, the Company recorded an
31, 2018 and 2017, there is no weighted average interest rate on
impairment loss of $5.7 million.
short-term borrowings as of December 31, 2018 and 2017.
notes to consolidated financial statements
(in thousands, except share and per share data)
89
(11) Long-term Debt
Long-term debt consists of the following:
Year Ended December 31
$15.0 million payable in 14 equal annual installments of $1.1 million
2018
beginning in January 2020 including interest imputed at 4.1% per annum
$11,291
$111.0 million 5-year term loan payable in 20 equal quarterly
installments plus interest at 1.2% per annum
Other
Less current maturities
Total
34,350
420
46,061
23,155
$22,906
2017
$-
59,965
614
60,579
24,372
$36,207
The $111.0 million 5-year term loan requires the maintenance of certain financial covenants, tested semi-annually, including a maximum
leverage ratio and a minimum interest coverage ratio. The facility also contains new debt restrictions among other standard provisions.
The Company is in compliance with all of the covenants and other restrictions of the debt agreements. In order to reduce exposure to ris-
ing variable interest rates, the Company entered into a swap transaction effectively exchanging the variable interest rate to a fixed rate of
approximately 1.2%. The swap is a derivative instrument and is therefore recorded at fair value and changes in fair value are reflected in
the accompanying consolidated statements of income. Maturities of long-term debt subsequent to December 31, 2018 are approximately
$23.2 million and $11.6 million in 2019 and 2020, respectively and $1.1 million per year thereafter through 2033.
(12) Commitments
Leases
The Company leases its office and warehouse facilities under
facture and sale of its products expiring at variousdates through
2033. In connection with certain of these license agreements, the
Company is subject to minimum annual advertising commitments,
operating leases which are subject to various step rent provi-
minimum annual royalties and other commitments as follows:
sions, rent concessions and escalation clauses expiring at var-
ious dates through 2029. Escalation clauses are not material
and have been excluded from minimum future annual rental
payments. Rental expense, which is calculated on a straight-
line basis, amounted to $12.0 million, $11.2 million and $10.7
million in 2018, 2017 and 2016, respectively. Minimum future
2019
2020
2021
2022
2023
annual rental payments are as follows:
Thereafter
$166,779
178,408
187,839
173,366
179,524
1,128,032
$2,013,948
2019
2020
2021
2022
2023
Thereafter
$6,448
5,786
5,076
4,563
4,141
17,997
$44,011
License Agreements
The Company is party to a number of license and other agreements
Future advertising commitments are estimated based on
planned future sales for the license terms that were in ef-
fect at December 31, 2018, without consideration for potential
renewal periods. The above figures do not reflect the fact that
our distributors share our advertising obligations. Royalty ex-
pense included in selling, general, and administrative expens-
es, aggregated $48.9 million, $39.6 million and $37.8 million,
in 2018, 2017 and 2016, respectively, and represented 7.2%,
6.7% and 7.3% of net sales for the years ended December 31,
for the use of trademarks and rights in connection with the manu-
2018, 2017 and 2016, respectively.
90
(13) Equity
Share-Based Payments:
The Company maintains a stock option program for key employees, executives and directors. The plans, all of which have been
approved by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans
typically have a six-year term and vest over a four to five-year period. The fair value of shares vested aggregated $1.1 million
and $0.9 million in 2018 and 2017, respectively. Compensation cost, net of estimated forfeitures, is recognized on a straight-line
basis over the requisite service period for the entire award. Forfeitures are estimated based on historic trends. It is generally the
Company’s policy to issue new shares upon exercise of stock options.
The following table sets forth information with respect to nonvested options for 2018:
Nonvested options – beginning of year
Nonvested options granted
Nonvested options vested or forfeited
Nonvested options-end of year
Number of Shares
Weighted Average
Grant Date Fair Value
431,235
196,350
(142,225)
485,360
$8.22
$14.31
$8.11
$10.72
The effect of share-based payment expenses decreased income statement line items as follows:
Year Ended December 31, 2018
$2,200
Income before income taxes
Net Income attributable
to Inter Parfums, Inc.
