Inter Parfums
Annual Report 2022

Plain-text annual report

1 table of contents LETTER TO OUR SHAREHOLDERS 02 THE COMPANY 06 CORPORATE SOCIAL RESPONSIBILITY 12 THE PRODUCTS 20 THE ORGANIZATION 68 INTERPARFUMS, INC. 2022 ANNUAL REPORT 2 2022 FINANCIAL HIGHLIGHTS Our 2022 net sales exceeded our expectations in each succes- sive quarter, resulting in full-year net sales of $1.087 billion, 24% ahead of $880 million in 2021. At comparable foreign currency exchange rates, consolidated 2022 net sales increased by 30%. Our four largest brands, Montblanc, Jimmy Choo, Coach, and GUESS, grew sales by 15%, 23%, 18%, and 24%, respectively for 2022. Most of our other brands also topped the prior year, in- cluding Abercrombie & Fitch (+28%), Kate Spade (+26%), Oscar de la Renta (+19%), and Hollister (+16%). Sales of our European based operations increased by 12% in dollars and 20% in constant currency. The year-over-year gains are all the more impressive considering flankers and extensions dominated our new product pipeline. We brought several entire- ly new lines to market, including the official launch of our first Moncler duo, Kate Spade Sparkle, Singulier by Boucheron, and Open Road and Wild Rose by Coach. Sales of United States based operations increased by 58%, driven by strong like-for-like sales (+47%). This growth is reflected in the continued sales of estab- 2022 Letter to our Shareholders DEAR FELLOW SHAREHOLDERS, 2022 was a landmark year for Inter Parfums, Inc. In addition to setting new records in net sales and earnings, we expanded lished lines, along with the launches of GUESS Uomo and Alibi by our portfolio of brands; moved into our new Paris headquar- Oscar de la Renta, numerous extensions across our mid-sized ters; completed our first full year of operations in Italy; and set brands, and the continued success of Ferragamo. The addition of in motion several initiatives, establishing a solid foundation for our newer brands, Donna Karan and DKNY, which joined our continued growth in the years ahead. portfolio in the summer of 2022, contributed 14% to our growth. We continued to see growth in both consumer penetration and consumption across all regions. Our three largest markets, North America, Western Europe, and Asia, increased sales by 22%, 28%, and 19%, respectively. We also achieved top line growth in Cen- tral and South America by 24%, the Middle East by 44% and East- ern Europe by 6%, despite the impact of the war in Ukraine. With the resumption of international travel, our travel retail business bounced back, apart from China. As pandemic-related lockdowns have started abating, we look forward to a gradual increase in our duty-free business, particularly in emerging markets. On the bottom line, in 2022, we were able to expand our operating margin by 110 bps to 17.9%, and earnings per diluted share by 38% to $3.78. These gains were driven by a combina- tion of foreign exchange fluctuations, price increases, product mix, and scale benefits from our growth, which more than offset the inflationary impacts on shipping and supplies. We continue to have a very strong balance sheet, closing the year with working capital of $443 million, including approxi- mately $256 million in cash, cash equivalents, and short-term investments, and a working capital ratio of 2.3 to 1. Our balance sheet included $151 million of long-term debt relating to the headquarters acquisition by our Paris subsidiary, Interparfums SA, plus a $53 million four-year loan agreement in connection Philippe Benacin and Jean Madar letter to shareholders 3 with Interparfums SA’s acquisition of the license for the Lacoste coste boutique network. The launch of our first new fragrance trademark. Cash provided by operating activities aggregated line is targeted for late 2024. $115 million in 2022, compared to $120 million in 2021. The de- Lacoste is an emblematic brand in the world of fashion crease was primarily driven by the higher working capital re- and sport with a very high level of awareness and desirability quirements from our growing operations, namely the inventory throughout the world. The management team has a clear and buildup that we needed to protect against supply chain volatility. precise vision of the brand’s great development potential, which Additionally, our employee productivity, measured in sales per will also allow us to take the perfumes higher and further. This is employee, continued to increase reaching $2.06 million in 2022, an important new strategic step in the life of Interparfums. We compared to $1.88 million in 2021, based on 527 and 467 full- are delighted and thrilled about this exciting partnership. time employees worldwide, respectively. In early 2023, our Board of Directors approved a 25% in- With 2022 sales approaching $200 million, Montblanc, and its owner Richemont, have agreed to extend our fragrance li- crease in our annual cash dividend to $2.50 per share, payable cense through December 31, 2030, adding five more years to quarterly, reflecting the Board’s confidence in the prospects for our partnership. With a seven-year window, we can confidently our business over the near and long term. Our strong financial plan new product launches, promotion and advertising, and dis- position enables us to invest in growth opportunities within our tribution strategies well into the future. The Montblanc license family of brands and expand our brand portfolio, while continu- was inked in 2010, and it has been a great partnership for both ing to reward our shareholders. Inter Parfums and the brand owner as fragrance sales were less than $10 million in that first year. EXPANSION OF OUR PORTFOLIO Donna Karan and DKNY fragrances joined our portfolio of brands under license in July 2022. Donna Karan is a global life- In early 2023, Abercrombie & Fitch granted us the right to distribute its number one men’s fragrance, Fierce, in selective markets. The first phase of the agreement, which becomes ef- style brand founded in 1984 by the fashion pioneer of the same fective September 1, 2023, covers the distribution of Fierce in name. In addition to fashion and fragrance, one can find the several major markets. The second phase, which activates in Donna Karan label on shoes, accessories, and home fashions. February 2024, covers distribution in additional regions, and Launched in 1994, the brand’s lead fragrance, Cashmere Mist, may include other flankers of the Fierce family of products. Our was awarded the Fragrance Foundation Hall of Fame Award relationship with Abercrombie & Fitch began in 2014 when we in 2019. In February 2022, Cashmere Mist was ranked amongst signed our initial license agreement. In the ensuing years, we the 100 Greatest Fragrances of All Time by WWD. The DKNY have brought several major blockbuster pillars to market, in- brand emerged in 1989 as the next-generation fashion response cluding First Instinct, Authentic, and Away. With nearly a decade to Donna Karan’s then-teenage daughter raiding her mom’s under our belt, we have earned Abercrombie & Fitch’s confi- closet. Today, DKNY designs, markets, and globally distributes dence, as evidenced by this agreement, entrusting us to distrib- collections of apparel, accessories, footwear, and select licensed ute the iconic Fierce collection on a test basis for three years. products. Be Delicious, the brand’s best-known scent, which Our plans call for growing penetration in existing Fierce markets, launched in 2004, was named one of The 25 Perfumes of All including department, specialty, duty-free stores, and online Time in April 2022 by Marie Claire magazine. Brand extensions sales, while exploring opportunities in untapped markets. are in the works for 2023, with a blockbuster launch scheduled for 2024. These two brands have already proven to be terrific additions to our fragrance portfolio, and we are looking for sig- nificant sales gains over the coming years. In December 2022, we announced that our majority owned OTHER MEANINGFUL MILESTONES After over a year of planning and hard work, our new Enterprise Resource Planning (ERP) system went live in early 2023 for our United States based operations. It has been a widely wel- Paris-based subsidiary, Interparfums SA and Lacoste, the iconic fashion sport brand, have signed a worldwide exclusive 15-year comed improvement, giving us greater capability to support our growth. We have enlisted component suppliers, fillers, and fragrance license agreement effective January 1, 2024. Under customers across the globe to keep track of inventory in real this agreement, including an entrance fee of €90 million, Inter- time. From any secure device, anywhere in the world, autho- parfums will be responsible for the creation, development, pro- rized personnel can now easily access whatever they need, from duction and marketing of all perfume and cosmetics lines under quantities and location of goods to the status of existing orders. the Lacoste brand, in selective distribution as well as in the La- They can also reserve goods pending a sale, and we are in the INTERPARFUMS, INC. 2022 ANNUAL REPORT 4 process of implementing an Enterprise Data Interchange (EDI) for many of our largest customers. A significant portion of the brand extensions, including Jimmy Choo Blossom, Eau de Rochas Citron Soleil, Montblanc Signature Absolue, and Kate Spade Chérie. ERP system has been deployed, with additional modules in the Also in the pipeline for 2023 are new brand pillars for Coach, works, including more vendor portals. This was a big invest- Montblanc, Rochas, Van Cleef & Arpels, and Moncler. For U.S. ment, with bumps along the way and creases still being ironed operations, we started 2023 off with brand extensions within out, but the payoff has been gratifying, and we plan to continue established lines for Abercrombie & Fitch, Hollister, Oscar de to build on this new capability going forward. La Renta, Ferragamo, MCM, and DKNY Be Delicious. As the year Since 2020, and for the foreseeable future, we have over- unfolds, we will unveil new scents for GUESS, Ferragamo, Un- come supply chain challenges in several ways. We continue to build inventory, source similar components from multiple suppliers, and, when possible, produce goods closer to where they are sold. With just over a year under our belt, our Ital- garo, and Anna Sui. IN CLOSING We are proud of our progress and milestone achievements made ian operations have helped alleviate log jams for manufacturing in 2022. Following our fast start in the first quarter of 2023, and distribution. where we delivered record-setting sales and earnings, we are While we have always prided ourselves on being a good corpo- equally confident in our expectations for 2023. We will contin- rate citizen, in 2022, we intensified our commitment to corporate ue to draw customers across all ages, nationalities, and income social responsibility through our ESG Initiatives. Throughout our supply chain—from procurement of components to the distri- brackets through our diverse portfolio of fragrance brands. We are a top-of-mind choice among brand owners seeking bution of finished products—and through our business partners, new fragrance partners, and with several competitors leaving we act responsibly as an active contributor to protecting the en- the prestige/designer space, the door has opened even wider for vironment. We are applying a multifunctional and comprehensive new licensing opportunities. We have a highly effective distribu- approach to addressing the issues of corporate, environmental, and tion network serving 120 countries; we even own or control the social responsibility and transparency. For the first time, our 2022 distribution organizations in several of our most important mar- Annual Report includes a lengthy and detailed discussion of our en- kets. Our robust infrastructure can accommodate significant deavors regarding responsible employment, corporate citizenship growth, especially with our new state-of-the-art ERP system, and governance practices, and environmental responsibility. new Paris headquarters, operations in Florence, expanded space On February 13, 2023, we celebrated 35 years as a pub- lic company by ringing the closing bell on Nasdaq. Back then, our company was among the first to go public after the stock in New York City, and talented worldwide staff. Our strong fi- nancial position supports the agility of our business, along with the trust of our suppliers and prospective licensors. market crash of October 1987. In all our years as a public com- In addition to gaining market share, we also continue to bene- pany, through armed conflicts, trade wars, recessions, terrorist fit from the strong tailwinds within the fragrance industry, which attacks, inflation, and pandemics, we have always been profit- continues to post robust growth rates building upon the gains of able. We are celebrating 40 years in business in 2023, and the two of us remain at the helm, leading by example and guiding the past two years. Another significant opportunity for growth is the underdeveloped fragrance market in China. While the in- the next generation of management while learning from them dustry and operational parameters may evolve over time, one as well. Our interests, as the two largest shareholders of Inter thing remains unchanged: we are confident in our company Parfums, remain aligned with those of our investors. and the people who are responsible for its success – our staff, our suppliers, our distributors, and our customers. WHAT’S IN STORE FOR 2023? Similar to 2022, the coming year will continue to be dominated by brand extensions for our major and mid-sized brands. We continue to enjoy the benefits of the exceptional number of new product launches in 2021, including many delayed from 2020. Flankers and extensions of thriving pillars allow us to further capitalize upon those successes while leveraging design elements such as packaging, components, photography, and labels, as well as advertising and With sincere thanks and appreciation, promotional materials, across all fragrance family members. Chairman of the Board Vice Chairman of the Board Early in 2023, our European operations launched several & Chief Executive Officer & President letter to shareholders 5 Donna Karan Cashmere Mist INTERPARFUMS, INC. 2022 ANNUAL REPORT 6 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 Interparfums, USA LLC, are located at 551 Fifth Avenue, New York, New York 10176, and our telephone num- ber is 212.983.2640. We also have wholly-owned subsidiaries in Italy, Interparfums Italia Srl and Hong Kong, Inter Parfums USA Hong Kong Limited. Our consolidated wholly-owned subsidiary, Inter Parfums Holdings, S.A., and its majority owned subsidiary, Interparfums SA, maintain executive offices at 10 rue de Solférino, 75007 Par- is, France. Our telephone number in Paris is 331.5377.0000. In- terparfums SA is the sole owner of Interparfums Luxury Brands, Inc., a Delaware corporation, for distribution of prestige brands in the United States. Interparfums SA is also the majority owner of Parfums Rochas Spain, SL, a Spanish limited liability company, which specializes in the distribution of Rochas fragrances. In ad- dition, Interparfums 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 Se- lect Market under the trading symbol “IPAR”. The common shares of our subsidiary, Interparfums SA, are traded on the Euronext. The Securities and Exchange Commission (“SEC”) maintains an internet site at http://www.sec.gov that contains financial re- ports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We main- tain our internet website at www.interparfumsinc.com, which is linked to the SEC internet site. You can obtain through our web- site, 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, market and distribute a wide array of fragrance and fragrance related products. We manage our business in two segments, European based operations and United States based oper- Ferragamo Signorina Libera ations. Certain prestige fragrance products are produced and marketed by our European operations through our 72% the company 7 Montblanc Legend Spirit INTERPARFUMS, INC. 2022 ANNUAL REPORT 8 owned subsidiary in Paris, Interparfums SA, which is also a Rochas, S.T. Dupont and Van Cleef & Arpels, whose prod- publicly traded company as 28% of Interparfums SA shares ucts are distributed in over 120 countries around the world. trade on the Euronext. European operations will also become the exclusive worldwide Our business is not capital intensive, and it is important to licensee for Lacoste fragrances on January 1, 2024. note that we do not own manufacturing facilities. We act as a general contractor and source our needed components from our suppliers. These components are either received and stored United States Operations Prestige brand fragrance products are also produced and mar- directly at our third-party fillers or received at one of our dis- keted through our United States operations, and represented tribution centers and then, based upon production needs, the approximately 32% of net sales for the year ended December components are sent to one of several third party fillers, which 31, 2022. These fragrance products are sold under trademarks manufacture the finished product for us and then deliver them owned by us or pursuant to license or other agreements with to one of our distribution centers. the owners of brands, which include Abercrombie & Fitch, Anna Our fragrance products focus on prestige brands, each with Sui, Dunhill, Donna Karan, DKNY, Ferragamo, Graff, GUESS, a devoted following. By concentrating in markets where the Hollister, MCM, Oscar de la Renta and Ungaro. brands are best known, we have had many successful product launches. We typically launch new fragrance families for our brands every few years, and more frequently seasonal and limit- ed 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 intimate- to our growth. We focus on developing and launching quality ly linked with the brand’s name, its past and present positioning, fragrances utilizing internationally renowned brand names. By customer base and, more generally, the prevailing market at- identifying and concentrating in the most receptive market mosphere. Accordingly, we generally study the market for each segments and territories where our brands are known, and proposed family of fragrance products for almost a full year be- executing highly targeted launches that capture the essence of fore we introduce any new product into the market. This study the brand, we have had a history of successful launches. Certain is intended to define the general position of the fragrance family fashion designers and other licensors choose us as a partner, and more particularly its scent, bottle, packaging and appeal to because our Company’s size enables us to work more closely the buyer. In our opinion, the unity of these four elements of the with them in the product development process as well as our marketing mix makes for a successful product. successful track record. As with any business, many aspects of our operations are sub- ject to influences outside our control. We believe we have a strong brand portfolio with global reach and potential. As part of our strategy, we plan to continue to make investments in Grow Portfolio Brands Through New Product Development And Marketing We grow through the creation of fragrance family extensions fast-growing markets and channels to grow market share. We within the existing brands in our portfolio. We regularly create discuss in greater detail risk factors relating to our business in a new family of fragrances for each brand in our portfolio. We Item 1A of this Annual Report on Form 10-K for the fiscal year frequently introduce seasonal and limited edition fragrances ended December 31, 2022, and the reports that we file from as well. With new introductions, we leverage our ability and time to time with the SEC. European Operations We produce and distribute our fragrance products primarily experience to gauge trends in the market and further leverage the brand name into different product families in order to maximize sales and profit potential. We have had success in introducing new fragrance families (sub-brands, flanker brands under license agreements with brand owners, and fragrance or flankers) within our brand franchises. Furthermore, we product sales through our European operations represented promote the performance of our prestige fragrance operations approximately 68% of net sales for 2022. We have built a portfo- through knowledge of the market, detailed analysis of the image lio of prestige brands, which include Boucheron, Coach, Jimmy and potential of each brand name, and a highly professional Choo, Karl Lagerfeld, Kate Spade, Lanvin, Moncler, Montblanc, approach to international distribution channels. the company 9 Continue To Add New Brands To Our Portfolio, Through New Licenses Or Acquisitions. Prestige brands are the core of our business, and we intend to add new prestige beauty brands to our portfolio. Over the past 35 years, we have built our portfolio of well-known prestige brands through acquisitions and new license agree- and personal care products under some of our existing brands. We believe such product offerings meet customer needs, generate trial and further strengthen customer loyalty. Continue To Build Global Distribution Footprint. Our business is a global business, and we intend to continue to ments. We intend to further build on our success in prestige build our global distribution footprint. In order to adapt to changes fragrances and pursue new licenses and acquire new brands in the environment and our business, in addition to our arrange- to strengthen our position in the prestige beauty market. To ments with third party distributors globally, we are operating that end, in 2020, we signed a new license for the Moncler distribution subsidiaries or divisions in the major markets of the brand. We also acquired a minority interest in Divabox, United States, France, Italy and Spain for distribution of prestige which owns the Origines-parfums online platform. As a web- fragrances. We may look into future joint arrangements or acquire site of reference for all selective fragrance brands, Origines- distribution companies within other key markets to distribute parfums is a key French player in the online beauty market certain of our prestige brands. While building a global distribution recognized for its customer relationship expertise. This ac- footprint is part of our long-term strategy, we may need to make quisition enhances the introduction of dedicated fragrance certain decisions based on the short-term needs of the business. lines and products designed to address a specific consumer We believe that in certain markets, vertical integration of our dis- demand for this distribution channel and accelerate our dig- tribution network may be one of the keys to future growth of our ital development. During 2021, we closed on a transaction Company, and ownership of such distribution should enable us to agreement with Salvatore Ferragamo S.p.A., whereby an better serve our customers’ needs in local markets and adapt more exclusive and worldwide license was granted for the produc- quickly as situations may determine. tion and distribution of Ferragamo brand perfumes. In 2021, we also entered into a long-term global licensing agreement for the creation, development and distribution of fragranc- es and fragrance-related products under the Donna Karan RECENT DEVELOPMENTS Lacoste In December 2022, we closed a transaction agreement with and DKNY brands. This exclusive license became effective Lacoste, whereby an exclusive and worldwide license was granted in July 2022. During 2022, we closed a transaction agree- to Interparfums SA for the production and distribution of Lacoste ment with Lacoste, whereby an exclusive and worldwide brand perfumes and cosmetics. Our rights under this license are license was granted to Interparfums SA for the production subject to certain minimum advertising expenditures and royalty and distribution of Lacoste brand perfumes and cosmetics. payments as are customary in our industry. The license becomes As of December 31, 2022, we had cash, cash equivalents and effective in January 2024 and will last for 15 years. short-term investments of approximately $256 million, which we believe should assist us in entering new brand licenses or outright acquisitions. We identify prestige brands that can be Dunhill In April 2022, we announced that the Dunhill fragrance license developed and marketed into a full and varied product fami- will expire on September 30, 2023 and will not be renewed. The lies and, with our technical knowledge and practical experi- Company will continue to produce and sell Dunhill fragrances until ence