-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TSXnRzqqftKnfRTvNQ6nqMjQ/LpZBMC8JcJaKluqUM6xGBuLzE6Jj7xyUHr67it6 RfIq+9nmEWk7xCPEyPViBA== 0000930413-01-500936.txt : 20010810 0000930413-01-500936.hdr.sgml : 20010810 ACCESSION NUMBER: 0000930413-01-500936 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTER PARFUMS INC CENTRAL INDEX KEY: 0000822663 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 133275609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16469 FILM NUMBER: 1702187 BUSINESS ADDRESS: STREET 1: 551 FIFTH AVE STREET 2: STE 1500 CITY: NEW YORK STATE: NY ZIP: 10176 BUSINESS PHONE: 2129832640 MAIL ADDRESS: STREET 1: 551 FIFTH AVENUE STREET 2: STE 1500 CITY: NEW YORK STATE: NY ZIP: 10176 FORMER COMPANY: FORMER CONFORMED NAME: JEAN PHILIPPE FRAGRANCES INC DATE OF NAME CHANGE: 19920703 10-Q 1 c21556_10-q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2001. OR /_/ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___________to ________. Commission File No. 0-16469 INTER PARFUMS, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3275609 -------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 551 FIFTH AVENUE, NEW YORK, NEW YORK 10176 ---------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (212) 983-2640 -------------------------------------------- (Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. At August 6, 2001 there were 11,630,777 shares of common stock, par value $.001 per share, outstanding. INTER PARFUMS, INC. AND SUBSIDIARIES INDEX Page Number Part I. Financial Information Item 1. Financial Statements 1 Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000 (audited) 2 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2001 (unaudited) and June 30, 2000 (unaudited) 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 (unaudited) and June 30, 2000 (unaudited) 4 Notes to Unaudited Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 Part II. Other Information 13 Item 3. Changes in Securities and Use of Proceeds 13 Item 5. Other information 14 Signatures 14 INTER PARFUMS, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented. Such financial statements have been condensed in accordance with the rules and regulations of the Securities and Exchange Commission and therefore, do not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2000 included in the Company's annual report filed on Form 10-K. The results of operations for the six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the entire fiscal year. Page 1 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 2001 2000 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 28,782,777 $ 27,598,771 Accounts receivable, net 28,871,534 30,844,146 Inventories 30,265,836 25,340,440 Receivables, other 1,223,215 496,663 Other 1,146,393 1,807,680 Deferred tax benefit 487,842 435,211 ------------ ------------ Total current assets 90,777,597 86,522,911 EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 3,145,750 3,162,177 OTHER ASSETS 290,768 347,324 INTANGIBLE ASSETS, NET 3,942,548 4,538,663 ------------ ------------ $ 98,156,663 $ 94,571,075 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Loans payable, banks $ 5,608,518 $ 2,542,286 Accounts payable 16,814,454 18,223,812 Accrued expenses 8,883,923 6,961,322 Income taxes payable 501,459 1,107,968 ------------ ------------ Total current liabilities 31,808,354 28,835,388 ------------ ------------ DEFERRED TAXES PAYABLE 623,516 684,304 ------------ ------------ LONG-TERM DEBT, LESS CURRENT PORTION 1,319,050 1,416,631 ------------ ------------ MINORITY INTERESTS 8,583,634 8,573,594 ------------ ------------ SHAREHOLDERS' EQUITY: Common stock, $.001 par; authorized 30,000,000 shares; outstanding 11,630,777 and 11,676,277 shares at June 30, 2001 and December 31, 2000, respectively 11,631 11,676 Additional paid-in capital 27,729,177 27,729,177 Retained earnings 62,640,275 58,667,619 Accumulated other comprehensive income (9,374,922) (6,573,513) Treasury stock, at cost, 5,781,905 and 5,736,405 shares at June 30, 2001 and December 31, 2000, respectively (25,184,052) (24,773,801) ------------ ------------ 55,822,109 55,061,158 ------------ ------------ $ 98,156,663 $ 94,571,075 ============ ============ SEE NOTES TO FINANCIAL STATEMENTS. Page 2 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- NET SALES $26,259,763 $24,277,090 $57,302,939 $46,445,604 COST OF SALES 13,701,340 12,540,957 29,130,397 24,785,777 ----------- ----------- ----------- ----------- GROSS MARGIN 12,558,423 11,736,133 28,172,542 21,659,827 SELLING, GENERAL AND ADMINISTRATIVE 9,232,698 9,199,843 21,102,392 16,665,935 LITIGATION EXPENSE 556,043 556,043 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 3,325,725 1,980,247 7,070,150 4,437,849 ----------- ----------- ----------- ----------- OTHER CHARGES (INCOME): Interest 80,063 104,481 129,675 162,386 (Gain) loss on foreign currency (228,353) (18,671) (176,277) 20,486 Interest and dividend (income) (368,782) (283,794) (651,319) (511,782) Loss on sale of stock of subsidiary, net 85,805 10,243 85,805 10,243 Realized (gain) on sale of investments (1,077,110) (1,577,261) ----------- ----------- ----------- ----------- (431,267) (1,264,851) (612,116) (1,895,928) ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 3,756,992 3,245,098 7,682,266 6,333,777 INCOME TAXES 1,409,509 1,393,220 2,863,922 2,806,549 ----------- ----------- ----------- ----------- NET INCOME BEFORE MINORITY INTEREST 2,347,483 1,851,878 4,818,344 3,527,228 MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY 406,280 344,003 845,689 597,015 ----------- ----------- ----------- ----------- NET INCOME $1,941,203 $1,507,875 $3,972,655 $2,930,213 =========== =========== =========== =========== NET INCOME PER COMMON SHARE: BASIC $0.17 $0.13 $0.34 $0.25 DILUTED $0.15 $0.12 $0.30 $0.23 =========== =========== =========== =========== NUMBER OF COMMON SHARES OUTSTANDING: BASIC 11,630,777 11,754,490 11,631,394 11,760,787 DILUTED 13,323,348 13,026,453 13,208,319 12,975,711 ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. Page 3 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended June 30, 2001 2000 ----------- ----------- OPERATING ACTIVITIES: Net income $3,972,656 $2,930,213 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 935,766 1,019,675 Realized (gain) on sale of marketable securities (1,577,261) Loss on sale of stock of subsidiary 85,805 10,243 Minority interest in net income 845,689 597,015 Increase (decrease) in cash from changes in: Accounts receivable (197,517) (1,263,368) Inventories (7,036,993) (8,659,074) Other assets (162,283) (812,136) Accounts payable and accrued expenses 2,412,213 4,769,727 Income taxes payable (623,455) (129,377) ----------- ----------- Net cash provided by (used in) operating activites 231,880 (3,114,343) ----------- ----------- INVESTING ACTIVITIES: Purchase of equipment and leasehold improvements (818,245) (1,001,751) Trademark and license acquisitions (950) Purchase of marketable securities (1,895,083) Proceeds from sale of marketable securities 4,992,684 ----------- ----------- Net cash provided by (used in) investing activities (818,245) 2,094,900 ----------- ----------- FINANCING ACTIVITIES: Increase in loan payable, bank 3,463,811 2,450,337 Proceeds from sale of stock of subsidiary 106,535 27,802 Proceeds from exercise of stock options 136,250 Dividends paid (197,144) (134,543) Purchases of treasury stock (410,296) (800,392) ----------- ----------- Net cash provided by financing activities 2,962,906 1,679,454 ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,192,535) (579,384) ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 1,184,006 80,627 Cash and cash equivalents at beginning of period 27,598,771 24,936,361 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $28,782,777 $25,016,988 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid during the period for: Interest $105,000 $197,000 Income taxes 2,547,000 2,262,000 SEE NOTES TO FINANCIAL STATEMENTS. Page 4 INTER PARFUMS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES: The accounting policies followed by the Company are set forth in the notes to the Company's financial statements included in its Form 10-K which was filed with the Securities and Exchange Commission for the year ended December 31, 2000. 2. COMPREHENSIVE INCOME: Six months Six months ended ended June 30, 2001 June 30, 2000 ------------- ------------- Comprehensive income: Net income $ 3,972,655 $ 2,930,213 Other comprehensive income, net of tax: Foreign currency translation adjustment (2,742,039) (1,383,951) Cumulative effect of adopting SFAS 133 as of January 1, 2001 274,201 Gains on derivatives reclassified into earnings (274,201) Change in fair value of derivatives (59,370) Unrealized gains on securities: Unrealized holding gains arising during period 347,954 Less: reclassification adjustment for gains realized in net income (728,694) ----------- ----------- Comprehensive income $ 1,171,246 $ 1,165,522 =========== =========== 3. GEOGRAPHIC AREAS: Segment information related to domestic and foreign operations is as follows: Six months Six months ended ended June 30, 2001 June 30, 2000 ------------- ------------- Net sales: United States $15,837,931 $15,362,350 Europe 41,535,008 31,143,254 Eliminations (70,000) (60,000) ----------- ----------- $57,302,939 $46,445,604 =========== ============ Net Income: United States $ 1,078,916 $ 840,258 Europe 2,893,739 2,094,088 South America (0) (4,133) ----------- ----------- $ 3,972,655 $ 2,930,213 =========== =========== Page 5 INTER PARFUMS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED FINANCIAL STATEMENTS 4. EARNINGS PER SHARE: Basic earnings per share are computed using the weighted average number of shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of shares outstanding during each period, plus the incremental shares outstanding assuming the exercise of dilutive stock options. 5. INVENTORIES: Inventories consist of the following: JUNE 30, DECEMBER 31, 2001 2000 Raw materials and component parts $10,135,641 $ 8,775,558 Finished goods 20,130,195 16,564,882 ----------- ----------- $30,265,836 $25,340,440 =========== =========== 6. RECENT ACCOUNTING DEVELOPMENTS: The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended, is effective for all quarters of fiscal years beginning after June 15, 2000 and does not permit retroactive restatement of prior period financial statements. This statement requires the recognition of all derivative instruments as either assets or liabilities in the balance sheet measured at fair value. Generally, increases or decreases in fair value of derivative instruments will be recognized as gains or losses in earnings in the period of change. If the derivative is designated and qualifies as a cash flow hedge, the changes in fair value of the derivative instrument will be recorded in other comprehensive income. We periodically enter into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and to manage risks related to future sales expected to be denominated in a foreign currency. Before entering into a derivative transaction for hedging purposes, we determine that a high degree of initial effectiveness exists between the change in the value of the hedged item and the change in the value of the derivative from a movement in foreign currency rates. High effectiveness means that the change in the value of the derivative will effectively offset the change in the fair value of the hedged item. We measure the effectiveness of each hedge throughout the hedged period. Any hedge ineffectiveness as defined by SFAS No. 133 is recognized in the income statement. On January 1, 2001 we adopted SFAS No. 133. The transition adjustment for derivatives in cash flow hedges was to record an asset in the amount of $274,000 and was recognized as a cumulative-effect-type adjustment in accumulated other comprehensive income. Page 6 INTER PARFUMS, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We are a leading manufacturer and distributor of fragrances, cosmetics and personal care products. Innovation and creativity are combined to produce quality products for our customers around the world. We operate in the fragrance and cosmetic industry, specializing in prestige fragrances and mass market fragrances and cosmetics: X Prestige products -- For each prestige brand, owned or licensed by us, we create an original concept for the perfume consistent with world market trends; X Mass market products -- We design, market and distribute inexpensive fragrances and personal care products including alternative designer fragrances, health and beauty aids and mass market cosmetics. Statements in this document, which are not historical in nature, are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from projected results. Given these risks, uncertainties and other factors, persons are cautioned not to place undue reliance on the forward-looking statements. Such factors include effectiveness of sales and marketing efforts and product acceptance by consumers, dependence upon management, competition, currency fluctuation and international tariff and trade barriers, governmental regulation and possible liability for improper comparative advertising or "Trade Dress". THREE AND SIX MONTHS ENDED JUNE 30, 2001 AS COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 Net sales for the three months ended June 30, 2001 increased 8% to $26.3 million, as compared to $24.3 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 14% for the period. Net sales for the six months ended June 30, 2001 increased 23% to $57.3 million, as compared to $46.4 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 29% for the period. Page 7 INTER PARFUMS, INC. AND SUBSIDIARIES The increase in net sales represents the seventh consecutive quarter of revenue growth and is attributable to across-the-board increases in both our prestige and mass market product lines. The precipitous rise of the US dollar in relation to the French franc continues to mask our real revenue growth rate. The constant dollar net sales growth rate for our prestige products was 16% and 42% for the three and six month periods ended June 30, 2001, respectively. This achievement is the result of the continued success of our PAUL SMITH and BURBERRY TOUCH fragrance lines, which debuted in the second half of 2000. Our new Christian Lacroix EAU FLORALE, which was introduced in the first quarter 2001, shares some of the credit for our revenue gains. In addition to expanding the geographic distribution of products launched in 2000, we have new prestige product launches scheduled to roll out during 2001. We are leveraging the popularity of "Burberry Touch" by bringing to market a new bath line for men and women, which began shipping in late June 2001. Additionally, we are on target for the initial launch of two new Celine fragrances in the fourth quarter of 2001. Celine, a division of LVMH Moet Hennessy Louis Vuitton S.A., is a French fashion and accessory company known throughout the world for its luxury and quality products, as well as the unique designs of Michael Kors. Our FUBU fragrance line is also under development and is expected to debut at select men's and ladies specialty stores in January 2002. Full department store and international distribution is planned for the second quarter of 2002. FUBU, founded in 1992, has exploded onto the young men's fashion scene. Music, movie, television and sport stars have worn the designs recognizable by the FUBU logos. Today, FUBU product sales exceed $350 million, and encompass men's sportswear-formalwear, ladies, and children's apparel, as well as footwear and accessory items. Net sales of our mass market products, were up 8% for the three months ended June 30, 2001, as compared to the corresponding period of the prior year. This is the result of the recent launch of our new line of health and beauty aids ("HBA"), which are being sold under our Intimate brand name. Further HBA line expansion is planned throughout 2001. Sales generated from our mass market fragrance lines have recently shown some weakness; however, our Aziza cosmetic line, which was launched in the first quarter of 2000, continues to perform very well. Additional Aziza product line extensions are in progress. Growing sales within existing product lines, new product launches and an active new business development program are how we plan to continue to grow our business. With respect to new business development, several licensing and acquisition opportunities are presently under discussion. However, we cannot assure you that any such transactions will be completed. Page 8 INTER PARFUMS, INC. AND SUBSIDIARIES Gross profit margin was 48% and 49% of net sales for the three and six month periods ended June 30, 2001, respectively, as compared to 48% and 47% for the corresponding periods of the prior year. Our target gross margin percentage has historically been 45% to 46%. However, gross profit margins have increased recently as a result of the strength of the US dollar in relation to the Euro, as certain European sales are denominated in US dollars. In addition, our prestige fragrance lines, which have been growing at a faster rate than our mass market lines, generate a higher gross profit margin than our mass market product lines. Selling, general and administrative expenses aggregated $9.2 million for both three month periods ended June 30, 2001 and June 30, 2000. As a percentage of sales, selling, general and administrative expenses declined to 35% of sales for the three months ended June 30, 2001, as compared to 38% for the corresponding period of the prior year. Selling, general and administrative expenses aggregated $21.1 million for the six months ended June 30, 2001, as compared to $16.7 million for the corresponding period of the prior year. As a percentage of sales, selling, general and administrative expenses was 37% for the six months ended June 30, 2001, as compared to 36% for the corresponding period of the prior year. Promotion and advertising are prerequisites for sales of designer products. We develop a complete marketing and promotional plan to support our growing portfolio of prestige fragrance brands and to build upon each brand's awareness. We typically budget advertising and promotion expenditures based upon sales of each of our product lines. As a result of the success of the Burberry Touch and Paul Smith launches in late 2000, we increased advertising and promotional activities in early 2001 to keep the momentum of the second half of 2000 going. With no major launches occurring during the three month period ended June 30, 2001, fixed expenses were spread over a higher sales base. As previously reported, our French subsidiary, Inter Parfums, S.A., is a party to litigation with Jean Charles Brosseau, S.A. ("Brosseau"), the licensor of the Ombre Rose trademark. In October 1999, Inter Parfums, S.A. received notice of a judgment in favor of Brosseau, which awarded damages of approximately $600,000 and which directed Inter Parfums, S.A. to turn over its license to Brosseau within six months. Inter Parfums, S.A. is appealing the judgment as it vigorously and categorically denies the claims of Brosseau. In June 2000, as a result of certain developments, Inter Parfums, S.A. and its special litigation counsel considered it likely that the judgment would be sustained and therefore took a charge against earnings for $600,000, the full amount of the judgment. In February 2001, the Court of Appeal confirmed the Brosseau claim with respect to turning over the license. In addition, the Court named an expert to proceed with additional investigations and required Inter Parfums, S.A. to pay $142,000 as an advance for damages claimed by Brosseau. Page 9 INTER PARFUMS, INC. AND SUBSIDIARIES Inter Parfums, S.A. is continuing its appeal as it still denies the claims of Brosseau. Management does not believe that such litigation will have any further material adverse effect on the financial condition or operations of the Company. During the three month period ended June 30, 2000 we sold a portion of our investment in marketable securities and realized a gain of $1.1 million ($500,000 after taxes and minority interest). For the six month period ended June 30, 2000 such gain aggregated $1.6 million ($700,000 after taxes and minority interest). On occasion, we invest excess cash in marketable securities which are classified as available-for-sale. These funds are available to support current operations or to take advantage of other investment opportunities. There were no marketable security transactions in 2001. Our effective income tax rate was 38% for the three months ended June 30, 2001, as compared to 43% for the corresponding period of the prior year. Our effective income tax rate was 37% for the six months ended June 30, 2001, as compared to 44% for the corresponding period of the prior year. The effective tax rate for the three and six month periods ended June 30, 2000 includes a $150,000 ($115,000 after minority interest) and $480,000 ($370,000 after minority interest), respectively, accrual to cover the potential exposure related to a tax audit of Inter Parfums, S.A. commenced by the French Tax Authorities. Net income increased 29% to $1.9 million for the three months ended June 30, 2001, as compared to $1.5 million for the corresponding period of the prior year. Net income for the three months ended June 30, 2000 includes charges of $375,000 and a gain of $495,000, all after taxes and minority interest. The charges represent an accrual for exposure relating to the Brosseau litigation of $260,000 and a potential tax assessment of $115,000. The gain represents a realized gain on sale of marketable securities. Net income increased 36% to $4.0 million for the six months ended June 30, 2001, as compared to $2.9 million for the corresponding period of the prior year. Net income for the six months ended June 30, 2000 includes charges of $630,000 and a gain of $725,000, all after taxes and minority interest. The charges represent an accrual for exposure relating to the Brosseau litigation of $260,000 and a potential tax assessment of $370,000. The gain represents a realized gain on sale of marketable securities. Diluted earnings per share increased 25% to $0.15 for the three months ended June 30, 2001, as compared to $0.12 for the corresponding period of the prior year. Diluted earnings per share increased 30% to $0.30 for the six months ended June 30, 2001, as compared to $0.23 for the corresponding period of the prior year. Page 10 INTER PARFUMS, INC. AND SUBSIDIARIES Weighted average shares outstanding aggregated 11.6 million for both the three and six month periods ended June 30, 2001, as compared to 11.8 million for both the three and six month periods ended June 30, 2000. On a diluted basis, average shares outstanding were 13.3 million and 13.2 million for the three and six month periods ended June 30, 2001, respectively, as compared to 13.0 million for both the three and six month periods ended June 30, 2000. The increase in the market price of our common stock has increased the dilutive effect of outstanding stock options, thereby increasing diluted shares outstanding. This was partially offset by shares repurchased pursuant to our stock repurchase program. LIQUIDITY AND CAPITAL RESOURCES Our financial position remains very strong as a result of continued profitable operating results. At June 30, 2001, working capital aggregated $59 million and we had a working capital ratio of almost 3 to 1. Cash and cash equivalents aggregated $29 million and our net book value was $4.80 per outstanding share as of June 30, 2001. Furthermore, we had only $1.3 million in long-term debt. On occasion we use a portion of our cash to make investments in marketable equity securities, which are classified as available-for-sale. These funds are available to support current operations or to take advantage of other investment opportunities. These investments are made to maximize our return on cash. During 2001, we made no investments in marketable equity securities and have no positions presently outstanding. Our short-term financing requirements are expected to be met by available cash at June 30, 2001, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2001 are a $12.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $12.0 million in credit lines provided by a consortium of international financial institutions. Cash provided by operating activities aggregated $0.2 million for the six months ended June 30, 2001 as compared to a use of $3.1 million for the corresponding period of the prior year. In addition to increased earnings, favorable payment terms from our vendors helped us generate cash from operations while we build up our inventory levels in anticipation of net sales growth. Cash provided by operating activities continues to be the primary source of funds to finance operating needs and investments in new ventures. We believe that funds generated from operations, supplemented by our present cash position and available credit facilities, will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs. Page 11 INTER PARFUMS, INC. AND SUBSIDIARIES In January 1999, certain member countries of the European Union established permanent fixed rates between their existing currencies and the European Union's common currency ("the Euro"). The transition period for the introduction of the Euro is scheduled to phase in over a period ending January 1, 2002. The introduction of the Euro and the phasing out of the other currencies should not have a material impact on our consolidated financial statements. Inflation rates in the U.S. and foreign countries in which we operate have not had a significant impact on operating results for the six months ended June 30, 2001. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK GENERAL 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 foreign currency forward exchange contracts in order to reduce the effects of fluctuating foreign currency exchange rates. We have entered into one (1) interest rate swap in an attempt to take advantage of low variable interest rates as compared to the fixed rate on our long-term debt. We do not engage in the trading of foreign currency forward exchange contracts or interest rate swaps. FOREIGN EXCHANGE RISK MANAGEMENT We enter into forward exchange contracts to hedge receivables denominated in foreign currencies for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the receivables and cash flows of Inter Parfums, S.A., our French subsidiary, whose functional currency is French francs. All foreign currency contracts are denominated in currencies of MAJOR industrial countries and are with large financial institutions, which are rated as strong investment grade. Gains and losses related to qualifying hedges of these exposures are deferred and recognized in operating income when the underlying hedged transaction occurs. We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote and in any event would not be material. The contracts have varying maturities with none exceeding one year. Costs associated with entering into such contracts have not been material to our financial results. At June 30, 2001, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately $4.5 million. The foreign currencies included in these contracts are principally the U.S. dollar. Page 12 INTER PARFUMS, INC. AND SUBSIDIARIES INTEREST RATE RISK MANAGEMENT We mitigate interest rate risk by continually monitoring interest rates, and then determining whether fixed interest rates should be swapped for floating rate debt, or if floating rate debt should be swapped for fixed rate debt. We have entered into one (1) interest rate swap to take advantage of declining interest rates. At June 30, 2001 we had one (1) interest rate swap agreement outstanding to convert $1.3 million of principal fixed rate debt with an interest rate of 4.56% to floating interest rate debt, at the EURIBOR rate, over the life of our long-term debt due in 2004. At June 30, 2001, the EURIBOR rate was 4.9%. If interest rates were to rise 1% per annum over the remaining term of the long-term debt, then we would incur a loss of $50,000. PART II. OTHER INFORMATION Items 1, 3, 4, and 6 are omitted as they are either not applicable or have been included in Part I. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The following sets forth certain information as to all options granted to purchase common stock during the six months ended June 30, 2001, which were not registered under the Securities Act. In each of the three transactions, we granted options to affiliates (executive officers and directors), and one consultant. The transactions were exempt from the registration requirements of Section 5 of the Securities Act under Sections 4(2) and 4(6) of the Securities Act. Each option holder agreed that, if the option is exercised, the option holder would purchase his common stock for investment and not for resale to the public. The options are not transferable, except to the limited extent permitted in the option plans. On February 1, 2001, we granted options to purchase an aggregate of 9,000 shares for a five year period at the exercise price of $9.75 per share, the fair market value at the time of grant, to six directors under our 1999 Non-Employee Director Stock Option Plan. On March 28, 2001, we granted options to purchase an aggregate of 15,000 shares for a five year period, 10,000 which vests immediately at the exercise price of $10.375 per share, the fair market value at the time of grant, and 5,000, which vests upon the satisfaction of a contingency, at the exercise price equal to the fair market value upon the satisfaction of such contingency, to one consultant under our 1999 Stock Option Plan. Page 13 INTER PARFUMS, INC. AND SUBSIDIARIES On April 3, 2001, we granted an option to purchase 5,000 shares for a five year period at the exercise price of $10.625 per share, the fair market value at the time of grant, to one executive officer under our 1999 Stock Option Plan. ITEM 5. OTHER INFORMATION Our Board of Directors has approved a three-for two stock split (in the form of a 50% stock dividend), payable on September 14, 2001 to shareholders of record as of the close of business on August 31, 2001. Fractional shares will be rounded up to the nearest whole share. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 8th day of August 2001. INTER PARFUMS, INC. By: /s/ RUSSELL GREENBERG ------------------------------------ Executive Vice President and Chief Financial Officer Page 14 -----END PRIVACY-ENHANCED MESSAGE-----