Diluted earnings per share attributable to
Inter Parfums, Inc
1,390
0.04
2017
$2,100
2016
$1,200
1,150
700
0.04
0.02
The following table summarizes stock option activity and related information for the years ended December 31, 2018, 2017
and 2016:
Year Ended December 31, 2018
2017 2016
Weighted Average Weighted Average Weighted Average
Options Exercise Price
Options Exercise Price
Options Exercise Price
Shares under option-
beginning of year
Options granted
Options exercised
Options forfeited
Shares under option-
730,980
196,350
(140,579)
(10,580)
$31.92
63 .91
24.21
37.64
684,540
174,600
(103,230)
(24,930)
$26.94
43.48
19.03
29.49
709,300
148,950
(123,150)
(50,560)
$24.34
32.61
18.69
27.18
end of year
776,171
41.33
730,980
31.92
684,540
26.94
At December 31, 2018, options for 744,215 shares were available for future grant under the plans. The aggregate intrinsic value
of options outstanding is $18.8 million as of December 31, 2018 and unrecognized compensation cost related to stock options out-
standing aggregated $4.9 million, which will be recognized over the next five years.
The weighted average fair values of options granted by Inter Parfums, Inc. during 2018, 2017 and 2016 were $14.31, $9.82 and
$7.43 per share, respectively, on the date of grant using the Black-Scholes option pricing model to calculate the fair value.
notes to consolidated financial statements
(in thousands, except share and per share data)
91
The assumptions used in the Black-Scholes pricing model are set forth in the following table:
Year Ended December 31,
Weighted average expected stock-price volatility
Weighted average expected option life
Weighted average risk-free interest rate
Weighted average dividend yield
2018
27%
5.0 yrs
2.5%
2.0%
2017
28%
5.0 yrs
2.2%
2.0%
2016
29%
5.0 yrs
2.0%
2.1%
Expected volatility is estimated based on historic volatility of the Company’s common stock. The expected term of the option is
estimated based on historic data. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of
the option and the dividend yield reflects the assumption that the dividend payout as authorized by the Board of Directors would
maintain its current payout ratio as a percentage of earnings.
Proceeds, tax benefits and intrinsic value related to stock options exercised were as follows:
Year Ended December 31,
Proceeds from stock options exercised, excluding
cashless exercise of $0.7 million in 2016
Tax benefits
Intrinsic value of stock options exercised
2018
$3,406
$807
$4,310
2017
2016
$1,963
$600
$2,258
$1,579
$400
$1,860
The following table summarizes additional stock option information as of December 31, 2018:
Options Outstanding
Weighted Average Remaining
Exercise Price Number Outstanding Contractual Life
Options Exercisable
$23.61 - $29.36
$32.83 - $35.75
$40.15 - $46.90
$65.25
Totals
209,920
206,101
177,800
182,350
776,171
2.48 years
2.85 years
4.96 years
6.00 years
3.98 years
134,170
123,781
32,860
-
290,811
As of December 31, 2018, the weighted average exercise price of options exercisable was $31.65 and the weighted average re-
maining contractual life of options exercisable is 2.57 years. The aggregate intrinsic value of options exercisable at December 31,
2018 is $9.9 million.
The Chief Executive Officer and the President each exercised 19,000 outstanding stock options of the Company’s common
stock in 2016. The aggregate exercise prices of $0.7 million in 2016 was paid by them tendering to the Company an aggregate of
20,658 shares, of the Company’s common stock, previously owned by them, valued at fair market value on the dates of exercise.
All shares issued pursuant to these option exercises were issued from treasury stock of the Company. In addition, the Chief Ex-
ecutive Officer tendered in an additional 2,179 shares in 2016 for payment of certain withholding taxes resulting from his option
exercises.