gained over time, take licensed brand names through the license expires and will maintain the right to sell-off remaining all phases of concept, development, manufacturing, marketing Dunhill fragrance inventory for a limited time as is customary in and distribution. the fragrance industry. Expand Existing Portfolio Into New Categories. We selectively broaden our product offering beyond the fra- Ferragamo In October 2021, we closed on a transaction agreement with Salvatore Ferragamo S.p.A., whereby an exclusive and world- grance category and offer other fragrance related products wide license was granted for the production and distribution of INTERPARFUMS, INC. 2022 ANNUAL REPORT 10 Ferragamo brand perfumes. Our rights under this license are subject to certain minimum advertising expenditures and roy- PRODUCTION AND SUPPLY The stages of the development and production process for all alty payments as are customary in our industry. The license be- fragrances are as follows: came effective in October 2021 and will last for 10 years with a • Simultaneous discussions with perfume designers and creators 5-year optional term, subject to certain conditions. (includes analysis of esthetic and olfactory trends, target clien- With respect to the management and coordination of activ- tele and market communication approach) ities related to the license agreement, the Company operates • Concept choice through a wholly-owned Italian subsidiary based in Florence, • Produce mock-ups for final acceptance of bottles and packaging that was acquired from Salvatore Ferragamo on October 1, • Receive bids from component suppliers (glass makers, 2021. The acquisition together with the license agreement was plastic processors, printers, etc.) and packaging companies accounted for as an asset acquisition. • Choose suppliers Emanuel Ungaro In October 2021, we also entered into a 10-year exclusive global • Schedule production and packaging • Issue component purchase orders • Follow quality control procedures for incoming components; licensing agreement with a 5-year optional term subject to cer- and tain conditions, with Emanuel Ungaro Italia S.r.l, for the creation, • Follow packaging and inventory control procedures development and distribution of fragrances and fragrance-related products, under the Emanuel Ungaro brand. Our rights under this Suppliers who assist us with product development include, license are subject to certain minimum advertising expenditures but are not limited to: and royalty payments as are customary in our industry. • Independent perfumery design companies (Aesthete, Carré Basset, PI Design, Cent Degrés) Donna Karan and DKNY In September 2021, we entered into a long-term global licensing • Perfumers (IFF, Givaudan, Firmenich, Robertet, Takasago, Mane) who create a fragrance consistent with our expectations agreement for the creation, development and distribution of fra- and, that of the fragrance designers and creators grances and fragrance-related products under the Donna Karan • Fillers (Voyant, CPFPI, Omega Packaging, Societe de Diffusion and DKNY brands. Our rights under this license are subject to de Produits de Parfumerie, TSM Brands, ICR, Cosmint, Tatra, certain minimum advertising expenditures and royalty payments as Arcade Beauty) are customary in our industry. With this agreement, we are gaining • Bottle manufacturers (Pochet du Courval, Verescence, several well-established and valuable fragrance franchises, most Verreries Brosse, Bormioli Luigi, Stoelzle Masnières, Heinz), notably Donna Karan Cashmere Mist and DKNY Be Delicious, as caps (Qualipac, ALBEA, RPC, Codiplas, LF Beauty, Texen well as a significant loyal consumer base around the world. In con- Group, S.A.R.L. J3P, SBG Packaging Group), Pumps (Silgan nection with the grant of license, we issued 65,342 shares of Inter Dispensing Systems Thomaston Corp, Aptar, Rexam) or boxes Parfums, Inc. common stock valued at $5.0 million to the licensor. (Autajon, Diamond Packaging, TPC Printing) The exclusive license became effective on July 1, 2022, and we are • Logistics (Bansard and Bolloré Logistics for storage, order planning to launch new fragrances under these brands in 2024. preparation and shipment) Rochas Fashion Effective January 1, 2021, we entered into a new license agreement Suppliers’ accounts for our European operations are primarily settled in euro and for our United States operations, suppliers’ modifying our Rochas fashion business model. The new agreement accounts are primarily settled in U.S. dollars. For our Europe- calls for a reduction in royalties to be received. As a result, in the an operations components for our prestige fragrances are pur- first quarter of 2021, we took a $2.4 million impairment charge chased from many suppliers around the world and are primarily on our Rochas fashion trademark. In the fourth quarter of 2022, manufactured in France. we again took a $6.8 million impairment charge on the Rochas For United States operations, components for our prestige fashion trademark after an independent expert concluded that the fragrances are sourced from many suppliers around the world valuation of the trademark was $11.3 million. The new license also and are primarily manufactured in the United States and Italy. contains an option for the licensee to buy-out the Rochas fashion Additionally, we occasionally utilize third party manufacturers in trademarks in June 2025 at its then fair market value. China and Turkey. the company 11 MARKETING AND DISTRIBUTION Our products are distributed in over 120 countries around the sidiaries provides us with a significant presence in over 120 countries around the world. world through a selective distribution network. For our interna- Over 50% of our European based prestige fragrance net sales tional distribution, we either contract with independent distribu- are denominated in U.S. dollars. We address certain financial ex- tion companies specializing in luxury goods or distribute prestige posures through a controlled program of risk management that products through our distribution subsidiaries. In each country, includes the use of derivative financial instruments. We primarily we designate anywhere from one to three distributors on an enter into foreign currency forward exchange contracts to re- exclusive basis for one or more of our name brands. We also duce the effects of fluctuating foreign currency exchange rates. distribute our products through a variety of duty free operators, The business of our European operations has become in- such as airports and airlines and select vacation destinations. creasingly seasonal due to the timing of shipments by our distri- As our business is a global one, we intend to continue to bution subsidiaries and divisions to their customers, which are build our global distribution footprint. For the distribution weighted to the second half of the year. of brands within our European based operations, we operate For our United States operations, we distribute products to re- through our distribution subsidiaries or divisions in the major tailers and distributors in the United States as well as international- markets of the United States, France, Italy and Spain, in addi- ly, including duty free and other travel-related retailers. We utilize tion to our arrangements with third party distributors global- our in-house sales team to reach our third party distributors and ly. Our third party distributors vary in size depending on the customers outside the United States. In addition, the business of number of competing brands they represent. This extensive our United States operations has become increasingly seasonal as and diverse network together with our own distribution sub- shipments are weighted toward the second half of the year. Interparfums Headquarters in Paris, 10 rue de Solférino INTERPARFUMS, INC. 2022 ANNUAL REPORT 12 Campaign 2022 for Fiscal Year Fiscal 2019 Fiscal 2020 Fiscal 2021 81/100 ESG Rating 2021 2020 69/100 76/100 This score is calculated on the basis of 140 criteria divided into 4 pillars: Environmental, Social, Governance and External Stakeholders. Interparfums SA applies a comprehensive approach in addressing the issues of corporate, environmental and social responsibility and transparency. It has developed from one year to the next its corporate social responsibility (“CSR”) policy, implemented by its Operational and Support Departments by involving all personnel, and has identified issues to be addressed in three key areas: its responsibilities toward operational stakeholders, staff and the company. Social and societal values have been an important component of Interparfums SA’s de- velopment for a number of years, exemplified notably by an attractive policy of employee benefits and solid relations with its partners. In October 2022, Interparfums SA announced that it had retained the services of Muriel Buiatti, as its CSR Project Manager to assist the CSR Executive Committee in achieving its goals. A graduate of the French Engineering School, Ecole Polytechnique, Ms. Buiatti ex- ercised various responsibilities, including research and development, at L’Oréal for 13 years. After completing her Master’s Degree in Sus- tainable Development, she founded Commenterre, which specializes Corporate Social Responsibility ENVIRONMENTAL, SOCIAL & GOVERNANCE Both our U.S. operations and our European operations are good corporate citizens and take our responsibilities seriously. We in helping companies address their CSR issues. comply with all applicable laws, rules and regulations in general, To support its strategy, at the beginning of 2021 and at the and in particular with regard to chemicals and hazardous mate- initiative of management, Interparfums SA created an CSR Ex- rials. Throughout our supply chain, from procurement of com- ecutive Committee, consisting of members of the Operations & ponents to distribution of finished products, we act responsibly Supply Chain, Human Resources, Legal Affairs and Communica- and monitor and comply with all legal requirements. While we tions teams, tasked with formalizing the company’s CSR strategy do not own our manufacturing facilities, we set a high bar with focusing on the following priorities, aligned with the UN Sustain- our industrial partners by placing an emphasis on quality, the use able Development Goals: of good manufacturing practices and innovation, and encouraging • reinforce its status as a responsible employer, by notably cre- them to build strong ESG programs of their own. Like many of ating a “Responsible Employer Charter” and strengthening the our industry competitors, we are applying a multifunctional and employee training plan; comprehensive approach in addressing the issues of corporate, • reduce its environmental footprint, notably by adopting envi- environmental and social responsibility and transparency, build- ronmentally optimized design specifications to reduce packaging ing off the UN Sustainable Development Goals. Our European and the introduction of recycled and recyclable materials for Operations have led the way on this initiative, but our US opera- each product developed; tions are actively catching up. • strengthen its sustainable development approach by formal- EUROPEAN OPERATIONS Interparfums SA, our European operations with their headquarters izing a code of business conduct and ethics that is enforceable against operational stakeholders. in Paris, has made further progress in the areas of environmental, (1) Gaïa Research, a member of the EthiFinance Group is an extra-fi- social, and corporate governance (ESG) based on the results of the nancial rating agency specializing in rating the ESG performance 2022 campaign of the rating agency Gaïa Research (1) which ranks of small and midsize companies and mid-cap companies listed on the top performing companies in this area. European markets. corporate social responsibility 13 Environmental Interparfums SA does not own its own manufacturing facilities, having chosen to support its industrial partners by placing an empha- sis on quality, the use of good manufacturing practices and innovation. The construction of a high quality environmentally certified warehouse in 2011 and sourcing in Europe more than 80% of its needs highlight the efforts undertaken in recent years. In addition, reflecting the stakes in terms of protecting the planet, Interparfums SA now intends to also exercise an increasingly active role in contributing to the environment. As part of its CSR strategy, Interparfums SA has partnered with EcoVadis to assess the CSR performance of its supply chain and suppliers. EcoVadis operates a global platform to assess corporate social responsibility and share performance data using their assess- ment method based on international CSR standards. In 2022, 119 suppliers were evaluated or were in the process of being evaluated, representing over 68% of Interparfums SA’s pro- curement activity. As part of a continuous improvement process, Interparfums SA’s objective will be to monitor and encourage the CSR performance of its suppliers in four major areas: the environment, social and human rights, ethics and responsible procurement. EcoVadis assessment results: Number of Suppliers Evaluated 91 Average Ecovadis Score 66.7 Average Environmental Score 69.5 Average Labor and Human Rights Score Average Ethics Score 66.9 60,7 Average Sustainable Procurement Score 65.3 In addition, in 2022, Interparfums SA has calculated its total carbon footprint in accordance with international standards, and namely the Green House Gas Protocol (GHG Protocol) for the conversion of all emission sources into tons of CO2 equivalent and the Base Carbone®, a public database of emission factors made available by the French Agency for Ecological Transition (ADEME). • 2021 Carbon footprint: 174,930 tCO2e • 2021 Carbon intensity: 312 KgCO2e per € thousand of revenue (in the low range of our industry) In Tons CO2 Equivalent Scope 1 (gas and fuel energy consumption) Scope 2 (electricity consumption) Scope 3 (other indirect emissions) Total 2021 226 29 174,675 174,930 Weight 0.1% 0.0% 99.9% 100% This first measurement is a crucial step before determining a low carbon trajectory in accordance with the European green deal regulation which aims to be climate-neutral by 2050. Moreover, Interparfums SA complies with IS 22716, International Standards for Good Manufacturing Practices, with all aspects of the manufacturing process, including receiving of raw materials and packaging materials, production and quality control. In this regulatory environment, regular audit campaigns are carried out for all packaging plants by the quality department based on the ISO 22716 stan- dard in place. The ultimate purpose of these audits is to ensure that packaging service providers maintain a good level of traceability for their activities. All plant activities were reviewed: receiving process for raw materials and packaging materials, manufacturing, packaging and quality controls. These reports demonstrated that Interparfums SA’s subcontractors comply with ISO 22716 Good Manufacturing Practices and in particular, traceability requirements for all perfume production operations. It is also in compliance with the EU directive entitled Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”), which governs and regulates the safe use of chemicals. Although not a manufacturer, per se, Interparfums SA has taken the initiative and monitors its suppliers for compli- ance with REACH, and has commitments from each of them concerning “Substances of Very High Concern” as listed in appendix XIV of REACH. No supplier of Interparfums SA has advised it of any such hazardous materials in any of its products to date. Interparfums SA monitors the outsourcing of the entire production process of its manufacturing partners with expertise and accountable leadership in their respective areas. These include producers of juice, glass, caps and cardboard boxes and packaging companies. We take environmental issues into account at each of these phases, and in particular regarding the choice of materials INTERPARFUMS, INC. 2022 ANNUAL REPORT 14 used for components, waste management and reducing the carbon footprint. Moreover, all the alcohol used by Interparfums SA is from vegetal origin (essentially from beets). Proposing Environmentally and Socially Responsible Packaging 2021 2022 Target Year Monitor: Monitor the EcoVadis Scores of our suppliers Increase: Increase the PCR Glass Part of Our Packaging Initiating a low-carbon trajectory Reduce: Reduce scope 1, 2, 3 greenhouse gases emission intensity Contribute: Average score Average score 66.7/100 65/100 Average score >70/100 2025 47% 46% 60% 2025 -3% /year Define the Appropriate Regenerative Agriculture Program One 5-year Program Defined Neutrality 2040 Sustainability & The Environment At every stage of the purchasing process, Interparfums SA seeks to determine the precise needs and considers the requirement of limiting sources of unnecessary costs and a waste of resources: • reducing waste, in particular at the phases of production, consumption and the end of the product life; • recycling flawed production, notably at the production phase; • repairing palettes to increase their lifespan. Interparfums SA regularly monitors energy and water consumption indicators to assess possibilities for improving energy efficien- cies in the area of lighting, heating and air-conditioning for the entire warehousing site, for example by adjusting ventilation flows and using a program that reduces heating and ventilation over weekends. With this objective, measures are planned to automatically turn off lights in the warehouse when employees are taking outside breaks and maintain the warehouse temperature at 11°C (51°Fahrenheit). These energy savings initiatives include measures providing for managing the hours for reloading the electric forklifts during non-peak hours during the night, requiring low consumption for a maximum of 280,000 kW instead of 600,000 kW during the day. Monthly reports on electricity consumption are prepared, allowing the company to analyze the causes for overconsumption, when applicable, in order to take corrective actions as applicable. The mea- surement of energy consumption highlighted stable levels for electricity and gas over the last four years, whereas water consumption has on average declined marginally. Finally, in the spirit of contributing to protecting the environment, the company has installed park- ing places at the logistic site for bicycles and electric recharging stations for cars. By strategically locating its warehouse at the crossroads for its subcontractors, Interparfums SA has reduced distances for ship- ments of finished products. Measures undertaken in collaboration with the warehouse and trade goods shipping manager, within the framework of the improve- ment and optimization of shipments between production sites and the logistics platform have contributed to reducing the number of back-and-forth trips for trucks. In the area of transport to distributors, Interparfums SA uses road transport for France and Europe and maritime transport for the Americas, Asia and the Middle East. Use of air transport is very limited and reserved only for urgent situations where no other solutions are available. Certain promotional materials manufactured in Asia are shipped directly to American distributors without being imported and stored in France. corporate social responsibility 15 In addition, in 2018 Interparfums SA put into service a new warehouse located in Singapore to promote the use of short channels within the Asia Pacific region. This warehouse makes it possible to maintain a permanent inventory in this region and, in this way, encourages the use of maritime transport for goods shipped from France to Asia. Measures to prevent environmental risks and pollution involve firstly the choice of techniques and materials. To reduce the impacts of its activities, a water-soluble solution in part biodegradable that does not harm the environment is used in the coloring of some of its bottles. For the remainder of the product lines, the coating process provides for the gradual elimination of solvent-based coatings and the progressive adoption of hydro-coating for all the company’s products, in compliance with the law of 2005 for reducing emissions of Volatile Organic Compounds (VOC) in the air. In addition, certain sub-contractors for glass making have electrostatic air filters to reduce dust and smoke emissions in addition to wastewater recycling. Interparfums SA has, in addition, eliminated thermosetting plastics from its line of bath and body care products in favor of recyclable plastic. To balance product quality and aesthetics with environmental considerations, Interparfums SA takes care to reduce packaging volumes and select the appropriate materials at each stage of production to ensure optimal conditions for their recycling or disposal. The manufacture of recyclable glass bottles includes a system for the recovery, crushing and remolding the waste. Indicators in place since 2013 for tracking wastage have improved Interparfums SA’s ability to monitor wastage rates by glass bottle decorators. Its first objective is to apply a continuous improvement approach and reduce rates of wastage over the long term. The second objective is to succeed in reducing this wastage and reintroduce bottles back into the manufacturing cycle. In addition, Interparfums SA has adopted procedures for recovering waste from subcontractors originating from surplus produc- tion or components of discontinued products. The recovered waste is then sorted for the purpose of their elimination. Interparfums SA has also revised the bulk and secondary packaging (product boxes and perfume sets) in order to optimize the palletizing process, reduce the purchase of cardboard packaging materials and reduce volumes transported by decreasing the amount of empty space. The company henceforth requires a minimum number of palettes per truck. Finally, cardboard packaging materials for testers are 100% recyclable. SOCIAL Donations and sponsorship initiatives: • Interparfums SA contributes to volunteer-sector organizations intervening in the areas of solidarity, childhood, combating exclu- sion and promoting health, by providing financial assistance to support their projects and initiatives. • Since 2018, through the Givaudan Foundation, − Interparfums provided support to five schools for the management of their libraries. − In 2021, the program for the installation of school libraries continued in Sulawesi with a new library in Moramo (South East Su- lawesi), benefiting 1,040 children and 66 school teachers, and providing a total of 5,180 books. − In 2021, €136,000 of charitable initiatives and donations were made by Interparfums SA. • Educational establishments: − As part of its desire to share its experience and train future generations, Interparfums SA is a regular contributor, particularly in the fields of marketing and finance, at different leading schools (business schools, Sciences Po, École supérieure de parfumerie). − Interparfums SA also regularly welcomes and trains interns at Interparfums SA offices as well as work-study contract beneficiaries. Assisting Local Economies • Production facilities of Interparfums SA’s subcontractors as well as warehousing facilities for finished products are located primarily in the Haute Normandie region of France. These activities contribute to developing the local economy. • Interparfums SA provides support for patchouli-producing communities in Indonesia. Sustainable Development Goals In line with Interparfums SA’s Corporate Social Responsibility strategy, the main goals set by Interparfums SA are presented in the following table. INTERPARFUMS, INC. 2022 ANNUAL REPORT 16 Social Initiatives Current Situation Expected Performance Deadline Attracting, Supporting and Developing All Talents Attract: Develop: Strengthen training Develop: Write a Responsible Employer Charter Employer Charter Share the Responsible 50% of the Employees 70% of the Employees CSR training for employees - 80% in 2 Years 2023 2025 2023 Diversify: Raising employee awareness about disabilities Once a Year Once a Year Governance ª• Interparfums SA only engages in recognized ethical practices. Environmental In connection with a new product launch in 2023, Hollister • It has adopted the Middlenext Corporate Governance Code Feelin’ Good, this new fragrance highlights our ESG efforts we since 2010, which was revised in September 2016 and September made in 2022: 2021 to ensure effective governance. • Glass containing 10% PCR (post-consumer recycled) glass, and • Board of Directors – Interparfums SA has a Board of Directors is 100% recyclable. consisting of 11 members, with 5 members being independent. It • Our folding cartons meet the requirements of SFI, the also intends to set up a committee of shareholders. Sustainable Forestry Initiative, and are 100% recyclable − Director Ethics - in accordance with the new Middlenext Code Recommendation 2 reinforcing the management of con- • Liners are 100% recyclable. • All components sourced from North/South America – closer flicts of interest, each Director declares before each meeting supply chain for Hollister brand fragrances and are filled and any potential conflicts of interest and, on an annual basis, any ac- warehoused in the United States. tual or potential conflicts of interest between their obligations In addition, all folding cartons for all licensed brands in United to Interparfums SA and their private interests, in particular with States operations now consist of FSC, the Forest Stewardship respect to their other offices and functions. Council, or SFI certified paper. We are also making efforts to − In any event, the members of the Board shall refrain from participating in the proceedings and voting on any matter in regionally source components to filling and warehousing loca- tions where practicable in order to lessen shipping and thereby which they would be in a situation of real or potential conflict lower energy costs. For 2023 most giftsets will be reduced in of interest. format and size, and we have eliminated plastic from the follow- • Existence of a CSR Executive Committee ing branded gift sets completely, Abercrombie & Fitch, Donna • Audit committee consisting of 5 independent directors. Karan, DKNY, Hollister, MCM and Oscar de la Renta. Our largest filler in the United States has been awarded Bronze UNITED STATES OPERATIONS In the U.S. we are also a good corporate citizen. Like our French status in 2022 from EcoVadis. One of our largest pump manufac- turers is the recipient of a 2021 Gold Medal from EcoVadis for subsidiary, Interparfums USA also retained Muriel Buiatti to Sustainability and a 2020 Bronze Medal from EcoVadis for its cor- advise and guide us on our path to become a better corporate porate social responsibility rating, and a large glass bottle manu- citizen, as we attempt to increase our efforts in ESG. Also, like facturer was awarded gold metals from EcoVadis for its corporate our French subsidiary, we are also not a true manufacturer, but social responsibility rating two years in a row. In addition in 2021, we regularly monitor our subcontractors, suppliers and fillers a large glass bottle manufacturer that we utilize received an “A” for their compliance. In addition, our subcontractors and fillers rating for leadership in corporate sustainability by CDP, a global are subject to inspection and audit from our various licensors for environmental non-profit group, ranking ‘A’ for tackling water se- compliance with all aspects of law. curity and ‘A-’ for leading effort against climate change. corporate social responsibility 17 In our U.S. operations, we do not use any banned ingre- on Good Manufacturing Practices and U.S. sourcing dients or components and use sustainable ingredients where • Today, our aim is to elevate the issue of environmental responsibility practicable. Some componentry (glass/folding cartons) is also recyclable where practicable. For example, our Abercrombie Practices recognized in the areas of responsible employment, social & Fitch Away fragrance uses glass and folding cartons that are responsibility and governance. 