What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 272 added, 231 removed, 202 unchanged (71% of the section changed)

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Looking Information

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In some cases you can identify forward-looking statements by forward-looking words such as “anticipate,”

“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,”

“will” and “would” or similar words.

You should not rely on forward-looking statements because actual events

or results may differ materially from those indicated by these forward-looking statements as a result of a number of important

These factors include, but are not limited to, the risks and uncertainties discussed under the headings “Forward

Looking Statements” and “Risk Factors” in Inter Parfums’ annual report on Form 10-K for the fiscal year ended

December 31, 2019 and the reports Inter Parfums files from time to time with the Securities and Exchange Commission.

Inter Parfums

does not intend to and undertakes no duty to update the information contained in this report.

“believe,” “could,” “estimate,” “expect,” “intend,” “may,”

“should,” “will” and “would” or similar words.

You should not rely on forward-looking statements

because actual events or results may differ materially from those indicated by these forward-looking statements as a result of

a number of important factors.

These factors include, but are not limited to, the risks and uncertainties discussed under the

headings “Forward Looking Statements” and “Risk Factors” in Inter Parfums’ annual report on Form

10-K for the fiscal year ended December 31, 2019 and the reports Inter Parfums files from time to time with the Securities and

Exchange Commission.

Inter Parfums does not intend to and undertakes no duty to update the information contained in this report.

operate in the fragrance business, and manufacture, market and distribute a wide array of fragrances and fragrance related products.

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produce and distribute our European based fragrance products primarily under license agreements with brand owners, and European

based fragrance product sales represented approximately 79% and 78% of net sales for the six months ended June 30, 2020 and 2019,

respectively.

We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate

Spade New York, Lanvin, Moncler, Montblanc, Paul Smith, S.T.

Dupont, Repetto, Rochas and Van Cleef & Arpels , whose

products are distributed in over 120 countries around the world.

based fragrance product sales represented approximately 80% and 77% of net sales for the nine months ended September 30, 2020

and 2019, respectively.

We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld,

Kate Spade New York, Lanvin, Moncler, Montblanc, Paul Smith, S.T.

Dupont, Repetto, Rochas and Van Cleef & Arpels ,

whose products are distributed in over 120 countries around the world.

our United States operations, we also market fragrance and fragrance related products.

United States operations represented 20%

and 22% of net sales for the six months ended June 30, 2020 and 2019, respectively.

These fragrance products are sold or to be

sold primarily pursuant to license or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, bebe, Dunhill,

French Connection, Graff, GUESS, Hollister, MCM and Oscar de la Renta brands.

and 23% of net sales for the nine months ended September 30, 2020 and 2019, respectively.

These fragrance products are sold or

to be sold primarily pursuant to license or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, bebe,

Dunhill, French Connection, Graff, GUESS, Hollister, MCM and Oscar de la Renta brands.

Substantially

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As a percentage of net sales, product sales for the Company’s largest brands were as follows:

PARFUMS, INC.

AND SUBSIDIARIES

sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season.

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into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates.

PARFUMS, INC.

AND SUBSIDIARIES

of COVID-19 Pandemic

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Beginning in March 2020, we implemented travel restrictions and we are following social distancing practices.

Our teams were

set up to work from home and carry on business as efficiently as possible.

Our teams were set

up to work from home and carry on business as efficiently as possible.

In all jurisdictions in which we operate we are following

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health emergency and its related disruptions are uncertain.

Since March 2020, retail stores in several jurisdictions around the

world began reopening and business is slowly picking up.

However, we anticipate that the initial retail store closings and the

shutdown of international air traffic has and will continue to unfavorably impact our business.

anticipate significant challenges for the remainder of 2020 due to uncertain market conditions.

While we expect business with

many of our retail partners to improve considerably in the second half of 2020, we do not see a resurgence anytime soon in connection

with travel retail.

In addition, the COVID-19 pandemic has led to high levels of unemployment and deteriorating economic conditions

in many countries where our products are sold, forcing many consumers to limit discretionary purchases.

We believe that the impact

of the COVID-19 pandemic will continue to have a material adverse effect on our results of our operations, financial position

and cash flows through at least the end of this year.

Accordingly, we have withdrawn our 2020 guidance on net sales and earnings

and cannot issue new guidance until we gain greater visibility.