In September 2016, Interparfums SA, approved a plan to grant an aggregate of 15,100 shares of its stock to employees with no per-
formance condition requirement, and an aggregate of 133,000 shares to officers and managers, subject to certain corporate perfor-
mance conditions. The shares, subject to adjustment for stock splits, will be distributed in September 2019 so long as the individual is
employed by Interparfums SA at the time, and in the case of officers and managers, only to the extent that the performance conditions
have been met. Once distributed, the shares will be unrestricted and the employees will be permitted to trade their shares.
92
The fair value of the grant of €18.56 per share (approximately
employees with no performance condition requirement, and an
$22.00 per share) has been determined based on the quoted
aggregate of 133,000 shares to officers and managers, subject to
share price of Interparfums SA shares as reported by the NYSE
certain corporate performance conditions. The shares, subject to
Euronext on the date of grant. The estimated number of shares
adjustment for stock splits, will be distributed in June 2022 and
to be distributed of 157,840 has been determined taking into
will follow the same guidelines as the September 2016 plan.
account employee turnover and has been adjusted for stock
The fair value of the grant of €29.84 per share (approximate-
splits. The aggregate cost of the grant of approximately $3.4
ly $34.00 per share) has been determined based on the quoted
million is being recognized as compensation cost by Interpar-
stock price of Interparfums SA shares as reported by the NYSE
fums SA on a straight-line basis over the requisite three year
Euronext on the date of grant. The estimated number of shares
service period. For the year ended December 31, 2018, $1.1
to be distributed of 142,842 has been determined taking into
million of compensation cost has been recognized in connec-
account employee turnover. The aggregate cost of the grant of
tion with this plan.
approximately $4.9 million will be recognized as compensation
To avoid dilution of the Company’s ownership of Interpar-
cost by Interparfums SA on a straight-line basis over the req-
fums SA, all shares to be distributed pursuant to this plan will
uisite three and a half year service period.
be pre-existing shares of Interparfums SA, purchased in the
open market by Interparfums SA. In 2016, 131,101 shares had
been acquired in the open market at an aggregate cost of $2.9
Dividends
In October 2018, the Board of Directors of the Company au-
million. In 2018 an additional 18,899 shares were acquired in
thorized a 31% increase in the annual dividend to $1.10 per
the open market at an aggregate cost of $0.8 million. All share
share. The quarterly dividend aggregating approximately $8.6
purchases have been classified as equity transactions on the
million ($0.275 per share) declared in December 2018 was
accompanying balance sheet.
paid in January 2019. The next quarterly dividend of $0.275 per
In December 2018, Interparfums SA approved an additional
share will be paid on April 15, 2019 to shareholders of record
plan to grant an aggregate of 26,600 shares of its stock to
on March 29, 2019.
(14) Net Income Attributable to Inter Parfums, Inc. Common Shareholders
Net income attributable to Inter Parfums, Inc. per common share (“basic EPS”) is computed by dividing net income attributable to
Inter Parfums, Inc. by the weighted average number of shares outstanding. Net income attributable to Inter Parfums, Inc. per share
assuming dilution (“diluted EPS”), is computed using the weighted average number of shares outstanding, plus the incremental
shares outstanding assuming the exercise of dilutive stock options using the treasury stock method.
The reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:
Year Ended December 31,
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:
Basic
Diluted
2018
$53,793
31,307,991
214,380
31,522,371
2017
$41,594
2016
$33,331
31,172,285
31,072,328
132,816
103,270
31,305,101
31,175,598
$1.72
$1.71
$1.33
$1.33
$1.07
$1.07
Not included in the above computations is the effect of anti dilutive potential common shares, which consist of outstanding op-
tions to purchase 89,000, 165,000, and 267,000 shares of common stock for 2018, 2017, and 2016, respectively.
notes to consolidated financial statements
(in thousands, except share and per share data)
93
(15) Segments and Geographical Areas
The Company manufactures and distributes one product line, fragrances and fragrance related products. The Company manages
its business in two segments, European based operations and United States based operations. The European assets are located,
and operations are primarily conducted, in France. Both European and United States operations primarily represent the sale of
prestige brand name fragrances.