100% recyclable, and the carton liner is 100% recyclable and • Employer values: A responsible employer biodegradable. − An “Interparfums spirit” cultivating a sense of belonging Lastly, our product development team works with our fra- #OneIP #OneTeam #OneDream grance houses – all very sustainable in their own right – to − A proactive employee relations policy incorporate sustainably sourced ingredients in the fragrance • Social values: Long-standing practices oils used. In addition to our production operations complying with ap- − Ethical conduct − Close relations with our partners plicable law, our managers, supervisors and traffic coordinators • Governance values: Long-proven practices in our New Jersey distribution center undergo training in order − Quality of profiles, balance between independent/non-inde- for us to comply with Dangerous Goods Regulations. Compli- pendent board members ance requires training and certification to deal in hazardous ma- − Following Inter Parfums, Inc. Board of Directors’ Diver- terials to prevent damage to the environment. The two main sity Policy certifications are: International Maritime Dangerous Goods (IMDG) Danger- Interparfums USA contributes to protecting the environment ous Goods Training – 3 year Certification for Ocean Shipment • Application of Good Manufacturing Practices and International Air Transport Association (IATA) Dangerous • Audits of packaging service providers Goods Training – 2 year Certification for Global Air Shipments. • U.S. sourcing: 64% Further, our distribution center in New Jersey has in-rack sprinklers to accommodate our hazardous material products. Targets Our fragrances, Class 9 – Consumer Commodity ID8000, are • Formalizing employee relations practices through an employ- registered with American Chemistry Council, Inc. (known ee Workplace Safety Committee in the chemicals industry as Chemtrec). Chemtrec has a 24/7 hazardous materials emergency communications center, which provides immediate assistance for incidents involving hazardous Social Values Current situation: Recognized business ethics materials of any kind. Social & Governance We have an Ethical Code of Conduct, which governs our behav- Relations with brands under license agreements • A focus on developing genuine partnerships through close and regular relations with the management of each brand ior in the following subject matters: • Developing products that respect the codes of each brand CSR & Governance Employer Values Social Values Corporate Governance Brand Initiatives The Environment • Dedicated Interparfums USA marketing teams Relations with customers • Long (or very long-term) relationships with distributors • Taking into account the specific characteristics of each mar- ket and country Dangerous Goods Regulations • Developing products in some cases specifically adapted to de- CSR & Governance Introduction mands • Sharing projects at a very early stage • Responsible employment, corporate citizenship and governance Relations with industrial partners practices have been an integral part of our values from day one • Long or very long-term relationships with manufacturers in • In our recent past, environmental practices were mainly based the sector INTERPARFUMS, INC. 2022 ANNUAL REPORT 18 • Implementing guidelines on “Good Manufacturing Practices” For Her meet the following criteria: - Supporting innovation - Financial support (2020 pandemic) Targets • Raising awareness of our partners about CSR challenges Corporate governance Current situation: Long-proven practices Board of Directors - Do not contain substances of animal origin (i.e., carmine, beeswax, honey, royal jelly, marine collagen, lanolin, fish ex- tract, musk, silk, gelatin, milk, keratin, etc.) - Formula has not been tested on animals - Do not contain raw materials that have been tested on animals since March 11, 2009 for cosmetic purposes ABERCROMBIE & FITCH ABERCROMBIE & FITCH AWAY PACKAGING SUSTAINABILITY • Uses glass and folding cartons that are 100% recyclable • 10 members: 6 independent directors (60%) • Carton liner is 100% recyclable and biodegradable Audit Committee, Executive Compensation Committee and Nominating Committee The Environment Focus of 2022 work • 3 members: 3 independent directors (100%) Today, Interparfums USA is pursuing an environmental approach Important Business Policies in the following areas: • Manufacturing of components • Prohibition on fraud, bribes, kickbacks and other benefits to • The design of fragrances (juice) suppliers and customers • Industrial packaging • Prohibition on trading in the company’s securities on the basis of non-public material information Production of components • Requirement of Company-wide confidentiality for non-public sen- - Glass bottles: Reducing consumption of glass and systemat- sitive or proprietary information • Prohibition on sexual harassment ic use of recycled glass for launches - Packaging: Reducing consumption of cardboard, use of sus- • Prohibition on use of child labor and slave labor tainable FSC-certified cardboard Targets • Consolidating our existing corporate governance practices Design of fragrances (“juice”) • Strengthening alignment with Inter Parfums, Inc. Board EcoVadis - Gift sets: Use of FSC cardboard Diversity Policy Brand initiatives MCM MCM EAU DE PARFUM PACKAGING SUSTAINABILITY • Outer packaging is 100% recyclable and Forest Stewardship Council (FSC) certified • FSC sets standards for responsible forest management • A platform used by the main perfumes & cosmetics industry players • 4 pillars: - The environment - Social & Human Rights - Ethics - Responsible sourcing • FSC is the gold standard in forest certification Targets • Glass bottle is made from post-industrial recycled materials • Become an active contributor to protecting the environment • Only environmentally friendly ink and colorants were used for as well as through our business partners the bottle and carton HOLLISTER As we continue in our endeavors of responsible employment, corporate citizenship and governance practices, and continue HOLLISTER CANYON ESCAPE named “GOOD FOR VEGAN” to elevate the issue of environmental responsibility, we will up- by Sephora date our policies and procedures accordingly. As such, this Ethi- • Hollister Canyon Escape For Him and Hollister Canyon Escape cal Code of Conduct will be updated from time to time. corporate social responsibility 19 MCM Ultra INTERPARFUMS, INC. 2022 ANNUAL REPORT 20 Coach DKNY plus a 5-year optional term if certain sales targets are met June 30, 2026 December 31, 2032, plus a 5-year optional term if certain sales targets are met Donna Karan December 31, 2032, plus a 5-year optional term if certain sales targets are met Dunhill September 30, 2023 Emanuel Ungaro December 31, 2031, plus a 5-year optional term if certain sales targets are met French Connection December 31, 2027, plus a 10- Graff GUESS Hollister Kate Spade Jimmy Choo Karl Lagerfeld Lacoste* MCM Moncler 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 June 30, 2030 December 31, 2031 October 31, 2032 December 31, 2038 December 31, 2030, plus 4 option years December 31, 2026, plus a 5-year optional term if certain conditions are met Montblanc December 31, 2030 Oscar de la Renta December 31, 2031, plus a 5-year optional term if certain sales targets are met Ferragamo December 31, 2031, plus a 5-year optional term if certain sales targets are met S.T. Dupont December 31, 2023 Van Cleef & Arpels December 31, 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. Our licenses expire on the following dates: Brand Name Abercrombie & Fitch Expiration Date Extends until either party In connection with the acquisition of the Lanvin brand names terminates on 3 years’ notice and trademarks for our class of trade, we granted the seller the Anna Sui December 31, 2026, right to repurchase the brand names and trademarks in 2025 plus one 5-year optional term for the greater of €70 million (approximately $86 million) or bebe Stores Boucheron June 30, 2023 December 31, 2025, one times the average of the annual sales for the years ending December 31, 2023 and 2024. *The Lacoste license commences on January 1, 2024 the products 21 Fragrance Portfolio INTERPARFUMS, INC. 2022 ANNUAL REPORT 22 In 2010, we entered into an exclusive license agreement to create, 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 leadership posi- tions in writing instruments, watches and leather goods, prom- ising growth outlook in women’s jewelry, international retail footprint through its network of more than 600 boutiques, high standards of product design and quality, Montblanc has grown to be our largest fragrance brand. In 2011, we launched our first new Montblanc fragrance, Legend, which quickly became our best-selling men’s line and has given rise to a plethora of flankers including Legend Night and Legend Spirit. In 2014, we launched our second men’s line, Emblem and like its predecessor, Emblem gave rise to brand extensions. In 2019, we unveiled Montblanc Explorer, which has added flankers, most recently Montblanc Explorer Ultra Blue. The Legend continues, as in 2022, we introduced a new flanker, Montblanc Legend Red. For 2023, extensions for the Montblanc signature scent for women and Explorer line for men are in the pipeline. the products 23 Montblanc Explorer Platinum INTERPARFUMS, INC. 2022 ANNUAL REPORT 24 In 2009, we entered into an exclusive 12-year worldwide license agreement for the creation, development and distribution of fragrances and fragrance related products 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 offer- ing, alongside handbags, small leather goods, scarves, eyewear, belts, fragrance and men’s shoes. Jimmy Choo has a global store network encompassing more than 200 stores and is present in the most prestigious department and specialty stores world- wide. Jimmy Choo is part of the Capri Holdings Limited luxury fashion group. Our initial Jimmy Choo fragrance was launched in 2011, a signature scent for women. In the decade that followed, Jimmy Choo has grown to become our second largest brand with new pillars and flankers debuting regularly, both for men and women. Our newest women’s fragrance pillar, I Want Choo, was launched in 2021 and for 2022, two flankers debuted, Jimmy Choo Man Aqua and I Want Choo Forever. For 2023, Jimmy Choo Rose Passion is scheduled to be unveiled. the products 25 Jimmy Choo Rose Passion INTERPARFUMS, INC. 2022 ANNUAL REPORT 26 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. Founded in 1941, Coach is the ultimate American leather goods brand and has always been renowned for its quality craftsman- ship. Now the luxury brand that best embodies New York’s ca- sual elegance, Coach also offers collections of ready-to-wear, lifestyle accessories and fragrances. Its contemporary approach to luxury combines authenticity and innovation, exported world- wide thanks to its thoroughly American non-conformist vision. In 2016, we launched our first Coach fragrance, a women’s signature scent, and in 2017, a men’s scent, both of which became and remain top selling prestige fragrances. Subsequent flankers and extensions have enlarged the Coach fragrance enterprise as have entirely new collections, including Coach Dreams which debuted in early 2020, and its sister scent, Dreams Sunset, which debuted in 2021. For 2022, we unveiled Coach Wild Rose, and Coach Open Road, a new fragrance for men. Coach is part of the Tapestry house of brands. the products 27 Coach Coach Green INTERPARFUMS, INC. 2022 ANNUAL REPORT 28 In 2018, we entered into an exclusive, 15-year worldwide license agreement with GUESS, Inc. for the creation, 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 collec- tion of contemporary apparel, denim, handbags, watches, foot- wear and other related consumer products. GUESS products are distributed through branded GUESS stores as well as better department and specialty stores around the world. We began selling GUESS legacy scents in 2018. In 2019 the GUESS brand quickly became the largest within our U.S. oper- ations, with legacy fragrances dominating the sales mix. In 2019, we began shipments of 1981 Los Angeles and Seductive Noir, both flankers of established scents, which accelerated brand growth. Nearly three years in the making, our first new blockbuster scent, Bella Vita, debuted for the GUESS brand both domesti- cally and internationally in 2021. In addition, Effect, a new men’s grooming line and fragrance collection was launched in 2021. Uomo, a new men’s fragrance for GUESS, came to market in 2022 with a flanker debuting in 2023. the products 29 Guess Uomo Acqua INTERPARFUMS, INC. 2022 ANNUAL REPORT 30 In July 2022, our long-term global fragrance license for the Donna Karan brand became effective. Donna Karan is recognized as a fashion pioneer, and in 2004 she received a lifetime achievement award from the Council of Fashion Designers of America. With roots that date back to 1984, the Donna Karan brand of today has been reimagined for a new era of modern women, expanding into an all-encompassing wardrobe of sportswear, handbags, footwear, accessories and select licensed products. The brand’s lead fragrance, Cashmere Mist launched in 1994 and was honored with the Fragrance Foundation Hall of Fame Award in 2019. the products 31 T H E U LT I M AT E L AY E R O F L U X U R Y Donna Karan Cashmere Mist INTERPARFUMS, INC. 2022 ANNUAL REPORT 32 DKNY fragrances joined the Inter Parfums fragrance portfolio on July 1, 2022. The DKNY brand emerged in 1989 as the “next generation” fashion response to Donna Karan’s then teenage daughter raiding her mom’s closet. Today, DKNY designs, markets and globally distributes collections of apparel, accessories, footwear and select licensed products. Be Delicious, the brand’s best known scent which launched in 2004, was named one of the 25 Perfumes of All Time in April 2022 by Marie Claire magazine. Like our Donna Karan fragrance license, our exclusive DKNY license was awarded by G-III Apparel Group in September 2021. DKNY, along with its associated brand, Donna Karan, have emerged as superstars among our U.S. operations. the products 33 DKNY Be Delicious Orchard St. INTERPARFUMS, INC. 2022 ANNUAL REPORT 34 In December 2022, we closed a transaction agreement with Lacoste, whereby an exclusive and worldwide license was granted to Interparfums SA for the production and distri- bution of Lacoste brand perfumes and cosmetics. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. The license becomes effective in January 2024 and will last for 15 years. the products 35 Lacoste INTERPARFUMS, INC. 2022 ANNUAL REPORT 36 In October 2021, we closed on a transaction agreement with Salvatore Ferragamo S.p.A., whereby an exclusive and world- wide 10-year license was granted for the production and dis- tribution of Ferragamo brand perfumes, with a 5-year optional term if certain conditions are met. Salvatore Ferragamo S.p.A. is the parent company of the Salvatore Ferragamo Group, one of the world’s leaders in the luxury industry and whose origins date back to 1927. Named after its founder, the brand still rep- resents and lives by the original values of Salvatore Ferragamo. The uniqueness and exclusivity of its creations, along with the perfect blend of style, creativity and innovation enriched by the quality and superior craftsmanship of the ‘Made in Italy’ tradition, have always been the hallmarks of the Salvatore Ferragamo’s products notably shoes, leather goods, apparel, silk products and other accessories for men and women. The current fragrance lineup includes Storie di Seta, a col- lection of four refined, luminous olfactory works of art. Each fragrance is made with rare, sustainable raw materials, and can be worn alone or in combination, creating a personalized mul- tifaceted scent. The genderless collection is comprised of four fragrances in four colors. Four exclusive motifs drawn from the House’s textile heritage adorn each flacon. Established scents in the Ferragamo portfolio include Ferragamo, a collection of fra- grances for men, Signoria, a collection of fragrances for women, the Tuscan Creations series, the Amo series and the Uomo series. New flankers are in the works for 2023 and 2024 with a major new pillar in the works for 2025. . the products 37 Ferragamo Signorina Libera INTERPARFUMS, INC. 2022 ANNUAL REPORT 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 fra- grances in the 1920s. Lanvin fragrances occupy an important position in the selec- tive distribution market in France, Eastern Europe and Asia, and we have several lines currently in distribution, including Éclat d’Arpège, Lanvin L’Homme, Jeanne Lanvin, Modern Princess and A Girl in Capri. The Éclat d’Arpège line accounts for almost 50% of brand sales. Les Fleurs de Lanvin, a new floral fragrance collec- tion, was released during the second half of 2021. For 2022, we unveiled a new extension to our Éclat d’Arpège line, Mon Éclat. the products 39 Lanvin Éclat d’Arpège, Mon Éclat INTERPARFUMS, INC. 2022 ANNUAL REPORT 40 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 perfumery in the 1950s under Hélène Rochas’ direction. Our first new fragrance for Rochas, Mademoiselle Rochas, had a successful launch in 2017 in its traditional markets of France and Spain. Over the next few years, we debuted flankers for leg- acy scents Eau de Rochas and Mademoiselle Rochas, plus others, and in 2018 we launched our first new men’s line, Rochas Mous- tache. Byzance debuted in early 2020 and Rochas Girl in 2021, and the first flanker for both came to market in 2022 as well as one for L’Homme Rochas. Flankers for many of these pillars debuted in 2022 with more to come in 2023. the products 41 Rochas Eau de Rochas INTERPARFUMS, INC. 2022 ANNUAL REPORT 42 In 2014, we entered into a worldwide license to create, produce and distribute new fragrances and fragrance related products under the Abercrombie & Fitch brand name. We distribute these fragrances in specialty stores, department stores and duty free shops, and in the U.S., 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. Since that time, we unveiled several new fragrances most notably the Authentic and Away duos as well as brand extensions. Abercrombie & Fitch Co. is a leading, global, omnichannel specialty retailer of apparel and accessories for men, women and kids. The iconic Abercrombie & Fitch brand was born in 1892 and aims to make every day feel as exceptional as the start of a long weekend. the products 43 Abercrombie & Fitch Fierce INTERPARFUMS, INC. 2022 ANNUAL REPORT 44 In 2014, we entered into a worldwide license to create, produce and distribute new fragrances and fragrance related products un- der the Hollister brand name. We distribute these fragrances in specialty stores, department stores and duty free shops, as well as select Hollister retail stores in the U.S. In 2016 we launched our first men’s and women’s fragrance duo, Wave, which led to flankers and extensions as did subsequent fragrance families, Festival and Canyon Escape. We have a new pillar debuting in 2023, Feelin’ Good. The quintessential apparel brand of the global teen consumer, Hollister celebrates the liberating spirit of the endless summer inside everyone. Inspired by California’s laidback attitude, Hol- lister’s clothes are designed to be lived in and made your own, for wherever life takes you. the products 45 Hollister Canyon Sky INTERPARFUMS, INC. 2022 ANNUAL REPORT 46 In 2013, we entered into an exclusive worldwide license to create, produce and distribute fragrances and fragrance relat- ed 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 agree- ment through December 31, 2036. After taking over distribu- tion of the brand’s legacy fragrances in 2014, we introduced Extraordinary the following year. Oscar de la Renta Bella Blanca debuted in 2018, followed by Bella Rosa and Bella Essence and soon to join them, Bella Bouquet. Debuting in 2021 was an en- tirely new fragrance pillar, Alibi which welcomed a sister scent in 2022, Alibi Eau de Toilette. 