Since March 2020, retail stores in many jurisdictions around the world

began reopening and business has improved considerably.

However, we anticipate that limited traffic in reopened stores and the

virtual shutdown of international air traffic has and will continue to have an unfavorable impact our business.

have faced significant challenges in 2020 and we anticipate that these challenges will continue for at least the remainder of

2020 due to uncertain market conditions.

Business has significantly improved during the three months ended September 30, 2020,

as compared to the prior quarter as retail stores began reopening and consumers have increased their on-line purchasing.

this trend to continue, however, we do not see a resurgence anytime soon in travel retail as air traffic continues to suffer due

in part to governmental restrictions on international air travel.

In addition, the recent resurgence of COVID-19 cases in various

parts of the world, including the United Kingdom, Ireland and other countries in Europe, has caused the re-implementation

of government restrictions to prevent further spread of the virus.

These restrictions include the temporary closure of businesses

deemed "non-essential", travel bans and restrictions, social distancing and quarantines.

Lastly, the COVID-19 pandemic has led to high levels of

unemployment and deteriorating economic conditions in many countries where our products are sold, forcing many consumers to limit

discretionary purchases.

We believe that the impact of the COVID-19 pandemic will continue to have a material adverse effect on

our results of our operations, financial position and cash flows through at least the end of this year and into 2021.

Operationally,

we are preparing for increased demand in the post-COVID-19 environment, with business in Asia and many parts of Europe already

showing signs of a comeback.

We are gearing up to be prepared to rapidly fill the distribution channels once the crisis is behind

In that regard, we have maintained reasonable inventory levels of components and finished goods, and we are gaining local

market intelligence from our distributors and production capacity data from our suppliers.

We do not anticipate any material impairment

of trademarks, licenses and other intangible assets.

we are prepared for increased demand in the post-COVID-19 environment, with business in Asia and North America already showing

signs of a comeback.

We have geared up to rapidly fill the distribution channels as the crisis subsides.

In that regard, we have

maintained reasonable inventory levels of components and finished goods, and we are gaining local market intelligence from our

distributors and production capacity data from our suppliers.

We do not anticipate any material impairment of trademarks, licenses

and other intangible assets.

PARFUMS, INC.

AND SUBSIDIARIES

conservative financial tradition has enabled us to amass and maintain hefty cash balances and nominal long-term debt.

As of September

30, 2020, we had $204 million in cash, cash equivalents and short-term investments, and only $19.4 million of long-term debt.

also have $48 million available in untapped credit facilities.

We also have $49 million available in untapped credit facilities.

Nonetheless, we have taken several actions to minimize expenses

and protect cash flow.

Our operating cost structure, of which variable costs typically accounts for over two-thirds, should enable

Our operating cost structure, of which variable costs typically accounts for over two-thirds, has enabled

us to minimize the impact of reduced net sales on our bottom line.

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We have also temporarily suspended our quarterly cash dividend.

these actions are expected to have a favorable impact on the Company’s fixed expenditures and cash flow, our cash and credit

actions have had a favorable impact on the Company’s fixed expenditures and cash flow.

Furthermore, our cash and credit

management teams, together with our executive management teams are paying particular attention to the management of working capital.

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Origines-Parfums

June 2020, the Company, through its 73% owned subsidiary, Interparfums SA, and Divabox SAS (“Divabox”), owner of the Origines-parfums

e-commerce platform for beauty products, signed a strategic agreement and equity investment pursuant to which we acquired a

25% of Divabox capital for €12.5 million ($14 million), through a capital increase.

In connection with the

acquisition, the Company entered into a €12 million ($13.4 million), three-year term loan payable in three equal annual

installments plus interest.

As a website of reference for all selective fragrance brands, Origines-parfums is a key French

player in the online beauty market recognized for its customer relationship expertise.

This agreement should enhance the

introduction of dedicated fragrance lines and products designed to address a specific consumer demand for this distribution

channel and accelerate our digital development.

June 2020, the Company through its 73% owned subsidiary, Interparfums SA, and Divabox SAS (“Divabox”), owner of the

Origines-parfums e-commerce platform for beauty products, signed a strategic agreement and equity investment pursuant to which

we acquired a 25% of Divabox capital for $14 million, through a capital increase.

In connection with the acquisition, the Company

entered into a $13.4 million, three-year term loan payable in three equal annual installments plus interest.