Year Ended December 31,
Net sales:
United States
Europe
Eliminations of intercompany sales
Net income attributable to Inter Parfums, Inc.:
United States
Europe
Eliminations
Depreciation and amortization expense
including impairment loss:
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
2018
2017
2016
$140,768
537,805
(2,999)
$675,574
$13,071
40,877
(155)
53,793
$2,711
8,320
$11,031
$137
3,820
$3,957
419
2,159
$2,578
$2,264
23,898
(18)
26,144
$133,406
686,123
(20,362)
$799,167
$19,181
4,188
$23,369
$116,244
476,660
(1,653)
$117,256
404,198
(382)
$591,251
$521,072
$7,051
34,577
(34)
41,594
$3,943
7,971
$11,914
$58
2,925
$2,983
-
1,991
$1,991
$3,764
19,069
(21)
22,812
$92,909
694,385
(9,522)
$777,772
$980
3,089
$4,069
$8,285
25,120
(74)
33,331
$1,816
13,525
$15,341
$22
3,309
3,331
-
2,340
2,340
$4,278
19,596
(48)
23,826
$89,930
602,077
(9,598)
$682,409
$930
4,812
$5,742
94
Segments and Geographical Areas continued
Year Ended December 31,
Total long-lived assets:
United States
Europe
Deferred tax assets:
United States
Europe
Eliminations
2018
2017
2016
$25,753
188,411
$214,164
$650
8,561
88
$9,299
$9,284
201,541
$210,825
$781
8,808
69
$9,658
$12,247
181,697
$193,944
$194
7,848
48
$8,090
United States export sales were approximately $93.1 million, $71.4 million and $77.5 million in 2018, 2017 and 2016, respectively.
Consolidated net sales to customers by region are as follows:
Year Ended December 31,
North America
Europe
Asia
Middle East
Central and South America
Other
Consolidated net sales to customers in major countries are as follows:
Year Ended December 31,
United States
France
United Kingdom
Russia
(16) Income Taxes
2018
$210,200
233,600
109,000
59,300
51,700
11,800
$675,600
2018
$204,000
$44,000
$36,000
$35,000
2017
$176,900
214,800
88,000
50,500
51,200
9,900
2016
$149,000
194,700
81,300
41,600
44,000
10,500
$591,300
$521,100
2017
$173,000
$44,000
$33,000
$34,000
2016
$144,000
$47,000
$31,000
$27,000
The Company and its subsidiaries file income tax returns in the U.S. federal, and various states and foreign jurisdictions.
The Company assessed its uncertain tax positions and determined that it has no uncertain tax position at December 31, 2018.
The components of income before income taxes consist of the following:
Year Ended December 31,
U.S. operations
Foreign operations
2018
$15,162
80,697
$95,859
2017
$10,761
67,304
$78,065
2016
$12,441
54,633
$67,074
notes to consolidated financial statements
(in thousands, except share and per share data)
95
The provision for current and deferred income tax expense
amount of net operating loss carry-forwards.
(benefit) consists of the following:
No other valuation allowances have been provided as manage-
Year Ended December 31,
2018
2017
2016
realized in the reduction of future taxable income.
ment believes that it is more likely than not that the asset will be
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Total income
tax expense
$1,629
497
24,175
26,301
$4,050
$3,792
302
19,051
23,403
309
21,099
25,200
113
-
(270)
(157)
(554)
(55)
18
(591)
113
9
(1,496)
(1,374)
Tax Cuts and Jobs Act
In December 2017, the U.S. government passed the Tax Cuts and
Jobs Act (“the Tax Act”). The Tax Act makes broad and complex
changes to the U.S. tax code, including, but not limited to re-
ducing the future U.S. federal corporate tax rate from 35% to
21% and requiring companies to pay a one-time transition tax on
certain unremitted earnings of foreign subsidiaries.