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, chil- dren’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 products 47 Oscar de la Renta Alibi Eau Sensuelle INTERPARFUMS, INC. 2022 ANNUAL REPORT 48 In 2018, we 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. the products 49 Van Cleef & Arpels Collection Extraordinaire INTERPARFUMS, INC. 2022 ANNUAL REPORT 50 In 2012, we entered into a 20-year worldwide license agreement with Karl Lagerfeld B.V., the internationally renowned haute couture fashion house, to create, produce and distribute fra- grances 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 Lager- feld Portfolio represents a modern approach to distribution, an innovative digital strategy and a global 360 degree vision that reflects the designer’s own style and soul. Karl Lagerfeld created the first fragrance that bears his name in 1978, and that legacy has expanded to include several growing multi-scent collections, Les Parfums Matières and more recently, Karl Cities, a new collec- tion featuring entries for New York, Paris, Hamburg, Tokyo and Vienna was unveiled. the products 51 Karl Lagerfeld Les Parfums Matières INTERPARFUMS, INC. 2022 ANNUAL REPORT 52 In 2019, we entered into an exclusive, 11-year worldwide li- cense agreement with Kate Spade to create, produce and dis- tribute new perfumes and fragrance related products under the Kate Spade brand which we distribute globally to department and specialty stores and duty free shops, as well as in Kate Spade retail stores. Our first original scent, Kate Spade New York, debuted in January 2021 and for 2022, we added a flanker to our line, Kate Spade Sparkle. Kate Spade Chérie debuted in early 2023. Since its launch in 1993 with a collection of six essential handbags, Kate Spade has always stood for optimistic feminin- ity. Today, the brand is a global life and style house with hand- bags, ready-to-wear, jewelry, footwear, gifts, home décor and more. Polished ease, thoughtful details and a modern, sophis- ticated use of color—Kate Spade’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 is part of the Tapestry house of brands. the products 53 Kate Spade Chérie INTERPARFUMS, INC. 2022 ANNUAL REPORT 54 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 and fragrance related products under the MCM brand. The agreement has a 4-year automatic renewal option, potentially extending the li- cense until December 31, 2034. MCM is a luxury lifestyle goods and fashion house founded in 1976 with an attitude defined by the cultural Zeitgeist and its German heritage with a focus on functional innovation, in- cluding the use of cutting-edge techniques. Today, through its association with music, art, travel and technology, MCM em- bodies the bold, rebellious and aspirational. Always with an eye on the disruptive, the driving force behind MCM centers on revolutionizing classic design with futuristic materials. MCM’s millennial and Gen Z audience is genderless, ageless, empow- ered and unconstrained by rules and boundaries. Following through on our plan to develop extraordinary fragrances that capture the creative spirit of MCM, our first new fragrance, MCM, was released during the first quarter of 2021 to great, and somewhat unexpected success. We released a flanker in 2022, along with a limited edition called Graffiti. Our distribution strategy encompasses MCM stores, high-end department stores and prestige beauty retailers, with a geo- graphic focus on Asia, the Americas and Europe. Our first ever men’s scent for the brand is debuting in 2023. the products 55 MCM Onyx INTERPARFUMS, INC. 2022 ANNUAL REPORT 56 In 2010, we entered into an exclusive 15-year worldwide license agreement for the creation, development and distribution of fragrances and fragrance related products under the Boucheron brand. For over a century, since becoming the first jeweler to open a boutique on Place Vendôme in 1893, Boucheron has em- bodied very high-end creation, luxury and French know-how. The mysterious and seductive collection of Boucheron fragranc- es unquestionably continues this prestigious line of creations. Boucheron’s legacy scents, Femme and Homme, and the leg- endary Jaipur perfume form the foundation of brand sales. Our team has enriched the portfolio with Quatre for men and wom- en, along with several special editions, a growing collection of unique scents aptly named, La Collection, and Serpent Bohème. During 2022, we introduced a new men’s fragrance, Bouche- ron Singulier, as well as still another addition to our Boucheron Collection. Currently, Boucheron operates through several bou- tiques worldwide as well as an e-commerce site. the products 57 BOUCHERON_SINGULIER_MODEL_POS_137_159x218_FR.indd 1 Boucheron Singulier 30/03/2023 15:37 INTERPARFUMS, INC. 2022 ANNUAL REPORT 58 In June 2020, we entered into an exclusive, 5-year worldwide li- cense agreement with a potential 5-year extension with Moncler for the creation, development and distribution of fragrances under the Moncler brand. Moncler was founded at Monestier- de-Clermont, Grenoble, France, in 1952 and is currently head- quartered in Italy. Over the years, the brand has combined style with constant technological research assisted by experts in activities linked to the world of the mountain. The Moncler outerwear collections marry the extreme demands of nature with those of city life. Our first fragrance for the Moncler brand has a revolution- ary LED design, and the flask-shaped bottles of Moncler Pour Femme and Moncler Pour Homme forge a powerful bond with the House Moncler’s alpine roots and pioneering spirit. This playful and unique innovation enables its owner to write a personalized note that scrolls in red letters on the screen of the mirror bot- tle. Our first fragrance was pre-launched in 250 select outlets in the second half of 2021, and was met with an excellent response. The rollout to approximately 3,000 doors took place during 2022. Moncler will also launch a new collection in Q1 2023. 59 Moncler Les Sommets Moncler INTERPARFUMS, INC. 2022 ANNUAL REPORT 60 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. Anna Sui is one of New York’s most accomplished fashion designers known for creating contemporary clothing inspired by vintage style that capture the brand’s very sweet feminine girly aspect, com- bined with a touch of hipness and rock-and-roll. Today, Anna Sui has over 50 boutiques and her collection and products are sold in 300 stores in over 30 countries, but her brand is by far most popular and well received throughout Asia. Over the past decade, we have worked in partnership with Anna Sui and her creative team to build upon the brand’s customer appeal and develop and market a family of fragrances including Fantasia, Sui Dreams and the newest scent, Sky, which was ranked as the sec- ond best perfume launch of 2021 by WWD Japan. the products 61 Anna Sui Sundae INTERPARFUMS, INC. 2022 ANNUAL REPORT 62 In October 2021, we also entered into a 10-year exclusive global licensing agreement with Emanuel Ungaro for the creation, development and distribution of fragrances and fragrance-related products, under the Emanuel Ungaro brand. Founded in 1965 in Paris, the house of Emanuel Ungaro is an icon of French refinement and haute couture. Its unique style is expressed through unquestioning sensuality, purity of silhouette, flamboyant prints, and exquisite attention to details. Season after season, Emanuel Ungaro dared to be different, combining unexpected yet sensual clashes of bright colors and prints with beautiful draping. Today Ungaro fragrances uphold the same values of audacity and elegance, and the brand is best known and most prized internationally, and such presence will remain our sales focus as we continue to produce and distribute the brand’s legacy scents, notably Diva. Beginning in 2023, we plan to unveil a Diva brand extension. the products 63 Emanuel Ungaro Diva Rouge INTERPARFUMS, INC. 2022 ANNUAL REPORT 64 In 2019, we entered into an exclusive, 8-year worldwide license agreement with London-based Graff for the creation, develop- ment and distribution of fragrances under the Graff brand. The 8-year agreement has three 3-year automatic 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 become the world leader for diamonds of rarity, magnitude and distinction. Each jewelry creation is designed and manufactured in Graff’s London atelier, where master craftsmen employ 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, de- buted exclusively at Harrods beginning in March 2020, which we further extended through 2020 as a result of the mandatory store closings throughout that year. In 2021, a select market rollout be- gan in the Middle East, with limited luxury distribution to only the most exclusive, upmarket retail outlets. In 2021 and 2022, we added two new scents to the Lesedi La Rona collection. the products 65 Graff Lesedi La Rona Fragrances INTERPARFUMS, INC. 2022 ANNUAL REPORT 66 40% CONSOLIDATED NET SALES TO CUSTOMERS BY REGION (in millions) Year Ended December 31, North America Europe Asia Middle East Central and South America Other 2022 $431.9 333.4 152.7 87.8 69.9 11.0 $1,086.7 2021 $354.1 271.7 128.0 61.0 56.4 8.4 $879.6 2020 $193.5 180.2 79.7 46.8 32.5 6.3 $539.0 CONSOLIDATED NET SALES TO CUSTOMERS IN MAJOR COUNTRIES ARE AS FOLLOWS: (in thousands) Year Ended December 31, United States France Russia United Kingdom 2022 2021 2020 $420,900 $351,300 $187,300 37,600 44,000 14,100 43,400 24,600 38,500 44,800 33,964 37,900 6767 31% 14% 8% INTERPARFUMS, INC. 2022 ANNUAL REPORT 68 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 offic- es of Interparfums SA in Paris. Each company is organized into two operational units that report directly to general management, and European operations ultimately report to Mr. Benacin and United States operations ultimately report to Mr. Madar. Finance, Investor Relations And Administration: Michel Atwood 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 Exchange 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 and Stanislas Archambault 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 69 SIMPLIFIED CHART OF THE ORGANIZATION 44% PHILIPPE BENACIN JEAN MADAR 56% PUBLIC SHAREHOLDERS 100% 100% 100% INTER PARFUMS HOLDINGS, SA INTER PARFUMS USA, LLC INTER PARFUMS ITALIA SRL 72% 100% INTERPARFUMS SA [ EURONEXT - PARIS ] INTER PARFUMS USA HONG KONG LTD 100% 100% 100% 51% INTERPARFUMS LUXURY BRANDS, INC INTERPARFUMS [ SUISSE ] SARL INTERPARFUMS SINGAPORE PTE, LTD PARFUMS ROCHAS SPAIN, SL INTERPARFUMS, INC. 2022 ANNUAL REPORT 70 contents management’s discussion and analysis of financial condition and results of operations 71 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 81 83 87 103 104 80 management’s discussion and analysis of financial condition and results of operations 71 Substantially all of our prestige fragrance brands are licensed from unaffiliated third parties, and our business is dependent upon the continuation and renewal of such licenses. With respect to the Company’s largest brands, we license the Montblanc, Jimmy Choo, Coach and GUESS brand names. As a percentage of net sales, product sales for the Company’s largest brands were as follows: Years ended December 31, Montblanc Jimmy Choo Coach GUESS 2022 2021 2020 21% 16% 17% 11% 19% 18% 16% 12% 18% 18% 15% 12% Management’s Discussion And Analysis Of Financial Condition And Results Of Operations OVERVIEW We operate in the fragrance business, and manufacture, market 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 re- tailers, seasonality is more evident. We primarily sell directly to retailers in France and the United States. We grow our business in two distinct ways. First, by adding new brands to our portfolio, either through new licenses or other arrangements or out-right acquisitions of brands. Sec- ond, we grow through the introduction of new products and and distribute a wide array of fragrances and fragrance related by supporting new and established products through adver- products. We manage our business in two segments, European tising, merchandising and sampling, as well as by phasing out based operations and United States based operations. Certain underperforming products, so we can devote greater resourc- prestige fragrance products are produced and marketed by our es to those products with greater potential. The economics European operations through our 72% owned subsidiary in Paris, of developing, producing, launching and supporting products Interparfums SA, which is also a publicly traded company as 28% influence our sales and operating performance each year. The of Interparfums SA shares trade on the NYSE Euronext. introduction of new products may have some cannibalizing ef- We produce and distribute our European based fragrance fect on sales of existing products, which we take into account products primarily under license agreements with brand own- in our business planning. ers, and European based fragrance product sales represented Our business is not capital intensive, and it is important to approximately 68%, 75% and 78% of net sales for 2022, 2021 and note that we do not own manufacturing facilities. We act as a 2020, respectively. We have built a portfolio of prestige brands, general contractor and source our needed components from which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate our suppliers. These components are received at one of our dis- Spade, Lanvin, Moncler, Montblanc, Rochas, S.T. Dupont and Van tribution centers and then, based upon production needs, the Cleef & Arpels, whose products are distributed in over 120 coun- components are sent to one of several third party fillers, which tries around the world. manufacture the finished product for us and then deliver them Through our United States operations, we also market fra- to one of our distribution centers. grance and fragrance related products. United States opera- As with any global business, many aspects of our opera- tions represented 32%, 25% and 22% of net sales in 2022, 2021 tions are subject to influences outside our control. We be- and 2020, respectively. These fragrance products are sold lieve we have a strong brand portfolio with global reach and primarily pursuant to license or other agreements with the potential. As part of our strategy, we plan to continue to owners of the Abercrombie & Fitch, Anna Sui, DKNY, Donna make investments behind fast-growing markets and channels Karan, Ferragamo, Graff, GUESS, Hollister, MCM, Oscar de la to grow market share. Renta and Ungaro brands. Our reported net sales are impacted by changes in foreign INTERPARFUMS, INC. 2022 ANNUAL REPORT 72 currency exchange rates. A strong U.S. dollar has a negative 2023. Therefore, despite recent business improvement, the im- impact on our net sales. However, earnings are positively af- pact of the COVID-19 pandemic might continue to have adverse fected by a strong dollar, because over 50% of net sales of our effects on our results of our operations, financial position and European operations are denominated in U.S. dollars, while al- cash flows through at least the first half of 2023. most all costs of our European operations are incurred in euro. Conversely, a weak U.S. dollar has a favorable impact on our net sales while gross margins are negatively affected. We ad- dress certain financial exposures through a controlled program RECENT IMPORTANT EVENTS Lacoste In December 2022, we closed a transaction agreement with of risk management that includes the use of derivative financial Lacoste, whereby an exclusive and worldwide license was instruments, and primarily enter into foreign currency forward granted for the production and distribution of Lacoste brand exchange contracts to reduce the effects of fluctuating foreign perfumes and cosmetics. Our rights under this license are sub- currency exchange rates. IMPACT OF COVID-19 PANDEMIC A novel strain of coronavirus (“COVID-19”) surfaced in late ject to certain minimum advertising expenditures and royalty payments as are customary in our industry. The license becomes effective in January 2024 and will last for 15 years. 2019 and in March 2020, the World Health Organization de- clared COVID-19 a pandemic. In response, various national, Dunhill In April 2022, we announced that the Dunhill fragrance license state, and local governments issued decrees prohibiting certain will expire on September 30, 2023 and will not be renewed. The businesses from operating and certain classes of workers from Company will continue to produce and sell Dunhill fragrances reporting to work. Retail store closings, event cancellations and until the license expires and will maintain the right to sell-off a shutdown of international air travel brought our sales to a remaining Dunhill fragrance inventory for a limited time as is virtual standstill and caused a significant unfavorable impact on customary in the fragrance industry. our results of operations in 2020. Business significantly improved in the second half of 2020 and continued to improve throughout 2021 and 2022, as retail stores Salvatore Ferragamo In October 2021, we closed on a transaction agreement with reopened, and consumers increased online purchasing. While Salvatore Ferragamo S.p.A., whereby an exclusive and world- we expect this trend to continue, the introduction of variants of wide license was granted for the production and distribution COVID-19 in various parts of the world has caused the tempo- of Ferragamo brand perfumes. Our rights under this license rary re-implementation of governmental restrictions to prevent are subject to certain minimum advertising expenditures and further spread of the virus. In addition, international air travel royalty payments as are customary in our industry. The license remains curtailed in several jurisdictions due to both governmen- became effective in October 2021 and will last for 10 years with tal restrictions and consumer health concerns. While COVID-19 a 5-year optional term, subject to certain conditions. had significantly restricted international travel, the travel retail With respect to the management and coordination of activ- business has picked up. We remain confident that travel retail will ities related to the license agreement, the Company operates once again be a source of growth over the long-term. Lastly, the through a wholly-owned Italian subsidiary based in Florence, improved economy has put significant strains on our supply chain that was acquired from Salvatore Ferragamo on October 1, causing disruptions affecting the procurement of components, 2021. The acquisition together with the license agreement was the ability to transport goods, and related cost increases. These accounted for as an asset acquisition. disruptions have come at a time when demand for our product lines has never been stronger or more sustained. We have been addressing this issue since the beginning of 2021, by ordering well Emanuel Ungaro In October 2021, we also entered into a 10-year exclusive in advance of need and in larger quantities. Since 2021, we have global licensing agreement a with a 5-year optional term sub- strived to carry more inventory overall, source the same com- ject to certain conditions, with Emanuel Ungaro Italia S.r.l, for ponents from multiple suppliers and when possible, manufacture the creation, development and distribution of fragrances and products closer to where they are sold. We do not expect the fragrance-related products, under the Emanuel Ungaro brand. supply chain bottlenecks to begin lifting until the second half of Our rights under this license are subject to certain minimum management’s discussion and analysis of financial condition and results of operations 73 advertising expenditures and royalty payments as are customary was delivered on February 28, 2022, includes the building in our industry. Donna Karan and DKNY In September 2021, we entered into a long-term global licensing structure, development of the property, façade waterproofing, general and technical installations and interior fittings that will be depreciated over a range of 7 to 50 years. The Compa- ny has elected to depreciate the building cost based on the agreement for the creation, development and distribution of fra- useful lives of its components. Approximately $3.4 million of grances and fragrance-related products under the Donna Karan cash held in escrow is also included in property, equipment and and DKNY brands. Our rights under this license are subject to leasehold improvements on the accompanying balance sheet as certain minimum advertising expenditures and royalty payments of December 31, 2022. as are customary in our industry. With this agreement, we are The acquisition was financed by a 10-year €120 million (ap- gaining several well-established and valuable fragrance franchis- proximately $128.0 million) bank loan which bears interest at es, most notably Donna Karan Cashmere Mist and DKNY Be one-month Euribor plus 0.75%. Approximately €80 million of Delicious, as well as a significant loyal consumer base around the the variable rate debt was swapped for variable interest rate world. In connection with the grant of license, we issued 65,342 debt with a maximum rate of 2% per annum. shares of Inter Parfums, Inc. common stock valued at $5.0 mil- lion to the licensor. The exclusive license became effective on July 1, 2022, and we are planning to launch new fragrances under these brands in 2024. Rochas Fashion Effective January 1, 2021, we entered into a new license agreement DISCUSSION OF CRITICAL ACCOUNTING POLICIES We make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual re- sults could differ significantly from those estimates under dif- ferent assumptions and conditions. We believe the following modifying our Rochas fashion business model. The new agreement discussion addresses our most critical accounting policies, which calls for a reduction in royalties to be received. As a result, in the are those that are most important to the portrayal of our fi- first quarter of 2021, we took a $2.4 million impairment charge nancial condition and results of operations. These accounting on our Rochas fashion trademark. In the fourth quarter of 2022, policies generally require our management’s most difficult and we again took a $6.8 million impairment charge on the Rochas subjective judgments, often as a result of the need to make esti- fashion trademark after an independent expert concluded that the mates about the effect of matters that are inherently uncertain. valuation of the trademark was $11.3 million. The new license also Management of the Company has discussed the selection of sig- contains an option for the licensee to buy-out the Rochas fashion nificant accounting policies and the effect of estimates with the trademarks in June 2025 at its then fair market value. Audit Committee of the Board of Directors. Land and Building Acquisition - Future Headquarters in Paris In April 2021, Interparfums SA, our 72% owned French subsid- Long-Lived Assets We evaluate indefinite-lived intangible assets for impairment at least annually during the fourth quarter, or more frequently iary, completed the acquisition of its future headquarters at 10 when events occur or circumstances change, such as an unex- rue de Solférino in the 7th arrondissement of Paris from the pected decline in sales, that would more likely than not indicate property developer. This is an office complex combining three that the carrying value of an indefinite-lived intangible asset may buildings connected by two inner courtyards, and consists of not be recoverable. When testing indefinite-lived intangible as- approximately 40,000 total sq. ft. sets for impairment, the evaluation requires a comparison of the The purchase price includes the complete renovation of the estimated fair value of the asset to the carrying value of the as- site. As of December 31, 2022, $148.1 million of the purchase set. The fair values used in our evaluations are estimated based price, including approximately $4.4 million of acquisition costs, upon discounted future cash flow projections using a weighted is included in property, equipment and leasehold improvements average cost of capital of 9.80%. The cash flow projections are on the accompanying balance sheet as of December 31, 2022. based upon a number of assumptions, including, future sales lev- The purchase price has been allocated approximately $61.1 mil- els and future cost of goods and operating expense levels, as lion to land and $87.0 million to the building. The building, which well as economic conditions, changes to our business model or INTERPARFUMS, INC. 2022 ANNUAL REPORT 74 changes in consumer acceptance of our products which are including future sales levels and future cost of goods and oper- more subjective in nature. If the carrying value of an indefi- ating expense levels, as well as economic conditions, changes nite-lived intangible asset exceeds its fair value, an impairment to our business model or changes in consumer acceptance of charge is recorded. our products which are more subjective in nature. In those cas- We believe that the assumptions we have made in projecting es where we determine that the useful life of long-lived assets future cash flows for the evaluations described above are reason- should be shortened, we would amortize the net book value in able. However, if future actual results do not meet our expecta- excess of the salvage value (after testing for impairment as de- tions, we may be required to record an impairment charge, the scribed above), over the revised remaining useful life of such as- amount of which could be material to our results of operations. set thereby increasing amortization expense. We believe that the At December 31, 2022 indefinite-lived intangible assets ag- assumptions we have made in projecting future cash flows for the gregated $105.0 million. The following table presents the impact evaluations described above are reasonable. a change in the following significant assumptions would have had In determining the useful life of our Lanvin brand names and on the calculated fair value in 2022 assuming all other assump- trademarks, we applied the provisions