Inter Parfums Annual Report 2020

Plain-text annual report

1 table of contents FINANCIAL HIGHLIGHTS 02 LETTER TO OUR SHAREHOLDERS 04 THE COMPANY 08 THE PRODUCTS 14 THE ORGANIZATION 62 2 Financial Highlights NET SALES (in millions(cid:23)) 2020 2019 2018 2017 2016 NET INCOME ATTRIBUTABLE TO INTER PARFUMS, INC. (in millions(cid:23)) 2020 2019 2018 2017 2016 $38.2 $60.2 $53.8 $41.6 $33.3 INTER PARFUMS, INC. SHAREHOLDERS’ EQUITY (in millions(cid:23)) 2020 2019 2018 2017 2016 $539.0 $713.5 $675.6 $591.3 $521.1 $535.8 $468.0 $447.6 $433.3 $370.4 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. 2020 2019 2018 2017 2016 (In thousands, except per share data) Years Ended December 31, INCOME STATEMENT DATA: Net Sales Cost of Sales 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 $539,009 208,278 260,648 70,083 69,349 11,749 38,219 $1.21 $1.21 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) Lease liabilities (including current portion) Inter Parfums, Inc. Shareholders’ Equity Dividends Declared per Share 31,537 31,655 $9,067 $169,681 126,627 444,515 890,145 −0− 24,706 26,487 535,836 $0.33 $713,514 $675,574 $591,251 $521,072 267,578 341,209 104,727 105,146 15,821 60,249 $1.92 $1.90 31,451 31,689 $8,729 248,012 332,831 94,731 95,859 15,922 53,793 $1.72 $1.71 31,308 31,522 $11,031 214,965 295,540 78,623 78,065 13,659 41,594 $1.33 $1.33 31,172 31,305 $11,914 194,601 258,787 66,678 67,074 9,917 33,331 $1.07 $1.07 31,072 31,176 $15,341 $138,417 $193,136 $208,343 $161,828 119,714 388,831 828,832 -0- 23,060 29,991 468,004 $1.155 67,870 382,425 797,829 -0- 46,061 N/A 447,607 $0.905 69,899 382,171 777,772 -0- 60,579 N/A 433,298 $0.72 94,202 337,977 682,409 -0- 74,562 N/A 370,391 $0.62 4 DEAR FELLOW SHAREHOLDERS, 2020 was a year that tested the resilience of nations, institu- tions, businesses and individuals throughout the world. The COVID-19 pandemic upended all of our lives and plans in un- precedented ways, making 2020 unlike any year in our collec- tive memories. While the virus and its variants are sadly still present, infection rates are declining and effective vaccines are in widespread distribution, and so we choose a path of op- timism tempered with caution. 2020 OVERVIEW As we entered 2020, we were enthusiastic about the prospects for our business. We had a vibrant new product launch sched- ule with exceptional advertising and promotional programs in the works. Record sales were in our sights. Our ﬁrst ma- jor launch, Coach Dreams, was doing very well, and the early returns for Byzance by Rochas and L’Homme Rochas looked promising. In general, our sales in January and February were reasonably good, except in China where the virus initially took hold. Then came March. As the infection spread, brick and mortar stores closed, international air travel ceased as did our duty free sales, stay-at-home directives and social distancing measures were implemented, and many businesses, including ours, ground to a halt. As a result, our second quarter was aw- ful, and remains a painful memory. As the COVID-19 infection spread, we took immediate and far sweeping action. Our employees set up home ofﬁces; video conferences took the place of face-to-face meetings and travel, hiring was frozen, bonuses were cut, and new product launch- es with corresponding advertising and promotional campaigns were postponed until 2021. Thanks to our close relationships with our suppliers and licensors, we all made necessary accom- modations and adjustments to ensure each other’s continued viability. Similarly, the pandemic put tremendous pressure on many of our distributors and retail customers, but we worked in partnership with them and extended payment terms, when nec- essary. At the end of the day, we did not incur any material losses in connection with the collection of accounts receivable. By the third quarter, business was picking up, not dramati- cally, but the direction was positive, as sales improved in each successive month. And then came the fourth quarter and what a fabulous quarter it was. There was an unexpected surge in orders and fortunately, we had the ﬁnished goods inventory in our distribution centers ready to ship, resulting in our best ever fourth quarter in terms of sales. In a year such as 2020, our strong ﬁnancial position and con- servative cost structure were especially valuable. We entered 2021 Letter to our Shareholders Jean Madar and Philippe Benacin letter to shareholders 5 the year with working capital of $389 million, including ap- speciﬁc consumer demand for this distribution channel and proximately $253 million in cash, cash equivalents and short- accelerate our digital development. term investments, and only $10.7 million of long-term debt. In December 2020, Interparfums SA, signed a purchase Our 2020 fixed expenses approximated $100 million; capital contract subject to certain conditions, to acquire an ofﬁce expenditures were under $11 million, and early in that year, building complex for its exclusive use as its future headquar- our Board of Directors took a defensive cash management ters located in the heart of Paris. In order to maintain our measure by suspending the quarterly cash dividend. As strong cash position, we plan to ﬁnance by a bank loan, ap- 2020 drew to a close, working capital stood at $445 million, proximately 90% of the €125 million ($153 million) purchase including approximately $296 million in cash, cash equiv- price, excluding taxes and related expenses. The transaction alents and short-term investments, and only $10.1 million is expected to be completed in the spring of this year. The move of long-term debt. Appropriately, early in 2021, the Board should take place toward the end of 2021 or early the following reinstated the annual cash dividend at the rate of $1.00 per year. Owning our corporate headquarters in a very prestigious share, payable quarterly. part of Paris, and customizing the complex for our European The ﬁnancial statements that follow are sufﬁciently detailed operations, will enhance our stature in the fragrance industry, to make repeating them in this letter unwarranted. However, a encourage a superb work environment, as well as a welcom- few points are worth highlighting. While the 24.5% decline in ing and productive atmosphere for our suppliers, distributors annual sales resulted in corresponding declines in income, our and licensors. operating and net margins were a respectable 13.0% and 7.1%, respectively. Cash provided by operating activities aggregated WELCOME 2021 $65.0 million and working capital items used only $1.9 million As noted, most of our major launches and corresponding ad- in cash from operating activities. vertising and promotion previously scheduled for 2020 were We didn’t mark time in 2020, in fact we went big and bold postponed until 2021. The line-up for the coming year now with several important new business initiatives. In June 2020 includes Anna Sui Sky, GUESS Bella Vita, Jimmy Choo I Want we welcomed a coveted, aspirational brand to our portfo- Choo, Oscar de la Renta Alibi and our ﬁrst ever Kate Spade lio, Moncler, which has all the makings of a superstar. The New York scent, all for women. New women’s pillars will also Moncler brand has accomplished a unique feat in the world come to market for Rochas and Lanvin. of branding - it has merged fashion with high performance. For our Hollister brand, we have a new collection that again Moncler outerwear collections marry the extreme demands features a men’s and women’s scent. Similarly, we have a duo of nature with those of city life. The brand is on an upward unveiling for Abercrombie & Fitch. Also debuting in 2021, our trajectory, having added footwear, leather goods such as bags ﬁrst genderless scents for one the newest brand in our port- and backpacks, as well as eyeglasses to its offerings. In addi- folio, MCM. Our ﬁrst GUESS collection for men, which includes tion to online sales through Moncler’s e-commerce site and grooming and fragrance products, will rollout in 2021, as will those of other luxury retailers, Moncler products are sold in Driven, our new men’s scent for Dunhill. For several of our 219 mono-brand stores and 63 store-within-stores, includ- largest brands, we have a number of ﬂankers and extensions ing duty free retail. We are extremely enthusiastic about the debuting, including one for Coach Dreams, Jimmy Choo Urban launch of our ﬁrst fragrance for the Moncler brand, which is Hero, and Montblanc Explorer. scheduled in the ﬁrst quarter of 2022. Taking all necessary precautions, our staff has begun to In June, through our 73%-owned French subsidiary, Inter- return to our ofﬁces and have resumed meetings and limited parfums SA, we acquired a 25% stake in Divabox, owner of the travel. Stores are open, e-commerce is booming, but thus far Origines-parfums e-commerce platform for beauty products. international travel has not made a signiﬁcant comeback. That As a website of reference for all selective fragrance brands, said, conﬁdence in air travel safety is growing as has pent up Origines-parfums is a key French player in the online beau- desire, so we do anticipate an upturn in the resumption of our ty market. We envision several beneﬁts accruing from this duty free travel retail business as the year progresses, bar- agreement. For one, the website’s trafﬁc experienced approxi- ring the unforeseen. We expect 2021 to be the year we return mately 25% year over year growth in 2020, making it an attrac- to sales growth. Our 2021 budget calls for a return to an ap- tive investment. Also, we are working on the development of proximate spend of 21% of net sales for advertising and pro- dedicated fragrance lines and products designed to address motion, which has been the historical rate for several years. 6 We anticipate that ﬁxed expenses will increase slightly as we unwind certain steps taken in 2020 to minimize the effects of the COVID-19 pandemic. As we emerge from a heartbreaking year, we are building upon our strengths to resume the growth and proﬁtability tar- gets that were interrupted by the pandemic. We have an expan- sive brand portfolio featuring names that have appeal among diverse age groups, income brackets, and geographic regions. We have a highly effective distribution network reaching 120 countries around the world, and in several important markets, we own and control the distribution organizations. Our strong ﬁnancial position gives us unique business agility which, along with our brand building track record, have created opportuni- ties for acquisitions and new license agreements. Finally, we have an exceptional staff—creative, committed and supremely talented— and that makes all the difference. Sincerely yours, Chairman of the Board Vice Chairman of the Board & Chief Executive Ofﬁcer & President letter to shareholders 7 Future Headquarters in Paris 8 The Company Founded in 1982, we operate in the fragrance business, and manufacture, market and dis- tribute a wide array of prestige fragrance, and fragrance related products. Our worldwide headquarters and the ofﬁce of our whol- ly-owned United States subsidiaries, Jean Philippe Fragrances, LLC and Inter Parfums USA, LLC, are located at 551 Fifth Avenue, New York, New York 10176, and our tele- phone number is 212.983.2640. Our consolidated wholly-owned subsidiary, Inter Parfums Holdings, S.A., and its majority-owned subsidiary, Inter- parfums 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 Ita- ly, Inter España Parfums et Cosmetiques, SL, for Spain and In- terparfums Luxury Brands, Inc., a Delaware corporation, for distribution of prestige brands in the United States. Interpar- fums 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, Interpar- fums SA is also the sole owner of Interparfums (Suisse) SARL, a company formed to hold and manage certain brand names, and Interparfums Asia Paciﬁc 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 Eu- ronext 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 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 reports on Form 8-K, beneﬁcial ownership reports (Forms 3, 4 and 5) and amendments to those reports ﬁled or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable after they have been electronically ﬁled with or furnished to the SEC. We operate in the fragrance business and manufacture, Graff Lesedi la Rona I market and distribute a wide array of fragrance and fragrance related products. We manage our business in two segments, the company 9 Montblanc Legend 10 European based operations and United States based opera- approximately 78% of net sales for 2020. We have built a port- tions. Certain prestige fragrance products are produced and folio of prestige brands, which include Boucheron, Coach, marketed by our European operations through our 27% owned Jimmy Choo, Karl Lagerfeld, Kate Spade New York, Lanvin, subsidiary in Paris, Interparfums SA, which is also a publicly Moncler, Montblanc, Paul Smith, Repetto, Rochas, S.T. Dupont traded company as 73% of Interparfums SA shares trade on and Van Cleef & Arpels, whose products are distributed in over the NYSE Euronext. 120 countries around the world. 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 United States Operations Prestige brand fragrance products are also produced and our suppliers. These components are received at one of our marketed through our United States operations, and rep- distribution centers and then, based upon production needs, resented approximately 22% of net sales for the year ended the components are sent to one of several third party ﬁllers December 31, 2020. These fragrance products are sold under which manufacture the ﬁnished product for us and deliver trademarks owned by us or pursuant to license or other agree- them to one of our distribution centers. ments with the owners of brands, which include Abercrombie Our fragrance products focus on prestige brands, each with & Fitch, Anna Sui, bebe, Dunhill, French Connection, Graff, a devoted following. By concentrating in markets where the GUESS, Hollister, MCM and Oscar de la Renta. brands are best known, we have had many successful product launches. We typically launch new fragrance families for our brands every year or two, and more frequently seasonal and limited edition fragrances are introduced as well. BUSINESS STRATEGY Focus On Prestige Beauty Brands Prestige beauty brands are expected to contribute signiﬁcantly The creation and marketing of each product family is in- to our growth. We focus on developing and launching quality timately linked with the brand’s name, its past and present fragrances utilizing internationally renowned brand names. positioning, customer base and, more generally, the prevail- By identifying and concentrating in the most receptive market ing market atmosphere. Accordingly, we generally study the segments and territories where our brands are known, and market for each proposed family of fragrance products for executing highly targeted launches that capture the essence almost a full year before we introduce any new product into of the brand, we have had a history of successful launches. the market. This study is intended to deﬁne the general po- Certain fashion designers and other licensors choose us as a sition of the fragrance family and more particularly its scent, partner, because our Company’s size enables us to work more bottle, packaging and appeal to the buyer. In our opinion, the closely with them in the product development process as well unity of these four elements of the marketing mix makes for a as our successful track record. successful product. As with any business, many aspects of our operations are subject to inﬂuences outside our control. We believe we have a strong brand portfolio with global reach and potential. As Grow Portfolio Brands Through New Product Development And Marketing We grow through the creation of fragrance family extensions part of our strategy, we plan to continue to make investments within the existing brands in our portfolio. Every year or two, behind fast-growing markets and channels to grow market we create a new family of fragrances for each brand in our share. We discuss in greater detail risk factors relating to our portfolio. We frequently introduce seasonal and limited edition business in Item 1A of this Annual Report on Form 10-K for the fragrances as well. With new introductions, we leverage our ﬁscal year ended December 31, 2020, and the reports that we ability and experience to gauge trends in the market and ﬁle from time to time with the SEC. further leverage the brand name into different product families European Operations We produce and distribute our fragrance products primarily in order to maximize sales and proﬁt potential. We have had success in introducing new fragrance families (sub-brands, ﬂanker brands or ﬂankers) within our brand franchises. under license agreements with brand owners, and fragrance Furthermore, we promote the performance of our prestige product sales through our European operations represented fragrance operations through knowledge of the market, the company 11 detailed analysis of the image and potential of each brand name, and a highly professional approach to international distribution channels. Continue To Add New Brands To Our Portfolio Through New Licenses Or Acquisitions Prestige brands are the core of our business and we in- Continue To Build Global Distribution Footprint Our business is a global business and we intend to continue to build our global distribution footprint. In order to adapt to changes in the environment and our business, in addition to our arrangements with third party distributors globally, we are oper- ating distribution subsidiaries or divisions in the major markets of the United States, France and Spain for distribution of pres- tend to add new prestige beauty brands to our portfolio. tige fragrances. We may look into future joint arrangements or Over the past 30 years, we have built our portfolio of well- acquire distribution companies within other key markets to dis- known prestige brands through acquisitions and new tribute certain of our prestige brands. While building a global license agreements. We intend to further build on our distribution footprint is part of our long-term strategy, we may success in prestige fragrances and pursue new licens- need to make certain decisions based on the short-term needs es and acquire new brands to strengthen our position in of the business. We believe that in certain markets, vertical in- the prestige beauty market. To that end, in 2019, we ex- tegration of our distribution network may be one of the keys to tended our license agreements for Abercrombie & Fitch, future growth of our Company, and ownership of such distribution Hollister and Oscar de la Renta, and signed new licens- should enable us to better serve our customers’ needs in local es for Kate Spade New York and MCM. During 2020, we markets and adapt more quickly as situations may determine. signed a new license for the Moncler brand. In 2020, we also acquired a minority interest in Divabox, which owns the Origines-parfums online platform. As a website of reference for all selective fragrance brands, Origines- RECENT DEVELOPMENTS Anna Sui Corp. In January 2021, we renewed our license agreement with Anna parfums is a key French player in the online beauty mar- Sui Corp. for the creation, development and distribution of fra- ket recognized for its customer relationship expertise. grance products through December 31, 2026, without any mate- This agreement should enhance the introduction of ded- rial changes in terms and conditions. Our initial 10-year license icated fragrance lines and products designed to address agreement with Anna Sui Corp. was signed in 2011. The renewal a specific consumer demand for this distribution channel agreement also allows for an additional 5-year term through and accelerate our digital development. As of December 2031 at the option of the Company. 