The Tax Act also established new tax laws that affect 2018,
including, but not limited to: (i) the reduction of the U.S. federal
corporate tax rate discussed above; (ii) a general elimination of
$26,144
$22,812
$23,826
U.S. federal income taxes on dividends from foreign subsidiar-
ies; (iii) a new provision designed to tax global intangible low-
The tax effects of temporary differences that give rise to
taxed income (“GILTI”); and (iv) a new provision that allows a
significant portions of the deferred tax assets and deferred tax
domestic corporation an immediate deduction for a portion of
liabilities are as follows:
its foreign derived intangible income (“FDII”).
December 31,
Net 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, net
Valuation allowance
Net deferred tax assets
Deferred tax liabilities (long-term):
Trademarks and licenses
Net deferred tax assets
2018
2017
Accounting Bulletin (“SAB”) 118, which provides a measure-
The Securities and Exchange Commission staff issued Staff
$468
658
4,561
626
$520
1,557
4,212
502
3,267
3,166
(23) 222
ment period that should not extend beyond one year from the
Tax Act enactment date for companies to complete the related
accounting under ASC 740, Accounting for Income Taxes. In ac-
cordance with SAB 118, a company must reflect the income tax
effects of those aspects of the Tax Act for which the accounting
under ASC 740 is complete. To the extent that a company’s ac-
counting for a certain income tax effect of the Tax Act is incom-
plete, but it is able to determine a reasonable estimate, it must
record a provisional estimate in the financial statements.
In connection with its initial analysis of the impact of the Tax
10,179
9,557
(258) (520)
9,659
9,299
Act, the Company recorded a tax expense of $1.1 million for
the year ended December 31, 2017. This estimate consists of
no expense for the one-time transition tax, and an expense of
$1.1 million related to revaluation of deferred tax assets and li-
(3,538)
$5,761
(3,821)
$5,838
abilities caused by the lower corporate tax rate. There were no
material differences between the Company’s 2017 estimates
and the final calculated amounts.
Valuation allowances are provided for foreign net operating
The Company has estimated of the effect of GILTI and has
loss carry-forwards, as future profitable operations from certain
determined that it has no tax liability as of December 31, 2018
foreign subsidiaries might not be sufficient to realize the full
related to GILTI.
96
The Tax Act also contains a provision that allows a domestic corporation an immediate deduction for a portion of its foreign
derived intangible income (“FDII”). The Company estimated the effect of FDII as of December 31, 2018, and recorded a tax benefit
of $0.6 million.
Income Tax Recovery
The French government had introduced a 3% tax on dividends or deemed dividends for entities subject to French corporate income
tax in 2012. In 2017, the French Constitutional Court released a decision declaring that the 3% tax on dividends or deemed dividends
is unconstitutional. As a result of that decision, the Company filed a claim for refund of approximately $3.9 million for these taxes
paid since 2015 including accrued interest of approximately $0.4 million. The Company recorded the refund claim as of December
31, 2017 and has received the entire refund in 2018.
Settlement with French Tax Authorities
As previously reported, the French Tax Authorities examined the 2012 tax return of Interparfums SA. The main issues chal-
lenged by the French Tax Authorities related to the commission rate and royalty rate paid to Interparfums Singapore Pte. and
Interparfums (Suisse) SARL, respectively. Due to the subjective nature of the issues involved, in April 2016, Interparfums
SA reached an agreement in principle to settle the entire matter with the French Tax Authorities. The settlement required
Interparfums SA to pay a tax assessment of $1.9 million covering the issues for not only the 2012 tax year, but also covering the
issues for the tax years ended 2013 through 2015. The settlement, which was finalized by the French Tax Authorities in the first
quarter of 2017, was accrued as of December 31, 2016.