of ASC topic 350-30-35- tions remained constant: Increase (decrease) $ in millions Change to fair value Weighted average cost of capital +10% $(7.2) Weighted average cost of capital -10% $8.1 Future sales levels +10% $9.7 Future sales levels -10% $(9.7) 3. The only factor that prevented us from determining that the Lanvin brand names and trademarks were indefinite life intan- gible assets was Item c. “Any legal, regulatory, or contractual provisions that may limit the useful life.” The existence of a re- purchase option originally in 2025 and amended to 2027, may limit the useful life of the Lanvin brand names and trademarks to the Company. However, this limitation would only take effect if the repurchase option were to be exercised and the repurchase price was paid. If the repurchase option is not exercised, then Intangible assets subject to amortization are evaluated for im- the Lanvin brand names and trademarks are expected to contin- pairment testing whenever events or changes in circumstances ue to contribute directly to the future cash flows of our Com- indicate that the carrying amount of an amortizable intangible as- pany and their useful life would be considered to be indefinite. set may not be recoverable. If impairment indicators exist for an With respect to the application of ASC topic 350-30-35-8, amortizable intangible asset, the undiscounted future cash flows the Lanvin brand names and trademarks would only have a finite associated with the expected service potential of the asset are life to our Company if the repurchase option were exercised, compared to the carrying value of the asset. If our projection of and in applying ASC topic 350-30-35-8, we assumed that the undiscounted future cash flows is in excess of the carrying value repurchase option is exercised. When exercised, Lanvin has an of the intangible asset, no impairment charge is recorded. If our obligation to pay the exercise price and the Company would be projection of undiscounted future cash flows is less than the car- required to convey the Lanvin brand names and trademarks back rying value of the intangible asset, an impairment charge would to Lanvin. The exercise price to be received (residual value) is be recorded to reduce the intangible asset to its fair value. The well in excess of the carrying value of the Lanvin brand names cash flow projections are based upon a number of assumptions, and trademarks, therefore no amortization is required. RESULTS OF OPERATIONS Net Sales (in millions) Years Ended December 31, European-based product sales United States-based product sales Total net sales 2022 $744.0 342.7 $1,086.7 % Change 12% 58% 24% 2021 $663.2 216.4 $879.6 % Change 57% 86% 63% 2020 $422.9 116.1 $539.0 Net sales rebounded significantly in 2021, as compared to 2020 for both European and United States based operations and con- tinued to increase in 2022. At comparable foreign currency exchange rates, net sales increased 30% in 2022, as compared management’s discussion and analysis of financial condition and results of operations 75 to 2021. Net sales in 2020 reflected the negative impacts of we have recently announced the license agreement with La- the COVID-19 pandemic on the beauty industry. Retail store coste which will offer us another sizable building block of closings, event cancellations and a shutdown of international growth in 2024. air travel brought our sales to a virtual standstill in early 2020. As in the past, we hope to benefit from our strong financial In the second half of 2020, business began rebounding thanks position to potentially acquire one or more brands, either on to retail stores reopening and a robust e-commerce business a proprietary basis or as a licensee. However, we have no cer- conducted by our retail customers. tainty that any new license or acquisition agreements will be For European based operations, our largest brands, Mont- consummated. blanc, Jimmy Choo and Coach grew 2022 sales by 15%, 23% and 18%, respectively, as compared to 2021. There were also signif- icant gains made by our mid-sized brands, including Van Cleef Net Sales to Customers by Region (in millions) & Arpels and Karl Lagerfeld. The year-over-year gains, in both Years ended December 31, euro and dollars, are all the more impressive considering our North America new product pipeline was dominated by flankers and extensions. Western Europe However, we did bring to market several entirely new lines, in- Asia cluding our first ever Moncler duo, Kate Spade Sparkle, Singulier Eastern Europe by Boucheron and Open Road and Wild Rose by Coach. Middle East In 2021, GUESS became our fourth brand with sales exceed- Central & South America ing $100 million. Strong momentum on GUESS continued in Other 2022 with brand sales increasing another 24% as compared to 2021. There were also significant gains made by our mid-sized 2022 $431.9 259.2 152.7 87.8 74.2 69.9 11.0 $1,086.7 2021 $354.1 202.0 128.0 69.7 61.0 56.4 8.4 $879.6 2020 $193.5 147.1 79.7 33.1 46.8 32.5 6.3 $539.0 brands, especially Abercrombie & Fitch, Hollister and Oscar Our largest market, North America achieved sales growth de la Renta. Additionally, 2022 saw the first full year of sales of 22% in 2022 compared to 2021, while Western Europe of Ferragamo products and in the second half of 2022, we also and Asia grew sales by 28% and 19% in 2022, respectively, welcomed first time sales of our newest brands, Donna Karan/ compared to 2021. Latin America and the Middle East also DKNY. Together, these new brands contributed to 38% growth achieved top line growth of 24% and 44% in 2022, respective- of our US operations. ly compared to 2021. Eastern Europe saw only moderate top We are confident in our future as 2023 has many exciting line growth of 6% as compared to 2021 largely related to the developments for the Company. We have transitioned to a war in Ukraine. new modern enterprise resource planning system (ERP) for our US operations which will enable us to operate more ef- ficiently and offer more scale to absorb our newer brands. Gross Margins (in millions) We have a solid line-up of new product launches in the pipe- Years ended December 31, 2022 2021 2020 line for many of our brands. This includes the roll out of the Moncler Collection in the first quarter and a Duo flanker in European Operations Net sales the third quarter, a launch of GUESS Uomo Acqua in the sec - Cost of sales ond quarter, as well as Bella Vita Paradiso in the fourth quar - Gross margin ter. Extensions of the Montblanc Legend, Jimmy Choo Man Gross margin as $744.0 236.9 $507.1 $663.2 221.2 $442.0 $422.9 152.3 $270.6 and Jimmy Choo’s I Want Choo, debut in the first, second and a percent of net sales 68.2% 66.7% 64.0% third quarters, respectively. Also, in the third quarter, we will unveil new men’s lines for Coach and Boucheron. Brand extensions and flankers are in the works for MCM, Aber- United States Operations Net sales crombie & Fitch, Hollister, Anna Sui, and Oscar de la Renta. Cost of sales In sum, 2023 has all the earmarks of another superb year as Gross margin the growth catalysts currently far outweigh the headwinds, Gross margin as $342.7 155.4 $187.3 $216.4 101.5 $114.9 $116.1 56.0 $60.1 most notably inflation and supply chain disruptions. Lastly, a percent of net sales 54.7% 53.1% 51.8% INTERPARFUMS, INC. 2022 ANNUAL REPORT 76 For European based operations, gross profit margin as a per- centage of net sales was 68.2%, 66.6% and 64.0% in 2022, 2021 Selling, General & Administrative Expenses (in millions) and 2020, respectively. Distribution in the United States for Years ended December 31, 2022 2021 2020 European based operations is handled by a 100% owned subsid- iary of Interparfums SA based in the United States. Therefore, European Operations Selling, general sales are made at a wholesale price rather than at an ex-fac- & administrative expenses $358.3 $327.5 $210.6 tory price, resulting in higher gross margins. Net sales of our Selling, general U.S. based distribution subsidiary increased 16% in 2022, as & administrative expenses compared to 2021, leading to favorable mix and giving rise to as a percent of net sales 48.2% 49.4% 49.8% the increase in gross margin in 2022 over both 2021 and 2020. We carefully monitor movements in foreign currency exchange United States Operations Selling, general rates as over 50% of our European based operations net sales & administrative expenses $134.0 $79.0 $50.1 is denominated in U.S. dollars, while most of our costs are in- Selling, general curred in euro. From a margin standpoint, a strong U.S. dollar & administrative expenses has a positive effect on our gross margin while a weak U.S. dol- as a percent of net sales 39.1% 36.5% 43.1% lar has a negative effect. The average dollar/euro exchange rate was 1.05 in 2022, 1.18 in 2021, and 1.15 in 2020. Pricing action For European operations, selling, general and administrative also enabled us to offset inflationary pressures. expenses increased 9% and 55% in 2022 and 2021, respectively, For United States operations, gross profit margin was 54.7%, as compared to the corresponding prior year period, and repre- 53.1% and 51.8% in 2022, 2021 and 2020, respectively. With a sented 48.2%, 49.4% and 49.8% of sales in 2022, 2021 and 2020, decline in sales in 2020, certain expenses such as depreciation of respectively as we were able to leverage our scale. As discussed tools and molds together with the distribution of point-of-sale in more detail below, these fluctuations, which are in line with the materials exaggerated the decline in gross margin for the year fluctuations in sales for European operations, are primarily from as a percentage of sales. The scale benefits coming from our sig- variations in promotion and advertising expenditures. For United nificant growth in 2021 and 2022, combined with pricing actions States operations, selling, general and administrative expenses in- and favorable channel/brand mix, have enabled us to more than creased 70% and 58% in 2022 and 2021, respectively, as compared offset the impacts of inflation and thus expand gross margin by to the corresponding prior year period and represented 39.1%, 130 bps in 2021 and another 160 bps in 2022. 36.5% and 43.1% of sales in 2022, 2021 and 2020, respectively. As Costs relating to purchase with purchase and gift with pur- discussed in more detail below, the increased selling, general and chase promotions are reflected in cost of sales, and aggregated administrative expenses as a percentage of net sales are primarily $43.1 million, $36.9 million and $26.4 million in 2022, 2021 and the result of increases in promotion and advertising expenditures. 2020, respectively, and represented 4.0%, 4.2% and 4.9% of net Additionally, the US based operations increased expenses related sales, respectively. to salaries and benefits as we build the organization and infra- Generally, we do not bill customers for shipping and han- structure to support our new brands and future growth. dling costs and such costs, which aggregated $15.8 million, Promotion and advertising included in selling, general and ad- $10.0 million and $5.0 million in 2022, 2021 and 2020, re- ministrative expenses aggregated $212.4 million, $171.1 million spectively, are included in selling, general and administrative and $91.7 million in 2022, 2021 and 2020, respectively. Promo- expenses in the consolidated statements of income. As such, tion and advertising as a percentage of sales represented 19.5%, our Company’s gross margins may not be comparable to other 19.5% and 17.0% of net sales in 2022, 2021 and 2020, respectively. companies, which may include these expenses as a component Promotion and advertising programs were cut significantly in 2020 of cost of goods sold. in response to market conditions. Promotion and advertising are management’s discussion and analysis of financial condition and results of operations 77 integral parts of our industry, and we continue to invest heavily terest at EURIBOR-1 month rates plus a margin of 0.825%. This in promotional spending to support new product launches and to variable rate debt was swapped for variable interest rate debt build brand awareness. We believe that our promotion and adver- with a maximum rate of 2% per annum. Additionally, in April tising efforts have had a beneficial effect on online net sales, caus- 2021, we completed the acquisition of the future headquarters ing then to continue to grow strongly on a global basis. All of our of Interparfums SA. The acquisition was financed by a 10-year brands have benefitted from newly launched and enhanced e-com- €120 million (approximately $128 million) bank loan which bears merce sites in existing markets in collaboration with our retail cus- interest at one-month Euribor plus 0.75%. Also in 2021, ap- tomers on their e-commerce sites. We also continue to develop proximately €80 million of the variable rate debt was swapped and implement omnichannel concepts, the way brick-and-mortar for fixed interest rate debt. Long-term debt including current stores and a business’ online operations work in tandem, and com- maturities aggregated $186.8 million, $148.8 million and $24.7 pelling content to deliver an integrated consumer experience. We million as of December 31, 2022, 2021 and 2020, respectively. anticipated that on a full year basis, future promotion and adver- We enter into foreign currency forward exchange con- tising expenditures will aggregate approximately 21% of net sales, tracts to manage exposure related to receivables from unaf- which is in line with pre-COVID historical averages. filiated third parties denominated in a foreign currency and Royalty expense included in selling, general and administra- occasionally to manage risks related to future sales expected tive expenses aggregated $87.0 million, $68.9 million and $41.1 to be denominated in a foreign currency. Due to the sizable million in 2022, 2021 and 2020, respectively. Royalty expense swings in currency rates during 2022, we went from recog- as a percentage of sales represented 8.0%, 7.8% and 7.6% of net nizing a gain of $2.3 million in 2021 to a loss of $1.9 million in sales in 2022, 2021 and 2020, respectively. The increases in 2022 2022. This accounts for most of our fluctuation within Other and 2021, as a percentage of sales, are directly related to new income and expenses. licenses and increased royalty-based product sales. As a result Interest and investment income represents interest earned of the COVID-19 pandemic, we reached agreements with most on cash and cash equivalents and short-term investments. In of our licensors to waive or significantly reduce minimum guar- 2022, short-term investments include approximately $19.9 mil- anteed royalties for 2020. lion of marketable equity securities of other companies in the Service fees, which are fees paid within our European oper- luxury goods sector. Interest and investment income includes ations to third parties relating to the activities of our distribu- approximately $3.1 million of unrealized gains on marketable tion subsidiaries, aggregated $7.9 million, $9.4 million and $6.8 equity securities. Given our strong balance sheet and cash po- million in 2022, 2021 and 2020, respectively. The 2022 and 2021 sition, the increase in interest rates had a favorable impact on amounts are in line with and directly related to fluctuations in interest and investment income. sales within our U.S. distribution subsidiary. Income from Operations As a result of the above analysis regarding net sales, gross Income Taxes Our effective income tax rate was 22.2%, 27.1% and 27.9% in 2022, 2021 and 2020, respectively. profit margins and selling, general and administrative expenses, Income tax expense represents U.S. federal, foreign, state our operating margins aggregated 17.9%, 16.8% and 13.1% for the and local income taxes. The effective rate differs from the fed- years ended December 31, 2022, 2021 and 2020, respectively. eral statutory rate primarily due to the effect of state and local Other Income and Expenses In December 2022, to finance the acquisition of the Lacoste income taxes, the tax impact of share-based compensation and the taxation of foreign income including tax settlements. Our ef- fective tax rate will change from year-to-year based on recurring trademark, the Company entered into a $53.3 million (€50 mil- and non-recurring factors including the geographical mix of earn- lion) four-year loan agreement. The loan agreement bears in- ings, enacted tax legislation, state and local income taxes, the tax INTERPARFUMS, INC. 2022 ANNUAL REPORT 78 impact of share-based compensation, the interaction of various global tax strategies and the impact from certain acquisitions. Our effective income tax rate for European operations was 25.2%, 30.6% and 29.7% in 2022, 2021 and 2020, respectively, as the French Government voted to reduce the French corporate income tax rate from approximately 33% to 25% over a three-year period. Our effective income tax rate for U.S. operations was 13.8%, 15.6% and 16.7% in 2022, 2021 and 2020, respectively. Our effective tax rate differs from the 21% statutory rate due to state, local and foreign taxes, offset by benefits received from the exercise of stock options as well as deductions we are allowed for a portion of our foreign derived intangible income. Additionally, in the third quarter of 2022, our U.S. operations recognized a one-time tax benefit of $2.5 million associated with the 2021 Salvatore Ferrag- amo acquisition. At the time of the acquisition, we had not recognized deferred tax benefits as there were uncertainties concerning its potential recoverability; however, as of September 30, 2022, the recoverability was deemed likely. The Company has determined that it has no tax liability related global intangible low-taxed income (“GILTI”) as of December 31, 2022, 2021 and 2020. The Company also estimated the effect of its foreign derived intangible income (“FDII”) and recorded a tax benefit of $1.5 million, $0.6 million and $0.3 million as of December 31, 2022, 2021 and 2020, respectively. Share-based compensation resulted in a discrete tax benefit of $0.8 million, $1.3 million and $0.4 million in 2022, 2021 and 2020, respectively. Net Income (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. 2022 $107,292 43,745 151,037 30,099 $120,938 2021 $80,670 29,357 110,027 22,616 $87,411 2020 $41,990 7,978 49,968 11,749 $38,219 Net income attributable to European operations was $107.3 million, $80.7 million and $42.0 million in 2022, 2021 and 2020, respec- tively, while net income attributable to United States operations was $43.7 million, $29.4 million and $8.0 million in 2022, 2021 and 2020, respectively. The fluctuations in net income for both European operations and United States operations are directly related to the previous discussions concerning changes in sales, gross profit margins, selling, general and administrative expenses, most of which were caused by the effects of the COVID-19 pandemic beginning in 2020 and the recovery in 2021 and 2022. The noncontrolling interest arises primarily from our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 28% of Interparfums SA shares trade on the Euronext. Net income attributable to the noncontrolling interest is directly related to the profitability of our European operations and aggregated 27.9%, 28.0% and 28.1% of European operations net income in 2022, 2021 and 2020, respectively. Net margins attributable to Inter Parfums, Inc. aggregated 11.1%, 9.9% and 7.1% in 2022, 2021 and 2020, respectively. liQuidity and capital resources Our conservative financial tradition has enabled us to amass significant cash balances. As of December 31, 2022, we had $256 million in cash, cash equivalents and short-term investments, most of which are held in euro by our European operations and are readily con- vertible into U.S. dollars. We have not had any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments. As of December 31, 2022, short-term investments include approximately $19.9 million of marketable equity securities. The Company is party to a number of license and other agreements for the use of trademarks and rights in connection with the manufacture and sale of its products expiring at various dates through 2039. In connection with certain of these license agreements, the Company is subject to minimum annual advertising commitments, minimum annual royalties and other commitments. See Item 8. Financial Statements and Supplementary Data – Note 12 – Commitments in this annual report on Form 10-K. Future advertising commitments are estimated based on planned future sales for the license terms that were in effect at December 31, 2022, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations. The Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a proprietary basis or as a licensee. In December 2022, we entered into a long-term global licensing agreement for the creation, develop- ment and distribution of fragrances and fragrance-related products under the Lacoste brand. This new license takes effect January 2024. management’s discussion and analysis of financial condition and results of operations 79 In September 2021, we entered into a long-term global li- of certificates of deposit with maturities greater than three censing agreement for the creation, development and distri- months marketable equity securities and other contracts. At bution of fragrances and fragrance-related products under the December 31, 2022, approximately $39 million of certificates Donna Karan and DKNY brands. Our rights under this license of deposit contain penalties where we would forfeit a portion of are subject to certain minimum advertising expenditures and the interest earned in the event of early withdrawal. royalty payments as are customary in our industry. With this Our business is not capital intensive as we do not own any agreement, we are gaining several well-established and valu- manufacturing facilities. On a full year basis, we generally spend able fragrance franchises, most notably Donna Karan Cashmere less than $5.0 million on capital expenditures including tools Mist and DKNY Be Delicious, as well as a significant loyal con - and molds needed to support our new product development sumer base around the world. The exclusive license became calendar. Capital expenditures also include amounts for office effective on July 1, 2022, and we are planning to launch new fixtures, computer equipment and industrial equipment needed fragrances under these brands in 2024. at our distribution centers. In October 2021, we closed on a transaction agreement with In December 2022, to finance Interparfums SA’s acquisition Salvatore Ferragamo S.p.A., whereby an exclusive and world- of the Lacoste trademark, the Company entered into a $53.3 wide license was granted for the production and distribution of million (€50 million) four-year loan agreement. The loan agree- Ferragamo brand perfumes. The license became effective in Oc- ment bears interest at EURIBOR-1 month rates plus a margin of tober 2021 and will last for 10 years with a 5-year optional term, 0.825%. This variable rate debt was swapped for variable inter- subject to certain conditions. With respect to the management est rate debt with a maximum rate of 2% per annum. and coordination of activities related to the license agreement, In April 2021, Interparfums SA completed the acquisition of its the Company is operating through a wholly-owned Italian sub- future headquarters at 10 rue de Solférino in the 7th arrondisse- sidiary based in Florence, that was acquired from Salvatore Fer- ment of Paris from the property developer. This is an office com- ragamo on October 1, 2021. The acquisition together with the plex combining three buildings connected by two inner courtyards, license agreement was accounted for as an asset acquisition. The and consists of approximately 40,000 total sq. ft. total cost of the assets acquired net of liabilities assumed ag- The $142 million purchase price is in line with market val- gregated approximately $35.8 million. In connection with this ue and includes the complete renovation of the site. As of De- acquisition, we agreed to pay $17.0 million in equal annual in- cember 31, 2021, $136.1 million of the purchase price, including stallments of $1.7 million including interest imputed at 2.0%. approximately $3.1 million of acquisition costs, is included in Opportunities for external growth are regularly examined, building, equipment and leasehold improvements on the accom- with the priority of maintaining the quality and homogeneous na- panying balance sheet as of December 31, 2021. Approximately ture of our portfolio. However, we cannot assure you that any $8.8 million of cash held in escrow is included in other assets new license or acquisition agreements will be consummated. on the accompanying balance sheet as of December 31, 2021. In Cash provided by operating activities aggregated $115.2 mil- 2022 this cash was released from escrow and there is no longer lion, $119.6 million, and $65.0 million in 2022, 2021 and 2020, any balance of cash outside of cash and cash equivalents on the respectively. In 2022, working capital items used $65.6 million accompanying balance sheet as of December 31, 2022. In addi- in cash from operating activities, as compared to $13.7 million tion, the Company borrowed $17.0 million pursuant to a short- in 2021 and $7.3 million in 2020. Although, from a cash flow term loan equal to the VAT credit, and in July 2021, the $17.0 perspective, accounts receivable is up approximately 37% from million VAT credit was reimbursed by the French Tax Authori- year-end 2021, the balance is reasonable based upon fourth ties and the loan was repaid. quarter 2022 record sales levels and reflects strong collection The acquisition was financed by a 10-year €120 million (ap- activity as day’s sales outstanding increased slightly to 64 days in proximately $136 million) bank loan which bears interest at one- 2022, as compared to 61 days in 2022 and decreased significant- month Euribor plus 0.75%. Approximately €80 million of the ly as compared to 86 days in 2020. From a cash flow perspective, variable rate debt was swapped for variable interest rate debt inventory levels are up 49% from year-end 2021. Inventory days with a maximum rate of 2% per annum. on hand increased to 231 days in 2022, as compared to 208 days In June 2020, the Company and Divabox, owner of the in 2021, and 277 days in 2020 as we chose to protect service Origines-parfums e-commerce platform for beauty products, level in light of the COVID driven supply chain disruptions. signed a strategic agreement and equity investment pursuant Cash flows used in investing activities reflect the purchase to which we acquired 25% of Divabox capital for $14 million and sales of short-term investments. These investments consist through a capital increase. In connection with the acquisition, INTERPARFUMS, INC. 2022 ANNUAL REPORT 80 report on internal control over financial reporting the Company entered into a $13.4 million term loan, which was repaid in full in February 2021. Foreign Exchange Risk Management A general discussion relating to our policies on foreign exchange Our short-term financing requirements are expected to be risk management can be found in “Management’s Discussion and met by available cash on hand at December 31, 2022, cash gen- Analysis of Financial Condition and Results of Operations” in erated by operations and short-term credit lines provided by Part II, Item 7 of our annual report on Form 10-K for the year domestic and foreign banks. The principal credit facilities for ended December 2021. 