As a website of reference

for all selective fragrance brands, Origines-parfums is a key French player in the online beauty market recognized for its customer

relationship expertise.

This agreement should enhance the introduction of dedicated fragrance lines and products designed to address

a specific consumer demand for this distribution channel and accelerate our digital development.

June 2020, the Company entered into an exclusive, 5-year worldwide license agreement with a potential 5-year extension with Moncler

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Grenoble, France, in 1952 and is currently headquartered 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 launch for the Moncler brand is scheduled for the first quarter

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 launch for the Moncler brand is scheduled for

the first quarter of 2022.

PARFUMS, INC.

AND SUBSIDIARIES

January 2020, we renewed our license agreement with S.T.

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of Operations

and Six Months Ended June 30, 2020 as Compared to the Three and Six Months Ended June 30, 2019

months ended June 30,

and Nine Months Ended September 30, 2020 as Compared to the Three and Nine Months Ended September 30, 2019

September 30,

based brand product sales

States based product sales

sales for the three months ended June 30, 2020 decreased 70.2% to $49.5 million, as compared to $166.2 million for the corresponding

sales for the three months ended September 30, 2020 decreased 16.0% to $160.6 million, as compared to $191.2 million for the corresponding

period of the prior year.

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For the three months ended

June 30, 2020 and 2019, the average dollar/euro exchange rate was 1.10 and 1.12, respectively.

Net sales for the six months ended

June 30, 2020 decreased 43.6% to $194.3 million, as compared to $344.5 million for the corresponding period of the prior year.

based product sales decreased 68.6% and 43.0% for the three and six months ended June 30, 2020, respectively, as compared to the

corresponding periods of the prior year.

United States based product sales decreased 75.2% and 45.7% for the three and six months

ended June 30, 2020, respectively, as compared to the corresponding periods of the prior year.

we expected, the impact of the COVID-19 pandemic, most notably store closures in many countries where our products are sold, was

the primary reason for the steep decline in our second quarter sales across all brands and geographic markets.

In May and June,

as stores gradually began to reopen in certain markets, our sales began to improve from the dismal April levels.

We expect that

this trend will continue as more stores reopen and customers feel more confident about in-store shopping.

However, we recognize

that there will continue to be significant challenges for the remainder of 2020 and possibly into early 2021.

In particular, the

one market which shows no sign of a turnaround any time soon is travel retail.

September 30, 2020 and 2019, the average dollar/euro exchange rate was 1.17 and 1.11, respectively.

Net sales for the nine months

ended September 30, 2020 decreased 33.7% to $355.0 million, as compared to $535.7 million for the corresponding period of the

based product sales decreased 9.6% and 31.4% for the three and nine months ended September 30, 2020, respectively, as compared

to the corresponding periods of the prior year.

United States based product sales decreased 35.1% and 41.6% for the three and

nine months ended September 30, 2020, respectively, as compared to the corresponding periods of the prior year.

expected, the impact of the COVID-19 pandemic, most notably store closures in many countries where our products are sold, was

the primary reason for the decline in sales across all brands and geographic markets.

However, business is rebounding better than

Since the early days of the pandemic, our sales have increased sequentially each and every month, thanks to store

re-openings and a robust e-commerce business being conducted by our retail customers.

PARFUMS, INC.

AND SUBSIDIARIES

our European operations, the third quarter rate of decline in sales slowed to 9.6% from 68.6% in the second quarter.

sales benefitted from the favorable turnaround of several of our markets, notably Asia and North America.

Among our largest brands,

comparable quarter Montblanc and Jimmy Choo brand sales declined 11.3% and 31.0%, respectively, which is better understood in

the context of the high bars set in 2019 with the rollout of Montblanc’s Explorer and Jimmy Choo’s Urban

Coach and Lanvin fragrance sales were actually ahead of last year’s third quarter by 7.9% and 1.8%, respectively.

Coach brand sales continued to benefit from the debut of Coach Dreams earlier this year, while favorable sales trends in

Lanvin’s key markets, Asia and Eastern Europe, were key sales catalysts.

compared to the second quarter, there has also been dramatic improvement by our U.S.

operations, even though sales have been hampered

by the lack of new product launches this year.

Notably, our largest U.S.

brand, GUESS, had its Bella Vita blockbuster launch

rescheduled until next year.