31, 2020, we had cash, cash equivalents and short-term investments of approximately $296 million, which we believe should assist us in entering new brand licenses or out-right acquisitions. We identify prestige brands Building Acquisition Future Headquarters in Paris In December 2020, our majority owned Paris-based subsidiary, that can be developed and marketed into a full and var- Interparfums SA, signed a purchase contract, subject to certain ied product families and, with our technical knowledge conditions, to acquire an ofﬁce building complex for its exclusive and practical experience gained over time, take licensed use as its future headquarters located in the heart of Paris. In brand names through all phases of concept, development, order to maintain our current cash position, it is expected that manufacturing, marketing and distribution. approximately 90% of the €125 million ($153 million) purchase Expand Existing Portfolio Into New Categories We selectively broaden our product offering beyond the price, excluding taxes and related expenses, will be ﬁnanced by a bank loan. The transaction is expected to be completed in the spring of this year with the move planned for the end of 2021 or the beginning of 2022. fragrance category and offer other fragrance related prod- This acquisition is a unique opportunity with beneﬁts to be re- ucts and personal care products under some of our existing alized over the long-term. Owning our corporate headquarters in brands. We believe such product offerings meet customer a very prestigious part of Paris, and customizing the complex for needs and further strengthen customer loyalty. our European operations, will enhance our reputation, provide an 12 exceptional work environment, as well as a welcoming and pro- • Simultaneous discussions with perfume designers and ductive atmosphere for our suppliers, distributors and licensors. creators (includes analysis of esthetic and olfactory trends, Origines-Parfums In June 2020, the Company through its 73% owned subsidiary, • Concept choice • Produce mock-ups for ﬁnal acceptance of bottles and target clientele and market communication approach) Interparfums SA, and Divabox SAS (“Divabox”), owner of the packaging Origines-parfums e-commerce platform for beauty products, • Receive bids from component suppliers (glass makers, signed a strategic agreement and equity investment pursuant plastic processors, printers, etc.) and packaging companies to which we acquired a 25% of Divabox capital for $14.0 million, • Choose suppliers through a capital increase. In connection with the acquisition, the • Schedule production and packaging Company entered into a $13.4 million term loan, which has been • Issue component purchase orders amended such that the loan was repaid in full in February 2021. • Follow quality control procedures for incoming components; As a website of reference for all selective fragrance brands, and Origines-parfums is a key French player in the online beauty • Follow packaging and inventory control procedures market recognized for its customer relationship expertise. This agreement should enhance the introduction of dedicated fra- Suppliers who assist us with product development include: grance lines and products designed to address a speciﬁc con- • Independent perfumery design companies (Aesthete, Carré sumer demand for this distribution channel and accelerate our Basset, PI Design, Cent Degres) digital development. • Perfumers (IFF, Givaudan, Firmenich, Robertet, Takasago, Moncler In June 2020, the Company entered into an exclusive, 5-year Mane) which create a fragrance consistent with our expec tations and, that of the fragrance designers and creators • Fillers (Voyant, CPFPI, Omega Packaging, Societe de worldwide license agreement with a potential 5-year extension Diffusion de Produits de Parfumerie, TSM Brands) with Moncler for the creation, development and distribution of • Bottle manufacturers (Pochet du Courval, Verescence, fragrances under the Moncler brand. Our rights under this li- Verreries Brosse, Bormioli Luigi, Stoelzle Masnières, cense are subject to certain minimum advertising expenditures Heinz), caps (Qualipac, ALBEA, RPC, Codiplas, LF Beauty, and royalty payments as are customary in our industry. Moncler Texen Group, S.A.R.L. J3P, SBG Packaging Group), pumps was founded at Monestier-de-Clermont, Grenoble, France, in (Silgan Dispensing Systems Thomaston Corp, Rexam) or 1952 and is currently headquartered in Italy. Over the years, the boxes (Autajon, MMPP, Nortier, Draeger) brand has combined style with constant technological research • Production specialists who carry out packaging (CCI, assisted by experts in activities linked to the world of the moun- Edipar, Jacomo, Societe de Diffusion de Produits de tain. The Moncler outerwear collections marry the extreme de- Parfumerie, MF Productions,Biopack) or logistics mands of nature with those of city life. Our ﬁrst fragrance launch (Bolloré Logistics for storage, order preparation and for the Moncler brand is scheduled for the ﬁrst quarter of 2022. shipment) S.T. Dupont In January 2021, we renewed our license agreement with S.T. Suppliers’ accounts for our European operations are pri- marily settled in euro and for our United States operations, Dupont for the creation, development and distribution of fra- suppliers’ accounts are primarily settled in U.S. dollars. grance products through December 31, 2022, without any mate- For our European operations components for our prestige rial changes in terms and conditions. Our initial 11-year license fragrances are purchased from many suppliers around the agreement with S.T. Dupont was signed in June 1997 and had world and are primarily manufactured in France. For United previously been extended through December 31, 2020. States operations, components for our prestige fragrances PRODUCTION AND SUPPLY are sourced from many suppliers around the world and are primarily manufactured in the United States. However, occa- The stages of the development and production process for all sionally, we will utilize third party manufacturers in France, fragrances are as follows: China and Turkey. the company 13 MARKETING AND DISTRIBUTION provides us with a signiﬁcant presence in over 120 countries Our products are distributed in over 120 countries around the around the world. world through a selective distribution network. For our in- Over 45% of our European based prestige fragrance net sales ternational distribution, we either contract with independent are denominated in U.S. dollars. We address certain ﬁnancial ex- distribution companies specializing in luxury goods or distrib- posures through a controlled program of risk management that ute prestige products through our distribution subsidiaries. In includes the use of derivative ﬁnancial instruments. We primarily each country, we designate anywhere from one to three dis- enter into foreign currency forward exchange contracts to reduce tributors on an exclusive basis for one or more of our name the effects of ﬂuctuating foreign currency exchange rates. brands. We also distribute our products through a variety of The business of our European operations has become in- duty free operators, such as airports and airlines and select creasingly seasonal due to the timing of shipments by our dis- vacation destinations. tribution subsidiaries and divisions to their customers, which As our business is a global one, we intend to continue to are weighted to the second half of the year. build our global distribution footprint. For distribution of For our United States operations, we distribute product to brands within our European based operations we operate retailers and distributors in the United States as well as in- through our distribution subsidiaries or divisions in the major ternationally, including duty free and other travel-related re- markets of the United States, France, Italy and Spain, in addi- tailers. We utilize our in-house sales team to reach our third tion to our arrangements with third party distributors globally. party distributors and customers outside the United States. Our third party distributors vary in size depending on the num- In addition, the business of our United States operations has ber of competing brands they represent. This extensive and di- become increasingly seasonal as shipments are weighted to- verse network together with our own distribution subsidiaries ward the second half of the year. Coach Coach Dreams Sunset 14 Our licenses for these brands expire on the following dates: Brand Name Expiration Date Abercrombie & Fitch Extends until either party terminates on 3 years’ notice Anna Sui December 31, 2026, plus one 5-year optional term bebe Stores Boucheron June 30, 2023 December 31, 2025, Coach Dunhill plus a 5-year optional term if certain sales targets are met June 30, 2026 September 30, 2023 French Connection December 31, 2027, plus a 10- Graff GUESS Hollister 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 Extends until either party terminates on 3 years’ notice Kate Spade New York June 30, 2030 Jimmy Choo Karl Lagerfeld MCM Moncler December 31, 2031 October 31, 2032 December 31, 2030, plus 4 option years December 31, 2026, plus a 5-year optional term if certain conditions are met Montblanc December 31, 2025 Oscar de la Renta December 31, 2031, Paul Smith Repetto S.T. Dupont plus a 5-year optional term if certain sales targets are met December 31, 2021 December 31, 2024 December 31, 2022 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 $86 million) or one times the average of the annual sales for the years end- ing 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 2014, we entered into a worldwide license to create, pro- duce and distribute new fragrances and fragrance related products under the Abercrombie & Fitch brand name. We distribute these fragrances internationally 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 re- tail stores. Our initial men’s scent, First Instinct was launched in 2016 followed by a women’s version in 2017. During 2018 and early 2019, we introduced several First Instinct brand ex- tensions. In the spring of 2019, we unveiled a new fragrance family for Abercrombie & Fitch, Authentic, for men and wom- en, and in 2020, we released Authentic Night. In April 2021, we have Naturally Fierce Perfume ready for international dis- tribution and in the second half of 2021, we have a new pillar ready for launch. Abercrombie & Fitch believes that every day should feel as exceptional as the start of the long weekend. Since 1892, the brand has been a specialty retailer of quality apparel, outer- wear and fragrance – designed to inspire our global customers to feel conﬁdent, be comfortable and face their Fierce. the products 17 Abercrombie & Fitch Naturally Fierce 18 In 2011, we entered into an exclusive worldwide fragrance license to create, produce and distribute fragrances and fra- grance related products under the Anna Sui brand. We work in partnership with American designer, Anna Sui, and her cre- ative team to build upon the brand’s growing customer appeal, 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. The successful launch in 2017 of Fantasia by Anna Sui to- gether with the beneﬁts that accrued from our continued com- mitment to advertising and marketing, produced a signiﬁcant increase in 2018 brand sales. Brand sales declined modestly in 2019, as new product launches were primarily brand exten- sions. The COVID-19 pandemic, which resulted in retail store closings and a virtual shutdown of travel retail, signiﬁcantly affected Anna Sui brand sales in 2020. A recovery began in late 2020, and to take advantage of markets reopening, we began the initial rollout of our newest Anna Sui fragrance, Sky by Anna Sui in China and Hong Kong. For 2021, we plan a broader distribution of Anna Sui Sky throughout Asia. the products 19 Anna Sui Sky 20 In 2010, we entered into an exclusive 15-year worldwide li- cense agreement for the creation, development and distri- bution 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 li- cense from global brand leaders, fragrances and sunglass- es. Currently Boucheron operates through over 40 boutiques worldwide as well as an e-commerce site. Boucheron brand sales continue to be driven by legacy scents Boucheron Femme and Boucheron Homme as well as its leg- endary Jaipur lines. A scent collection was launched under the Boucheron brand in 2017, and additional scents are added annually. In 2019, two new fragrances, Boucheron Fleurs and Boucheron Quatre en Rouge, were added to the Boucheron collection. For 2020, we added Rose D’Isparta and Serpent Boheme and for 2021, Quatre en Bleu and Cuir de Venise will be making their debuts. the products 21 Boucheron Quatre en Bleu 22 In 2015, we entered into an exclusive 11-year worldwide license to create, produce and distribute new men’s and women’s fra- grances 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 branded products are sold worldwide through Coach stores, select department stores and specialty stores, and through Coach’s website. In 2016, we launched our ﬁrst Coach fragrance, a women’s scent, and in 2017, a men’s scent, both of which have quick- ly become top selling prestige fragrances. 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. In 2020 we launched a new Coach women’s scent, Coach Dreams. We also have a new fragrance, Dreams Sunset, which is scheduled to debut in 2021. Coach is part of the Tapestry house of brands. the products 23 Coach Coach Blue 24 In 2012, we entered into an exclusive 10-year worldwide fra- grance 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 a new Dunhill scent, Icon, the success of which has made the Dunhill brand one of the stars within our United States based operations at that time. Building upon the established success of the Icon fragrance family, we launched several product extensions in 2017 and 2018. In 2019, the Dunhill Signature Collection debuted exclusively at Har- rod’s followed by a global rollout, and brand extensions dom- inated for Dunhill in 2020. For 2021, we have a completely new fragrance family for Dunhill called Driven. the products 25 Dunhill Icon Racing 26 In 2018, the Company entered into an exclusive, 8-year world- wide 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. For Graff, a six-scent collection for women, Lesedi La Rona, debuted exclusively at Harrods beginning in March 2020. The exclusive was extended through 2020 as a result of the interruption from mandatory store closings at various times throughout 2020. In 2021, a select market rollout will begin in the Middle East, with selective luxury distribution limited to only the most exclusive, upmarket retail outlets. In 2021, we have two new scents in the works for the Lesedi La Rona collection. the products 27 Graff Lesedi La Rona Fragrances 28 In 2018, the Company entered into an exclusive, 15-year worldwide license agreement with GUESS?, Inc. for the cre- ation, development and distribution of fragrances under the GUESS brand. 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 lifestyle collection of contemporary apparel, denim, hand- bags, watches, footwear and other related consumer prod- ucts. GUESS products are distributed through branded GUESS stores as well as better department and specialty stores around the world. This license took effect on April 1, 2018 and we began selling GUESS legacy scents in 2018. In 2019 the GUESS brand quickly became the largest within our U.S. operations, with legacy fra- grances dominating the sales mix. In 2019, we began shipments of 1981 Los Angeles and Seductive Noir, both ﬂankers of estab- lished scents, which accelerated brand growth further. Nearly three years in the making, our ﬁrst new blockbust- er scent, Bella Vita, will debut for the GUESS brand both do- mestically and internationally in 2021. In addition, a new men’s grooming and fragrance collection is now scheduled for a spring 2021 launch. the products 29 Guess Bella Vita 30 We have a worldwide license to create, produce and distrib- ute new fragrances and fragrance related products under the Hollister brand name. The Company distributes these fragrances internationally in specialty stores, high-end de- partment 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 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. In 2019, we launched the Wave limited edition duo, plus our ﬁrst Festival brand extension, Festival Nite. For 2020, we released Canyon Escape for men and women in select markets, with the global rollout planned for the ﬁrst quarter of 2021. 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 Canyon Escape 32 In 2009, we entered into an exclusive 12-year worldwide li- cense agreement for the creation, development and distribu- tion of fragrances under the Jimmy Choo brand, and in 2017, we extended the 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. Management at Jimmy Choo shares a vision to create one of the world’s most treasured luxu- ry brands. Jimmy Choo has a global store network encompass- ing more than 200 stores and is present in the most prestigious department and specialty stores worldwide. Jimmy Choo is part of the Capri Holdings Limited luxury fashion group. Our ﬁrst fragrance under the Jimmy Choo brand, a women’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. 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 women’s signature scent and Jimmy Choo Man, we successfully launched Jimmy Choo L’Eau for women and Jimmy Choo Man Ice. In 2018 we released another men’s ﬂanker, Jimmy Choo Man Blue, and the brand’s women’s signa- ture scent added Jimmy Choo Fever. During 2019, we introduced a Jimmy Choo Floral line, and an entirely new scent for men, Jimmy Choo Urban Hero, launched late in the year. For 2020, we expanded our product line to include a lipstick and nail pol- ish line, and our new women’s fragrance, I Want Choo is being launched in 2021. Lastly, we will also be adding four new lip- sticks to our Jimmy Choo makeup line in 2021. the products 33 Jimmy Choo I Want Choo 34 In 2012, we entered into a 20-year worldwide license agree- ment with Karl Lagerfeld B.V., the internationally renowned haute couture fashion house, to create, produce and distribute fragrances under the Karl Lagerfeld brand. Under the creative direction of the late Karl Lagerfeld, one of the world’s most inﬂuential and iconic designers, the Lagerfeld Portfolio represents a modern approach to distri- bution, 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 instituted new pric- ing with the launch of a new duo called Les Parfums Matières. Building on excellent sales results of the initial scents, in the second half of 2018, we expanded the Les Parfums Matières line with another fragrance duo, and in 2019, we added new scents to the brand’s expanding multi-scent collection. In 2021, Karl Cities, a new collection, is being prepared. the products 35 KARL_CityCollection_Duo_POS_141.indd 1 Karl Lagerfeld Karl Cities 05/02/2020 16:14 36 In 2019, we entered into an exclusive, 11-year worldwide li- cense agreement with Kate Spade New York to create, produce and distribute new perfumes and fragrance-related products under the Kate Spade brand. We will distribute these fragranc- es globally to department and specialty stores and duty free shops, as well as in Kate Spade New York retail stores. Our ﬁrst original scent, Kate Spade, debuted in January 2021. Since its launch in 1993 with a collection of six essential handbags, Kate Spade New York has always stood for opti- mistic femininity. Today, the brand is a global life and style house with handbags, ready-to-wear, jewelry, footwear, gifts, home décor and more. Polished ease, thoughtful details and a modern, sophisticated use of color—Kate Spade New York’s founding principles deﬁne a unique style synonymous with joy. Under the vision of its creative director, the brand continues to celebrate conﬁdent women with a youthful spirit. Kate Spade New York is part of the Tapestry house of brands. the products 37 THE NEW FRAGRANCE Kate Spade Kate Spade 38 In 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 fragrances occupy an important position in the se- lective 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, Modern Princess and A Girl in Ca- pri. Our Éclat d’Arpège line accounts for almost 50% of brand sales. We debuted a new scent called A Girl in Capri in 2019, and also introduced a new ﬂanker, Éclat d’Arpège Sheer in the second half of 2020. Mon Éclat, a new fragrance, is scheduled for a second half 2021 release. the products 39 Lanvin A Girl in Capri 40 In 2019, we entered into an exclusive, 10-year worldwide license agreement with German luxury fashion house MCM for the cre- ation, development and distribution of fragrances under the MCM brand. The agreement has a 4-year automatic renewal option, potentially extending the license until December 31, 2034. Fusing modern German craftsmanship and the traditional art of French perfumery, Inter Parfums will develop exception- al fragrances for women and men that will celebrate the bold- ness, attitude and essence of MCM which deﬁned the brand since its birth in Munich. The long-term collaboration will thrive on innovation with a passionate, tailor-made approach built on a mastery of fragrance expertise. Positioned in the prestige ﬁne fragrance arena, MCM fragrances will fuse luxury with an expressive spirit of originality and optimism. Every de- tail will enhance MCM’s identity, transcending perfumery with elegance and excellence. Our plan is to develop extraordinary fragrances for women and men that capture the creative spirit of MCM, with our ﬁrst new fragrance, MCM, targeted for a ﬁrst quarter of 2021 launch. We expect our distribution strategy to include MCM stores, high-end department stores and prestige beauty retailers, with a geographic focus on Asia, the Americas and Europe. the products 41 MCM MCM 42 In June 2020, the Company entered into an exclusive, 5-year worldwide license agreement with a potential 5-year extension with Moncler for the creation, development and distribution of fragrances under the Moncler brand. Our rights under this li- cense are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. Moncler is a company born in the mountains. Born to face extremes. A company whose nature makes it impossible to stand still. Founded in 1952 in Monestier-de-Clermont, a small village near Grenoble, out of a need to create functional and protective mountain wear, it has evolved with the times to be- come a pioneer of embracing garments at the forefront of in- novation and style. Moncler makes clothing that goes beyond generations, beyond fashion and beyond luxury, and is known for its quality and creativity, while maintaining its heritage at all times. It constantly breaks conventions, welcoming differ- ent voices in and stimulating a cross-fertilization of ideas and knowledge. Our first fragrance launch for the Moncler brand is scheduled for the first quarter of 2022. 43 Moncler 44 In 2010, we entered into an exclusive license agreement to cre- ate, develop and distribute fragrances and fragrance related products under the Montblanc brand. In 2015, we extended the agreement which now runs through December 31, 2025. 