2022 consist of a $20.0 million unsecured revolving line of credit As of December 31, 2022, we had foreign currency con- provided by a domestic commercial bank and approximately $20 tracts in the form of forward exchange contracts with notion- million in credit lines provided by a consortium of international al amounts of approximately U.S. $36.5 million which all have financial institutions. There were no balances due from short- maturities of less than one year. We believe that our risk of term borrowings as of December 31, 2022 and 2021. loss as the result of nonperformance by any of such financial In April 2020, as a result of the uncertainties raised by the institutions is remote. COVID-19 pandemic, the Board of Directors authorized a tem- porary suspension of the quarterly cash dividend. In February 2021, our Board of Directors authorized a reinstatement of Interest Rate Risk Management We mitigate interest rate risk by monitoring interest rates, an annual dividend of $1.00, payable quarterly and in Febru- and then determining whether fixed interest rates should be ary 2022, our Board authorized a 100% increase in the annu- swapped for floating rate debt, or if floating rate debt should be al dividend to $2.00 per share. In February 2023 the Board of swapped for fixed rate debt. Directors further increased the annual dividend to $2.50 per share. The next quarterly cash dividend of $0.625 per share was paid on March 31, 2023, to shareholders of record on March 15, 2023. Dividends paid, including dividends paid once per year MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Inter Parfums, Inc. is responsible for estab- to noncontrolling stockholders of Interparfums SA, aggregated lishing and maintaining adequate internal control over financial $79.8 million, $41.5 million and $21.1 million for the years ended reporting as defined in Rule 13(a)-15(f) under the Securities December 31, 2022, 2021 and 2020, respectively. The cash divi- Exchange Act of 1934. With the participation of the Chief dends to be paid in 2023 are not expected to have any significant Executive Officer and the Chief Financial Officer, our manage- impact on our financial position. ment conducted an evaluation of the effectiveness of our inter- We believe that funds provided by or used in operations can nal control over financial reporting based on the framework and be supplemented by our present cash position and available criteria established in Internal Control – Integrated Framework credit facilities, so that they will provide us with sufficient re- (2013), issued by the Committee of Sponsoring Organizations of sources to meet all present and reasonably foreseeable future the Treadway Commission. Based on this evaluation, our man- operating needs. agement has concluded that our internal control over financial Inflation rates in the U.S. and foreign countries in which we reporting was effective as of December 31, 2022. operate did not have a significant impact on operating results for Our independent auditor, Mazars USA LLP, a registered pub- the year ended December 31, 2022 as they were either offset lic accounting firm, has issued its report on its audit of our in- by price increases we passed onto our respective customers or ternal control over financial reporting. This report appears on operating efficiencies. the following page. DISCLOSURES ABOUT MARKET We address certain financial exposures through a controlled program of risk management that primarily consists of the use of derivative financial instruments. We primarily enter into for- eign currency forward exchange contracts in order to reduce the effects of fluctuating foreign currency exchange rates. We Jean Madar Chief Executive Officer, Michel Atwood Chief Financial Officer do not engage in the trading of foreign currency forward ex- Chairman of the change contracts or interest rate swaps. Board of Directors report of independent registered public accounting firm 81 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To Shareholders and the Board of Directors of Inter Parfums, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets We conducted our audits in accordance with the stan- dards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was main- tained in all material respects. of Inter Parfums, Inc. (the “Company”) as of December 31, 2022 Our audits of the consolidated financial statements includ- and 2021, and the related consolidated statements of income, ed performing procedures to assess the risks of material mis- comprehensive income, shareholders’ equity, and cash flows statement of the consolidated financial statements, whether for each of the years in the three-year period ended December due to error or fraud, and performing procedures that re- 31, 2021, and the related notes and the schedule listed in the spond to those risks. Such procedures included examining, on Index in Item 15(a)(2) (collectively referred to as the “financial a test basis, evidence regarding the amounts and disclosures statements”). We also have audited the Company’s internal con- in the consolidated financial statements. Our audits also in- trol over financial reporting as of December 31, 2022, based on cluded evaluating the accounting principles used and significant criteria established in Internal Control - Integrated Framework: estimates made by management, as well as evaluating the over- (2013) issued by the Committee of Sponsoring Organizations of all presentation of the consolidated financial statements. Our the Treadway Commission (COSO). audit of internal control over financial reporting included ob- In our opinion, the consolidated financial statements re- taining an understanding of internal control over financial re- ferred to above present fairly, in all material respects, the fi- porting, assessing the risk that a material weakness exists, and nancial position of the Company as of December 31, 2022 and testing and evaluating the design and operating effectiveness 2021, and the results of its operations and its cash flows for of internal control based on the assessed risk. Our audits also each of the years in the three-year period ended December included performing such other procedures as we considered 31, 2022, in conformity with accounting principles generally ac- necessary in the circumstances. We believe that our audits cepted in the United States of America. Also in our opinion, the provide a reasonable basis for our opinions. Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Frame- work: (2013) issued by COSO. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabil- Basis for Opinion The Company’s management is responsible for these consol- ity of financial reporting and the preparation of consolidated 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 is and dispositions of the assets of the company; (2) provide rea- to express an opinion on the Company’s consolidated financial sonable assurance that transactions are recorded as necessary statements and an opinion on the Company’s internal control to permit preparation of consolidated financial statements in ac- over financial reporting based on our audits. We are a public cordance with generally accepted accounting principles, and that accounting firm registered with the Public Company Accounting receipts and expenditures of the company are being made only Oversight Board (United States) (“PCAOB”) and are required in accordance with authorizations of management and directors to be independent with respect to the Company in accordance of the company; and (3) provide reasonable assurance regarding with the U.S. federal securities laws and the applicable rules prevention or timely detection of unauthorized acquisition, use, and regulations of the Securities and Exchange Commission and or disposition of the company’s assets that could have a material the PCAOB. effect on the consolidated financial statements. INTERPARFUMS, INC. 2022 ANNUAL REPORT 82 report of independent registered public accounting firm Because of its inherent limitations, internal control over The determination of the future cash flows of the intangible financial reporting may not prevent or detect misstatements. assets requires management to make significant estimates and Also, projections of any evaluation of effectiveness to future assumptions related to forecasts of future revenues, operat- periods are subject to the risk that controls may become in- ing margins, and discount rates. As disclosed by management, adequate because of changes in conditions, or that the degree changes in these assumptions could have a significant impact on of compliance with the policies or procedures may deteriorate. the future cash flows and therefore, on the amount of any im- Critical Audit Matter The critical audit matter communicated below is a matter aris- pairment charge. The determination of an impairment indicator on the finite - life intangible assets requires management judg- ments and involves assumptions. ing from the current period audit of the consolidated financial We identified the impairment assessment of intangible assets statements that was communicated or required to be commu- as a critical audit matter as auditing management’s judgments nicated to the audit committee and that: (1) relates to accounts regarding the evaluation of impairment indicators, forecasts of or disclosures that are material to the consolidated financial future revenue, operating margin, and the discount rate to be statements and (2) involved especially challenging, subjective, applied involve a high degree of subjectivity. or complex judgments. The communication of the critical audit The primary procedures we performed to address this critical matter does not alter in any way our opinion on the consoli- audit matter included: dated financial statements, taken as a whole, and we are not, • Reviewing the analysis of the identification of impairment by communicating the critical audit matter below, providing a evidence for each indefinite and finite-life asset based on three separate opinion on the critical audit matter or on the accounts indicators (sales analysis, new products launches, payment of or disclosures to which it relates. minimum guarantees), and then corroborating that analysis with As described in Notes 1 and 8 to the consolidated financial external information and evidence obtained in other areas of statements, the Company’s consolidated indefinite and finite the audit. - life intangible assets balance was $291 million at December • Testing the effectiveness of controls relating to manage- 31, 2022. Indefinite lived intangible assets principally consist of ment’s impairment tests, including controls over the impairment trademarks and finite-lived intangible assets represent fees to indicators and determination of the future cash flows. acquire or enter into a license. • In testing management’s process for determining the future Those intangible assets are tested for impairment as follows: cash flows we evaluated the reasonableness of management’s • Indefinite - life intangible assets are tested for impairment forecasts of future revenue and operating margin by performing at least annually at the reporting unit level or more frequently a retrospective review in comparing these forecasts to histori- when events occur, or circumstances change. The evaluation re- cal operating results, evaluating whether the assumptions used quires a comparison of the estimated fair value of the asset to were reasonable considering current information as well as the carrying value of the asset. The fair value is estimated based future expectations, and using additional evidence obtained in upon discounted future cash flow projections. If the carrying other areas of the audit. value of an indefinite-lived intangible asset exceeds its fair value, • Utilizing a valuation specialist to assist in auditing the dis- an impairment charge is recorded. count rate. It includes evaluating whether the assumptions used • Finite - life intangible assets are tested for impairment were reasonable by comparing to third party market data. testing 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 Mazars USA LLP projection of undiscounted cash flows is less than the carrying We have served as the Company’s auditor since 2004. value of a finite-lived intangible asset, an impairment charge New York, New York would be recorded. February 28, 2023 financial statements 83 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 Total current liabilities Long–term debt, less current portion Lease liabilities, less current portion Equity: Inter Parfums, Inc. shareholders’ equity: 2022 2021 $104,713 150,833 197,584 289,984 28,803 15,650 157 787,724 166,722 27,964 290,853 11,159 24,120 $1,308,542 $28,547 5,296 88,388 213,621 8,715 344,567 151,494 24,335 $159,613 160,014 159,281 198,914 10,308 21,375 210 709,715 149,352 33,728 214,047 7,936 30,586 $1,145,364 $15,911 6,014 81,980 136,677 4,328 244,910 132,902 29,220 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, 31,967,300 and 31,830,420 shares at December 31, 2022 and 2021, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost, 9,864,805 common shares at December 31, 2022 and 2021 Total Inter Parfums, Inc. shareholders’ equity Noncontrolling interest Total equity Total liabilities and equity (See accompanying notes to consolidated financial statements 32 90,186 620,095 (56,056) (37,475) 616,782 171,364 788,146 $1,308,542 32 87,132 560,663 (38,432) (37,475) 571,920 166,412 738,332 $1,145,364 INTERPARFUMS, INC. 2022 ANNUAL REPORT 84 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 Impairment loss Income from operations Other expenses (income): Interest expense 2022 $1,086,653 392,231 694,422 492,370 7,749 194,303 3,599 (Gain) Loss on foreign currency 1,921 Interest and dividend income (5,486) Other Income 50 2021 $879,516 322,614 556,902 406,459 2,393 148,050 2020 $539,009 208,278 330,731 260,648 - 70,083 2,825 (2,338) (3,403) 1,970 2,178 (2,865) (53) (549) 734 69,349 19,381 49,968 11,749 $38,219 Income taxes Income before income taxes 84 (2,969) 151,019 40,992 110,027 22,616 $87,411 Net income Less: Net income attributable to the noncontrolling interest 194,219 43,182 151,037 30,099 $120,938 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 Dividends declared per share $3.80 3.78 $2.76 2.75 $1.21 1.21 31,859,417 31,988,753 $2.00 31,676,796 31,835,408 $1.00 31,536,659 31,654,544 $0.33 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except share and per share data) Years ended December 31, 2022, 2021, and 2020 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.) 2022 $151,037 2021 $110,027 2020 $49,968 2,356 992 (29,683) (26,335) 124,702 30,099 647 (9,358) 21,388 $103,314 (1,367) - (42,967) (44,334) 65,693 (19) (52) 47,912 47,841 97,809 22,616 (375) (11,524) 10,717 11,749 (19) 14,004 25,734 $54,976 $72,075 financial statements 85 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 Shares issued for license acquisition Transfer of subsidiary shares purchased Additional paid-in capital, end of year Retained earnings, beginning of year Net income Dividends Stock-based compensation Retained earnings, end of year 2022 $32 − $32 87,132 6,004 1,355 − − (4,305) $90,186 560,663 120,938 (63,743) 2,237 $620,095 2021 $32 - $32 75,708 5,393 1,566 - 5,000 (535) $87,132 503,567 87,411 (31,690) 1,375 $560,663 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 (38,432) (20,325) 992 1,709 $(56,056) (5,997) (31,443) - (992) $(38,432) 2020 $31 1 $32 70,664 2,771 1,711 - - 562 $75,708 474,637 38,219 (10,406) 1,117 $503,567 (39,853) 33,908 (52) - $(5,997) 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 Net derivative instrument loss, net of tax Dividends Share-based compensation Transfer of subsidiary shares purchased Noncontrolling interest, end of year Total equity (See accompanying notes to consolidated financial statements.) 166,412 30,099 (9,358) 647 (16,056) (282) (98) $171,364 $788,146 166,615 22,616 (11,524) (375) (9,836) (293) (791) $166,412 $738,332 140,994 11,749 14,004 (19) (324) 350 (139) $166,615 $702,450 INTERPARFUMS, INC. 2022 ANNUAL REPORT 86 financial statements 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 Operating lease liabilities 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.) 2022 2021 2020 $151,037 $110,027 $49,968 22,539 2,353 3,143 49 4,980 (3,604) 227 (59,640) (98,297) (13,651) (4,795) 106,857 3,952 115,150 (1,038) 896 (33,756) (98,865) - (132,763) (19,861) 52,492 6,003 (63,743) (16,056) (4,403) (45,568) (493) (63,674) 168,387 $104,713 12,698 853 2,853 (53) 7,302 (465) 65 (45,395) (49,815) (16,725) (7,503) 103,046 2,698 119,586 (55,691) 10,644 (141,274) (1,545) - (187,866) (43,056) 157,382 5,393 (31,690) (9,836) - 78,193 (11,207) (1,294) 169,681 $168,387 9,067 4,824 3,029 (549) 5,483 581 (137) 13,157 19,333 1,176 (5,421) (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 $2,987 38,492 $2,468 40,497 $1,105 21,772 notes to consolidated financial statements (in thousands, except share and per share data) 87 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) The Company and its Significant 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 array of fragrances and fragrance related products. Substantially all of our prestige fragrance brands are li- lars at year-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Gains and losses from translation adjustments are accumu- lated in a separate component of shareholders’ equity. Cash and Cash Equivalents and Short-Term Investments All highly liquid investments purchased with a maturity of three censed from unaffiliated third parties, and our business is de- months or less are considered to be cash equivalents. The pendent upon the continuation and renewal of such licenses. Company also has short-term investments which consist of cer- With respect to the Company’s largest brands, we license the tificates of deposit and other contracts with maturities greater Montblanc, Jimmy Choo, Coach and GUESS brand names. As a than three months and available for sale marketable equity se- percentage of net sales, product sales for the Company’s largest curities. The Company monitors concentrations of credit risk brands were as follows: Jimmy Choo Year Ended December 31, 2022 Montblanc 18% 18% 15% 12% GUESS Coach 2021 2020 21% 16% 17% 11% 19% 18% 16% 12% associated with financial institutions with which the Company conducts significant business. The Company believes its cred- it 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 in- stitutions outside the United States and are readily convertible into U.S. dollars. No other brand represented 10% or more of consolidated net sales. Accounts Receivable Accounts receivable represent payments due to the Company for previously recognized net sales, reduced by allowances for Basis Of Preparation The consolidated financial statements include the accounts doubtful accounts or balances which are estimated to be un- collectible, which aggregated $4.7 million and $2.2 million as of of the Company and its subsidiaries, including 72% owned December 31, 2022, and 2021, respectively. Accounts receiv- Interparfums SA, a subsidiary whose stock is publicly traded able balances are written-off against the allowance for doubt- in France. All material intercompany balances and transactions ful accounts when they become uncollectible. Recoveries of have been eliminated. accounts receivable previously recorded against the allowance are recorded in the consolidated statement of income when re- Management Estimates Management makes assumptions and estimates to prepare fi- ceived. We generally grant credit based upon our analysis of the customer’s financial position, as well as previously established nancial statements in conformity with accounting principles 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 for- 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 eign currency, assets and liabilities are translated to U.S. dol- Company’s customers. INTERPARFUMS, INC. 2022 ANNUAL REPORT 88 Derivatives All derivative instruments are recorded as either assets or lia- of the asset. The fair values used in our evaluations are es- timated based upon discounted future cash flow projections bilities and measured at fair value. The Company uses derivative using a weighted average cost of capital of 9.8% and 7.47% in instruments to principally manage a variety of market risks. For 2022 and 2021, respectively. The cash flow projections are derivatives designated as hedges of the exposure to changes based upon a number of assumptions, including future sales in fair value of the recognized asset or liability or a firm com- levels, future cost of goods and operating expense levels, as mitment (referred to as fair value hedges), the gain or loss is well as economic conditions, changes to our business model recognized in earnings in the period of change together with or changes in consumer acceptance of our products which the offsetting loss or gain on the hedged item attributable to are more subjective in nature. If the carrying value of an in- the risk being hedged. The effect of that accounting is to include definite-lived intangible asset exceeds its fair value, an im- in earnings the extent to which the hedge is not effective in pairment charge is recorded. achieving offsetting changes in fair value. For cash flow hedges, Intangible assets subject to amortization are evaluated for im- the effective portion of the derivative’s gain or loss is initially re- pairment testing whenever events or changes in circumstances ported in equity (as a component of accumulated other compre- indicate that the carrying amount of an amortizable intangible hensive income) and is subsequently reclassified into earnings in asset may not be recoverable. If impairment indicators exist for the same period or periods during which the hedged forecasted an amortizable intangible asset, the undiscounted future cash transaction affects earnings. The ineffective portion of