We also postponed the major launch of Anna Sui Sky .

The 2021 new product pipeline is especially

rich, and therefore we anticipate considerable sales gains over the current year.

recognize that there will continue to be significant challenges for the remainder of 2020 and possibly into early 2021.

In particular,

the one market which shows little sign of a turnaround is travel retail.

We do not see a resurgence anytime soon in travel retail

as air traffic continues to suffer due in part to governmental restrictions on international travel.

Sales to Customers by Region

months ended June 30,

(In millions)

September 30,

and South America

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Travel retail accounted for much of the decline in the Asian market.

profit margin

September 30,

margin as a percent of net sales

profit margin was 54% and 60% for the three and six months ended June 30, 2020, respectively, as compared to 64% and 63%

as for the three and six months ended June 30, 2019, respectively.

For European operations, gross profit margin was 57% and 62%

for the three and six months ended June 30, 2020, respectively, as compared to 68% and 66% for the corresponding periods

of the prior year.

profit margin was 60.5% and 60.0% for the three and nine months ended September 30, 2020, respectively, as compared to 59.8%

and 61.8% as for the three and nine months ended September 30, 2019, respectively.

For European operations, gross profit margin

was 62.4% and 62.3% for the three and nine months ended September 30, 2020, respectively, as compared to 62.8% and 64.7%

for the corresponding periods of the prior year.

PARFUMS, INC.

AND SUBSIDIARIES

carefully monitor movements in foreign currency exchange rates as over 40% of our European based operations net sales are denominated

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dollar has a negative effect.

The stronger dollar in 2020 resulted in a small benefit

to our gross margin during the three and six months ended June 30, 2020.

However, this benefit was offset by lower gross margins

due to product mix, and includes a charge of approximately $2.0 million relating to the assumption of a return liability for products

sold by the former licensee of a brand license entered into in 2019.

operations, gross profit margin was 43% and 50% for the three and six months ended June 30, 2020, respectively, as compared

to 52% and 53% for the corresponding periods of the prior year.

As a consequence of the 75% decline in net sales, certain expenses

such as depreciation of tools and molds together with the distribution of point of sale materials, exaggerated the decline in

gross margin for the periods.

The weaker dollar in the third quarter of 2020 resulted

in a nominal decline in our gross margin.

Gross margin for the nine months ended September 30, 2020 includes a charge of approximately

$2.0 million relating to the assumption of a return liability for products sold by the former licensee of a brand license entered

into in 2019.

operations, gross profit margin was 52.5% and 51.2% for the three and nine months ended September 30, 2020, respectively,

as compared to 51.0% and 52.3% for the corresponding periods of the prior year.

Although gross margin improved during the third

quarter of 2020, as compared to the corresponding period of the prior year due primarily to product mix, for the nine months ended

September 30, 2020, certain expenses such as depreciation of tools and molds together with the distribution of point of sale materials

exaggerated the decline in gross margin for the periods as a percentage of sales.

we do not bill customers for shipping and handling costs, and such costs, which aggregated $1.6 million and $3.8 million for the

three and six month periods ended June 30, 2020, respectively, as compared to $1.9 million and $3.5 million for the corresponding

periods of the prior year, are included in selling, general and administrative expenses in the consolidated statements of income.

As such, our Company’s gross profit may not be comparable to other companies, which may include these expenses as a component

of cost of goods sold.

three and nine month periods ended September 30, 2020, respectively, as compared to $2.4 million and $5.9 million for the

corresponding periods of the prior year, are included in selling, general and administrative expenses in the consolidated statements

As such, our Company’s gross profit may not be comparable to other companies, which may include these expenses

as a component of cost of goods sold.

general and administrative expenses

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general and administrative expenses as a percent of net sales

general and administrative expenses decreased 62% and 36% for the three and six months ended June 30, 2020, respectively, as compared

to the corresponding periods of the prior year.

However, as a percentage of sales, selling, general and administrative expenses

were 65% and 53% for the three and six months ended June 30, 2020, respectively, as compared to 51% and 47% for the three and

six months ended June 30, 2019, respectively.

For European operations sales decreased 69% and 43% for the three and six months

ended June 30, 2020, respectively, as compared to the corresponding periods of the prior year, while selling, general and administrative

expenses of our European operations decreased 66% and 38% for the same periods, respectively.