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 design, tradition and master craftsmanship. Through its lead- ership positions in writing instruments, watches and leather goods, promising growth outlook in women’s jewelry, inter- national retail footprint through its network of more than 600 boutiques, high standards of product design and quality, Mont- blanc has grown to be our largest fragrance brand. In 2011, we launched our first new Montblanc fragrance, Legend, which quickly became our best-selling men’s line. In 2014, we launched our second men’s line, Emblem. The Emblem line was expanded in 2015 to include Montblanc Emblem Intense and in 2016, we further extended our suc- cessful Montblanc Legend line with another 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. In 2019, we unveiled Montblanc Explorer, a new men’s scent, with distribution in all geographic markets around the globe. For 2020, we intro- duced an eau de parfum version of Legend which debuted in the fall, and in 2021, we have a new flanker ready for market, Explorer Ultra Blue. the products 45 Montblanc Explorer Ultra Blue 46 In 2013, we entered into an exclusive worldwide license to create, produce and distribute fragrances and fragrance re- lated products under the Oscar de la Renta brand. In 2019, the agreement was extended through December 31, 2031, with an additional ﬁve-year option potentially extending the agreement through December 31, 2036. 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. Oscar de la Renta Bella Blanca, a new Oscar de la Renta scent, debuted in early 2018, and the Bella Rosa ﬂanker was introduced in 2019. In 2020, the Oscar de la Renta Bella pillar added Bella Essence to the family tree. Debuting in 2021 we have a completely new fragrance for Oscar de la Renta, Alibi. 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, children’s wear, 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 47 Oscar de la Renta Alibi 48 In 2017, the Company renewed its license agreement for an additional four years with Paul Smith for the creation, de- velopment, 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 Men, Paul Smith Women, Paul Smith London, Paul Smith Rose and Paul Smith Extrême, for men and women. the products 49 Paul Smith London 50 In 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, danc- er 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 sig- nature style ranging from dance shoes, ballet slippers, ﬂat shoes, sandals, 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. Despite this brand’s success with footwear, handbags and high-end acces- sories, fragrance sales have been modest. the products 51 Repetto Dance with Repetto 52 In 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 perfum- ery in the 1950s under Hélène Rochas’ direction. This trans- action 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 his- tory by integrating for the ﬁrst time both fragrances and fashion, allowing us to apply a global approach to managing a fragrance brand with complete freedom in terms of creativ- ity and aesthetic choices. At the same time, we enjoy a very high degree of visibility establishing a position of even greater preeminence for Rochas in the luxury goods universe. Rochas brand sales currently include approximately $2.2 million of royalties generated by the fashion and accessory business via its portfolio 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 debuted ﬂankers for Eau de Ro- chas and Mademoiselle Rochas and in late 2018, we launched our ﬁrst new men’s line, Rochas Moustache. In 2019, a sea- sonal limited edition called Escapade Exotique came to mar- ket, as well as the debut of Mademoiselle Rochas Couture. A new women’s line, Byzance, debuted in early 2020. For 2021, we have a new two new fragrances debuting, Rochas Girl in the ﬁrst half of the year, and later in the year, a ﬂanker for the L’Homme Rochas collections. the products 53 MADEMOISELLE_ROCHAS_IN_BLACK_STILL_LIFE_ADV_141_A4.indd 1 10/04/2020 17:42 Rochas Mademoiselle Rochas in Black 54 In 1997, we signed an exclusive worldwide license agreement with S.T. Dupont for the creation, manufacture and distribu- tion of S.T. Dupont fragrances. The license agreement had been renewed several times and is now renewed annually, 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 pour Femme, S.T. Dupont pour Homme, S.T. Dupont Essence Pure and S.T. Dupont Collection. the products 55 S.T. Dupont Be Exceptional 56 In 2018, the Company renewed its license agreement for an additional six years with Van Cleef & Arpels for the creation, 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 introduce new addi- tions to the Van Cleef & Arpels Collection Extraordinaire as- sortment annually, including Oud Blanc, in 2020. We have new additions to the Collection Extraordinaire, including Rêve de Matière unveiling in 2021. the products 57 CE_OrchidLeather_POS_141.indd 1 Van Cleef & Arpels Collection Extraordinaire, Orchid Leather 17/12/2020 10:37 58 Abercrombie & Fitch Away quaterly ﬁnancial data 59 QUARTERLY DATA: (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 2020 (In thousands, except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Net Sales Gross Margin Net Income Net Income Attributable to $144,824 89,041 13,299 $49,506 26,844 (2,983) $160,637 97,198 21,852 $184,042 117,648 17,800 Full Year $539,009 330,731 49,968 Inter Parfums, Inc. 10,059 (3,118) 16,538 14,740 38,219 Net Income Attributable to Inter Parfums, Inc. per Share: Basic Diluted Weighted Average Common Shares Outstanding: Basic Diluted $0.32 $0.32 31,530 31,708 $(0.10) $(0.10) 31,532 31,532 $0.52 $0.52 $0.47 $0.47 31,533 31,619 31,552 31,666 $1.21 $1.21 31,537 31,655 QUARTERLY DATA: (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 2019 (In thousands, except per share data) Net Sales Gross Margin Net Income Net Income Attributable to 1st Quarter $178,242 2nd Quarter $166,242 3rd Quarter $191,227 109,841 24,978 106,974 15,600 114,437 26,658 4th Quarter $177,803 114,684 8,834 Full Year $713,514 445,936 76,070 Inter Parfums, Inc. 18,894 12,318 20,848 8,189 60,249 Net Income Attributable to Inter Parfums, Inc. per Share: Basic Diluted Weighted Average Common Shares Outstanding: Basic Diluted $0.60 $0.60 31,431 31,679 $0.39 $0.39 31,449 31,687 $0.66 $0.66 31,452 31,676 $0.26 $0.26 31,473 31,713 $1.92 $1.90 31,451 31,689 60 CONSOLIDATED NET SALES TO CUSTOMERS BY REGION (in millions) Year Ended December 31, North America Western Europe Asia Middle East Eastern Europe Central and South America Other 2020 $193.5 147.1 79.7 46.8 33.1 32.5 6.3 $539.0 2019 $235.5 2018 $210.5 185.5 110.9 72.6 55.2 46.2 7.6 $713.5 180.9 113.4 59.3 52.8 51.7 7.0 675.6 CONSOLIDATED NET SALES TO CUSTOMERS IN MAJOR COUNTRIES ARE AS FOLLOWS: (in thousands) Year Ended December 31, United States France Russia United Kingdom 2020 $187,300 37,600 14,100 24,600 2019 $225,300 2018 $205,000 43,500 36,800 35,800 44,000 35,000 36,000 6161 62 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: Franck Moisio 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: Hervé 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: Hervé Bouillonnec 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 63 SIMPLIFIED CHART OF THE ORGANIZATION 45% PHILIPPE BENACIN JEAN MADAR 55% PUBLIC SHAREHOLDERS 100% 100% INTER PARFUMS HOLDINGS, SA INTER PARFUMS USA, LLC 73% 100% INTERPARFUMS SA [ EURONEXT - PARIS ] INTER PARFUMS USA HONG KONG LTD rparfums srl (italy) 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 64 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 CORPORATE AND MARKET INFORMATION DIRECTORS AND EXECUTIVE OFFICERS 65 75 76 78 83 99 100 management’s discussion and analysis of ﬁnancial condition and results of operations 65 Management’s Discussion And Analysis Of Financial Condition And Results Of Operations 2020 2019 2018 19% 22% Years ended December 31, Montblanc Coach Jimmy Choo 21% 17% 16% GUESS (license commenced April 1, 2018) Lanvin 11% 7% 14% 16% 10% 8% 15% 17% n/a 10% Quarterly sales ﬂuctuations are inﬂuenced by the timing of new product launches as well as the third and fourth quarter holiday season. In certain markets where we sell directly to retailers, seasonality is more evident. We sell directly to re- tailers in France as well as through our own distribution sub- MANAGEMENT’S DISCUSSION AND ANALYSIS sidiaries in Italy, Spain and the United States. OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licens- We operate in the fragrance business, and manufacture, market es or other arrangements or out-right acquisitions of brands. and distribute a wide array of fragrances and fragrance related Second, we grow through the introduction of new products and products. We manage our business in two segments, European by supporting new and established products through advertis- based operations and United States based operations. Certain ing, merchandising and sampling as well as by phasing out un- prestige fragrance products are produced and marketed by our derperforming products so we can devote greater resources to European operations through our 73% owned subsidiary in Paris, those products with greater potential. The economics of devel- Interparfums SA, which is also a publicly traded company as 27% oping, producing, launching and supporting products inﬂuence of Interparfums SA shares trade on the NYSE Euronext. our sales and operating performance each year. Our introduc- We produce and distribute our European based fragrance tion of new products may have some cannibalizing effect on products primarily under license agreements with brand own- sales of existing products, which we take into account in our ers, and European based fragrance product sales represented business planning. approximately 78%, 76% and 80% of net sales for 2020, 2019 Our business is not capital intensive, and it is important to and 2018, respectively. We have built a portfolio of prestige note that we do not own manufacturing facilities. We act as a brands, which include Boucheron, Coach, Jimmy Choo, Karl general contractor and source our needed components from Lagerfeld, Kate Spade New York, Lanvin, Moncler, Montblanc, our suppliers. These components are received at one of our Paul Smith, Repetto, Rochas, S.T. Dupont and Van Cleef & Ar- distribution centers and then, based upon production needs, pels, whose products are distributed in over 120 countries the components are sent to one of several third party ﬁllers, around the world. which manufacture the ﬁnished product for us and then deliver Through our United States operations, we also market fra- them to one of our distribution centers. grance and fragrance related products. United States operations As with any global business, many aspects of our operations represented 22%, 24% and 20% of net sales in 2020, 2019 and are subject to inﬂuences outside our control. We believe we have 2018, respectively. These fragrance products are sold primarily a strong brand portfolio with global reach and potential. As part pursuant to license or other agreements with the owners of the of our strategy, we plan to continue to make investments behind Abercrombie & Fitch, Anna Sui, bebe, Dunhill, French Connection, fast-growing markets and channels to grow market share. Graff, GUESS, Hollister, MCM and Oscar de la Renta brands. Our reported net sales are impacted by changes in foreign Substantially all of our prestige fragrance brands are licensed currency exchange rates. A strong U.S. dollar has a negative from unafﬁliated third parties, and our business is dependent impact on our net sales. However, earnings are positively af- upon the continuation and renewal of such licenses. With respect fected by a strong dollar, because over 45% of net sales of our to the Company’s largest brands, Lanvin brand name for our European operations are denominated in U.S. dollars, while class of trade, and we license the Montblanc, Jimmy Choo, Coach almost all costs of our European operations are incurred in and GUESS brand names. As a percentage of net sales, product euro. Conversely, a weak U.S. dollar has a favorable impact sales for the Company’s largest brands were as follows: on our net sales while gross margins are negatively affected. 66 We address certain ﬁnancial exposures through a controlled this trend to continue, however, we do not see a resurgence program of risk management that includes the use of deriv- anytime soon in travel retail as air trafﬁc continues to suffer ative ﬁnancial instruments and primarily enter into foreign due in part to governmental restrictions on international air currency forward exchange contracts to reduce the effects of travel. In addition, the recent resurgence and introduction ﬂuctuating foreign currency exchange rates. of variants of COVID-19 cases in various parts of the world, IMPACT OF COVID-19 PANDEMIC including the United States, the United Kingdom and other countries in Europe, South America and Africa, has caused A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 temporary re-implementation of government restrictions to and has spread around the world, including to the United States prevent further spread of the virus. These include the tempo- and France. In March 2020, the World Health Organization rary closure of businesses deemed non-essential, travel bans declared COVID-19 a pandemic. The COVID-19 pandemic has and restrictions, social distancing and quarantines. Lastly, disrupted our business operations and caused a signiﬁcant un- the COVID-19 pandemic has led to high levels of unemploy- favorable impact on our results of operations. ment and deteriorating economic conditions in many countries In response to the COVID-19 pandemic various national, where our products are sold, forcing many consumers to lim- state, and local governments where we, our suppliers, and our it discretionary purchases. We believe that the impact of the customers operate initially issued decrees prohibiting certain COVID-19 pandemic will continue to have a material adverse businesses from continuing to operate and certain classes of effect on our results of our operations, ﬁnancial position and workers from reporting to work. More recently, those govern- cash ﬂows through at least the end of 2021. ments have set guidelines in allowing businesses to reopen Operationally, we are prepared for increased demand in the and employees to return to ofﬁces. Beginning in March 2020, post-COVID-19 environment, with business in Asia, Eastern we implemented travel restrictions and we have been follow- Europe and North America showing signs of a comeback. We ing social distancing practices. Our teams were set up to work have geared up to rapidly ﬁll the distribution channels as the from home and carry on business as efﬁciently as possible. In crisis subsides. In that regard, we have maintained reason- all jurisdictions in which we operate we have been following able inventory levels of components and ﬁnished goods, and guidance from authorities and health ofﬁcials in allowing our we are gaining local market intelligence from our distributors teams to gradually return to our ofﬁces, including, requiring and production capacity data from our suppliers. We do not personnel to wear masks and other protective clothing as anticipate any material impairment of trademarks, licenses appropriate, and implementing additional cleaning and sani- and other intangible assets. tization routines at our ofﬁces and distribution centers as the Our conservative ﬁnancial tradition has enabled us to amass health and safety of our employees are paramount. and maintain hefty cash balances and nominal long-term debt The effects of the COVID-19 pandemic on the beauty indus- levels when this pandemic began. Nonetheless, we took several try began in early March 2020. Retail store closings, event can- actions to minimize expenses and protect cash ﬂow. Our operating cellations and a shutdown of international air travel brought cost structure, of which variable costs typically accounts for over our sales to a virtual standstill. The duration and intensity of two-thirds, has enabled us to minimize the impact of reduced net this global health emergency and its related disruptions are sales on our bottom line. In that regard, we postponed the launch uncertain. Beginning in June 2020, retail stores in many ju- of several programs originally scheduled for 2020 until 2021 and risdictions around the world began reopening and business moved related advertising and promotion expenses to 2021 as well. has improved considerably. However, international travel has That includes our planned launches for the Kate Spade New York, remained largely curtailed globally due to both government Jimmy Choo, Anna Sui and GUESS brands. We also took several restrictions and consumer health concerns that continue to actions with an eye toward minimizing ﬁxed expenses. While we adversely impact consumer trafﬁc in most travel retail loca- did not terminate or furlough any employees, we did institute a hir- tions. We anticipate that limited trafﬁc in reopened stores and ing freeze and signiﬁcantly cut bonuses for 2020. We also tempo- the virtual shutdown of international air trafﬁc will continue to rarily suspended our quarterly cash dividend. These actions have have an unfavorable impact our business. had a favorable impact on the Company’s ﬁxed expenditures and We faced signiﬁcant challenges in 2020 and we anticipate cash ﬂow. Furthermore, our cash and credit management teams, that these challenges will continue in 2021 due to uncertain together with our executive management teams, paid particular market conditions. Business signiﬁcantly improved during the attention to the management of working capital. As a result of the second half of 2020, as retail stores began reopening and con- above, we did not experience any short-term liquidity problem or sumers have increased their on-line purchasing. We expect incur any signiﬁcant credit losses. management’s discussion and analysis of ﬁnancial condition and results of operations 67 RECENT IMPORTANT EVENTS Anna Sui Corp. In January 2021, we renewed our license agreement with Anna with Moncler for the creation, development and distribution of fragrances under the Moncler brand. Our rights under this license are subject to certain minimum advertising expendi- Sui Corp. for the creation, development and distribution of tures and royalty payments as are customary in our industry. fragrance products through December 31, 2026, without any Moncler was founded at Monestier-de-Clermont, Grenoble, material changes in terms and conditions. Our initial 10-year France, in 1952 and is currently headquartered in Italy. Over license agreement with Anna Sui Corp. was signed in 2011. The the years, the brand has combined style with constant tech- renewal agreement also allows for an additional 5-year term nological research assisted by experts in activities linked to through 2031 at the option of the Company. the world of the mountain. The Moncler outerwear collections Building Acquisition Future Headquarters in Paris In December 2020, our majority owned Paris-based subsidi- marry the extreme demands of nature with those of city life. Our ﬁrst fragrance launch for the Moncler brand is scheduled for the ﬁrst quarter of 2022. ary, Interparfums SA, signed a purchase contract, subject to certain conditions, to acquire an ofﬁce building complex for its S.T. Dupont In January 2021, we renewed our license agreement with S.T. exclusive use as its future headquarters located in the heart Dupont for the creation, development and distribution of fra- of Paris. In order to maintain our current cash position, it is grance products through December 31, 2022, without any mate- expected that approximately 90% of the Ð125 million ($153 rial changes in terms and conditions. Our initial 11-year license million) purchase price, excluding taxes and related expenses, agreement with S.T. Dupont was signed in June 1997 and had will be ﬁnanced by a bank loan. The transaction is expected to previously been extended through December 31, 2020. be completed in the spring of this year with the move planned for the end of 2021 or the beginning of 2022. DISCUSSION OF CRITICAL ACCOUNTING POLICIES This acquisition is a unique opportunity with beneﬁts to be We make estimates and assumptions in the preparation of our ﬁ- realized over the long-term. Owning our corporate headquar- nancial statements in conformity with accounting principles gener- ters in a very prestigious part of Paris, and customizing the ally accepted in the United States of America. Actual results could complex for our European operations, will enhance our repu- differ signiﬁcantly from those estimates under different assump- tation, provide an exceptional work environment, as well as a tions and conditions. We believe the following discussion addresses welcoming and productive atmosphere for our suppliers, dis- our most critical accounting policies, which are those that are most tributors and licensors. important to the portrayal of our ﬁnancial condition and results of operations. These accounting policies generally require our man- Origines-Parfums In June 2020, the Company through its 73% owned subsidiary, agement’s most difﬁcult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are Interparfums SA, and Divabox SAS (“Divabox”), owner of the inherently uncertain. Management of the Company has discussed Origines-parfums e-commerce platform for beauty products, the selection of signiﬁcant accounting policies and the effect of esti- signed a strategic agreement and equity investment pursuant to mates with the Audit Committee of the Board of Directors. which we acquired 25% of Divabox capital for $14.0 million, through a capital increase. In connection with the acquisition, the Company entered into a $13.4 million term loan, which has been amended Sales Returns Generally, we do not permit customers to return their unsold such that the loan was repaid in full in February 2021. As a website products. However, for U.S. based customers, we allow returns of reference for all selective fragrance brands, Origines-parfums if properly requested, authorized and approved. We regularly is a key French player in the online beauty market recognized for review and revise, as deemed necessary, our estimate of re- its customer relationship expertise. This agreement should en- serves for future sales returns based primarily upon