Other Tax Matters
The French authorities are considering that the existence of IP Suisse, a wholly-owned subsidiary of Interparfums SA, does not,
in and of itself, constitute a permanent establishment and therefore Interparfums, SA should pay French taxes on all or part of
the profits of that entity. No claim or assessment for any taxes or penalties has been made at this time. The Company disagrees
and is prepared to vigorously defend its position. Consequently, no provision has been made in the accompanying financial
statements as we believe it is more likely than not that our position will be sustained based on its technical merits. Although we
believe that we have sufficient arguments to support our position, there exists a risk that the French authorities may prevail. The
Company’s exposure in connection with this matter is approximately $1.4 million, net of recovery taxes already paid to the Swiss
authorities, and excluding interest and penalties.
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 2015.
Differences between the United States Federal statutory income tax rate and the effective income tax rate were as follows:
Year Ended December 31,
Statutory rates
State and local taxes, net of Federal benefit
Benefit of Foreign Derived Intangible Income
Deferred tax effect of statutory tax rate changes
Foreign income tax recovery
Effect of foreign taxes greater than (less
than) U.S. statutory rates
Other
Effective rates
2018
21.0%
0.4
(0.6)
-
-
7.3
(0.8)
27.3%
2017
34.0%
0.2
-
1.4
(4.6)
(1.0)
(0.8)
29.2%
2016
34.0%
0.3
-
-
-
1.5
(0.3)
35.5%
notes to consolidated financial statements
(in thousands, except share and per share data)
97
(17) Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive loss consist of the following:
Year Ended December 31,
Net derivative instruments,beginning of year
Net derivative instrument gain (loss), net of tax
Net derivative instruments end of year
Cumulative translation adjustments,beginning of year
Translation adjustments
Cumulative translation adjustments, end of year
Accumulated other comprehensive loss
(18) Net Income Attributable to Inter Parfums, Inc.
and Transfers from the Noncontrolling Interest
Year Ended December 31,
Net income attributable to Inter Parfums, Inc.
Decrease in Inter Parfums, Inc.’s additional paid-in capital
for subsidiary share transactions
Change from net income attributable to Inter Parfums, Inc.
2018
37
99
136
(17,869)
(15,917)
(33,786)
$(33,650)
2017
(17)
54
37
(57,965)
40,096
(17,869)
2016
$-
(17)
(17)
(48,091)
(9,874)
(57,965)
$(17,832)
$(57,982)
2018
$53,793
2017
$41,594
2016
$33,331
-
-
(1,926)
and transfers from noncontrolling interest
$53,793
$41,594
$31,405
98
directors and executive officers
DIRECTORS AND EXECUTIVE OFFICERS
Directors
Jean Madar
Michel Dyens
Chairman, and Chief Executive Officer,
Corporate Information
Inter Parfums, Inc.
Chief Executive Officer,
Michel Dyens & Co.
and Chairman of the Board of Directors
Inter Parfums, Inc.
Philippe Benacin
Véronique Gabai-Pinsky
President, Vera Wang Group
551 Fifth Avenue
New York, NY 10176
Tel. (212) 983-2640
Fax: (212) 983-4197
www.interparfumsinc.com
President, and Vice Chairman of the
Gilbert Harrison
Board of Directors, Inter Parfums, Inc.
Chairman, Harrison Group, Inc.
Interparfums SA
Chief Executive Officer,
Founder and Chairman Emeritus
4 Rond Point des Champs Elysées
Interparfums SA
Financo LLC
Russell Greenberg
Executive Vice President,
and Chief Financial Officer
Inter Parfums, Inc.