In addition, selling, general and

administrative expenses of our European operations represented 59% and 52% of net sales for the three and six months ended June

30, 2020, respectively, as compared to 54% and 48% for the three and six months ended June 30, 2019, respectively.

operations sales decreased 75% and 46% for the three and six months ended June 30, 2020, respectively, as compared to

the corresponding periods of the prior year.

At the same time, selling, general and administrative expenses of our U.S.

decreased 44% and 27% for the three and six months ended June 30, 2020, as compared to the corresponding periods of the prior

year, and represented 91% and 57% of net sales for the three and six months ended June 30, 2020, respectively, as compared to

40% and 42% for the corresponding periods of the prior year.

operations are significantly smaller than those of our European

operations and carry higher fixed costs that could not be leveraged as efficiently as those of our European operations with the

decline in sales.

general and administrative expenses decreased 15.4% and 29.1% for the three and nine months ended September 30, 2020, respectively,

as compared to the corresponding periods of the prior year.

As a percentage of sales, selling, general and administrative expenses

were 41.0% and 47.7% for the three and nine months ended September 30, 2020, respectively, as compared to 40.7% and 44.6% for

the three and nine months ended September 30, 2019, respectively.

European operations net sales decreased 9.6% and 31.4% for the three and nine months ended September 30, 2020, respectively, as

compared to the corresponding periods of the prior year, while selling, general and administrative expenses of our European operations

decreased 11.4% and 29.4% for the same periods, respectively.

In addition, selling, general and administrative expenses of our

European operations represented 41.3% and 47.3% of net sales for the three and nine months ended September 30, 2020, respectively,

as compared to 42.1% and 46.0% for the three and nine months ended September 30, 2019, respectively.

PARFUMS, INC.

AND SUBSIDIARIES

operations net sales decreased 35.1% and 41.6% for the three and nine months ended September 30, 2020, respectively, as compared

to the corresponding periods of the prior year, while selling, general and administrative expenses of our U.S.

operations decreased

29.2% and 27.7% for the three and nine months ended September 30, 2020, as compared to the corresponding periods of the prior

year, and represented 39.7% and 49.5% of net sales for the three and nine months ended September 30, 2020, respectively, as compared

to 36.3% and 40.0% for the corresponding periods of the prior year.

operations are significantly smaller than those of

our European operations and carry higher fixed costs that could not be leveraged as efficiently as those of our European operations

with the decline in net sales.

had significant promotional programs planned for 2020.

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programs were well underway and could not be halted.

Since that time we have severely curtailed our promotional activities.

postponed the launch of several programs originally scheduled for this year until 2021 along with related advertising and promotion

Promotion and advertising included in selling, general and administrative expenses aggregated $5.8 million and $34.4

million for the three and six months ended June 30, 2020, respectively, as compared to $36.4 million and $63.8 million for the

corresponding periods of the prior year.

Promotion and advertising represented 11.8% and 17.7% of net sales for the three and

six months ended June 30, 2020, respectively, as compared to 21.9% and 18.5% for the corresponding periods of the prior year.

Once the COVID-19 pandemic recedes, we will once again invest heavily in promotional spending to support new product launches

and to build brand awareness.

expense included in selling, general and administrative expenses aggregated $3.4 million and $14.6 million for the three and six

months ended June 30, 2020, respectively, as compared to $12.1 million and $25.1 million for the corresponding periods of the

Royalty expense represented 6.8% and 7.5% of net sales for the three and six months ended June 30, 2020, as compared

to 7.3% of net sales for both corresponding periods of the prior year.

As a result of the COVID-19 pandemic we reached agreements

with most of our licensors to waive or significantly reduce any minimum guaranteed royalties for 2020.

a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, we

incurred an operating loss of $5.5 million for the three months ended June 30, 2020, as compared an operating profit

of $22.5 million for the corresponding period of the prior year.

Income from operations was $12.3 million for the six months ended

June 30, 2020, as compared to $55.7 million for the corresponding period of the prior year.

For the six months ended June 30,

Since then we have severely curtailed our promotional activities.

the launch of several programs originally scheduled for this year until 2021 along with related advertising and promotion programs.

Promotion and advertising included in selling, general and administrative expenses aggregated $17.6 million and $51.9 million

for the three and nine months ended September 30, 2020, respectively, as compared to $28.7 million and $92.5 million for the corresponding

periods of the prior year.