the gain flows associated with the expected service potential of the or loss of a cash flow hedge is reported in earnings immediately. asset are compared to the carrying value of the asset. If our The Company also holds certain instruments for economic pur- projection of undiscounted future cash flows is in excess of the poses that are not designated for hedge accounting treatment. carrying value of the intangible asset, no impairment charge is For these derivative instruments, changes in their fair value are recorded. If our projection of undiscounted future cash flows recorded in earnings immediately. is less than the carrying value of the intangible asset, an impair- Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements are stat- ed at cost less accumulated depreciation and amortization. ment charge would be recorded to reduce the intangible asset to its fair value. Revenue Recognition The Company sells its products to department stores, perfum- Depreciation and amortization are provided using the straight- eries, specialty stores and domestic and international wholesal- line method over the estimated useful lives for equipt, which ers and distributors. Our revenue contracts represent single range between three and ten years and the shorter of the lease performance obligations to sell our products to customers. term or estimated useful asset lives for leasehold improvements. Sales of such products by our domestic subsidiaries are denomi- Depreciation has not yet begun on property recently purchased, nated primarily in U.S. dollars, and sales of such products by our as it has not yet been put into service. Depreciation provided on foreign subsidiaries are primarily denominated in either euro or equipment used to produce inventory, such as tools and molds, U.S. dollars. The Company recognizes revenues when contract is included in cost of sales. Long-Lived Assets Indefinite-lived intangible assets principally consist of trade- terms are met, the price is fixed and determinable, collectability is reasonably assured, and control of the assets has passed to the customer based on the agreed upon shipping terms. Net sales are comprised of gross revenues less returns, trade dis- marks which are not amortized. The Company evaluates counts and allowances. The Company does not bill its custom- indefinite-lived intangible assets for impairment at least an- ers’ freight and handling charges. All shipping and handling costs, nually during the fourth quarter, or more frequently when which aggregated $15.8 million, $10.0 million and $5.0 million in events occur or circumstances change, such as an unexpected 2022, 2021 and 2020, respectively, are included in selling, gen- decline in sales, that would more-likely-than-not indicate that eral and administrative expenses in the consolidated statements the carrying value of an indefinite-lived intangible asset may of income. The Company grants credit to all qualified customers not be recoverable. When testing indefinite-lived intangible and does not believe it is exposed significantly to any undue con- assets for impairment, the evaluation requires a comparison centration of credit risk. No one customer represented 10% or of the estimated fair value of the asset to the carrying value more of net sales in 2022, 2021 or 2020. notes to consolidated financial statements (in thousands, except share and per share data) 89 Sales Returns Generally, the Company does not permit customers to return their unsold products. However, for U.S. based customers, we al- aggregated $43.1 million, $36.9 million and $26.4 million in 2022, 2021 and 2020, respectively. low returns if properly requested, authorized and approved. The Company regularly reviews and revises, as deemed necessary, its Package Development Costs Package development costs associated with new products and estimate of reserves for future sales returns based primarily upon redesigns of existing product packaging are expensed as incurred. historic trends and relevant current data including information provided by retailers regarding their inventory levels. In addition, as necessary, specific accruals may be established for significant Operating Leases The Company leases its offices and warehouses, vehicles, and future known or anticipated events. The types of known or antic- certain office equipment, substantially all of which are classified ipated events that we consider include, but are not limited to, the as operating leases. The Company currently has no material fi- financial condition of our customers, store closings by retailers, nancing leases. The Company determines if an arrangement is a changes in the retail environment and our decision to continue lease at inception. Operating lease assets and obligations are rec- to support new and existing products. The Company records ognized at the lease commencement date based on the present its estimate of potential sales returns as a reduction of sales and value of lease payments over the lease term. cost of sales with corresponding entries to accrued expenses, to record the refund liability, and inventory, for the right to recov- er goods from the customer. The refund liability associated with License Agreements The Company’s license agreements generally provide the estimated returns was $8.6 million and $5.1 million at December Company with worldwide rights to manufacture, market and 31, 2022 and 2021, respectively, and the amounts recognized for sell fragrance and fragrance related products using the licen- the rights to recover products was $3.2 million and $1.9 million at sors’ trademarks. The licenses typically have an initial term of December 31, 2022 and 2021, respectively. The physical condition approximately 5 to 15 years, and are potentially renewable sub- and marketability of returned products are the major factors we ject to the Company’s compliance with the license agreement consider in estimating realizable value. Actual returns, as well as provisions. The remaining terms, excluding potential renewal estimated realizable values of returned products, may differ sig- periods, range from approximately 1 to 12 years. Under each nificantly, either favorably or unfavorably, from our estimates, if license, the Company is required to pay royalties in the range of factors such as economic conditions, inventory levels or compet- 6% to 10% to the licensor, at least annually, based on net sales itive conditions differ from our expectations. 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 and costs of its purchase with purchase and gift with purchase pro- amortized over its useful life. motions as cost of sales. Certain other incentive arrangements Most license agreements require minimum royalty payments, require the payment of a fee to customers based on their at- incremental royalties based on net sales levels and minimum tainment of pre-established sales levels. These fees have been spending on advertising and promotional activities. Royalty ex- recorded as a reduction of net sales. penses are accrued in the period in which net sales are recog- Advertising and Promotion Advertising and promotional costs are expensed as incurred and nized while advertising and promotional expenses are accrued at the time these costs are incurred. In addition, the Company is exposed to certain concentration recorded as a component of cost of goods sold (in the case of risk. Most of our prestige fragrance brands are licensed from free goods given to customers) or selling, general and adminis- unaffiliated third parties, and our business is dependent upon the trative expenses. Advertising and promotional costs included in continuation and renewal of such licenses. selling, general and administrative expenses were $212.4 million, $171.1 million and $91.7 million for 2022, 2021 and 2020, re- spectively. Costs relating to purchase with purchase and gift Income Taxes The Company accounts for income taxes using an asset and liabil- with purchase promotions that are reflected in cost of sales ity approach that requires the recognition of deferred tax assets INTERPARFUMS, INC. 2022 ANNUAL REPORT 90 and liabilities for the expected future tax consequences of events While we expect this trend to continue, the introduction of that have been recognized in its financial statements or tax returns. variants of COVID-19 in various parts of the world has caused The net deferred tax assets assume sufficient future earnings for the temporary reimplementation of governmental restrictions their realization, as well as the continued application of currently to prevent further spread of the virus. In addition, interna- enacted tax rates. Included in net deferred tax assets is a valuation tional air travel remains curtailed in many jurisdictions due to allowance for deferred tax assets, where management believes it both governmental restrictions and consumer health concerns. is more-likely-than-not that the deferred tax assets will not be re- While COVID-19 has significantly restricted international travel, alized in the relevant jurisdiction. If the Company determines that the travel retail business is beginning to pick up. Lastly, the im- a deferred tax asset will not be realizable, an adjustment to the proved economy has put significant strains on our supply chain deferred tax asset will result in a reduction of net earnings at that causing disruptions affecting the procurement of components, time. Accrued interest and penalties are included within the relat- the ability to transport goods, and related cost increases. These ed tax asset or liability in the accompanying financial statements. disruptions have come at a time when demand for our product lines has never been stronger or more sustained. We have been Issuance of Common Stock by Consolidated Subsidiary The difference between the Company’s share of the proceeds addressing this issue since the beginning of 2021, by ordering well in advance of need and in larger quantities. Since 2021, we have strived to carry more inventory overall, source the same received by the subsidiary and the carrying amount of the por- components from multiple suppliers and when possible, man- tion of the Company’s investment deemed sold, is reflected as ufacture products closer to where they are sold. We do not an equity adjustment in the consolidated balance sheets. expect the supply chain bottlenecks to begin lifting until the sec- Treasury Stock The Board of Directors may authorize share repurchases of the ment, the impact of the COVID-19 pandemic might continue to have adverse effects on our results of our operations, financial Company’s common stock (Share Repurchase Authorizations). position and cash flows through at least the first half of 2023. ond half of 2023. Therefore, despite recent business improve- Share repurchases under Share Repurchase Authorizations may be made through open market transactions, negotiated pur- chase or otherwise, at times and in such amounts within the parameters authorized by the Board. Shares repurchased un- (3) Recent Agreements Lacoste In December 2022, we closed a transaction agreement with der Share Repurchase Authorizations are held in treasury for Lacoste, whereby an exclusive and worldwide license was general corporate purposes, including issuances under various granted for the production and distribution of Lacoste brand employee stock option plans. Treasury shares are accounted for perfumes and cosmetics. Our rights under this license are sub- under the cost method and reported as a reduction of equity. ject to certain minimum advertising expenditures and royalty Share Repurchase Authorizations may be suspended, limited or payments as are customary in our industry. The license becomes terminated at any time without notice. effective in January 2024 and will last for 15 years. (2) Impact of COVID-19 Pandemic A novel strain of coronavirus (“COVID-19”) surfaced in late Dunhill In April 2022, we announced that the Dunhill fragrance license 2019 and in March 2020, the World Health Organization de- will expire on September 30, 2023 and will not be renewed. The clared COVID-19 a pandemic. In response, various national, Company will continue to produce and sell Dunhill fragrances state, and local governments issued decrees prohibiting certain until the license expires and will maintain the right to sell-off re- businesses from operating and certain classes of workers from maining Dunhill fragrance inventory for a limited time as is cus- reporting to work. tomary in the fragrance industry. Retail store closings, event cancellations and a shutdown of international air travel brought our sales to a virtual standstill and caused a significant unfavorable impact on our results of op- Salvatore Ferragamo In October 2021, we closed on a transaction agreement with erations in 2020. Salvatore Ferragamo S.p.A., whereby an exclusive and world- Business significantly improved in the second half of 2020 wide license was granted for the production and distribution and continued to improve throughout 2021 and 2022, as retail of Ferragamo brand perfumes. Our rights under this license stores reopened, and consumers increased online purchasing. are subject to certain minimum advertising expenditures and notes to consolidated financial statements (in thousands, except share and per share data) 91 royalty payments as are customary in our industry. The license became effective in October 2021 and will last for 10 years with a 5-year optional term, subject to certain conditions. Land and Building Acquisition - Future Headquarters in Paris In April 2021, Interparfums SA, our 72% owned French subsid- With respect to the management and coordination of activ- iary, completed the acquisition of its future headquarters at 10 ities related to the license agreement, the Company operates rue de Solférino in the 7th arrondissement of Paris from the through a wholly-owned Italian subsidiary based in Florence, property developer. This is an office complex combining three that was acquired from Salvatore Ferragamo on October 1, buildings connected by two inner courtyards, and consists of 2021. The acquisition together with the license agreement was approximately 40,000 total sq. ft. accounted for as an asset acquisition. The purchase price includes the complete renovation of the Emanuel Ungaro In October 2021, we also entered into a 10-year exclusive site. As of December 31, 2022, $148.1 million of the purchase price, including approximately $4.4 million of acquisition costs, is included in property, equipment and leasehold improve- global licensing agreement a with a 5-year optional term sub- ments on the accompanying balance sheet as of December ject to certain conditions, with Emanuel Ungaro Italia S.r.l, for 31, 2022. The purchase price has been allocated approximate- the creation, development and distribution of fragrances and ly $61.1 million to land and $87.0 million to the building. The fragrance-related products, under the Emanuel Ungaro brand. building, which was delivered on February 28, 2022, includes Our rights under this license are subject to certain minimum the building structure, development of the property, façade advertising expenditures and royalty payments as are customary waterproofing, general and technical installations and interior in our industry. fittings that will be depreciated over a range of 7 to 50 years. The Company has elected to depreciate the building cost Donna Karan and DKNY In September 2021, we entered into a long-term global licens- based on the useful lives of its components. Approximately $3.4 million of cash held in escrow is also included in property, ing agreement for the creation, development and distribution equipment and leasehold improvements on the accompanying of fragrances and fragrance-related products under the Donna balance sheet as of December 31, 2022. Karan and DKNY brands. Our rights under this license are sub- The acquisition was financed by a 10-year €120 million (ap- ject to certain minimum advertising expenditures and royalty proximately $128.0 million) bank loan which bears interest at payments as are customary in our industry. With this agree- one-month Euribor plus 0.75%. Approximately €80 million of ment, we are gaining several well-established and valuable fra- the variable rate debt was swapped for variable interest rate grance franchises, most notably Donna Karan Cashmere Mist and debt with a maximum rate of 2% per annum. DKNY Be Delicious, as well as a significant loyal consumer base around the world. In connection with the grant of license, we is- (4) Inventories sued 65,342 shares of Inter Parfums, Inc. common stock valued at $5.0 million to the licensor. The exclusive license is effective Year Ended December 31, 2022 2021 July 1, 2022, and we are planning to launch new fragrances under Raw materials and these brands in 2024. Rochas Fashion Effective January 1, 2021, we entered into a new license agree- component parts Finished goods $146,772 143,212 $289,984 $111,312 87,602 $198,914 ment modifying our Rochas fashion business model. The new Overhead included in inventory aggregated $3.4 million and agreement calls for a reduction in royalties to be received. As $3.7 million as of December 31, 2022 and 2021, respectively. a result, in the first quarter of 2021, we took a $2.4 million im- Included in inventories is an inventory reserve, which rep- pairment charge on our Rochas fashion trademark. In the fourth resents the difference between the cost of the inventory and quarter of 2022, we again took a $6.8 million impairment charge its estimated realizable value, based upon sales forecasts and on the Rochas fashion trademark after an independent expert the physical condition of the inventories. In addition, and as concluded that the valuation of the trademark was $11.3 million. necessary, specific reserves for future known or anticipated The new license also contains an option for the licensee to buy- events may be established. Inventory reserves aggregated out the Rochas fashion trademarks in June 2025 at its then fair $11.4 million and $15.8 million as of December 31, 2022 and market value. 2021, respectively. INTERPARFUMS, INC. 2022 ANNUAL REPORT 92 (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, 2022 Quoted Prices in Significant Significant Active Markets for Other Observable Unobservable Identical Assets Inputs Inputs (Level 3) (Level 2) (Level 1) Total Assets: Short-term investments Interest rate swaps Foreign currency forward exchange contracts accounted for using hedge accounting Assets: Foreign currency forward exchange contracts not accounted for using hedge accounting FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2021 $150,833 6,758 $19,861 - $130,174 $798  6,758 - 1,189 $158,780 - $19,861 1,189 $138,121 $68 $68 - - $68 $68 - $798 - - Quoted Prices in Significant Significant Unobservable Active Markets for Other Observable Identical Assets Inputs Inputs (Level 3) Total (Level 2) (Level 1) Assets: Short-term investments Foreign currency forward exchange contracts accounted for using hedge accounting Foreign currency forward exchange contracts not accounted for using hedge accounting Interest rate swaps $160,014 $- $160,014 $- $1,982 63 (234) $1,811 - - - - $1,982 63 (234) $1,811 - - - - The carrying amount of cash and cash equivalents including money market funds, short-term investments including marketable equi- ty securities, 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 indebtedness approximate current market rates. Foreign currency forward exchange contracts are valued based on quotations from financial institutions and the value of interest notes to consolidated financial statements (in thousands, except share and per share data) 93 rate swaps are the discounted net present value of the swaps accompanying balance sheet for the period ended December using third party quotes from financial institutions. 31, 2022 and was included in long-term debt on the accompa- (6) Derivative Financial Instruments The Company enters into foreign currency forward exchange nying balance sheet for the period ended December 31, 2021. The valuation of foreign currency forward exchange contracts at December 31, 2022 and December 31, 2021, resulted in an as- contracts to hedge exposure related to receivables denominat- set and is included in other current assets on the accompanying ed in a foreign currency and occasionally to manage risks related balance sheets. to future sales expected to be denominated in a foreign cur- At December 31, 2022, the Company had foreign currency rency. Before entering into a derivative transaction for hedging contracts in the form of forward exchange contracts with no- purposes, it is determined that a high degree of initial effec- tional amounts of approximately U.S. $36.5 million, which all tiveness exists between the change in value of the hedged item have maturities of less than one year. and the change in the value of the derivative instrument from movement in exchange rates. High effectiveness means that the change in the cash flows of the derivative instrument will effec- (7) Property, Equipment and Leasehold Improvements Year Ended December 31, 2021 2022 tively offset the change in the cash flows of the hedged item. Land and Building The effectiveness of each hedged item is measured throughout (construction in progress) the hedged period and is based on the dollar offset method- Equipment ology and excludes the portion of the fair value of the foreign Leasehold Improvements currency forward exchange contract attributable to the change in spot-forward difference which is reported in current period Less accumulated earnings. Any hedge ineffectiveness is also recognized as a gain depreciation and amortization or loss on foreign currency in the income statement. For hedge contracts that are no longer deemed highly effective, hedge $148,137 $59,689 2,293 210,119 $136,131 $52,036 2,082 190,249 43,397 40,897 $166,722 $149,352 accounting is discontinued, and gains and losses accumulated in Depreciation and amortization expense was $7.5 million, $4.4 other comprehensive income are reclassified to earnings. If it is million and $3.8 million in 2022, 2021, and 2020, respectively. probable that the forecasted transaction will no longer occur, then any gains or losses accumulated in other comprehensive (8) Trademarks, Licenses and Other Intangible Assets income are reclassified to current-period earnings. Gains and losses in derivatives designated as hedges are accumulated in other comprehensive income (loss) and gains and losses in derivatives not designated as hedges are includ- Gross Accumulated Net Book 2022 Amount Amortization Value Trademarks ed in (gain) loss on foreign currency on the accompanying in- (indefinite lives) $105,022 $− $105,022 come statements. Such gains and losses were immaterial in Trademarks each of the years in the three-year period ended December (finite lives) 41,267 64 41,203 31, 2022. Interest expense includes a gain of $6.3 million and Licenses $0.2 million in 2022 and 2021, respectively, resulting from an (finite lives) 205,235 63,535 141,700 interest rate swap. Other intangible assets All derivative instruments are reported as either assets or (finite lives) liabilities on the balance sheet measured at fair value. The val- Subtotal uation of interest rate swap is included in other assets on the Total 17,849 264,351 $369,373 14,921 78,520 $78,520 2,928 185,831 $290,853 INTERPARFUMS, INC. 2022 ANNUAL REPORT 94 Gross Accumulated Net Book 2021 Amount Amortization Value Trademarks If the residual value of a finite life intangible asset exceeds its carrying value, then the asset is not amortized. The Compa- ny reviews intangible assets with finite lives for impairment (indefinite lives) $119,712 $- $119,712 whenever events or changes in circumstances indicate that Trademarks the carrying amount may not be recoverable. (finite lives) 43,820 68 43,752 Trademarks (finite lives) primarily represent Lanvin brand Licenses names and trademarks and in connection with their purchase, (finite lives) 109,682 62,286 47,396 Lanvin was granted the right to repurchase the brand names Other intangible assets (finite lives) Subtotal Total 17,775 171,277 $290,989 14,588 76,942 $76,942 3,187 94,335 $214,047 and trademarks on July 1, 2027 for €70 million (approximately $75 million) (residual value) in accordance with an amendment signed in 2021. Because the residual value of the intangible asset exceeds its carrying value, the asset is not being amortized. Amortization expense was $6.8 million, $5.9 million and $5.3 million in 2022, 2021 and 2020, respectively. Amortization ex- pense is expected to approximate $7.0 million in 2023, $13.3 (9) Accrued Expenses Accrued expenses consist of the following: million in 2024, $12.3 million in 2025, $10.5 million in 2026 and Year