Philippe Santi
Executive Vice President
Director General Delegue
Interparfums SA
Executive Officers
Jean Madar
Chief Executive Officer,
75008 Paris, France
Tel. (1) 53-77-00-00
Fax: (1) 40-76-08-65
Auditors
and Chairman of the Board of Directors
Mazars USA, LLP
Inter Parfums, Inc.
Philippe Benacin
135 West 50th Street
New York, NY 10020
President, and Vice Chairman of the
Transfer Agent
Board of Directors, Inter Parfums, Inc.
American Stock Transfer
and Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Francois Heilbronn
Managing Partner M.M. Friedrich,
Heilbronn & Fiszer
Robert Bensoussan-Torres
Chief Executive Officer,
Interparfums SA
Russell Greenberg
Executive Vice President,
and Chief Financial Officer
Co-founder of Sirius Equity,
Inter Parfums, Inc.
a retailand branded luxury goods
investment company
Philippe Santi
Patrick Choël
Executive Vice President
Director General Delegue
Business Consultant and Former
Interparfums SA
President and Chief Executive Officer
Parfums Christian Dior
and the LVMH Perfume and
Cosmetics Division
Frédéric Garcia-Pelayo
Director of Export Sales
Interparfums SA
corporate and market information
99
the market for our common stock
Our Company’s common stock, $.001 par value per share, is traded
basis. In October 2018, our board of directors authorized a
31% increase in the annual dividend to $1.10 per share on an
on The Nasdaq Global Select Market under the symbol “IPAR”. The
annual basis. The next quaterly cash dividend of $0.275 per
following table sets forth in dollars, the range of high and low clos-
share is payable on April 15, 2019 to shareholders of record
ing prices for the past two fiscal years for our common stock.
on March 29, 2019.
Third Quarter
High Closing Low Closing
Fiscal 2018 Price Price
55.88
Fourth Quarter
53.75
46.25
42.00
High Closing Low Closing
Fiscal 2017 Price Price
41.05
66.48
66.25
54.75
49.15
Second Quarter
Fourth Quarter
First Quarter
46.30
Third Quarter
Second Quarter
First Quarter
42.10
38.50
37.65
35.55
34.25
31.55
Form 10-K
A copy of the company’s 2018 Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission, is available
without charge to shareholders upon request (except for exhib-
its) To: Inter Parfums, Inc. 551 Fifth Avenue New York, NY 10176
Attention: Corporate Secretary.
Corporate Performance Graph
The following graph compares the performance for the pe-
riods indicated in the graph of our common stock with the
performance of the Nasdaq Market Index and the average
performance of a group of the Company’s peer corpora-
tions consisting of: Avon Products Inc., CCA Industries, Inc.,
As of February 20, 2019, the number of record holders,
Colgate-Palmolive Co., Estée Lauder Companies, Inc., Inter
which include brokers and brokers’ nominees, etc., of our
Parfums, Inc., Kimberly Clark Corp., Natural Health Trends
common stock was 37. We believe there are approximately
Corp., Procter & Gamble Co., Revlon, Inc., Spectrum Brands
14,330 beneficial owners of our common stock.
Holdings, Inc., Stephan Co., Summer Infant, Inc. and United
Dividends
In October 2017, our board of directors authorized a 24% in-
vestment in our common stock and each index was $100 at
the beginning of the period indicated in the graph, and that all
crease in the annual dividend to $0.84 per share on an annual
dividends were reinvested.
Guardian, Inc. The graph assumes that the value of the in-
COMPARISON 0F 5 YEAR CUMULATIVE TOTAL RETURN*
Among Inter Parfums, Inc., The NASDAQ Composite Index, and a Peer Group
Inter Parfums, Inc.
NASDAQ Composite
Peer Group
*$100 invested on 12/31/13 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
12/13
100.00
100.00
100.00
12/14
77.90
114.62
112.63
12/15
68.87
122.81
106.91
12/16
96.59
133.19
111.63
12/17
130.47
172.11
127.70
12/18
200.04
168.84
127.49
100