Promotion and advertising represented 10.9% and 14.6% of net sales for the three and nine months ended

September 30, 2020, respectively, as compared to 15.0% and 17.3% for the corresponding periods of the prior year.

COVID-19 pandemic recedes, we will once again invest heavily in promotional spending to support new product launches and to build

brand awareness.

expense included in selling, general and administrative expenses aggregated $11.7 million and $26.3 million for the three and

nine months ended September 30, 2020, respectively, as compared to $14.1 million and $39.2 million for the corresponding periods

of the prior year.

Royalty expense represented 7.3% and 7.4% of net sales for the three and nine months ended September 30,

2020, as compared to 7.4% and 7.3% of net sales for the corresponding periods of the prior year.

As a result of the COVID-19 pandemic

we reached agreements with most of our licensors to waive or significantly reduce minimum guaranteed royalties for 2020.

a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, income

from operations was $31.4 million for the three months ended September 30, 2020, as compared to $36.6 million for the

corresponding period of the prior year.

Income from operations was $43.6 million for the nine months ended September 30,

2020, as compared to $92.4 million for the corresponding period of the prior year.

For the nine months ended September 30, 2020,

our operating margin was 12.3%, as compared to 17.2% for the corresponding period of the prior year.

Income and Expense

expense aggregated $0.4 million and $1.4 million for the three and six months ended June 30, 2020, respectively, as compared

expense aggregated $0.1 million and $1.5 million for the three and nine months ended September 30, 2020, respectively, as

compared to $0.4 million and $1.2 million for the corresponding periods of the prior year.

Interest expense is primarily related

to the financing of brand acquisitions.

We also use the credit lines available to us, as needed, to finance our working capital

needs as well as our financing needs for acquisitions.

PARFUMS, INC.

AND SUBSIDIARIES

currency gains (losses) aggregated $(0.9) million and $0.1 million for the three and nine months ended September 30, 2020, respectively,

as compared to losses of $0.1 million and $0.8 million for the corresponding periods of the prior year.

We typically enter into

foreign currency forward exchange contracts to manage exposure related to receivables from unaffiliated third parties denominated

in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency.

Over 40% of net sales of our European operations are denominated in U.S.

income aggregated $0.4 million and $2.2 million for the three and nine months ended September 30, 2020, respectively, as compared

to $0.6 million and $2.9 million for the corresponding periods of the prior year.

Interest expense is primarily related to the

financing of brand acquisitions.

We also use the credit lines available to us, as needed, to finance our working capital needs

as well as our financing needs for acquisitions.

currency gains aggregated zero and $1.0 million for the three and six months ended June 30, 2020, respectively, as compared to

losses of $0.5 million and $0.7 million for the corresponding periods of the prior year.

We typically enter into foreign currency

forward exchange contracts to manage exposure related to receivables from unaffiliated third parties denominated in a foreign

currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency.

Approximately

45% of net sales of our European operations are denominated in U.S.

income aggregated $0.8 million and $1.8 million for the three and six months ended June 30, 2020, respectively, as compared to

$0.4 million and $2.3 million for the corresponding periods of the prior year.

Cash and cash equivalents and short-term investments

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25% over a three-year period beginning in 2020.

Our effective tax rate for European operations was 26% for the six months ended

June 30, 2020, as compared to 30% for the corresponding period of the prior year.

The decrease is the result of favorable tax

rates in other jurisdictions where our European operations conduct business such as Singapore, Switzerland and the United States.

Our effective tax rate for European operations was 28% for the nine months ended

September 30, 2020, as compared to 30% for the corresponding period of the prior year.

The decrease is the result of favorable

tax rates in other jurisdictions where our European operations conduct business such as Singapore, Switzerland and the United

a result of the true-up of our 2019 tax accrual estimates for U.S.

operations, income taxes resulted in a nominal benefit for

the nine months ended September 30, 2020, as compared to an expense of 16.6% for the corresponding period of the prior year.

effective tax rate for U.S.

operations resulted in a benefit of 33.8% for the six months ended June 30, 2020, as compared to an

expense of 17.3% for the corresponding period of the prior year.

Due to the loss incurred in 2020, for federal tax purposes, we

will be able to carry back the loss to 2015 when the federal income tax rate was 35%.