Ended December 31, 2027. The weighted average amortization period for trademarks, Advertising liabilities 2022 2021 $31,215 $42,338 licenses and other intangible assets with finite lives are 18 years, Salary (including bonus 14 years and 2 years, respectively, and 14 years on average. and related taxes) The Company reviews intangible assets with indefinite lives Royalties for impairment whenever events or changes in circumstances in- Due vendors (not yet invoiced) dicate that the carrying amount may not be recoverable. There was an impairment charge for trademarks with indefinite useful Retirement reserves Refund (return) liability lives of $6.8 million and $2.4 million in 2022 and 2021, respec- Other 21,128 26,532 105,869 8,001 8,604 1,149 $213,621 19,993 19,154 45,707 10,234 5,128 5,246 $136,677 tively, relating to our Rochas fashion business and an impairment charge for trademarks with indefinite useful lives of $0.9 million in 2022 relating to our Intimate trademark. The fair values used in our evaluations are estimated based upon discounted future (10) Loans Payable – Banks Loans payable – banks consist of the following: cash flow projections using a weighted average cost of capital The Company and its domestic subsidiaries have available a of 9.80%, 7.47%, and 6.99% as of December 31, 2022, 2021 and $20 million unsecured revolving line of credit due on demand, 2020, respectively. The cash flow projections are based upon a which bears interest at the daily Secured Overnight Financing number of assumptions, including, future sales levels and future Rate (“SOFR”) plus 2% (the SOFR was 4.3% as of December 31, cost of goods and operating expense levels, as well as economic 2022). The line of credit which has a maturity date of December conditions, changes to our business model or changes in con- 15, 2023, is expected to be renewed on an annual basis. Bor- sumer acceptance of our products which are more subjective in rowings outstanding pursuant to lines of credit were zero as of nature. The Company believes that the assumptions it has made December 31, 2022 and 2021. in projecting future cash flows for the evaluations described The Company’s foreign subsidiaries have available credit above are reasonable and currently no other impairment indica- lines, including several bank overdraft facilities totaling approx- tors exist for our indefinite-lived assets. However, if future ac- imately $20 million. These credit lines bear interest at EURI- tual results do not meet our expectations, the Company may be BOR plus between 0.6% and 0.9% (EURIBOR was minus 0.576% required to record an impairment charge, the amount of which at December 31, 2022). Borrowings outstanding pursuant to could be material to our results of operations. these bank overdraft facilities were zero as of December 31, The cost of trademarks, licenses and other intangible assets 2022 and 2021. with finite lives is being amortized by the straight-line method As there were no borrowings outstanding as of December over the term of the respective license or the intangible assets 31, 2022 and 2021, there is no weighted average interest rate on estimated useful life which range from three to twenty years. short-term borrowings as of December 31, 2022 and 2021. notes to consolidated financial statements (in thousands, except share and per share data) 95 (11) Long-term Debt Long-term debt consists of the following: Year Ended December 31 2022 $53.3 million payable in 48 equal monthly installments of $1.1 million beginning in December 2022, bearing interest at one-month Euribor plus 0.825% $52,061 $135.9 million payable in 120 equal monthly installments of $1.1 million beginning in April 2021, bearing interest at one-month Euribor plus 0.75% $104,758 $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 9,890 $17 million payable in 10 equal annual installments of $1.7 million beginning in October 2021 including interest imputed at 2.0% per annum Less current maturities Total 13,332 $180,041 28,547 $151,494 2021 - $124,375 10,569 13,859 $148,803 15,911 $132,892 In December 2022, to finance Interparfums SA’s acquisition of the Lacoste trademark, the Company entered into a $53.3 million (€50 million) four-year loan agreement. The loan agreement bears interest at EURIBOR-1 month rates plus a margin of 0.825%. This variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. The swap is a hedged derivative instrument and is therefore recorded at fair value and changes in fair value are reflected in other comprehensive income. In April 2021, to finance the acquisition of Interparfums SA’s future corporate headquarters, the Company entered into a $128.0 million (€120 million) ten-year credit agreement. Approximately $85.3 million (€80.0 million) of the variable rate debt was swapped- for variable interest rate debt with maximum rate of 2% per annum. The swap is a derivative instrument and is therefore recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income. Maturities of long-term debt subsequent to December 31, 2022 are approximately $30.4 million in 2023 and $28.7 million per year thereafter through 2033. (12) Commitments Leases The Company leases its offices, warehouses and vehicles, rate used to determine the operating lease liability was 2.6%. Rental expense related to operating leases was $5.6 million, $8.2 million, and $6.2 million for the years ended December substantially all of which are classified as operating leases. 31, 2022, 2021 and 2020, respectively. Operating lease pay- The Company currently has no material financing leases. The ments included in operating cash flows totaled $4.9 million Company determines if an arrangement is a lease at inception. and noncash additions to operating lease assets totaled $0.3 Operating lease assets and obligations are recognized at the million. lease commencement date based on the present value of lease Maturities of lease liabilities subsequent to December 31, payments over the lease term. 2022 are as follows: In determining lease asset value, the Company considers fixed or variable payment terms, prepayments, incentives, and (in thousands) options to extend or terminate, depending on the lease. Re- newal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. The Company generally uses its incremental borrowing rate based on information 2023 2024 2025 2026 2027 available at the lease commencement date for the location in Thereafter which the lease is held in determining the present value of $5,723 5,971 4,847 4,049 4,060 6,913 31,563 lease payments. Less imputed interest (based on 2.6% As of December 31, 2022, the weighted average remaining lease term was 5.8 years and the weighted average discount weighted-average discount rate) $29,631 (1,932) INTERPARFUMS, INC. 2022 ANNUAL REPORT 96 License Agreements The Company is party to a number of license and other agreements under the plans typically have a six-year term and vest over a four to five-year period. The fair value of shares vested aggre- for the use of trademarks and rights in connection with the man- gated $1.3 million, $1.4 million and $1.7 million in 2022, 2021 ufacture and sale of its products expiring at various dates through and 2020, respectively. Compensation cost, net of estimated 2033. In connection with certain of these license agreements, the forfeitures, is recognized on a straight-line basis over the req- Company is subject to minimum annual advertising commitments, uisite service period for the entire award. Forfeitures are esti- minimum annual royalties and other commitments as follows: mated based on historic trends. It is generally the Company’s 2023 2024 2025 2026 2027 Thereafter $217,852 224,201 218,047 139,348 132,502 986,434 $1,918,384 Future advertising commitments are estimated based on planned policy to issue new shares upon exercise of stock options. The following table sets forth information with respect to nonvested options for 2022: Weighted Average Number Grant Date of Shares Fair Value Nonvested options – beginning of year 209,510 Nonvested options granted 62,000 Nonvested options vested $13.45 $20.36 future sales for the license terms that were in effect at December 31, 2022, without consideration for potential renewal periods. The or forfeited (102,780) $12.93 Nonvested options above figures do not reflect the fact that our distributors share our – end of year 168,730 $16.31 advertising obligations. Royalty expense included in selling, general, and administrative expenses, aggregated $87.0 million, $68.9 million The effect of share-based payment expenses decreased in- and $41.1 million, in 2022, 2021 and 2020, respectively, and repre- come statement line items as follows: sented 8.0%, 7.8% and 7.6% of net sales for the years ended Decem- ber 31, 2022, 2021 and 2020, respectively. Year Ended December 31, 2022 2021 2020 (13) Equity Share-Based Payments The Company maintains a stock option program for key em- Income before income taxes Net Income attributable $3,143 $2,850 $3,030 to Inter Parfums, Inc. 2,036 1,880 2,040 ployees, executives and directors. The plans, all of which have Diluted earnings per share been approved by shareholder vote, provide for the granting attributable to of both nonqualified and incentive options. Options granted Inter Parfums, Inc. 0.06 0.06 0.06 The following table summarizes stock option activity and related information for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 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 524,900 62,000 (136,880) (8,440) Shares under option- $57.58 97.84 43.86 67.65 713,210 9,000 (156,490) (40,820) $52.74 62.18 34.46 62.57 815,800 9,000 (95,570) (16,020) $49.89 69.11 28.99 58.38 end of year 441,580 $67.30 524,900 $57.58 713,210 $52.74 notes to consolidated financial statements (in thousands, except share and per share data) 97 At December 31, 2022, options for 558,975 shares were available for future grant under the plans. The aggregate intrinsic value of options outstanding is $13.0 million as of December 31, 2022 and unrecognized compensation cost related to stock options outstand- ing aggregated $2.7 million, which will be recognized over the next five years. The weighted average fair values of options granted by Inter Parfums, Inc. during 2022, 2021 and 2020 were $20.36, $11.35 and $12.16 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 2022 26% 4.0 yrs 4.0% 2.4% 2021 25% 5.0 yrs 0.4% 1.6% 2020 25% 5.0 yrs 1.4% 2.5% 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 2022 $6,003 $800 $6,760 2021 $5,393 $1,300 $7,800 2020 $2,771 $400 $2,873 The following table summarizes additional stock option information as of December 31, 2022: Options Outstanding Weighted Average Remaining Exercise Price Options Outstanding Contractual Life Options Exercisable $40.15 − $46.90 103,460 $62.18 − $69.11 $73.09 $97.84 Totals 139,900    136,220   62,000 441,580    0.96 years 2.04 years 3.00 years 5.85 years 2.62 years 101,860       97,210      73,780 − 272,850 As of December 31, 2022, the weighted average exercise price of options exercisable was $59.46 and the weighted average remain- ing contractual life of options exercisable is 1.88 years. The aggregate intrinsic value of options exercisable at December 31, 2022 is $10.1 million. In December 2018, Interparfums SA approved a 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 corporate per- formance conditions. The corporate performance conditions were met and therefore in June 2022, 211,955 shares, adjusted for stock splits, were distributed. The aggregate cost of the grant of approximately $4.8 million was recognized as compensation cost on a straight-line basis over the requisite three-year service period. In March 2022, Interparfums SA approved an additional plan to grant an aggregate of 88,400 shares to all Interparfums SA em- ployees and corporate officers having more than six months of employment at grant date, subject to certain corporate performance INTERPARFUMS, INC. 2022 ANNUAL REPORT 98 conditions. The shares, subject to adjustment for stock splits, will be distributed in June 2025 and will follow the same guidelines as the December 2018 plan. The fair value of the grant had been determined based on the quoted stock price of Interparfums SA shares as reported by the Euronext on the date of grant. The estimated number of shares to be distributed of 85,062 has been determined taking into account employee turnover. The aggregate cost of the grant of approximately $4.1 million will be recognized as compensation cost on a straight-line basis over the requisite three and a quarter year service period. Similar to the December 2018 plan, in order to avoid dilution of the Company’s ownership of Interparfums SA, all shares distrib- uted or to be distributed pursuant to these plans will be pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA. During the year ended December 31, 2022, the Company acquired 63,281 shares at an aggregate cost of $3.0 million. 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 suspen- sion of the annual cash dividend. In February 2021, the Board of Directors authorized a reinstatement of an annual dividend of $1.00, payable quarterly. In February 2022, the Board of Directors authorized a 100% increase in the annual dividend to $2.00 per share and in February 2023, the Board of Directors further increased the annual dividend to $2.50 per share. The next quarterly cash dividend of $0.625 per share is payable on March 31, 2023 to shareholders of record on March 15, 2023. (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 2022 2021 2020 $38,219 $87,411 $120,938 31,859,417 129,336 31,988,753 31,676,796 158,612 31,835,408 31,536,659 117,885 31,654,544 $1.21 $2.76 $3.80 $3.78 $2.75 $1.21 Not included in the above computations is the effect of anti-dilutive potential common shares, which consist of outstanding options to purchase 38,000, 175,000, and 450,000 shares of common stock for 2022, 2021, and 2020, respectively. notes to consolidated financial statements (in thousands, except share and per share data) 99 (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 and investment income: United States Europe Eliminations Interest expense: United States Europe Eliminations Income tax expense: United States Europe Eliminations Total assets: United States Europe Eliminations 2022 2021 2020 $342,644 744,075 (66) $1,086,653 $216,559 663,290 (333) $879,516 $43,745 77,193 − $120,938 $6,355 16,184 $22,539 $66 5,769 (349) $5,486 $1,100 2,848 (349) $3,599 $6,920 36,262 − $43,182 $29,359 57,869 183 $87,411 $3,835 8,863 $12,698 $3 3,526 (126) $3,403 $636 2,315 (126) $2,825 $5,336 35,607 49 $40,992 $278,090 1,052,004 $247,703 931,735 (34,074) $1,308,542 $1,145,364 (21,552) $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 $141,316 758,812 (9,983) $890,145 INTERPARFUMS, INC. 2022 ANNUAL REPORT 100 Segments and Geographical Areas continued Year Ended December 31, Additions to long-lived assets: United States Europe Total long-lived assets: United States Europe Deferred tax assets: United States Europe Eliminations 2022 2021 2020 $2,318 31,438 $33,756 $61,539 423,999 $485,538 $2,906 8,253 - $11,159 $2,711 138,563 $141,274 $63,094 334,033 $397,127 $870 7,066 - $7,936 $1,004 11,259 $12,263 $40,656 217,766 $258,422 $886 7,106 49 $8,041 United States export sales were approximately $169.1 million, $126.2 million and $71.5 million in 2022, 2021 and 2020, 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 2022 $431,900 333,400 152,700 87,800 69,900 11,000 $1,086,700 2022 $420,900 $44,800 $33,964 $37,900 2021 $354,100 271,600 128,000 61,000 56,400 8,400 $879,500 2021 $351,300 $44,000 $43,400 $38,500 2020 $193,500 180,200 79,700 46,800 32,500 6,300 $539,000 2020 $187,300 $37,600 $14,100 $24,600 notes to consolidated financial statements (in thousands, except share and per share data) 101 (16) Income Taxes The Company and its subsidiaries file income tax returns in the The tax effects of temporary differences that give rise to sig- nificant portions of the deferred tax assets and deferred tax U.S. federal, and various states and foreign jurisdictions. liabilities are as follows: The Company assessed its uncertain tax positions and de- termined that it has no material uncertain tax position at De- December 31, 2022 2021 cember 31, 2022. Net Deferred tax assets The components of income before income taxes consist of Foreign net operating loss the following: Year Ended December 31, U.S. operations Foreign operations 2021 2022 $34,742 $50,250 116,277 143,969 $194,219 $151,019 2020 $9,577 59,772 $69,349 carry-forwards Inventory and accounts receivable Profit sharing Stock option compensation Effect of inventory profit elimination Other $554 3,880 2,871 716 9,342 266 $1,292 4,508 3,787 732 5,112 407 The provision for current and deferred income tax expense Total gross deferred (benefit) consists of the following: Year Ended December 31, 2022 2021 2020 Current: Federal State and local Foreign Deferred: Federal State and local Foreign Total income tax expense $6,829 658 39,458 $46,945 $4,825 518 36,164 $41,507 $1,685 90 17,024 $18,799 (802) (49) (2,912) (3,763) 4 11 (530) (515) (215) 44 753 582 tax assets, net Valuation allowance Net deferred tax assets Deferred tax liabilities (long-term) Building expenses Trademarks and licenses Unrealized gain on marketable equity securities Other Total deferred tax liabilities Net deferred tax assets 17,629 (554) 17,075 15,838 (3,582) 12,256 (1,356) (2,160) (1,082) (2,551) (1,745) (655) (5,916) $11,159 (436) (251) (4,320) $7,936 Valuation allowances have been provided for deferred tax assets relating to foreign net operating loss carry-forwards as $43,182 $40,992 $19,381 future profitable operations from certain foreign subsidiaries INTERPARFUMS, INC. 2022 ANNUAL REPORT 102 might not be sufficient to realize the full amount of the de- Differences between the United States federal statutory in- ferred tax assets. come tax rate and the effective income tax rate were as follows: No other valuation allowances have been provided as manage- ment believes that it is more likely than not that the asset will be Year Ended December 31, realized in the reduction of future taxable income. Statutory rates 2022 21.0% 2021 21.0% 2020 21.0% The Company estimated of the effect of global intangible low- State and local taxes, taxed income (“GILTI”) and has determined that it has no tax net of Federal benefit 0.2 0.3 0.2 liability related to GILTI as of December 31, 2022, 2021 and 2020. Windfall benefit from The Company also estimated the effect of foreign derived intan- gible income (“FDII”) and recorded a tax benefit of approximate- exercise of stock options (0.4) Benefit of Foreign Derived (0.9) (0.6) ly $1.5 million, $0.9 million and $0.3 million as of December 31, Intangible Income (0.8) (0.6) (0.4) 2022, 2021 and 2020, respectively. Effect of foreign taxes greater The Company is no longer subject to U.S. federal, state, than U.S. statutory rates and local income tax examinations by tax authorities for years Other before 2019. Effective rates 3.1 (0.9) 22.2% 7.4 (0.1) 27.1% 7.5 0.2 27.9% (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 2022 2021 $- $(992) (992) 2,701 (992) 1,709 (5,997) (37,440) (31,443) (20,325) (37,440) (57,765) $(38,432) $(56,056) 2020 $52 (52) - (39,905) 33,908 (5,997) $(5,997) (18) Net Income Attributable to Inter Parfums, Inc. and Transfers from the Noncontrolling Interest Year Ended December 31, Net income attributable to Inter Parfums, Inc. Decrease in Inter Parfums, Inc.’s additional paid-in capital for subsidiary share transactions Change from net income attributable to Inter Parfums, Inc. 2022 $120,938 2021 $87,411 2020 $38,219 - - - and transfers from noncontrolling interest $120,9381 $87,411 $38,219 (19) Reconciliation of Cash and Cash Equivalents to the Statement of Cash Flows The following table summarizes cash and cash equivalents as of December 31, 2021: Year Ended December 31, Cash and cash equivalents per balance sheet Cash held in escrow included in other assets (see note 3) Cash and cash equivalents per statement of cash flows 2021 $159,613 8,774 $168,387 corporate and market information 103 the market for our common stock Our Company’s common stock, $.001 par value per share, is traded of the annual cash dividend. In February 2021, the Board of Directors authorized a reinstatement of an annual dividend of $1.00, payable on The Nasdaq Global Select Market under the symbol “IPAR”. The quarterly. In February 2022, the Board of Directors authorized a following table sets forth in dollars, the range of high and low closing 100% increase in the annual dividend to $2.00 per share. Just recently, prices for the past two fiscal years for our common stock. in February 2023 the Board of Directors further increased the an- High Closing Low Closing Fiscal 2022 Price Price Fourth Quarter 74.26 70.02 64.74 80.22 99.35 86.78 89.45 106.82 Second Quarter Third Quarter First Quarter High Closing Low Closing Fiscal 2021 Price Price 75.89 Fourth Quarter 67.55 69.96 59.17 106.90 79.42 77.95 76.75 Second Quarter Third Quarter First Quarter nual dividend to $2.50 per share. The next quarterly cash dividend of $0.625 per share is payable on March 31, 2023 to shareholders of record on March 15, 2023. Form 10-K A copy of the company’s 2022 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, is available without charge to shareholders upon request (ex- cept for exhibits) To: Inter Parfums, Inc. 551 Fifth Avenue New York, NY 10176 Attention: Corporate Secretary. Corporate Performance Graph The following graph compares the performance for the periods in- dicated in the graph of our common stock with the performance of the Nasdaq Market Index and the average performance of a group As of February 8, 2023, the number of record holders, which of the Company’s peer corporations consisting of: CCA Industries, include brokers and broker nominees, etc., of our common Inc., Colgate-Palmolive Co., Estée Lauder Companies, Inc., Inter stock was 28. We believe there are approximately 32,436 bene- Parfums, Inc., Kimberly Clark Corp., Natural Health Trends ficial owners of our common stock. Corp., Procter & Gamble Co., Stephan Co., Summer Infant, Inc. Dividends In April 2020, as a result of the uncertainties raised by the COVID-19 and United Guardian, Inc. The 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 graph, and that all dividends pandemic, the Board of Directors authorized a temporary suspension were reinvested. 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 12/21 259.11 235.15 192.02 12/22 239.94 158.65 171.79 *$100 invested on 12/31/17 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. 12/17 100.00 100.00 100.00 Inter Parfums, Inc. NASDAQ Composite Peer Group 12/19 172.84 132.81 136.46 12/18 153.33 97.16 99.33 12/20 144.75 192.47 159.01 INTERPARFUMS, INC. 2022 ANNUAL REPORT 104 directors and executive officers DIRECTORS AND EXECUTIVE OFFICERS Directors Jean Madar Chief Executive Officer, and Chairman of the Board of Directors Inter Parfums, Inc. Philippe Benacin President, and Vice Chairman of the Board of Directors, Inter Parfums, Inc. Chief Executive Officer, Interparfums SA Michel Atwood Chief Financial Officer Inter Parfums, Inc. Philippe Santi Executive Vice President Chief Financial Officer Interparfums SA Francois Heilbronn Managing Partner M.M. Friedrich, Heilbronn & Fiszer Robert Bensoussan-Torres Co-founder of Sirius Equity, a retail and branded luxury goods investment company Michel Dyens Chairman, and Chief Executive Officer, Michel Dyens & Co. Véronique Gabai-Pinsky President of Startup Specialty Fragrance Company and Former President, Vera Wang Group Gilbert Harrison Chairman, Harrison Group, Inc. Founder and Chairman Emeritus Financo LLC Executive Officers Jean Madar Chief Executive Officer, and Chairman of the Board of Directors Inter Parfums, Inc. Philippe Benacin President, and Vice Chairman of the Board of Directors, Inter Parfums, Inc. Chief Executive Officer, Interparfums SA Michel Atwood Chief Financial Officer Inter Parfums, Inc. Patrick Choël Business Consultant and Former Philippe Santi Executive Vice President President and Chief Executive Officer Chief Financial Officer Parfums Christian Dior and the LVMH Perfume and Cosmetics Division Interparfums SA Frédéric Garcia-Pelayo Executive Vice President Chief International Officer Interparfums SA Corporate Information Inter Parfums, Inc. 551 Fifth Avenue New York, NY 10176 Tel. (212) 983-2640 www.interparfumsinc.com European Operations Interparfums SA 10 rue de Solferino 75007 Paris, France Tel. (1) 53-77-00-00 Interparfums Italia, Srl Piazza della Repubblica, 6 50123 Firenze, Italy Auditors Mazars USA, LLP 135 West 50th Street New York, NY 10020 Transfer Agent American Stock Transfer and Trust Company 6201 15th Avenue Brooklyn, NY 11219 

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