historic hance the introduction of dedicated fragrance lines and products trends and relevant current data, including information provid- designed to address a speciﬁc consumer demand for this distribu- ed by retailers regarding their inventory levels. In addition, as tion channel and accelerate our digital development. necessary, speciﬁc accruals may be established for signiﬁcant Moncler In June 2020, the Company entered into an exclusive, 5-year ticipated events that we consider include, but are not limited to, the ﬁnancial condition of our customers, store closings by worldwide license agreement with a potential 5-year extension retailers, changes in the retail environment and our decision to future known or anticipated events. The types of known or an- 68 continue to support new and existing products. We record our Intangible assets subject to amortization are evaluated for estimate of potential sales returns as a reduction of sales and impairment testing whenever events or changes in circum- cost of sales with corresponding entries to accrued expenses, to stances indicate that the carrying amount of an amortizable record the refund liability, and inventory, for the right to recover intangible asset may not be recoverable. If impairment indica- goods from the customer. Returned products are valued based tors exist for an amortizable intangible asset, the undiscount- upon their estimated realizable value. The physical condition ed future cash ﬂows associated with the expected service and marketability of returned products are the major factors potential of the asset are compared to the carrying value of we consider in estimating realizable value. Actual returns, as the asset. If our projection of undiscounted future cash ﬂows well as estimated realizable values of returned products, may is in excess of the carrying value of the intangible asset, no im- differ signiﬁcantly, either favorably or unfavorably, from our es- pairment charge is recorded. If our projection of undiscounted timates, if factors such as economic conditions, inventory levels future cash ﬂows is less than the carrying value of the intangi- or competitive conditions differ from our expectations. ble asset, an impairment charge would be recorded to reduce the intangible asset to its fair value. The cash ﬂow projections Long-Lived Assets We evaluate indeﬁnite-lived intangible assets for impairment are based upon a number of assumptions, including future sales levels and future cost of goods and operating expense at least annually during the fourth quarter, or more frequently levels, as well as economic conditions, changes to our busi- when events occur or circumstances change, such as an un- ness model or changes in consumer acceptance of our prod- expected decline in sales, that would more likely than not in- ucts which are more subjective in nature. In those cases where dicate that the carrying value of an indeﬁnite-lived intangible we determine that the useful life of long-lived assets should asset may not be recoverable. When testing indeﬁnite-lived in- be shortened, we would amortize the net book value in excess tangible assets for impairment, the evaluation requires a com- of the salvage value (after testing for impairment as described parison of the estimated fair value of the asset to the carrying above), over the revised remaining useful life of such asset value of the asset. The fair values used in our evaluations are thereby increasing amortization expense. We believe that the estimated based upon discounted future cash ﬂow projections assumptions we have made in projecting future cash ﬂows for using a weighted average cost of capital of 6.99%. The cash the evaluations described above are reasonable. ﬂow projections are based upon a number of assumptions, in- In determining the useful life of our Lanvin brand names and cluding, future sales levels and future cost of goods and oper- trademarks, we applied the provisions of ASC topic 350-30-35- ating expense levels, as well as economic conditions, changes 3. The only factor that prevented us from determining that the to our business model or changes in consumer acceptance of Lanvin brand names and trademarks were indeﬁnite life intan- our products which are more subjective in nature. If the carry- gible assets was Item c. “Any legal, regulatory, or contractual ing value of an indeﬁnite-lived intangible asset exceeds its fair provisions that may limit the useful life.” The existence of a re- value, an impairment charge is recorded. purchase option in 2025 may limit the useful life of the Lanvin We believe that the assumptions we have made in projecting brand names and trademarks to the Company. However, this future cash ﬂows for the evaluations described above are reason- limitation would only take effect if the repurchase option were able. However, if future actual results do not meet our expecta- to be exercised and the repurchase price was paid. If the re- tions, we may be required to record an impairment charge, the purchase option is not exercised, then the Lanvin brand names amount of which could be material to our results of operations. and trademarks are expected to continue to contribute directly At December 31, 2020 indeﬁnite-lived intangible assets ag- to the future cash ﬂows of our Company and their useful life gregated $132.0 million. The following table presents the im- would be considered to be indeﬁnite. pact a change in the following signiﬁcant assumptions would With respect to the application of ASC topic 350-30-35-8, the have had on the calculated fair value in 2020 assuming all oth- Lanvin brand names and trademarks would only have a ﬁnite life er assumptions remained constant: to our Company if the repurchase option were exercised, and in Increase (decrease) $ in millions Change to fair value Weighted average cost of capital Weighted average cost of capital Future sales levels Future sales levels +10% $(11.3) $12.5 −10% $15.0 +10% $(15.0) −10% applying ASC topic 350-30-35-8, we assumed that the repur- chase option is exercised. When exercised, Lanvin has an obliga- tion to pay the exercise price and the Company would be required to convey the Lanvin brand names and trademarks back to Lan- vin. The exercise price to be received (Residual Value) is well in excess of the carrying value of the Lanvin brand names and trademarks, therefore no amortization is required. management’s discussion and analysis of ﬁnancial condition and results of operations 69 RESULTS OF OPERATIONS Net Sales (in millions) Years Ended December 31, European-based product sales United States-based product sales Total net sales 2020 $422.9 116.1 $539.0 % Change (22)% (32)% (24)% 2019 $542.1 171.4 $713.5 % Change 1% 24% 6% 2018 $537.6 138.0 $675.6 Net sales decreased 24% in 2020 to $539.0 million, as compared to $713.5 million in 2019. At comparable foreign currency ex- change rates, net sales decreased 26%. Net sales increased 6% in 2019 to $713.5 million, as compared to $675.6 million in 2018. At comparable foreign currency exchange rates, net sales increased 8%. The average U.S. dollar/euro exchange rates were 1.15 in 2020 and 1.12 in 2019 and 1.18 in 2018. European based product sales decreased 22% in 2020 to $422.9 million, as compared to $542.1 million in 2019. At comparable foreign currency exchange rates, European based product sales decreased 23% in 2020. European based product sales increased 1% in 2019 to $542.1 million, as compared to $537.6 million in 2018. At comparable foreign currency exchange rates, European based product sales increased 4% in 2019. United States based product sales decreased 32% in 2020 to $116.1 million, as compared to $171.4 million in 2019. United States based product sales increased 24% in 2019 to $171.4 million, as compared to $138.0 million in 2018. As previously mentioned, the effects of the COVID-19 pandemic on the beauty industry began in early March 2020. Retail store closings, event cancellations and a shutdown of international air travel brought our sales to a virtual standstill. However, business began rebounding better than anticipated. Since the early days of the pandemic, our sales have increased sequentially, thanks to store re-openings and a robust e-commerce business being conducted by our retail customers. However, international travel has remained largely curtailed globally due to both government restrictions and consumer health concerns that continue to adversely impact consumer trafﬁc in most travel retail locations. For our European operations, fourth quarter 2020 sales increased 8% over fourth quarter 2019, a signiﬁcant improvement compared to the third quarter decline of 10% and the second quarter decline of 69%. Although we postponed our planned new product launches for Jimmy Choo and Kate Spade New York from 2020 to 2021, sales beneﬁtted from the favorable turnaround in several of our markets, notably Asia, Middle East and North America. Among our largest brands, comparable full year Montblanc and Jimmy Choo brand sales both de- clined 27%, which is also understood in the context of the high bars set in 2019 with the rollout of Montblanc’s Explorer and Jimmy Choo’s Urban Hero. Coach brand sales were just 4% below 2019’s as Coach brand sales beneﬁtted from the debut of Coach Dreams earlier in 2020. European based product sales came in as expected in 2019 despite ﬁghting a stronger dollar throughout the year. Our largest brand, Montblanc, grew full year sales by 23% with the excellent performance of the new Montblanc Explorer scent as well as the continued strength of the brand’s Legend fragrance family. In constant dollars, Jimmy Choo brand sales were up slightly. However, due to the strengthening of the dollar, Jimmy Choo brand sales were down nominally in actual dollars. Coach brand sales were also down slightly in 2019 in actual dollars but ahead of 2018 in constant dollars. Our United States based operations also saw a signiﬁcant improvement in sales as 2020 progressed. After the 75% decline in comparable second quarter 2020 product sales, the decline narrowed to 35% in the third quarter of 2020 and 9% in the fourth quar- ter of 2020. Although there has been dramatic improvement in our U.S. operations, sales have been hampered by the lack of new product launches this year. Notably, our largest U.S. brand, GUESS, saw its sales decline 18% as its Bella Vita blockbuster launch was rescheduled until 2021. We also postponed the launch of Anna Sui Sky, which together with the virtual shutdown of travel retail in Asia, resulted in a 47% decline in 2020 Anna Sui brand sales. United States based product sales increased 24% in 2019 to $171.4 million, as compared to $138.0 million in 2018. GUESS brand fragrances had an extraordinary year due to the addition of two brand extensions, 1981 Los Angeles and Seductive Noir, the continued popularity of legacy scents, and the success of our international distribution and marketing programs. Also contributing to the top line growth by U.S. operations were Abercrombie & Fitch and Hollister, both of which achieved signiﬁcant sales growth spurred by the launch of the Authentic fragrance duo for Abercrombie & Fitch, and brand extensions for the Wave and Festival fragrance families for Hollister. Oscar de la Renta fragrance sales rose slightly, supported by legacy scents and our growing Bella fragrance family. We maintain conﬁdence in our future as we plan to strengthen advertising and promotional investments supporting all portfolio brands, accelerate brand development and build upon the strength of our worldwide distribution network. Our 2021 new product 70 pipeline is abundant, with new entrants for our European rates as over 45% of our European based operations net sales is operations that include women’s scents for the Jimmy Choo, denominated in U.S. dollars, while most of our costs are incurred in Kate Spade, and Rochas brands. For U.S. operations, we have euro. From a margin standpoint, a strong U.S. dollar has a positive fragrance duos unveiling for the Abercrombie & Fitch and effect on our gross margin while a weak U.S. dollar has a negative Hollister brands, and women’s scents debuting for the Anna effect. The average dollar/euro exchange rate was 1.15 in 2020, as Sui, GUESS, MCM, and Oscar de la Renta brands, plus broader compared to 1.12 in 2019, and the weaker dollar in 2020 resulted in distribution of Anna Sui Sky throughout Asia is also planned. a small decline in our gross margin in 2020. Gross margin in 2020 Lastly, we hope to beneﬁt from our strong ﬁnancial position to also includes a charge of approximately $2.0 million relating to potentially acquire one or more brands, either on a proprietary the assumption of a return liability for products sold by the former basis or as a licensee. However, we cannot assure you that any licensee of a brand license entered into in 2019. new license or acquisition agreements will be consummated. The stronger dollar in 2019 resulted in a beneﬁt to our gross 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 2020 $193.5 147.1 79.7 46.8 33.1 32.5 6.3 $539.0 2019 $235.5 185.5 110.9 72.6 55.2 46.2 7.6 2018 $210.5 180.9 113.4 59.3 52.8 51.7 7.0 margin in 2019, however, our new Montblanc Explorer product line has a greater than typical cost of sales, which more than offset the beneﬁt of the stronger dollar. For United States operations, gross proﬁt margin was 51.8%, 52.5% and 51.4% in 2020, 2019 and 2018, respectively. With a decline in sales in 2020, certain expenses such as depreciation of tools and molds to- gether with the distribution of point of sale materials exaggerated the decline in gross margin for the year as a percentage of sales. In 2019, sales growth for our United States operations primarily came from increased sales of higher margin prestige products under licenses. Costs relating to purchase with purchase and gift with pur- $713.5 $675.6 chase promotions are reﬂected in cost of sales, and aggregated $26.4 million, $38.9 million and $36.4 million in 2020, 2019 and The impact of the COVID-19 pandemic broadly impacted all regions 2018, respectively, and represented 4.9%, 5.5% and 5.4% of net in 2020, with the steepest declines in the Middle East and Eastern sales, respectively. Europe. Travel retail accounted for much of the decline in the Asian Generally, we do not bill customers for shipping and handling market. This is in contrast to 2019, where virtually all regions reg- costs and such costs, which aggregated $5.0 million, $7.7 million istered growth for the year with only Central and South America and $7.1 million in 2020, 2019 and 2018, respectively, are included declining. Asia, which appears to be down slightly in 2019, is actual- in selling, general and administrative expenses in the consolidat- ly up in constant dollars. The strongest gains were achieved by the ed statements of income. As such, our Company’s gross margins Middle East, North America and Eastern Europe, which increased may not be comparable to other companies, which may include sales by 22%, 12% and 5%, respectively. these expenses as a component of cost of goods sold. Gross Margins (in millions) Years ended December 31, Net sales Cost of sales Gross margin Gross margin as 2020 $539.0 208.3 $330.7 Selling, General & Administrative Expenses (in millions) 2019 $713.5 267.6 2018 $675.6 248.0 Years ended December 31, Selling, general 2020 2019 2018 & administrative expenses $260.6 $341.2 $332.8 $445.9 $427.6 Selling, general & administrative expenses a percent of net sales 61.4% 62.5% 63.3% as a percent of net sales 48.4% 47.8% 49.3% As a percentage of net sales, gross proﬁt margin was 61.4%, 62.5%, Selling, general and administrative expenses decreased 23.6% and 63.3% in 2020, 2019 and 2018, respectively. For European in 2020 as compared to 2019, and increased 2.5% in 2019 as based operations, gross proﬁt margin as a percentage of net sales compared to 2018. As a percentage of sales, selling, general was 64.0%, 65.7% and 66.3% in 2020, 2019 and 2018, respective- and administrative expenses were 48.4%, 47.8% and 49.3% in ly. We carefully monitor movements in foreign currency exchange 2020, 2019 and 2018, respectively. For European operations, management’s discussion and analysis of ﬁnancial condition and results of operations 71 selling, general and administrative expenses declined 23.5% niﬁcantly reduce minimum guaranteed royalties for 2020. in 2020 and 1.0% in 2019, as compared to the corresponding Service fees, which are fees paid within our European opera- prior year period and represented 49.8%, 50.8% and 51.7% of tions to third parties relating to the activities of our distribution sales in 2020, 2019 and 2018, respectively. As discussed in subsidiaries, aggregated $6.8 million, $7.5 million and $9.7 million more detail below, the ﬂuctuations which are in line with the in 2020, 2019 and 2018, respectively. The 2020 decline is the result ﬂuctuations in sales for European operations, are primarily of lower sales volume and the 2019 decrease is the result of the from variations in promotion and advertising expenditures. discontinuation of certain European distribution subsidiaries, and Our operating cost structure, of which variable costs typically a return to a third party distribution model in those territories. account for over two-thirds, has enabled us to minimize the im- pact of reduced net sales on our bottom line. Due to the effects of the COVID-19 pandemic, a substantial portion of the reduction Income from Operations As a result of the above analysis regarding net sales, gross in selling, general and administrative expenses in 2020 were at- proﬁt margins and selling, general and administrative ex- tributable to the postponement of advertising and promotional penses, income from operations decreased 33.1% to $70.1 expenses to 2021, as substantially all major new product launch- million in 2020 as compared to $104.7 million in 2019, which es were postponed until 2021. In addition, we also undertook was an increase of 10.6% from $94.7 million in 2018. Operating several actions with an eye toward minimizing ﬁxed expenses. margins aggregated 13.0%, 14.7% and 14.0% for the years end- While we have maintained a full staff, we had instituted a hiring ed December 31, 2020, 2019 and 2018, respectively. Strong cost freeze and signiﬁcantly cut bonuses for 2020. controls in 2020 enabled us to minimize the impact of the sudden For United States operations, selling, general and adminis- drop in sales resulting from the COVID-19 pandemic. In 2019, trative expenses decreased 24.1% in 2020 and increased 20.2% small ﬂuctuations in gross margin were mitigated by small ﬂuc- in 2019, as compared to the corresponding prior year period tuations in selling, general and administrative expenses. and represented 43.1%, 38.5% and 39.8% of sales in 2020, 2019 and 2018, respectively. Our U.S. operations are signiﬁcantly smaller than those of our European operations and carry high- Other Income and Expenses Interest expense aggregated $2.0 million, $2.1 million and $2.6 er ﬁxed costs that could not be leveraged as efﬁciently as those million in 2020, 2019 and 2018, respectively. Interest expense is of our European operations with the decline in net sales. The primarily related to the ﬁnancing of brand and licensing acqui- 2019 increase, which is in line with the increase in sales, and sitions. We use the credit lines available to us, as needed, to ﬁ- is the result of royalties and promotional and advertising ex- nance our working capital needs as well as our ﬁnancing needs penses required under our license agreements. for acquisitions. Long-term debt including current maturities Promotion and advertising included in selling, general and ad- aggregated $24.7 million, $23.1 million and $46.1 million as of ministrative expenses aggregated $91.7 million, $144.6 million and December 31, 2020, 2019 and 2018, respectively. $139.7 million in 2020, 2019 and 2018, respectively. Promotion and Foreign currency losses aggregated $2.2 million, $1.1 mil- advertising as a percentage of sales represented 17.0%, 20.3% and lion and $0.3 million in 2020, 2019 and 2018, respectively. We 20.7% of net sales in 2020, 2019 and 2018, respectively. Although typically enter into foreign currency forward exchange con- promotion and advertising programs were cut in 2020 in response tracts to manage exposure related to receivables from unaf- to market conditions, we plan to continue to invest heavily in pro- ﬁliated third parties denominated in a foreign currency and motional spending to support new product launches and to build occasionally to manage risks related to future sales expected brand awareness. We anticipated that on a full year basis, promo- to be denominated in a foreign currency. Over 45% of 2020 net tion and advertising expenditure will aggregate approximately 21% sales of our European operations were denominated in U.S. of 2021 net sales, which is in line with historical averages. dollars. The weaker U.S. dollar in the fourth quarter of 2020 Royalty expense included in selling, general and administrative accounted for the loss on foreign currency as receivables de- expenses aggregated $41.1 million, $53.0 million and $48.9 million nominated in dollars were revalued to year end rates. in 2020, 2019 and 2018, respectively. Royalty expense as a percent- Interest income aggregated $2.9 million, $3.7 million and age of sales represented 7.6%, 7.4% and 7.2% of net sales in 2020, $4.0 million in 2020, 2019 and 2018, respectively. Cash and cash 2019 and 2018, respectively. The increase in 2020 and 2019, as a per- equivalents and short-term investments are primarily invested centage of sales, is directly related to new licenses and increased in certiﬁcates of deposit with varying maturities. royalty based product sales. As a result of the COVID-19 pandemic Other income, which aggregated $0.5 million, represents our we reached agreements with most of our licensors to waive or sig- share of the income of Divabox for the year ended December 31, 2020. 72 Income Taxes In December 2017, the U.S. government passed the Tax Cuts and Jobs Act (“the Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to reducing the U.S. federal corporate tax rate from 35% to 21% beginning in 2018, 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 took effect in 2018, including, but not limited to: (i) the reduction of the U.S. feder- al corporate tax rate discussed above; (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (iii) a provision designed to tax global intangible low-taxed income (“GILTI”); and (iv) a provision that allows a domestic corporation an immediate deduction for a portion of its foreign derived intangible income (“FDII”). The Company estimated of the effect of GILTI and has determined that it has no tax liability related to GILTI as of December 31, 2020, 2019 and 2018. The Company also estimated the effect of FDII and recorded a tax beneﬁt of $0.3 million, $0.9 million and $0.6 million as of December 31, 2020, 2019 and 2018, respectively. Our effective income tax rate was 28.0%, 27.7% and 27.3% in 2020, 2019 and 2018, respectively. 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. The French Tax Authority notiﬁed the Company that IP Suisse will be the subject of a tax audit covering the pe- riod January 1, 2010 through December 31, 2018. 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 accompa- nying 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 $5.8 million, net of recovery taxes already paid to the Swiss authorities, and excluding interest. In addition, 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 three-year period which began in 2020. Due to economic and political conditions, tax rates in the U.S. and various foreign jurisdictions have been and may be subject to signiﬁcant change. 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 2020 $41,814 8,154 49,968 11,749 $38,219 $1.21 1.21 2019 $56,343 19,727 76,070 15,821 $60,249 $1.92 1.90 2018 $56,469 13,246 69,715 15,922 $53,793 $1.72 1.71 31,536,659 31,654,544 31,451,093 31,688,700 31,307,991 31,522,371 Net income aggregated $50.0 million, $76.1 million and $69.7 million in 2020, 2019 and 2018, respectively. Net income attributable to European operations was $41.8 million, $56.3 million and $56.5 million in 2020, 2019 and 2018, respectively, while net income attributable to United States operations was $8.2 million, $19.7 million and $13.2 million in 2020, 2019 and 2018, respectively. The ﬂuctuations in net income for both European operations and United States operations are directly related to the previous discus- sions relating to changes in sales, gross proﬁt margins, selling, general and administrative expenses, most of which, in 2020, was caused by the effects of the COVID-19 pandemic. management’s discussion and analysis of ﬁnancial condition and results of operations 73 The noncontrolling interest arises primarily from our 73% The Company hopes to continue to beneﬁt from its strong owned subsidiary in Paris, Interparfums SA, which is also a pub- ﬁnancial position to potentially acquire one or more brands, ei- licly traded company as 27% of Interparfums SA shares trade on ther on a proprietary basis or as a licensee. Opportunities for the NYSE Euronext. Net income attributable to the noncontrolling external growth continue to be examined, with the priority of interest is related to the proﬁtability of our European opera- maintaining the quality and homogeneous nature of our port- tions, and aggregated 28.1% of European operations net income folio. However, we cannot assure you that any new license or in 2020 and 2019 and 28.2% and 2018. Net income attributable acquisition agreements will be consummated. to Inter Parfums, Inc. aggregated $38.2 million, $60.2 million Cash provided by operating activities aggregated $65.0 mil- and $53.8 million in 2020, 2019 and 2018, respectively. Net lion, $76.5 million, and $63.0 million in 2020, 2019 and 2018, margins attributable to Inter Parfums, Inc. aggregated 7.1%, respectively. In 2020, working capital items used $1.9 million in 8.4% and 8.0% in 2020, 2019 and 2018, respectively. cash from operating activities, as compared to $11.7 million in Liquidity and Capital Resources Our conservative ﬁnancial tradition has enabled us to amass 2019 and $20.9 million in 2018. We anticipated signiﬁcant chal- lenges in 2020 due to uncertain market conditions promulgat- ed by the COVID-19 pandemic. Since March 2020, retail stores signiﬁcant cash balances and nominal long-term debt. As of in several jurisdictions around the world began reopening and December 31, 2020, we had $296 million in cash, cash equiv- business is rebounding better than expected. Although, from a alents and short-term investments, most of which is held in cash ﬂow perspective, accounts receivable is down approxi- euro by our European operations and is readily convertible into mately 10% from that of the prior year, day’s sales outstanding U.S. dollars. We have not had any liquidity issues to date, and increased to 86 days in 2020, as compared to 69 days and 71 do not expect any liquidity issues relating to such cash and days in 2019 and 2018, respectively. In addition to a decline in cash equivalents and short-term investments. As of December net sales, the COVID-19 pandemic put tremendous pressure on 31, 2020, long-term debt aggregated only $10.1 million and many of our customers throughout 2020. We worked closely with we also have $51 million available in untapped credit facili- our customers and extended payment terms as necessary. How- ties. Nonetheless, in response to the COVID-19 pandemic, we ever, we did not incur any material losses in connection with the have taken several actions to minimize expenses and protect collection of accounts receivable. Although inventories also de- cash ﬂow. As discussed above, our operating cost structure, clined approximately 12% from that of the prior year, the decline of which variable costs in a typical year account for over two- in sales and the postponement of certain new product launches thirds, has enabled us to minimize the impact of reduced net had a signiﬁcant effect on inventory days on hand, which grew to sales on our bottom line. In that regard, we have postponed 277 days in 2020, as compared to 224 days in 2019 and 223 days the launch of several programs originally scheduled for this in 2018, respectively. With the upturn in sales in the second half year until 2021 and moved related advertising and promotion of 2020 expected to continue into 2021 and our aggressive prod- programs to 2021 as well. We have also taken several actions uct launch schedule for 2021, we believe our inventory levels are with an eye toward minimizing ﬁxed expenses. While we did not needed to support net sales expectations. terminate or furlough any employees, we did institute a hiring Our business is not capital intensive as we do not own any freeze and signiﬁcantly cut bonuses for 2020. In 2020, we also manufacturing facilities. On a full year basis, we spent approx- temporarily suspended our quarterly cash dividend. These imately $5.4 million on capital expenditures including tools actions have had a favorable impact on the Company’s ﬁxed and molds needed to support our new product development expenditures and cash ﬂow. Furthermore, our cash and credit calendar. Capital expenditures also include amounts for ofﬁce management teams together with our executive management ﬁxtures, computer equipment and industrial equipment needed teams paid particular attention to the management of working at our distribution centers. capital. As a result of the above, we have not experienced any In December 2020, our majority owned Paris-based subsid- short-term liquidity problems. iary, Interparfums SA, signed a purchase contract, subject to At December 31, 2020, working capital aggregated $445 certain conditions, to acquire an ofﬁce building complex for its million, and we had a working capital ratio of over 3.8 to 1. exclusive use as its future headquarters located in the heart of Approximately 86% of the Company’s total assets are held by Paris. In order to maintain our current cash position, it is ex- European operations including approximately $190 million of pected that approximately 90% of the €125 million ($153 million) trademarks, licenses and other intangible assets. purchase price, excluding taxes and related expenses, will be 74 management’s discussion and analysis of ﬁnancial condition and results of operations ﬁnanced by a bank loan. The transaction is expected to be completed in the spring of this year with the move planned for the end of 2021 or the beginning of 2022. A €6.25 million ($7.7 million) deposit was paid upon signing the purchase contract. In June 2020, the Company and Divabox, owner of the Origines-parfums e-commerce platform for beauty products, signed a strategic agreement and equity investment pursuant to which we acquired 25% of Divabox capital for $14 million through a capital increase. In connection with the acquisition, the Company entered into a $13.4 million term loan, which has been amended such that the loan was repaid in full in February 2021. Payments for licenses, trademarks and other intangible assets primarily represent upfront entry fees incurred in connection with new license agreements. Our short-term ﬁnancing requirements are expected to be met by available cash on hand at December 31, 2020, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2021 consist of a $20.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $30.7 million in credit lines provided by a consortium of international ﬁnancial institutions. There were no balances due from short-term borrowings as of December 31, 2020 and 2019. Purchase of subsidiary shares from noncontrolling interest primarily represents the purchase of treasury shares of Interpar- fums SA, which are expected to be issued to Interparfums SA employees pursuant to its Free Share Plan. In October 2018, our Board authorized a 31% increase in the annual dividend to $1.10 per share and in October 2019, our Board authorized a further 20% increase in the annual dividend to $1.32 per share. In April 2020, as a result of the uncertainties raised by the COVID-19 pandemic, the Board of Directors authorized a temporary suspension of the quarterly cash dividend. In February 2021, our Board of Directors authorized a reinstatement of an annual dividend of $1.00, payable quarterly. The quarterly cash dividend of $0.25 per share was payable on March 31, 2021 to shareholders of record on March 15, 2021. Dividends paid, including dividends paid once per year to noncontrolling stockholders of Interparfums SA, aggregated $21.1 million, $44.2 million and $35.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. The cash dividends to be paid in 2021 are not expected to have any signiﬁcant impact on our ﬁnancial position. We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufﬁcient resources to meet all present and reasonably foreseeable future operating needs. Inﬂation rates in the U.S. and foreign countries in which we operate did not have a signiﬁcant impact on operating results for the year ended December 31, 2020. Contractual Obligations The following table summarizes our contractual obligations over the periods indicated, as well as our total contractual obligations: ($ in thousands) Payments Due by Period Less than Years Contractual Obligations Total $24,706 1-year $14,569 2-3 $2,142 Year More than 5-years $5,853 4-5 $2,142 Long-Term Debt Lease Liabilities Purchase Obligations(1) Total $26,487 $1,398,964 $1,450,157 $5,568 $165,506 $185,643 $9,186 $330,849 $342,177 $6,856 $316,267 $325,265 $4,877 $586,342 $597,072 (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, 2020, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations. Quantitative Analysis During the three-year period ended December 31, 2020, we have not made any material changes in our assumptions underlying these critical accounting policies or to the related signiﬁcant estimates. The results of our business underlying these assumptions have not differed signiﬁcantly from our expectations. report on internal control over ﬁnancial reporting 75 While we believe the estimates we have made are proper and tive instrument will be recorded in other comprehensive income. the related results of operations for the period are presented fair- Before entering into a derivative transaction for hedging pur- ly in all material respects, other assumptions could reasonably poses, we determine that the change in the value of the derivative be justiﬁed that would change the amount of reported net sales, will effectively offset the change in the fair value of the hedged item cost of sales, and selling, general and administrative expenses as from a movement in foreign currency rates. Then, we measure the they relate to the provisions for anticipated sales returns, allow- effectiveness of each hedge throughout the hedged period. Any ance for doubtful accounts and inventory obsolescence reserves. hedge ineffectiveness is recognized in the income statement. For 2020, had these estimates been changed simultaneously by As of December 31, 2020, we had foreign currency con- 5% in either direction, our reported gross proﬁt would have in- tracts in the form of forward exchange contracts with notional creased or decreased by approximately $0.5 million and selling, amounts of approximately U.S. $22.4 million and GB £1.9 mil- general and administrative expenses would have changed by ap- lion which all have maturities of less than one year. We believe proximately $0.2 million. The collective impact of these changes that our risk of loss as the result of nonperformance by any of on 2020 operating income, net income attributable to Inter Par- such ﬁnancial institutions is remote. fums, Inc., and net income attributable to Inter Parfums, Inc. per diluted share would be an increase or decrease of approximately $0.7 million, $0.4 million and $0.01, respectively. Interest Rate Risk Management We mitigate interest rate risk by monitoring interest rates, and then determining whether ﬁxed interest rates should be QUANTITATIVE AND QUALITATIVE DISCLOSURES swapped for ﬂoating rate debt, or if ﬂoating rate debt should ABOUT MARKET RISK General We address certain ﬁnancial exposures through a controlled be swapped for ﬁxed rate debt. MANAGEMENT’S ANNUAL REPORT program of risk management that primarily consists of the use ON INTERNAL CONTROL OVER FINANCIAL REPORTING of derivative ﬁnancial instruments. We primarily enter into for- The management of Inter Parfums, Inc. is responsible for es- eign currency forward exchange contracts in order to reduce tablishing and maintaining adequate internal control over ﬁnan- the effects of ﬂuctuating foreign currency exchange rates. We cial reporting as deﬁned in Rule 13(a)-15(f) under the Securities do not engage in the trading of foreign currency forward ex- Exchange Act of 1934. With the participation of the Chief change contracts or interest rate swaps. Executive Ofﬁcer and the Chief Financial Ofﬁcer, our manage- ment conducted an evaluation of the effectiveness of our inter- Foreign Exchange Risk Management We periodically enter into foreign currency forward exchange nal control over ﬁnancial reporting based on the framework and criteria established in Internal Control – Integrated Framework contracts to hedge exposure related to receivables denominat- (2013), issued by the Committee of Sponsoring Organizations of ed in a foreign currency and to manage risks related to future the Treadway Commission. Based on this evaluation, our man- sales expected to be denominated in a currency other than our agement has concluded that our internal control over ﬁnancial functional currency. We enter into these exchange contracts reporting was effective as of December 31, 2020. for periods consistent with our identiﬁed exposures. The pur- Our independent auditor, Mazars USA LLP, a registered pose of the hedging activities is to minimize the effect of foreign public accounting firm, has issued its report on its audit of our exchange rate movements on the receivables and cash ﬂows internal control over financial reporting. This report appears of Interparfums SA, whose functional currency is the euro. All on the following page. foreign currency contracts are denominated in currencies of major industrial countries and are with large ﬁnancial institu- tions, which are rated as strong investment grade. All derivative instruments are required to be reﬂected as ei- ther assets or liabilities in the balance sheet measured at fair val- ue. Generally, increases or decreases in fair value of derivative instruments will be recognized as gains or losses in earnings in the period of change. If the derivative is designated and qualiﬁes as a cash ﬂow hedge, then the changes in fair value of the deriva- 76 report of independent registered public accounting ﬁrm REPORT OF INDEPENDENT REGISTERED We conducted our audits in accordance with the standards of PUBLIC ACCOUNTING FIRM To Shareholders and the Board of Directors of Inter Parfums, Inc. Opinions on the Financial Statements the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the ﬁ- nancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over and Internal Control over Financial Reporting ﬁnancial reporting was maintained in all material respects. We have audited the accompanying consolidated balance Our audits of the consolidated ﬁnancial statements includ- sheets of Inter Parfums, Inc. (the “Company”) as of December ed performing procedures to assess the risks of material mis- 31, 2020 and 2019, and the related consolidated statements statement of the consolidated ﬁnancial statements, whether of income, comprehensive income, shareholders’ equity, and due to error or fraud, and performing procedures that respond cash ﬂows for each of the years in the three-year period end- to those risks. Such procedures included examining, on a test ed December 31, 2020, and the related notes and the schedule basis, evidence regarding the amounts and disclosures in the listed in the Index in Item 15(a)(2) (collectively referred to as the consolidated ﬁnancial statements. Our audits also included “ﬁnancial statements”). We also have audited the Company’s in- evaluating the accounting principles used and signiﬁcant esti- ternal control over ﬁnancial reporting as of December 31, 2020, mates made by management, as well as evaluating the overall based on criteria established in Internal Control - Integrated presentation of the consolidated ﬁnancial statements. Our audit Framework: (2013) issued by the Committee of Sponsoring of internal control over ﬁnancial reporting included obtaining Organizations of the Treadway Commission (COSO). an understanding of internal control over ﬁnancial reporting, In our opinion, the consolidated ﬁnancial statements referred to assessing the risk that a material weakness exists, and testing above present fairly, in all material respects, the ﬁnancial position and evaluating the design and operating effectiveness of inter- of the Company as of December 31, 2020 and 2019, and the results nal control based on the assessed risk. Our audits also included of its operations and its cash ﬂows for each of the years in the performing such other procedures as we considered necessary three-year period ended December 31, 2020, in conformity with in the circumstances. We believe that our audits provide a rea- accounting principles generally accepted in the United States of sonable basis for our opinions. America. Also in our opinion, the Company maintained, in all ma- terial respects, effective internal control over ﬁnancial reporting Definition and Limitations of Internal Control as of December 31, 2020, based on criteria established in Internal over Financial Reporting Control - Integrated Framework: (2013) issued by COSO. A company’s internal control over ﬁnancial reporting is a process Basis for Opinion designed to provide reasonable assurance regarding the reli- ability of ﬁnancial reporting and the preparation of consolidated The Company’s management is responsible for these consol- ﬁnancial statements for external purposes in accordance with idated financial statements, for maintaining effective internal generally accepted accounting principles. A company’s internal control over financial reporting, and for its assessment of the control over ﬁnancial reporting includes those policies and pro- effectiveness of internal control over financial reporting in- cedures that (1) pertain to the maintenance of records that, in cluded in the accompanying Management’s Annual Report on reasonable detail, accurately and fairly reﬂect the transactions Internal Control over Financial Reporting. Our responsibility and dispositions of the assets of the company; (2) provide rea- is to express an opinion on the Company’s consolidated fi- sonable assurance that transactions are recorded as necessary nancial statements and an opinion on the Company’s internal to permit preparation of consolidated ﬁnancial statements in control over financial reporting based on our audits. We are accordance with generally accepted accounting principles, and a public accounting firm registered with the Public Company that receipts and expenditures of the company are being made Accounting Oversight Board (United States) (“PCAOB”) and only in accordance with authorizations of management and di- are required to be independent with respect to the Company rectors of the company; and (3) provide reasonable assurance in accordance with the U.S. federal securities laws and the ap- regarding prevention or timely detection of unauthorized ac- plicable rules and regulations of the Securities and Exchange quisition, use, or disposition of the company’s assets that could Commission and the PCAOB. have a material effect on the consolidated ﬁnancial statements. report of independent registered public accounting ﬁrm 77 Because of its inherent limitations, internal control over ﬁ- assets requires management to make signiﬁcant estimates and nancial reporting may not prevent or detect misstatements. assumptions related to forecasts of future revenues, operating Also, projections of any evaluation of effectiveness to future margins and discount rates. Asdisclosed by management, chang- periods are subject to the risk that controls may become inad- es in these assumptions could have a signiﬁcant impact on ei- equate because of changes in conditions, or that the degree of ther the future cash ﬂows and therefore, on the amount of any compliance with the policies or procedures may deteriorate. impairment charge. The determination of an impairment indi- cator on the ﬁnite – life intangible assets requires management Critical Audit Matter judgments and involves assumptions. The critical audit matter communicated below is a matter aris- We identiﬁed the impairment assessment of intangible assets ing from the current period audit of the consolidated ﬁnancial as a critical audit matter. Auditing management’s judgments statements that was communicated or required to be commu- regarding the evaluation of impairment indicators, forecasts of nicated to the audit committee and that: (1) relates to accounts future revenue and operating margin, and the discount rate to be or disclosures that are material to the consolidated ﬁnancial applied involve a high degree of subjectivity. statements and (2) involved especially challenging, subjective, The primary procedures we performed to address this crit- or complex judgments. The communication of critical audit ical audit matter included: matters does not alter in any way our opinion on the consoli- • Reviewing the analysis of the identification of impair- dated ﬁnancial statements, taken as a whole, and we are not, ment evidence for each indefinite and finite-life asset based by communicating the critical audit matter below, providing a on three indicators (sales analysis, new products launches, separate opinion on the critical audit matter or on the accounts payment of minimum guarantees), and then corroborate that or disclosures to which it relates. analysis with external information and evidence obtained in As described in Notes 1 and 8 to the consolidated ﬁnancial other areas of the audit. statements, the Company’s consolidated indeﬁnite and ﬁnite • Testing the effectiveness of controls relating to manage- —life intangible assets balance was $214 million at December ment’s impairment tests, including controls over the impair- 31, 2020. Indeﬁnite lived intangible assets principally consist of ment indicators and determination of the future cash ﬂows. trademarks and ﬁnite-lived intangible assets represent fees to • In testing management’s process for determining the fu- acquire or enter into a license. ture cash ﬂows we evaluated the reasonableness of manage- Those intangible assets are tested for impairment as follows: ment’s forecasts of future revenue and operating margin by • Indeﬁnite – life intangible assets are tested for impairment performing a retrospective review in comparing these fore- at least annually at the reporting unit level or more frequent- casts to historical operating results and evaluating whether the ly when events occur or circumstances change. The evaluation assumptions used were reasonable considering current infor- requires a comparison of the estimated fair value of the asset mation as well as future expectations as well as using addition- to the carrying value of the asset. The fair value is estimated al evidence obtained in other areas of the audit. based upon discounted future cash ﬂow projections. If the car- • Utilizing a valuation specialist to assist in auditing the rying value of an indeﬁnite-lived intangible asset exceeds its discount rate. It includes evaluating whether the assump- fair value, an impairment charge is recorded. tions used were reasonable by comparing with third party • Finite – life intangible assets are tested for impairment market data. whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If impairment indicators exist, the undiscounted future cash flows associated with the expected service potential of the asset are compared to the carrying value of the asset. If the projection of undiscounted cash flows is less than the carrying Mazars USA LLP value of a finite-lived intangible asset, an impairment charge We have served as the Company’s auditor since 2004. would be recorded. New York, New York The determination of the future cash ﬂows of the intangible March 1, 2021 78 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 Rights of use assets, 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 Current portion of lease liabilities Accounts payable - trade Accrued expenses Income taxes payable Dividends payable Total current liabilities Long–term debt, less current portion Lease liabilities, less current portion Equity: Inter Parfums, Inc. shareholders’ equity: 2020 2019 $169,681 126,627 124,057 158,822 1,815 16,912 2,806 600,720 19,580 24,734 214,108 8,041 22,962 890,145 14,570 5,133 35,576 95,629 5,297 − 156,205 10,136 21,354 $133,417 119,714 133,010 167,809 2,054 17,123 169 573,296 11,107 28,359 201,983 8,004 6,083 $828,832 12,326 5,356 54,098 96,421 5,865 10,399 184,465 10,734 24,635 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, 31,608,588 and 31,513,018 shares at December 31, 2020 and 2019, respectively Additional paid-in capital Retained earnings 32 75,708 503,567 Accumulated other comprehensive loss (5,997) Treasury stock, at cost, 9,864,805 common shares at December 31, 2020 and 2019 Total Inter Parfums, Inc. shareholders’ equity Noncontrolling interest Total equity Total liabilities and equity (See accompanying notes to consolidated financial statements.) (37,475) 535,835 166,615 702,450 $890,145 31 70,664 474,637 (39,853) (37,475) 468,004 140,994 608,998 $828,832 ﬁnancial statements 79 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 Income from operations Other expenses (income): Interest expense Loss on foreign currency Interest and dividend income Other 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 2020 $539,009 208,278 330,731 260,648 70,083 1,970 2,178 (2,865) (549) 734 69,349 19,381 49,968 11,749 $38,219 2019 $713,514 267,578 445,936 341,209 104,727 2,146 1,128 (3,693) - (419) 105,146 29,076 76,070 15,821 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 $60,249 $53,793 $1.21 1.21 $1.92 1.90 $1.72 1.71 31,536,659 31,654,544 31,451,093 31,688,700 31,307,991 31,522,371 Dividends declared per share $0.33 $1.16 $0.91 (See accompanying notes to consolidated financial statements.) 80 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, 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 income (loss), net of tax Translation adjustments, net of tax Comprehensive income attributable to Inter Parfums, Inc. (See accompanying notes to consolidated financial statements.) 2020 $49,968 (19) (52) 47,912 47,841 97,809 11,749 (19) 14,004 25,734 $72,075 2019 $76,070 22 (136) (8,712) (8,826) 67,244 15,821 (30) (2,593) 13,198 2018 $69,715 175 (37) (22,555) (22,417) 47,298 15,922 39 (6,638) 9,323 $54,046 $37,975 ﬁnancial statements 81 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 of year Shares issued upon exercise of stock options Common stock, end of year Additional paid-in capital, beginning of year Shares issued upon exercise of stock options Share-based compensation 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 2020 $31 1 $32 70,664 2,771 1,711 − 562 2019 $31 - $31 69,970 4,458 1,403 (5,167) - 2018 $31 - $31 66,004 3,406 1,132 (572) - $75,708 $70,664 $69,970 474,637 38,219 (10,406) 1,117 503,567 (39,853) 33,908 (52) − (5,997) 448,731 60,249 (36,349) 2,006 474,637 (33,650) (6,119) (136) 52 422,570 53,793 (28,356) 724 448,731 (17,832) (15,917) (37) 136 (39,853) (33,650) Treasury stock, beginning and end of year (37,475) (37,475) (37,475) Noncontrolling interest, beginning of year Net income Foreign currency translation adjustment, net of tax Transfer from other comprehensive income into earnings4 Net derivative instrument gain (loss), net of tax Purchase of subsidiary shares from noncontrolling interest Dividends Stock-based compensation Noncontrolling interest, end of year Total equity (See accompanying notes to consolidated financial statements.) 140,994 11,749 14,004 (19) − (324) 350 (139) 166,615 $702,450 138,139 15,821 (2,593) (30) 137,339 15,922 (6,638) 39 (920) (236) (9,654) 231 - 140,994 $608,998 (8,706) 419 - 138,139 585,746 82 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 Share of income of equity investment Lease expense Deferred tax expense (beneﬁt) Change in fair value of derivatives Changes in: Accounts receivable Inventories Other assets Accounts payable and accrued expenses Income taxes, net Net cash provided by operating activities Cash flows from investing activities: Purchases of short-term investments Proceeds from sale of short-term investments Purchase of equipment and leasehold improvements Payment for intangible assets acquired Purchase of equity investment Net cash provided used in investing activities Cash flows from financing activities: Repayment of long-term debt Proceeds issuance of long-term debt Proceeds from exercise of options 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.) 2020 2019 2018 $49,968 $76,070 $69,715 9,067 4,824 3,029 (549) 62 581 (137) 13,157 19,333 1,176 (32,239) (3,279) 64,993 (7,582) 11,513 (11,011) (1,251) (13,998) (22,329) (13,725) 13,438 2,771 (20,805) (324) − (18,645) 12,245 36,264 133,417 $169,681 8,729 1,380 3,394 - 1,068 (2,330) (169) 1,124 (5,925) (4,945) (4,960) 3,016 76,452 (97,958) 44,814 (5,427) (6,067) - 11,031 1,442 2,205 - - (158) (302) (21,532) (29,341) (1,016) 25,592 5,405 63,041 (10,030) 8,859 (3,956) (8,509) - (64,638) (13,636) (22,321) (23,487) - 4,458 (34,579) (9,654) (6,087) (68,183) (3,350) (59,719) - 3,406 (26,287) (8,706) (808) (55,882) (8,730) (15,207) 193,136 $133,417 208,343 $193,136 $1,105 21,772 $1,764 26,332 $1,754 24,995 notes to consolidated ﬁnancial statements (in thousands, except share and per share data) 83 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS dollars at year end exchange rates. Income and expense (1) The Company and its Significant items are translated at average rates of exchange prevailing Accounting Policies Business Of The Company Inter Parfums, Inc. and its subsidiaries (the “Company”) are in the fragrance business and manufacture and distribute a wide during the year. Gains and losses from translation adjust- ments are accumulated in a separate component of share- holders’ equity. array of fragrances and fragrance related products. Substantially all of our prestige fragrance brands are licensed from unafﬁliated third parties, and our business is dependent upon Cash And Cash Equivalents And Short-Term Investments All highly liquid investments purchased with a maturity of the continuation and renewal of such licenses. With respect to the three months or less are considered to be cash equivalents. Company’s largest brands, we own the Lanvin brand name for our From time to time, the Company has short-term investments class of trade, and license the Montblanc, Coach, Jimmy Choo and which consist of certificates of deposit and other contracts GUESS brand names. As a percentage of net sales, product sales with maturities greater than three months. The Company for the Company’s largest brands were as follows: monitors concentrations of credit risk associated with finan- Year Ended December 31, Montblanc Coach Jimmy Choo GUESS (license commenced April 1, 2018) Lanvin 2020 21% 17% 16% 11% 7% 2019 22% 14% 16% 10% 8% 2018 19% 15% 17% n/a 10% No other brand represented 10% or more of consolidated net sales. cial 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 at financial institu- tions outside the United States and are readily convertible into U.S. dollars. Accounts Receivable Accounts receivable represent payments due to the Company for previously recognized net sales, reduced by allowances for doubtful accounts or balances which are estimated to be un- Basis Of Preparation The consolidated ﬁnancial statements include the accounts of collectible, which aggregated $5.5 million and $2.5 million as of December 31, 2020 and 2019, respectively. Accounts receiv- the Company, including 73% owned Interparfums SA, a subsidi- able balances are written-off against the allowance for doubt- ary whose stock is publicly traded in France. All material inter- ful accounts when they become uncollectible. Recoveries of company balances and transactions have been eliminated. accounts receivable previously recorded against the allow- ance are recorded in the consolidated statement of income Management Estimates Management makes assumptions and estimates to prepare when received. We generally grant credit based upon our anal- ysis of the customer’s ﬁnancial position, as well as previously ﬁnancial statements in conformity with accounting principles established buying patterns. generally accepted in the United States of America. Those as- sumptions and estimates directly affect the amounts reported and disclosures included in the consolidated ﬁnancial state- Inventories Inventories, including promotional merchandise, only in- ments. Actual results could differ from those assumptions and clude inventory considered saleable or usable in future pe- estimates. Signiﬁcant estimates for which changes in the near riods, and are stated at the lower of cost and net realizable term are considered reasonably possible and that may have a value, with cost being determined on the first-in, first-out material impact on the ﬁnancial statements are disclosed in method. Cost components include raw materials, direct la- these notes to the consolidated ﬁnancial statements. bor and overhead (e.g., indirect labor, utilities, depreciation, Foreign Currency Translation For foreign subsidiaries with operations denominated in a purchasing, receiving, inspection and warehousing) as well as inbound freight. Promotional merchandise is charged to cost of sales at the time the merchandise is shipped to the foreign currency, assets and liabilities are translated to U.S. Company’s customers. 84 Derivatives All derivative instruments are recorded as either assets or 2019, respectively. The cash ﬂow projections are based upon a number of assumptions, including future sales levels, future cost liabilities and measured at fair value. The Company uses de- of goods and operating expense levels, as well as economic con- rivative instruments to principally manage a variety of market ditions, changes to our business model or changes in consumer risks. For derivatives designated as hedges of the exposure to acceptance of our products which are more subjective in nature. changes in fair value of the recognized asset or liability or a ﬁrm If the carrying value of an indeﬁnite-lived intangible asset ex- commitment (referred to as fair value hedges), the gain or loss ceeds its fair value, an impairment charge is recorded. is recognized in earnings in the period of change together with Intangible assets subject to amortization are evaluated for the offsetting loss or gain on the hedged item attributable to the impairment testing whenever events or changes in circum- risk being hedged. The effect of that accounting is to include in stances indicate that the carrying amount of an amortizable earnings the extent to which the hedge is not effective in achiev- intangible asset may not be recoverable. If impairment indica- ing offsetting changes in fair value. For cash ﬂow hedges, the ef- tors exist for an amortizable intangible asset, the undiscount- fective portion of the derivative’s gain or loss is initially reported ed future cash ﬂows associated with the expected service in equity (as a component of accumulated other comprehensive potential of the asset are compared to the carrying value of the income) and is subsequently reclassiﬁed into earnings in the asset. If our projection of undiscounted future cash ﬂows is in same period or periods during which the hedged forecasted excess of the carrying value of the intangible asset, no impair- transaction affects earnings. The ineffective portion of the gain ment charge is recorded. If our projection of undiscounted fu- or loss of a cash ﬂow hedge is reported in earnings immediately. ture cash ﬂows is less than the carrying value of the intangible The Company also holds certain instruments for economic pur- asset, an impairment charge would be recorded to reduce the poses that are not designated for hedge accounting treatment. intangible asset to its fair value. For these derivative instruments, changes in their fair value are recorded in earnings immediately. Equipment And Leasehold Improvements Equipment and leasehold improvements are stated at cost less Revenue Recognition The Company sells its products to department stores, perfum- eries, specialty stores and domestic and international whole- salers and distributors. Our revenue contracts represent single accumulated depreciation and amortization. Depreciation and performance obligations to sell our products to customers. amortization are provided using the straight line method over Sales of such products by our domestic subsidiaries are de- the estimated useful lives for equipment, which range between nominated in U.S. dollars, and sales of such products by our three and ten years and the shorter of the lease term or estimat- foreign subsidiaries are primarily denominated in either euro or ed useful asset lives for leasehold improvements. Depreciation U.S. dollars. The Company recognizes revenues when contract provided on equipment used to produce inventory, such as tools terms are met, the price is ﬁxed and determinable, collectabil- and molds, is included in cost of sales. ity is reasonably assured and control of the assets has passed Long-Lived Assets Indeﬁnite-lived intangible assets principally consist of trade- to the customer based on the agreed upon shipping terms. Net sales are comprised of gross revenues less returns, trade discounts and allowances. The Company does not bill its cus- marks which are not amortized. The Company evaluates indef- tomers’ freight and handling charges. All shipping and handling inite-lived intangible assets for impairment at least annually costs, which aggregated $5.0 million, $7.7 million and $7.1 mil- during the fourth quarter, or more frequently when events oc- lion in 2020, 2019 and 2018, respectively, are included in selling, cur or circumstances change, such as an unexpected decline general and administrative expenses in the consolidated state- in sales, that would more-likely-than-not indicate that the ments of income. The Company grants credit to all qualiﬁed carrying value of an indeﬁnite-lived intangible asset may not customers and does not believe it is exposed signiﬁcantly to any be recoverable. When testing indeﬁnite-lived intangible assets undue concentration of credit risk. No one customer represent- for impairment, the evaluation requires a comparison of the ed 10% or more of net sales in 2020, 2019 or 2018. estimated fair value of the asset to the carrying value of the asset. The fair values used in our evaluations are estimated based upon discounted future cash ﬂow projections using a Sales Returns Generally, the Company does not permit customers to return weighted average cost of capital of 6.99% and 7.94% in 2020 and their unsold products. However, for U.S. based customers, we notes to consolidated ﬁnancial statements (in thousands, except share and per share data) 85 allow returns if properly requested, authorized and approved. The Company regularly reviews and revises, as deemed nec- Package Development Costs Package development costs associated with new products essary, its estimate of reserves for future sales returns based and redesigns of existing product packaging are expensed primarily upon historic trends and relevant current data includ- as incurred. ing information provided by retailers regarding their inventory levels. In addition, as necessary, speciﬁc accruals may be es- tablished for signiﬁcant future known or anticipated events. The Operating Leases The Company leases its ofﬁces and warehouses, vehicles, and types of known or anticipated events that we consider include, certain ofﬁce equipment, substantially all of which are classi- but are not limited to, the ﬁnancial condition of our custom- ﬁed as operating leases. The Company currently has no materi- ers, store closings by retailers, changes in the retail environ- al ﬁnancing leases. The Company determines if an arrangement ment and our decision to continue to support new and existing is a lease at inception. Operating lease assets and obligations products. The Company records its estimate of potential sales are recognized at the lease commencement date based on the returns as a reduction of sales and cost of sales with corre- present value of lease payments over the lease term. sponding entries to accrued expenses, to record the refund liability, and inventory, for the right to recover goods from the customer. The refund liability associated with estimated returns License Agreements The Company’s license agreements generally provide the was $3.6 million and $4.1 million at December 31, 2020 and Company with worldwide rights to manufacture, market and 2019, respectively, and the amounts recognized for the rights to sell fragrance and fragrance related products using the licen- recover products was $1.4 million and $1.6 million at December sors’ trademarks. The licenses typically have an initial term 31, 2020 and 2019, respectively. The physical condition and mar- of approximately 5 to 15 years, and are potentially renewable ketability of returned products are the major factors we con- subject to the Company’s compliance with the license agree- sider in estimating realizable value. Actual returns, as well as ment provisions. The remaining terms, excluding potential re- estimated realizable values of returned products, may differ newal periods, range from approximately 1 to 13 years. Under signiﬁcantly, either favorably or unfavorably, from our esti- each license, the Company is required to pay royalties in the mates, if factors such as economic conditions, inventory levels range of 6% to 10% to the licensor, at least annually, based on or competitive conditions differ from our expectations. net sales to third parties. In certain cases, the Company may pay an entry fee to ac- Payments to Customers The Company records revenues generated from purchase with quire, or enter into, a license where the licensor or another licensee was operating a pre-existing fragrance business. In purchase and gift with purchase promotions as sales and the those cases, the entry fee is capitalized as an intangible asset costs of its purchase with purchase and gift with purchase and amortized over its useful life. promotions as cost of sales. Certain other incentive arrange- Most license agreements require minimum royalty pay- ments require the payment of a fee to customers based on ments, incremental royalties based on net sales levels and their attainment of pre-established sales levels. These fees minimum spending on advertising and promotional activities. have been recorded as a reduction of net sales. Royalty expenses are accrued in the period in which net sales are recognized while advertising and promotional expenses Advertising and Promotion Advertising and promotional costs are expensed as incurred are accrued at the time these costs are incurred. In addition, the Company is exposed to certain concentra- and recorded as a component of cost of goods sold (in the case tion risk. Most of our prestige fragrance brands are licensed of free goods given to customers) or selling, general and ad- from unafﬁliated third parties, and our business is dependent ministrative expenses. Advertising and promotional costs in- upon the continuation and renewal of such licenses. cluded in selling, general and administrative expenses were $91.7 million, $144.6 million and $139.7 million for 2020, 2019 and 2018, respectively. Costs relating to purchase with pur- Income Taxes The Company accounts for income taxes using an asset and chase and gift with purchase promotions that are reﬂected in liability approach that requires the recognition of deferred cost of sales aggregated $26.4 million, $38.9 million and $36.4 tax assets and liabilities for the expected future tax conse- million in 2020, 2019 and 2018, respectively. quences of events that have been recognized in its financial 86 statements or tax returns. The net deferred tax assets as- There are no other recent accounting pronouncements sume sufficient future earnings for their realization, as well issued but not yet adopted that would have a material effect as the continued application of currently enacted tax rates. on our consolidated financial statements. Included in net deferred tax assets is a valuation allowance for deferred tax assets, where management believes it is more-likely-than-not that the deferred tax assets will not Reclassifications Certain prior year’s amounts in the accompanying consoli- be realized in the relevant jurisdiction. If the Company de- dated balance sheet and statements of cash ﬂows have been termines that a deferred tax asset will not be realizable, an reclassiﬁed to conform to current period presentation. adjustment to the deferred tax asset will result in a reduction of net earnings at that time. Accrued interest and penalties (2) Impact of COVID-19 Pandemic are included within the related tax asset or liability in the ac- A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 companying financial statements. and has spread around the world, including to the United States Issuance of Common Stock by Consolidated Subsidiary The difference between the Company’s share of the proceeds and France. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has disrupted our business operations and caused a signiﬁcant un- favorable impact on our results of operations. received by the subsidiary and the carrying amount of the por- In response to the COVID-19 pandemic various national, tion of the Company’s investment deemed sold, is reﬂected as state, and local governments where we, our suppliers, and our an equity adjustment in the consolidated balance sheets. customers operate initially issued decrees prohibiting certain Treasury Stock The Board of Directors may authorize share repurchas- businesses from continuing to operate and certain classes of workers from reporting to work. More recently, those govern- ments have set guidelines in allowing businesses to reopen es of the Company’s common stock (Share Repurchase and employees to return to ofﬁces. Beginning in March 2020, Authorizations). Share repurchases under Share Repurchase we implemented travel restrictions and we have been follow- Authorizations may be made through open market transac- ing social distancing practices. Our teams were set up to work tions, negotiated purchase or otherwise, at times and in such from home and carry on business as efﬁciently as possible. In amounts within the parameters authorized by the Board. all jurisdictions in which we operate we have been following Shares repurchased under Share Repurchase Authorizations guidance from authorities and health ofﬁcials in allowing our are held in treasury for general corporate purposes, includ- teams to gradually return to our ofﬁces, including, requiring ing issuances under various employee stock option plans. personnel to wear masks and other protective clothing as ap- Treasury shares are accounted for under the cost method propriate, and implementing additional cleaning and saniti- and reported as a reduction of equity. Share Repurchase zation routines at our ofﬁces and distribution centers as the Authorizations may be suspended, limited or terminated at health and safety of our employees are paramount. any time without notice. The effects of the COVID-19 pandemic on the beauty industry began in early March 2020. Retail store closings, event cancel- Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board lations and a shutdown of international air travel brought our sales to a virtual standstill. The duration and intensity of this (“FASB”) issued ASU 2016-13, “Financial Instruments - Credit global health emergency and its related disruptions are uncer- Losses (Topic 326): Measurement of Credit Losses on Financial tain. Beginning in June 2020, retail stores in many jurisdictions Instruments”, as updated in 2019 and 2020, which require a ﬁ- around the world began reopening and business has improved nancial asset measured at amortized cost basis to be present- considerably. However, international travel has remained ed at the net amount expected to be collected. The new rules largely curtailed globally due to both government restrictions eliminate the probable initial recognition threshold and, in- and consumer health concerns that continue to adversely im- stead, reﬂect an entity’s current estimate of all expected credit pact consumer trafﬁc in most travel retail locations. We an- losses. The new rules took effect for the Company in the ﬁrst ticipate that limited trafﬁc in reopened stores and the virtual quarter of 2020 and there was no material impact on our con- shutdown of international air trafﬁc will continue to have an solidated ﬁnancial statements. unfavorable impact on our business. notes to consolidated ﬁnancial statements (in thousands, except share and per share data) 87 We faced signiﬁcant challenges in 2020 and we anticipate contract. Such amount is included in equipment and lease- that these challenges will continue in 2021 due to uncertain hold improvements on the accompanying balance sheet as of market conditions. Business signiﬁcantly improved during the December 31, 2020. second half of 2020, as retail stores began reopening and con- sumers have increased their on-line purchasing. We expect this trend to continue, however, we do not see a resurgence Origines-parfums In June 2020, the Company, through its 73% owned French sub- anytime soon in travel retail as air trafﬁc continues to suffer sidiary, Interparfums SA, and Divabox SAS (“Divabox”), owner due in part to governmental restrictions on international air of the Origines-parfums e-commerce platform for beauty travel. In addition, the recent resurgence and introduction products, signed a strategic agreement and equity investment of variants of COVID-19 cases in various parts of the world, pursuant to which we acquired 25% of Divabox capital for $14.0 including the United States, the United Kingdom and other million, through a capital increase. The difference between countries in Europe, South America and Africa, has caused the purchase price and the fair value of net assets acquired of temporary re-implementation of government restrictions to approximately $8.7 million has been allocated to goodwill. The prevent further spread of the virus. These include the tempo- investment is being accounted for under the equity method and rary closure of businesses deemed non-essential, travel bans is included in other assets on the accompanying balance sheet and restrictions, social distancing and quarantines. Lastly, as of December 31, 2020. In connection with the acquisition, the COVID-19 pandemic has led to high levels of unemploy- the Company entered into a $13.4 million term loan, which has ment and deteriorating economic conditions in many countries been amended such that the loan was repaid in full in February where our products are sold, forcing many consumers to lim- 2021. Our share of the income of Divabox was $0.5 million for it discretionary purchases. We believe that the impact of the the year-ended December 31, 2020. Such amount is included COVID-19 pandemic will continue to have a material adverse in other income on the accompanying consolidated statement effect on our results of our operations, ﬁnancial position and of income. cash ﬂows through at least the end of 2021. (3) Recent Agreements Anna Sui Corp. In January 2021, we renewed our license agreement with Anna Moncler In June 2020, the Company entered into an exclusive, 5-year worldwide license agreement with a potential 5-year exten- sion with Moncler for the creation, development and distri- Sui Corp. for the creation, development and distribution of bution of fragrances under the Moncler brand. Our rights fragrance products through December 31, 2026, without any under this license are subject to certain minimum advertis- material changes in terms and conditions. Our initial 10-year ing expenditures and royalty payments as are customary in license agreement with Anna Sui Corp. was signed in 2011. The our industry. renewal agreement also allows for an additional 5-year term through 2031 at the option of the Company. S.T. Dupont In January 2021, we renewed our license agreement with S.T. Building Acquisition Future Headquarters in Paris In December 2020, the Company signed a purchase con- Dupont for the creation, development and distribution of fra- grance products through December 31, 2022, without any mate- rial changes in terms and conditions. Our initial 11-year license tract, subject to certain conditions, to acquire an office agreement with S.T. Dupont was signed in June 1997, and had building complex for its exclusive use as its future head- previously been extended through December 31, 2020. quarters, located in the heart of Paris. In order to maintain the Company’s current cash position, approximately 90% of the €125 million ($153 million) purchase price, exclud- ing taxes and related expenses, will be financed by a bank loan. The transaction is expected to be completed in the spring of 2021 with the move planned for the end of 2021 or the beginning of 2022. In December 2020, the Company paid a €6.25 million ($7.7 million) deposit upon signing the purchase (4) Inventories Year Ended December 31, Raw materials and component parts Finished goods 2020 2019 $66,492 92,330 $158,822 $71,895 95,914 $167,809 88 Overhead included in inventory aggregated $5.4 million and $4.3 million as of December 31, 2020 and 2019, respectively. Included in inventories is an inventory reserve, which represents the difference between the cost of the inventory and its estimated re- alizable value, based upon sales forecasts and the physical condition of the inventories. In addition, and as necessary, speciﬁc reserves for future known or anticipated events may be established. Inventory reserves aggregated $9.4 million and $4.9 million as of December 31, 2020 and 2019, respectively. (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, 2020 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 not accounted for using hedge accounting $126,627 $− $126,627 $− 253 $126,880 − − 253 $126,880 − − FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2019 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 $119,714 $- $119,714 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 16 112 $119,842 $30 - - - $- 16 112 $119,842 $30 $- - - - $- 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 indebt- edness approximate current market rates. Foreign currency forward exchange contracts are valued based on quotations from ﬁnancial institutions and the value of interest rate notes to consolidated ﬁnancial statements (in thousands, except share and per share data) 89 swaps are the discounted net present value of the swaps using interest expense includes an immaterial gain and $0.2 million, third party quotes from ﬁnancial institutions. respectively, relating to an interest rate swap. All derivative instruments are reported as either assets or (6) Derivative Financial Instruments liabilities on the balance sheet measured at fair value. The val- The Company enters into foreign currency forward exchange uation of interest rate swaps resulted in a liability which is in- contracts to hedge exposure related to receivables denom- cluded in long-term debt on the accompanying balance sheets. inated in a foreign currency and occasionally to manage risks The valuation of foreign currency forward exchange contracts related to future sales expected to be denominated in a foreign at December 31, 2020 and December 31, 2019, resulted in an currency. Before entering into a derivative transaction for hedg- asset and is included in other current assets on the accompa- ing purposes, it is determined that a high degree of initial effec- nying balance sheets. tiveness exists between the change in value of the hedged item At December 31, 2020, the Company had foreign currency and the change in the value of the derivative instrument from contracts in the form of forward exchange contracts with no- movement in exchange rates. High effectiveness means that the tional amounts of approximately U.S. $22.4 million and GB £1.9 change in the cash ﬂows of the derivative instrument will ef- million, which all have maturities of less than one year. fectively offset the change in the cash ﬂows of the hedged item. The effectiveness of each hedged item is measured throughout (7) Equipment and Leasehold Improvements the hedged period and is based on the dollar offset method- ology and excludes the portion of the fair value of the foreign Year Ended December 31, currency forward exchange contract attributable to the change Equipment in spot-forward difference which is reported in current period Leasehold Improvements earnings. Any hedge ineffectiveness is also recognized as a gain or loss on foreign currency in the income statement. For hedge Less accumulated contracts that are no longer deemed highly effective, hedge ac- depreciation and amortization counting is discontinued and gains and losses accumulated in other comprehensive income are reclassiﬁed to earnings. If it 2020 $51,060 1,989 53,049 2019 $37,743 1,760 39,503 33,469 $19,580 28,396 $11,107 is probable that the forecasted transaction will no longer occur, Depreciation and amortization expense was $3.8 million, $3.7 then any gains or losses accumulated in other comprehensive million and $4.1 million in 2020, 2019, and 2018, respectively. income are reclassiﬁed to current-period earnings. In connection with a 2015 brand acquisition, $108 million of (8) Trademarks, Licenses and Other Intangible Assets the purchase price was paid in cash on the closing date and was ﬁnanced entirely through a 5-year term loan. As the payment at closing was due in dollars and we had planned to ﬁnance it with debt in euro, the Company entered into foreign currency for- 2020 Amount Amortization Trademarks Gross Accumulated Net Book Value ward contracts to secure the exchange rate for the $108 million (indeﬁnite lives) $131,962 $− $131,962 purchase price at $1.067 per 1 euro. This derivative was desig- Trademarks nated and qualiﬁed as a cash ﬂow hedge. (ﬁnite lives) 47,477 74 47,403 Gains and losses in derivatives designated as hedges are Licenses accumulated in other comprehensive income (loss) and gains (ﬁnite lives) 93,248 62,262 30,986 and losses in derivatives not designated as hedges are in- Other intangible assets cluded in (gain) loss on foreign currency on the accompanying (ﬁnite lives) income statements. Such gains and losses were immaterial Subtotal in each of the years in the three-year period ended December Total 31, 2020. For the years ended December 31, 2020 and 2019, 18,194 158,919 $290,881 14,437 76,773 $76,773 3,757 82,146 $214,108 90 2019 Trademarks Amount Amortization Gross Accumulated Net Book Value estimated useful life which range from three to twenty years. If the residual value of a ﬁnite life intangible asset exceeds its carrying value, then the asset is not amortized. The Company (indeﬁnite lives) $121,001 $- $121,001 reviews intangible assets with ﬁnite lives for impairment when- Trademarks ever events or changes in circumstances indicate that the car- (ﬁnite lives) 43,464 67 43,397 rying amount may not be recoverable. Licenses Trademarks (ﬁnite lives) primarily represent Lanvin brand (ﬁnite lives) 88,008 53,714 34,294 names and trademarks and in connection with their purchase, Other intangible assets Lanvin was granted the right to repurchase the brand names (ﬁnite lives) Subtotal Total 15,436 146,908 12,145 65,926 3,291 80,982 and trademarks in 2025 for the greater of €70 million (approxi- mately $86 million) or one times the average of the annual sales $267,909 $65,926 $201,983 for the years ending December 31, 2023 and 2024 (residual val- ue). Because the residual value of the intangible asset exceeds Amortization expense was $5.3 million, $5.0 million and $7.0 its carrying value, the asset is not being amortized. million in 2020, 2019 and 2018, respectively. Amortization ex- pense is expected to approximate $5.4 million in 2021, $3.8 (9) Accrued Expenses million in 2022 and 2023, and $3.7 million in 2024 and 2025. The Accrued expenses consist of the following: weighted average amortization period for trademarks, licenses and other intangible assets with ﬁnite lives are 18 years, 15 years Year Ended December 31, and 2 years, respectively, and 14 years on average. Advertising liabilities The Company reviews intangible assets with indeﬁnite lives Salary (including bonus for impairment whenever events or changes in circumstanc- and related taxes) es indicate that the carrying amount may not be recoverable. Royalties There were no impairment charges for trademarks with indef- Due vendors (not yet invoiced) inite useful lives in 2020, 2019 and 2018. The fair values used Retirement reserves in our evaluations are estimated based upon discounted future Refund (return) liability cash ﬂow projections using a weighted average cost of capital Other of 6.99%, 7.94%, and 6.21% as of December 31, 2020, 2019 and 2018, respectively. The cash ﬂow projections are based upon a 2020 2019 $25,713 $12,164 14,605 16,966 31,698 11,889 3,616 4,691 $95,629 16,173 16,646 19,196 9,907 4,131 4,655 $96,421 number of assumptions, including, future sales levels and fu- (10) Loans Payable – Banks ture cost of goods and operating expense levels, as well as eco- Loans payable – banks consist of the following: nomic conditions, changes to our business model or changes The Company and its domestic subsidiaries have available a in consumer acceptance of our products which are more sub- $20 million unsecured revolving line of credit due on demand, jective in nature. The Company believes that the assumptions which bears interest at the daily one-month LIBOR plus 2% (the it has made in projecting future cash ﬂows for the evaluations one-month LIBOR was 0.14% as of December 31, 2020). The described above are reasonable and currently no other impair- line of credit which has a maturity date of December 18, 2021 ment indicators exist for our indeﬁnite-lived assets. However, if is expected to be renewed on an annual basis. Borrowings out- future actual results do not meet our expectations, the Compa- standing pursuant to lines of credit were zero as of December ny may be required to record an impairment charge, the amount 31, 2020 and 2019. of which could be material to our results of operations. The Company’s foreign subsidiaries have available credit lines, The cost of trademarks, licenses and other intangible assets including several bank overdraft facilities totaling approximately with ﬁnite lives is being amortized by the straight line method $31 million. These credit lines bear interest at EURIBOR plus be- over the term of the respective license or the intangible assets tween 0.5% and 0.8% (EURIBOR was minus 0.546% at December notes to consolidated ﬁnancial statements (in thousands, except share and per share data) 91 31, 2020). Borrowings outstanding pursuant to these bank overdraft facilities were zero as of December 31, 2020 and 2019. As there were no borrowings outstanding as of December 31, 2020 and 2019, there is no weighted average interest rate on short- term borrowings as of December 31, 2020 and 2019. (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 beginning in January 2020 including interest imputed at 4.1% per annum $111.0 million 5-year term loan payable in 20 equal quarterly installments plus interest at 1.2% per annum Less current maturities Total 2020 $11,208 13,498 24,706 14,570 $10,136 2019 $11,806 11,254 23,060 12,326 $10,734 In June 2020, in connection with the acquisition of 25% of generally uses its incremental borrowing rate based on in- Divabox’s capital, the Company entered into a $13.4 mil- formation available at the lease commencement date for the lion term loan, which has been amended such that the loan location in which the lease is held in determining the present was repaid in full in Februar y 2021, bearing interest at value of lease payments. 0.85%. This loan requires the maintenance of cer tain fi- As of December 31, 2020, the weighted average remaining nancial covenants, tested annually, including a maximum lease term was 5.3 years and the weighted average discount coverage ratio. The Company is in compliance with all the rate used to determine the operating lease liability was covenants of the loan agreement. Maturities of long-term 3.0%. Rental expense related to operating leases was $6.2 debt subsequent to December 31, 2020 are approximately million, $7.5 million, and $7.0 million for the years ended $14.6 million in 2020 and $1.1 million per year thereafter December 31, 2020, 2019 and 2018, respectively. Operating through 2033. (12) Commitments Leases The Company leases its ofﬁces, warehouses and vehicles, substantially all of which are classiﬁed as operating leases. The Company currently has no material ﬁnancing leases. The Company determines if an arrangement is a lease at incep- tion. Operating lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term. 2021 2022 2023 2024 2025 lease payments included in operating cash flows totaled $5.6 million and noncash additions to operating lease assets totaled $1.1 million. Maturities of lease liabilities subsequent to December 31, 2020 are as follows: In determining lease asset value, the Company considers Thereafter fixed or variable payment terms, prepayments, incentives, and options to extend or terminate, depending on the lease. Less imputed interest (based on 3,0% Renewal, termination or purchase options affect the lease weighted-average discount rate) term used for determining lease asset value only if the op- $26,487 tion is reasonably certain to be exercised. The Company $5,568 4,958 4,228 3,999 2,857 7,324 28,934 (2,447) 92 License Agreements The Company is party to a number of license and other agreements the plans typically have a six-year term and vest over a four to ﬁve-year period. The fair value of shares vested aggregat- for the use of trademarks and rights in connection with the manu- ed $1.7 million and $1.4 million in 2020 and 2019, respectively. facture and sale of its products expiring at various dates through Compensation cost, net of estimated forfeitures, is recognized 2033. In connection with certain of these license agreements, the on a straight-line basis over the requisite service period for Company is subject to minimum annual advertising commitments, the entire award. Forfeitures are estimated based on historic minimum annual royalties and other commitments as follows: trends. It is generally the Company’s policy to issue new shares 2021 2022 2023 2024 2025 Thereafter upon exercise of stock options. $165,506 The following table sets forth information with respect to 164,341 166,508 159,974 156,293 586,342 nonvested options for 2019: Weighted Average Grant Date Number of Shares Fair Value Nonvested options $1,398,964 – beginning of year Nonvested options granted 514,210 9,000 $12.36 $12.16 Future advertising commitments are estimated based on Nonvested options vested planned future sales for the license terms that were in effect at or forfeited (169,420) $11.09 December 31, 2020, without consideration for potential renewal Nonvested options periods. The above ﬁgures do not reﬂect the fact that our distrib- -end of year 353,790 $12.96 utors share our advertising obligations. Royalty expense included in selling, general, and administrative expenses, aggregated $41.1 The effect of share-based payment expenses decreased in- million, $53.0 million and $48.9 million, in 2020, 2019 and 2018, re- come statement line items as follows: spectively, and represented 7.6%, 7.4% and 7.2% of net sales for the years ended December 31, 2020, 2019 and 2018, respectively. Year Ended December 31, 2020 2019 2018 (13) Equity Share-Based Payments: The Company maintains a stock option program for key em- Income before income taxes Net Income attributable $3,030 $3,390 $2,200 to Inter Parfums, Inc. 2,040 2,060 1,390 ployees, executives and directors. The plans, all of which have Diluted earnings per share been approved by shareholder vote, provide for the granting of attributable to both nonqualiﬁed and incentive options. Options granted under Inter Parfums, Inc. 0.06 0.07 0.04 The following table summarizes stock option activity and related information for the years ended December 31, 2020, 2019 and 2018: Year Ended December 31, 2020 2019 2018 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- 815,800 9,000 (95,570) (16,020) $49.89 69.11 28.99 58.38 776,171 194,050 (130,891) (23,530) $41.33 72.89 34.06 45.48 730,980 196,350 (140,579) (10,580) $31.92 63.91 24.21 37.64 end of year 713,210 52.74 815,800 49.89 776,171 41.33 notes to consolidated ﬁnancial statements (in thousands, except share and per share data) 93 At December 31, 2020, options for 580,715 shares were available for future grant under the plans. The aggregate intrinsic value of options outstanding is $8.7 million as of December 31, 2020 and unrecognized compensation cost related to stock options out- standing aggregated $4.4 million, which will be recognized over the next ﬁve years. The weighted average fair values of options granted by Inter Parfums, Inc. during 2020, 2019 and 2018 were $12.16, $14.14 and $14.31 per share, respectively, on the date of grant using the Black-Scholes option pricing model to calculate the fair value. 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 2020 25% 5.0 yrs 1.4% 2.5% 2019 25% 5.0 yrs 1.7% 2.0% 2018 27% 5.0 yrs 2.5% 2.0% 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 Tax beneﬁts Intrinsic value of stock options exercised 2020 $2,771 $400 $2,873 2019 $4,458 $690 $4,520 2018 $3,406 $807 $4,310 The following table summarizes additional stock option information as of December 31, 2020: Options Outstanding Weighted Average Exercice Price Options Outstanding Contractual Life Options Exercisable $23.61 − $26.40 $32.83 − $33.95 $40.15 − $46.90 $65.25 − $69.11 $73.09 Totals 93,220 102,250 151,040 184,800 181,900 713,210 0.95 years 1.97 years 2.95 years 3.97 years 5.00 years 3.34 years 93,220 77,340 83,540 68,940 36,380 359,420 As of December 31, 2020, the weighted average exercise price of options exercisable was $43.35 and the weighted average re- maining contractual life of options exercisable is 2.63 years. The aggregate intrinsic value of options exercisable at December 31, 2020 is $6.9 million. In September 2016, Interparfums SA, our 73% owned French subsidiary, approved a plan to grant an aggregate of 15,100 shares of its stock to employees with no performance condition requirement, and an aggregate of 133,000 shares to ofﬁcers and man- agers, subject to certain corporate performance conditions. The corporate performance conditions were met and therefore in September 2019, 172,851 shares, adjusted for stock splits, were distributed. The aggregate cost of the grant of approximately $3.9 million was recognized as compensation cost on a straight-line basis over the requisite three-year service period. In December 2018, Interparfums SA approved an additional plan to grant an aggregate of 26,600 shares of its stock to employees with no performance condition requirement, and an aggregate of 133,000 shares to officers and managers, subject to certain 94 corporate performance conditions. The shares, subject to adjustment for stock splits, will be distributed in June 2022 and will fol- low the same guidelines as the September 2016 plan. In March 2020, due to the potential impact on future net sales and operating results resulting from the COVID-19 pandemic, the estimated number of shares to be distributed, after forfeited shares, was reduced from 142,571 to 82,162. As the Company had already purchased shares in contemplation of the higher anticipated distribution, shares purchased in excess of the reduced antic- ipated distribution were transferred to treasury shares at the Interparfums SA level. The fair value of the grant had been determined based on the quoted stock price of Interparfums SA shares as reported by the NYSE Euronext on the date of grant. The original cost of the grant was approximately $4.4 million, and the March 2020 revaluation resulted in a reduction of the cost, to approximately $2.5 million. As a result, a $0.3 million reduction of cost, net, was recorded for the three months ended March 31, 2020. In June 2020, the performance conditions were modified affecting 96 employees. As of December 31, 2020, the number of shares to be distributed, after forfeited shares, increased to 132,032. The increase in shares anticipated to be distributed were transferred from treasury shares at the Interparfums SA level. The modification resulted in a revised cost of the grant to ap- proximately $3.8 million. In order to avoid dilution of the Company’s ownership of Interparfums SA, all shares distributed or to be distributed pursuant to these plans are pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA. All share purchases and issuances have been classiﬁed as equity transactions on the accompanying balance sheet. Dividends In October 2019, our Board of Directors authorized a 20% increase in the annual dividend to $1.32 per share on an annual basis. In April 2020, as a result of the uncertainties raised by the COVID-19 pandemic, the Board of Directors authorized a temporary sus- pension of the annual cash dividend. In February 2021, the Board of Directors authorized a reinstatement of an annual dividend of $1.00 payable quarterly. The next quarterly cash dividend of $0.25 per share is payable on March 31, 2021 to shareholders of record on March 15, 2021. (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 2020 $38,219 31,536,659 117,885 31,654,544 2019 2018 $60,249 $53,793 31,451,093 31,307,991 237,607 214,380 31,688,700 31,522,371 $1.21 $1.21 $1.92 $1.90 $1.72 $1.71 Not included in the above computations is the effect of anti dilutive potential common shares, which consist of outstanding op- tions to purchase 450,000, 183,000, and 89,000 shares of common stock for 2020, 2019, and 2018, respectively. notes to consolidated ﬁnancial statements (in thousands, except share and per share data) 95 (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. Information on the Company’s operations by segments is as follows: 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 income: United States Europe Eliminations Interest expense: United States Europe Eliminations Income tax expense: United States Europe Eliminations 2020 2019 2018 $117,489 422,947 (1,427) $539,009 $7,942 30,241 36 $38,219 $3,354 5,713 $9,067 $24 2,971 (130) $2,865 $604 1,496 (130) $1,970 $1,590 17,782 9 19,381 $173,522 542,226 (2,234) $713,514 $19,365 40,840 44 $60,249 $3,088 5,641 $8,729 $345 3,501 (153) $3,693 $673 1,626 (153) $2,146 $3,945 25,101 30 29,076 $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 96 Segments and Geographical Areas continued Year Ended December 31, Total assets: United States Europe Eliminations Additions to long-lived assets: United States Europe Total long-lived assets: United States Europe Deferred tax assets: United States Europe Eliminations 2020 2019 2018 $141,316 758,812 (9,983) $890,145 $1,004 11,259 $12,263 $40,656 217,766 $258,422 $886 7,106 49 $8,041 $166,180 670,657 (8,005) $828,832 $5,851 5,643 $11,494 $44,473 196,976 $241,449 $705 7,241 58 $8,004 $133,706 684,485 (20,362) $797,829 $19,181 4,188 $23,369 $25,753 188,411 $214,164 $650 5,023 88 $5,761 United States export sales were approximately $71.5 million, $112.0 million and $95.1 million in 2020, 2019 and 2018, 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 Russia United Kingdom (16) Income Taxes 2020 $193,500 180,200 79,700 46,800 32,500 6,300 $539,000 2020 $187,300 $37,600 $14,100 $24,600 2019 $235,500 240,800 110,900 72,600 46,200 7,500 2018 $210,600 233,600 113,400 59,300 51,700 7,000 $713,500 $675,600 2019 $225,300 $43,500 $36,800 $35,800 2018 $205,000 $44,000 $35,000 $36,000 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 material uncertain tax position at December 31, 2020. notes to consolidated ﬁnancial statements (in thousands, except share and per share data) 97 The components of income before income taxes consist of the Valuation allowances are provided for foreign net operating following: Year Ended December 31, U.S. operations Foreign operations 2019 $23,384 2020 $9,577 59,772 81,762 $69,349 $105,146 loss carry-forwards, as future proﬁtable operations from cer- tain foreign subsidiaries might not be sufﬁcient to realize the full amount of net operating loss carry-forwards. No other valuation allowances have been provided as man- agement believes that it is more likely than not that the asset will be realized in the reduction of future taxable income. 2018 $15,162 80,697 $95,859 The provision for current and deferred income tax expense (beneﬁt) consists of the following: 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 made broad and Year Ended December 31, 2020 2019 2018 complex changes to the U.S. tax code, including, but not limit- Current: Federal State and local Foreign Deferred: Federal State and local Foreign Total income tax expense $1,685 90 17,024 $18,799 ed to reducing the U.S. federal corporate tax rate from 35% to $3,280 $1,629 21% beginning in 2018, and requiring companies to pay a one- 713 497 time transition tax on certain unremitted earnings of foreign 27,412 24,175 subsidiaries. $31,405 $26,301 The Tax Act also established new tax laws that took effect in (215) 44 753 582 (3) (22) (2,304) (2,329) 113 - (270) (157) 2018, including, but not limited to: (i) the reduction of the U.S. federal corporate tax rate discussed above; (ii) a general elim- ination of U.S. federal income taxes on dividends from foreign subsidiaries; (iii) a provision designed to tax global intangible low-taxed income (“GILTI”); and (iv) a provision that allows a domestic corporation an immediate deduction for a portion of $19,381 $29,076 $26,144 its foreign derived intangible income (“FDII”). The Company estimated of the effect of GILTI and has deter- The tax effects of temporary differences that give rise to mined that it has no tax liability related to GILTI as of Decem- signiﬁcant portions of the deferred tax assets and deferred tax ber 31, 2020, 2019 and 2018. The Company also estimated the liabilities are as follows: effect of FDII and recorded a tax beneﬁt of approximately $0.3 December 31, 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 2020 2019 2019 and 2018, respectively. million, $0.9 million and $0.6 million as of December 31, 2020, $360 1,928 2,936 718 4,443 910 $362 1,231 4,812 588 4,630 214 11,295 (360) 10,935 11,837 (361) 11,476 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. The French Tax Authority no- tiﬁed the Company that IP Suisse will be the subject of a tax audit covering the period January 1, 2010 through December 31, 2018. 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 state- ments as we believe it is more-likely-than-not that our posi- (2,894) $8,041 (3,472) $8,004 tion will be sustained based on its technical merits. Although we believe that we have sufﬁcient arguments to support our 98 notes to consolidated ﬁnancial statements (in thousands, except share and per share data) position, there exists a risk that the French authorities may prevail. The Company’s exposure in connection with this matter is approximately $5.8 million, net of recovery taxes already paid to the Swiss authorities, and excluding interest. 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 2017. 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 Effect of foreign taxes greater than U.S. statutory rates Other Effective rates 2020 21.0% 0.2 (0.4) 2019 21.0% 0.6 (0.9) 2018 21.0% 0.4 (0.6) 7.5 7.5 (0.6) [0.8] (0.4) 27.9% 27.6% 27.3% 7.3 (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 2020 $52 (52) − (39,905) 33,908 (5,997) $(5,997) 2019 $136 (84) 52 (33,786) (6,119) (39,905) 2018 $37 99 136 (17,869) (15,917) (33,786) $(39,853) $(33,650) 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. 2020 $38,219 2019 $60,249 2018 $53,793 − (5,167) (572) and transfers from noncontrolling interest $38,219 $55,082 $53,221 corporate and market information 99 the market for our common stock Our Company’s common stock, $.001 par value per share, is traded April 2020, as a result of the uncertainties raised by the COVID-19 pandemic, the Board of Directors authorized a temporary sus- on The Nasdaq Global Select Market under the symbol “IPAR”. The pension of the annual cash dividend. In February 2021, our Board following table sets forth in dollars, the range of high and low clos- of Directors authorized a reinstatement of an annual dividend of ing prices for the past two ﬁscal years for our common stock. $1.00, payable quarterly. The next quarterly cash dividend of $0.25 Third Quarter High Closing Low Closing Fiscal 2020 Price Price 36.63 Fourth Quarter 36.46 37.63 34.20 High Closing Low Closing Fiscal 2019 Price Price 66.65 61.08 49.40 51.68 75.00 Second Quarter Fourth Quarter First Quarter 81.40 per share is payable on March 31, 2021 to shareholders of record on March 15, 2021. Form 10-K A copy of the company’s 2020 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. Third Quarter Second Quarter First Quarter 71.58 77.34 80.99 62.38 63.53 58.50 Corporate Performance Graph The following graph compares the performance for the periods indi- cated in the graph of our common stock with the performance of the Nasdaq Market Index and the average performance of a group of the As of February 10, 2021, the number of record holders, Company’s peer corporations consisting of: Avon Products Inc., CCA which include brokers and broker nominees, etc., of our com- Industries, Inc., Colgate-Palmolive Co., Estée Lauder Companies, mon stock was 34. We believe there are approximately 10,600 Inc., Inter Parfums, Inc., Kimberly Clark Corp., Natural Health Trends beneﬁcial owners of our common stock. Corp., Procter & Gamble Co., Revlon, Inc., Spectrum Brands Holdings, Dividends In October 2019, our Board of Directors authorized a 20% increase graph assumes that the value of the investment in our common stock and each index was $100 at the beginning of the period indicated in the in the annual dividend to $1.32 per share on an annual basis. In graph, and that all dividends were reinvested. Inc., Stephan Co., Summer Infant, Inc. and United Guardian, Inc. The 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 12/31/15 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 12/15 100.00 100.00 100.00 12/16 140.26 108.87 104.30 12/17 189.45 141.13 120.74 12/18 290.48 137.12 119.69 12/189 327.44 187.44 162.97 12/20 274.22 271.64 188.69 100 directors and executive officers DIRECTORS AND EXECUTIVE OFFICERS Directors Jean Madar Michel Dyens Frédéric Garcia-Pelayo Chairman, and Chief Executive Ofﬁcer, Director of Export Sales Chief Executive Ofﬁcer, Michel Dyens & Co. Interparfums SA and Chairman of the Board of Directors Inter Parfums, Inc. Véronique Gabai-Pinsky President of Startup Specialty Corporate Information Inter Parfums, Inc. Philippe Benacin Fragrance Company and Former 551 Fifth Avenue President, and Vice Chairman of the President, Vera Wang Group Board of Directors, Inter Parfums, Inc. Chief Executive Ofﬁcer, Interparfums SA Russell Greenberg Executive Vice President, and Chief Financial Ofﬁcer Inter Parfums, Inc. Philippe Santi Executive Vice President Director General Delegue Interparfums SA New York, NY 10176 Tel. (212) 983-2640 Fax: (212) 983-4197 Gilbert Harrison Chairman, Harrison Group, Inc. www.interparfumsinc.com Founder and Chairman Emeritus Financo LLC Interparfums SA Executive Officers Jean Madar Chief Executive Ofﬁcer, 4 Rond Point des Champs Elysées 75008 Paris, France Tel. (1) 53-77-00-00 Fax: (1) 40-76-08-65 and Chairman of the Board of Directors Inter Parfums, Inc. Auditors Philippe Benacin Mazars USA, LLP 135 West 50th Street President, and Vice Chairman of the New York, NY 10020 Francois Heilbronn Board of Directors, Inter Parfums, Inc. Managing Partner M.M. Friedrich, Chief Executive Ofﬁcer, Transfer Agent Heilbronn & Fiszer Interparfums SA American Stock Transfer and Trust Company 6201 15th Avenue Brooklyn, NY 11219 Robert Bensoussan-Torres Russell Greenberg Co-founder of Sirius Equity, Executive Vice President, a retail and branded luxury goods and Chief Financial Ofﬁcer investment company Inter Parfums, Inc. Patrick Choël Philippe Santi Business Consultant and Former Executive Vice President President and Chief Executive Ofﬁcer Director General Delegue Parfums Christian Dior Interparfums SA and the LVMH Perfume and Cosmetics Division

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