Our effective tax rate in 2019 differs from

the 21% statutory rate due to benefits received from the exercise of stock options as well as deductions we are allowed for a

portion of our foreign derived intangible income slightly offset by state and local taxes.

operations typically differs from the 21% statutory rate due to benefits received from the exercise

of stock options as well as deductions we are allowed for a portion of our foreign derived intangible income slightly offset by

state and local taxes.

French authorities are considering that the existence of IP Suisse, a wholly-owned subsidiary of Interparfums SA, does not, in

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profits of that entity.

The French Tax Authority recently notified the Company that IP Suisse will be the subject of a tax audit

The French Tax Authority notified the Company that IP Suisse will be the subject of a tax audit

covering the period January 1, 2010 through December 31, 2018.

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than as discussed above, we did not experience any significant changes in tax rates, and none were expected in jurisdictions where

PARFUMS, INC.

AND SUBSIDIARIES

Income and Earnings per Share

September 30,

thousands except per share data)

income European operations

income (loss) U.S.

income (loss)

Net income attributable to the noncontrolling interest

income (loss) attributable to Inter Parfums, Inc.

(loss) per share:

income (loss) attributable to Inter Parfums, Inc.

income attributable to Inter Parfums, Inc.

common shareholders:

average number of shares outstanding:

incurred a net loss of $3.0 million for the three months ended June 30, 2020, as compared to a profit of $15.6 million for the

corresponding period of the prior year.

Net income was $10.3 million for the six months ended June 30, 2020, as compared to $40.6

million for the corresponding period of the prior year.

The reasons for significant fluctuations in net income (loss) for both

European operations and United States operations are directly related to the previous discussions relating to changes in sales,

gross margin, and selling, general and administrative expenses, most of which was caused by the effects of the COVID-19 pandemic

and effective tax rates.

income was $21.9 million and $32.2 million for the three and nine months ended September 30, 2020, as compared to $26.7 million

and $67.2 million for the corresponding periods of the prior year.

The reasons for significant fluctuations in net income for

both European operations and United States operations are directly related to the previous discussions relating to changes in

sales, gross margin, and selling, general and administrative expenses, most of which was caused by the effects of the COVID-19

noncontrolling interest arises from our 73% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company

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Net income attributable to the noncontrolling interest

aggregated 25% and 27% of European operations’ net income for the three and six months ended June 30, 2020, respectively,

as compared to 27% for the corresponding periods of the prior year.

aggregated 28% of European operations’ net income for all periods presented.

and Capital Resources

conservative financial tradition has enabled us to amass hefty cash balances and nominal long-term debt.

As of June 30, 2020 we

had $195 million in cash, cash equivalents and short-term investments, most of which is held in euro by our European operations

and is readily convertible into U.S.

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 June 30, 2020 long-term debt aggregated only

$18.9 million and we also have $48 million available in untapped credit facilities.

Nonetheless, in response to the COVID-19 pandemic,

we have taken several actions to minimize expenses and protect cash flow.

Our operating cost structure, of which variable costs

in a typical year account for over two-thirds, has enabled us to minimize the impact of reduced net sales on our bottom line.

In that regard, we have postponed the launch of several programs originally scheduled for this year until 2021 and moved related

advertising and promotion programs to 2021 as well.

We have also taken several actions with an eye toward minimizing fixed expenses.

While we have not terminated or furloughed any employees, we have instituted a hiring freeze and plan on significantly cutting

bonuses for 2020.

conservative financial tradition has enabled us to amass significant cash balances and nominal long-term debt.

As of September

30, 2020, we had $204 million in cash, cash equivalents and short-term investments, most of which is held in euro by our European

operations and is readily convertible into U.S.

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 September 30, 2020, long-term debt aggregated

only $19.4 million and we also have $49 million available in untapped credit facilities.

Nonetheless, in response to the COVID-19

pandemic, we have taken several actions to minimize expenses and protect cash flow.

Our operating cost structure, of which variable

costs in a typical year account for over two-thirds, has enabled us to minimize the impact of reduced net sales on our bottom

In that regard, we have postponed the launch of several programs originally scheduled for this year until 2021 and moved

related advertising and promotion programs to 2021 as well.

We have also taken several actions with an eye toward minimizing fixed

While we have not terminated or furloughed any employees, we have instituted a hiring freeze and plan on significantly

cutting bonuses for 2020.

We have also temporarily suspended our quarterly cash dividend.

While these actions are expected to have a favorable

While these actions have had a favorable

impact on the Company’s fixed expenditures and cash flow, our cash and credit management teams together with our executive

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nor do we not anticipate any short-term liquidity problems.

of June 30, 2020, we had a working capital ratio of 4.8 to 1.

Approximately 85% of the Company’s total assets are held by

European operations, and approximately $175 million of trademarks, licenses and other intangible assets are also held by European

PARFUMS, INC.

AND SUBSIDIARIES

of September 30, 2020, we had a working capital ratio of 4.5 to 1.

Approximately 86% of the Company’s total assets are held

by European operations, and approximately $182 million of trademarks, licenses and other intangible assets are also held by European

Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a

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will be consummated.

used in operating activities aggregated $21.3 million for the six months ended June 30, 2020, as compared to cash provided

used in operating activities aggregated $20.2 million for the nine months ended September 30, 2020, as compared to cash provided

by operating activities of $6.7 million for the corresponding period of the prior year.

For the six months ended June 30, 2020,

For the nine months ended September 30,

2020, working capital items used $62.4 million in cash from operating activities, as compared to $65.8 million in the 2019 period.

mentioned in our March 31, 2020 quarterly report on Form 10-Q, we anticipated significant challenges for the remainder of 2020

due to uncertain market conditions promulgated by the COVID-19 pandemic.

We expected the significant net sales decline in the

second quarter of 2020, as retail stores in many of our major markets were expected to remain closed for the entire period.

March 2020, retail stores in several jurisdictions around the world began reopening and business is slowly picking up.

also anticipated that inventory levels would increase as certain purchase commitments needed to be honored.

As previously mentioned,

our cash and credit management teams, together with our executive management teams are continuing to pay particular attention

to the management of working capital.

We anticipate significant challenges for the remainder of 2020 due to uncertain market conditions promulgated by the COVID-19

Since March 2020, retail stores in several jurisdictions around the world began reopening and business is rebounding

better than expected.

Accounts receivables are up considerably from June 2020.

However, the September 30, 2020 balance is reasonable

considering the upturn in third quarter 2020 net sales and collection activity remains strong as day’s sales outstanding

was 78 days, as compared to 84 days for the corresponding period of the prior year.

Inventory levels are up approximately 3% from

year end and reflect levels needed to support current net sales expectations and new product launches.

flows used in investing activities in 2020 reflect purchases of short-term investments.

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June 2020, the Company and Divabox, owner of the Origines-parfums e-commerce platform for beauty products, signed a strategic

agreement and equity investment pursuant to which we acquired 25% of Divabox capital for €12.5 million ($14 million), through

a capital increase.

In connection with the acquisition, the Company entered into a €12.0 million ($13.4 million),

three-year term loan payable in three equal annual installments plus interest.

short-term financing requirements are expected to be met by available cash on hand at June 30, 2020, and short-term credit lines

provided by domestic and foreign banks.

agreement and equity investment pursuant to which we acquired 25% of Divabox capital for $14 million through a capital increase.

In connection with the acquisition, the Company entered into a $13.4 million, three-year term loan payable in three equal annual

installments plus interest.

PARFUMS, INC.

AND SUBSIDIARIES

short-term financing requirements are expected to be met by available cash on hand at September 30, 2020, and short-term credit

lines provided by domestic and foreign banks.

The principal credit facilities for 2020 consist of a $20.0 million unsecured revolving

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international financial institutions.

There were no short-term borrowings outstanding as of both June 30, 2020 and June 30, 2019.

There were no short-term borrowings outstanding as of both September 30, 2020 and September

October 2019, the Board of Directors authorized a 20% increase in the annual dividend to $1.32 per share.

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cash dividend.

The Board also indicated that it will revisit this issue with an eye towards reinstitution of the dividend when

the business environment is more favorable.

The Board also indicated that it expects to revisit this issue with an eye towards reinstitution of the dividend

when the business environment is more favorable.

believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities,

1 unchanged sentence

rates in the U.S.

and foreign countries in which we operate did not have a significant impact on operating results for the six

months ended June 30, 2020.

and foreign countries in which we operate did not have a significant impact on operating results for the nine

months ended September 30, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis