INTERPARFUMS INC 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2022. 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) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $.001 par value per share IPAR The Nasdaq Stock Market 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 ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act). Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging Growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ 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 9, 2022, there were 31,858,625 shares of common stock, par value $.001 per share, outstanding. INTER PARFUMS, INC. AND SUBSIDIARIES INDEX Page Number Part I. Financial Information 1 Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 2 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and June 30, 2021 3 Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and June 30, 2021 4 Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2022 and June 30, 2021 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and June 30, 2021 6 Notes to Consolidated Financial Statements 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 Item 4. Controls and Procedures 29 Part II. Other Information 30 Item 6. Exhibits 30 Signatures 31 INTER PARFUMS, INC. AND SUBSIDIARIES Part I. Financial Information Item 1. Financial Statements In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. We have condensed such financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued by filing with the SEC. These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2021, included in our annual report filed on Form 10-K. The results of operations for the six months ended June 30, 2022, 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 (In thousands except share and per share data) (Unaudited) June 30, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 52,235 $ 159,613 Short-term investments 143,642 160,014 Accounts receivable, net 192,547 159,281 Inventories 265,835 198,914 Receivables, other 7,441 10,308 Other current assets 18,304 21,375 Income taxes receivable 223 210 Total current assets 680,227 709,715 Property, equipment and leasehold improvements, net 162,447 149,352 Right-of-use assets, net 29,792 33,728 Trademarks, licenses and other intangible assets, net 196,211 214,047 Deferred tax assets 9,836 7,936 Other assets 23,939 30,586 Total assets $ 1,102,452 $ 1,145,364 LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt $ 13,342 $ 15,911 Current portion of lease liabilities 4,850 6,014 Accounts payable – trade 83,409 81,980 Accrued expenses 122,061 136,677 Income taxes payable 11,837 4,328 Total current liabilities 235,499 244,910 Long–term debt, less current portion 117,354 132,902 Lease liabilities, less current portion 26,594 29,220 Equity: Inter Parfums, Inc. shareholders’ equity: Preferred stock, $ .001 par; authorized 1,000,000 shares; none issued -- -- Common stock, $ .001 par; authorized 100,000,000 shares; outstanding 31,845,965 and 31,830,420 shares at June 30, 2022 and December 31, 2021, respectively 32 32 Additional paid-in capital 84,316 87,132 Retained earnings 593,367 560,663 Accumulated other comprehensive loss ( 70,426 ) ( 38,432 ) Treasury stock, at cost, 9,864,805 shares at June 30, 2022 and December 31, 2021 ( 37,475 ) ( 37,475 ) Total Inter Parfums, Inc. shareholders’ equity 569,814 571,920 Noncontrolling interest 153,191 166,412 Total equity 723,005 738,332 Total liabilities and equity $ 1,102,452 $ 1,145,364 See notes to consolidated financial statements. Page 2 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net sales $ 244,725 $ 207,573 $ 495,403 $ 406,101 Cost of sales 90,943 75,223 182,963 148,502 Gross margin 153,782 132,350 312,440 257,599 Selling, general and administrative expenses 108,385 87,695 205,825 162,591 Impairment loss -- -- -- 2,394 Income from operations 45,397 44,655 106,615 92,614 Other expenses (income): Interest expense 1,023 1,270 1,907 1,647 (Gain) loss on foreign currency ( 279 ) 309 ( 2,518 ) ( 1,557 ) Interest and investment (income) loss ( 464 ) ( 768 ) 1,002 ( 1,155 ) Other (income) expense ( 328 ) 93 ( 444 ) ( 98 ) ( 48 ) 904 ( 53 ) ( 1,163 ) Income before income taxes 45,445 43,751 106,668 93,777 Income taxes 10,925 14,715 25,857 28,115 Net income 34,520 29,036 80,811 65,662 Less: Net income attributable to the noncontrolling interest 6,903 6,379 17,895 15,343 Net income attributable to Inter Parfums, Inc. $ 27,617 $ 22,657 $ 62,916 $ 50,319 Earnings per share: Net income attributable to Inter Parfums, Inc. common shareholders: Basic $ 0.87 $ 0.72 $ 1.98 $ 1.59 Diluted $ 0.86 $ 0.71 $ 1.97 $ 1.58 Weighted average number of shares outstanding: Basic 31,845 31,653 31,843 31,642 Diluted 31,952 31,799 31,981 31,786 Dividends declared per share $ 0.50 $ 0.25 $ 1.00 $ 0.50 See notes to consolidated financial statements. Page 3 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Comprehensive income: Net income $ 34,520 $ 29,036 $ 80,811 $ 65,662 Other comprehensive income: Net derivative instrument gain (loss), net of tax ( 1,749 ) 506 ( 1,488 ) ( 94 ) Transfer from OCI into earnings -- -- 992 -- Translation adjustments, net of tax ( 33,630 ) 8,312 ( 46,071 ) ( 17,807 ) Comprehensive income (loss) ( 859 ) 37,854 34,244 47,761 Comprehensive income attributable to the noncontrolling interests: Net income 6,903 6,379 17,895 15,343 Other comprehensive income (loss): Net derivative instrument gain (loss), net of tax ( 483 ) 138 ( 411 ) ( 26 ) Translation adjustments, net of tax ( 10,743 ) 2,526 ( 14,162 ) ( 6,415 ) Comprehensive income (loss) attributable to the noncontrolling interests ( 4,323 ) 9,043 3,322 8,902 Comprehensive income attributable to Inter Parfums, Inc. $ 3,464 $ 28,811 $ 30,922 $ 38,859 See notes to consolidated financial statements. Page 4 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In thousands) ( Unaudited ) Six months ended June 30, 2022 2021 Common stock, beginning and end of period $ 32 $ 32 - - 32 32 Additional paid-in capital, beginning of period 87,132 75,708 Shares issued upon exercise of stock options 810 1,583 Share-based compensation 679 783 Purchase of subsidiary shares ( 4,305 ) -- Transfer of subsidiary shares purchased -- ( 545 ) Additional paid-in capital, end of period 84,316 77,529 Retained earnings, beginning of period 560,663 503,567 Net income 62,916 50,319 Dividends ( 31,844 ) ( 15,826 ) Share-based compensation 1,632 630 Retained earnings, end of period 593,367 538,690 Accumulated other comprehensive loss, beginning of period ( 38,432 ) ( 5,997 ) Foreign currency translation adjustment, net of tax ( 31,909 ) ( 11,392 ) Transfer from other comprehensive income into earnings 992 -- Net derivative instrument gain (loss), net of tax ( 1,077 ) ( 68 ) Accumulated other comprehensive loss, end of period ( 70,426 ) ( 17,457 ) ( 37,475 ) ( 37,475 ) - - Treasury stock, beginning and end of period ( 37,475 ) ( 37,475 ) Noncontrolling interest, beginning of period 166,412 166,615 Net income 17,895 15,343 Foreign currency translation adjustment, net of tax ( 14,162 ) ( 6,415 ) Net derivative instrument gain (loss), net of tax ( 411 ) ( 26 ) Share-based compensation (adjustment) ( 389 ) ( 46 ) Purchase of subsidiary shares ( 152 ) -- Transfer of subsidiary shares purchased 54 225 Dividends ( 16,056 ) ( 9,484 ) Noncontrolling interest, end of period 153,191 166,212 738,332 702,450 80,811 65,662 Total equity $ 723,005 $ 727,531 See notes to consolidated financial statements. Page 5 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six months ended June 30, 2022 2021 Cash flows from operating activities: Net income $ 80,811 $ 65,662 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 6,803 4,941 Provision for doubtful accounts 1,241 1,247 Noncash stock compensation 1,877 1,447 Share of income of equity investment ( 444 ) ( 98 ) Impairment loss -- 2,393 Noncash lease expense 3,017 5,060 Deferred tax provision (benefit) ( 2,595 ) 1,653 Change in fair value of derivatives ( 2,036 ) 1,154 Changes in: Accounts receivable ( 48,085 ) ( 57,115 ) Inventories ( 81,188 ) ( 8,498 ) Other assets ( 1,872 ) ( 25,860 ) Operating lease liabilities ( 2,822 ) ( 4,567 ) Accounts payable and accrued expenses 7,916 34,588 Income taxes, net 8,869 16,105 Net cash provided by (used in) operating activities ( 28,508 ) 38,112 Cash flows from investing activities: Purchases of short-term investments ( 2,941 ) ( 30,649 ) Proceeds from sale of short-term investments 6,211 4,821 Purchases of property, equipment and leasehold improvements ( 30,305 ) ( 120,253 ) Payment for intangible assets acquired ( 1,016 ) ( 648 ) Net cash used in investing activities ( 28,051 ) ( 146,729 ) Cash flows from financing activities: Proceeds from issuance of long-term debt -- 160,389 Repayment of long-term debt ( 7,522 ) ( 17,888 ) Proceeds from exercise of options 810 1,583 Purchase of subsidiary shares from noncontrolling interest ( 4,403 ) -- Dividends paid ( 31,844 ) ( 15,826 ) Dividends paid to noncontrolling interest ( 16,056 ) ( 9,484 ) Net cash provided by (used in) financing activities ( 59,015 ) 118,774 Effect of exchange rate changes on cash ( 578 ) ( 4,490 ) Net increase (decrease) in cash and cash equivalents ( 116,152 ) 5,667 Cash and cash equivalents - beginning of period 168,387 169,681 Cash and cash equivalents - end of period $ 52,235 $ 175,348 Supplemental disclosure of cash flow information: Cash paid for: Interest $ 1,581 $ 963 Income taxes 16,369 12,568 See notes to consolidated financial statements. Page 6 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Significant Accounting Policies: The accounting policies we follow are set forth in the notes to our consolidated financial statements included in our Form 10-K, which was filed with the Securities and Exchange Commission for the year ended December 31, 2021. 2. Impact of COVID-19 Pandemic: A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and in March 2020, the World Health Organization declared COVID-19 a pandemic. In response, various national, state, and local governments issued decrees prohibiting certain businesses from operating and certain classes of workers from reporting to work. 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 operations in 2020. Business significantly improved in the second half of 2020 and continued to improve throughout 2021 and thus far in 2022, as retail stores reopened, and consumers increased online purchasing. While we expect this trend to continue, the introduction of variants of COVID-19 in various parts of the world has caused the temporary re-implementation of governmental restrictions to prevent further spread of the virus. In addition, international air travel remains curtailed in many jurisdictions due to both governmental restrictions and consumer health concerns. While COVID-19 has significantly restricted international travel, the travel retail business is beginning to pick up. We remain confident that travel retail will once again be a source of growth over the long-term. Lastly, the improved economy has put significant strains on our supply chain causing disruptions affecting the procurement of components, the ability to transport goods, and related cost increases. These 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 in advance of need and in larger quantities. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold. We do not expect the supply chain bottlenecks to begin lifting until later in 2022. Therefore, despite recent business improvement, the impact of the COVID-19 pandemic may have a material adverse effect on our results of our operations, financial position and cash flows through at least the end of 2022. 3. Recent Agreements: Salvatore Ferragamo In October 2021, we closed on a transaction agreement with Salvatore Ferragamo S.p.A., whereby an exclusive and worldwide license was granted for the production and distribution of Ferragamo brand perfumes. Our rights under this license are subject to certain minimum advertising expenditures and 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. With respect to the management and coordination of activities related to the license agreement, the Company operates through a wholly-owned Italian subsidiary based in Florence, that was acquired from Salvatore Ferragamo on October 1, 2021. The acquisition together with the license agreement was accounted for as an asset acquisition. Page 7 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on October 1, 2021. All amounts have been translated to U.S. dollars at the October 1, 2021 exchange rate . (In thousands) Inventories $ 17,805 Trademarks and licenses 15,880 Other assets 3,033 Assets acquired 36,718 Liabilities assumed ( 958 ) Total consideration $ 35,760 Emanuel Ungaro In October 2021, we also entered into a 10-year exclusive global licensing agreement with a 5-year optional term subject to certain conditions, with Emanuel Ungaro Italia S.r.l, for the creation, development and distribution of fragrances and fragrance related products, under the Emanuel Ungaro brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. Donna Karan and DKNY In September 2021, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance related products under the Donna Karan and DKNY brands. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. With this agreement, we are gaining several well-established and valuable fragrance franchises, most notably Donna Karan Cashmere Mist and DKNY Be Delicious , as well as a significant loyal consumer base around the world. In connection with the grant of license, we issued 65,342 shares of Inter Parfums, Inc. common stock valued at $ 5 .0 million to the licensor. The exclusive license became effective July 1, 2022, and we are planning to launch new fragrances under these brands in 2023. Land and Building Acquisition - Future Headquarters in Paris In April 2021, Interparfums SA, our 73 % owned French Subsidiary, completed the acquisition of its headquarters at 10 rue de Solférino in the 7th arrondissement of Paris from the property developer. This is an office complex combining three buildings connected by two inner courtyards, and consists of approximately 40,000 total sq. ft. The purchase price includes the complete renovation of the site and includes the purchase of several apartments in the surrounding area to be used as additional office space. As of June 30, 2022, $ 142.7 million of the purchase price, including approximately $ 4.4 million of acquisition costs, is included in property, equipment and leasehold improvements on the accompanying balance sheet as of June 30, 2022. The purchase price has been allocated approximately $ 59.5 million to land and $ 83.2 million to the building. The building, which was delivered on February 28, 2022, includes the building 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 Company has elected to depreciate the building cost based on the useful lives of its components. Approximately $ 5.1 million of cash held in escrow is included in property, equipment and leasehold improvements on the accompanying balance sheet as of June 30, 2022. Page 8 INTER PARFUMS, INC. AND SUBSIDIARIES The acquisition was financed by a 10 -year € 120 million (approximately $ 125 million) bank loan which bears interest at one-month Euribor plus 0.75% . Approximately € 80 million of the variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. 4. Recent Accounting Pronouncements: There are no recent accounting pronouncements issued but not yet adopted that would have a material effect on our consolidated financial statements. 5. Inventories: Inventories consist of the following: (In thousands) June 30, 2022 December 31, 2021 Raw materials and component parts $ 141,617 $ 111,312 Finished goods 124,218 87,602 Inventories $ 265,835 $ 198,914 6. Fair Value Measurement: 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 . Page 9 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Fair Value Measurements at June 30, 2022 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Short-term investments $ 143,642 $ 16,839 $ 126,803 $ — Interest rate swaps 4,081 — 4,081 Total assets $ 147,723 $ 16,839 $ 130,884 $ — Liabilities: Foreign currency forward exchange contracts accounted for using hedge accounting $ 3,609 $ — $ 3,609 $ — Foreign currency forward exchange contracts not accounted for using hedge accounting 1,990 — 1,990 — Total liabilities $ 5,599 $ — $ 5,599 $ — Fair Value Measurements at December 31, 2021 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Short-term investments $ 160,014 $ 24,506 $ 135,508 $ — Liabilities: Foreign currency forward exchange contracts accounted for using hedge accounting $ 1,982 $ — $ 1,982 $ — Foreign currency forward exchange contracts not accounted for using hedge accounting 63 — 63 — Interest rate swaps ( 234 ) — ( 234 ) — Total liabilities $ 1,811 $ — $ 1,811 $ — The carrying amount of cash and cash equivalents including money market funds, short-term investments, accounts receivable, other receivables, cash held in escrow, accounts payable and accrued expenses approximate fair value due to the short terms to maturity of these instruments. The carrying amount of loans payable approximates fair value as the interest rates on the Company’s indebtedness approximate current market rates. The fair value of the Company’s long-term debt was estimated based on the current rates offered to companies for debt with the same remaining maturities and is approximately equal to its carrying value. Page 10 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Foreign currency forward exchange contracts are valued based on quotations from financial institutions and the value of interest rate swaps are the discounted net present value of the swaps using third party quotes from financial institutions. 7. Derivative Financial Instruments: The Company enters into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Before entering into a derivative transaction for hedging purposes, it is determined that a high degree of initial effectiveness exists between the change in value of the hedged item 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 effectively offset the change in the cash flows of the hedged item. The effectiveness of each hedged item is measured throughout the hedged period and is based on the dollar offset methodology and excludes the portion of the fair value of the foreign currency forward exchange contract attributable to the change in spot-forward difference which is reported in current period earnings. Any hedge ineffectiveness is also recognized as a gain or loss on foreign currency in the income statement. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued, and gains and losses accumulated in other comprehensive income are reclassified to earnings. If it is probable that the forecasted transaction will no longer occur, then any gains or losses accumulated in other comprehensive income are reclassified to current-period earnings. In connection with the April 2021 acquisition of the office building complex in Paris, € 120 million of the purchase price was financed through a 10 -year term loan. The Company entered into interest rate swap contracts related to € 80 million of the loan, effectively exchanging the variable interest rate to a variable rate not to exceed 2 %. This derivative instrument is recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income. Gains and losses in derivatives designated as hedges are accumulated in other comprehensive income and gains and losses in derivatives not designated as hedges are included in (gain) loss on foreign currency on the accompanying income statements. Such gains and losses were immaterial for both the six months ended June 30, 2022 and 2021. All derivative instruments are reported as either assets or liabilities on the balance sheet measured at fair value. The valuation of interest rate swaps is included in other assets on the accompanying balance sheets. The valuation of foreign currency forward exchange contracts at June 30, 2022, resulted in a net liability and is included in accrued expenses on the accompanying balance sheet. At June 30, 2022, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $ 103.0 million and GB £ 3.0 million, which all have maturities of less than one year. Page 11 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 8. Leases: The Company leases its offices and warehouses, vehicles, and certain office equipment, substantially all of which are classified as operating leases. The Company currently has no material financing leases. The Company determines if an arrangement is a lease at inception. Operating lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining lease asset value, the Company considers fixed or variable payment terms, prepayments, incentives, and options to extend or terminate, depending on the lease. Renewal, 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 available at the lease commencement date for the location in which the lease is held in determining the present value of lease payments. As of June 30, 2022, the weighted average remaining lease term was 6.3 years and the weighted average discount rate used to determine the operating lease liability was 2.6 %. Rental expense related to operating leases was $ 1.3 million and $ 3.1 million for the three and six months ended June 30, 2022, respectively, as compared to $ 3.1 million and $ 4.9 million for the corresponding periods of the prior year. Operating lease payments included in operating cash flows totaled $ 2.8 million and $ 4.6 million for the six months ended June 30, 2022 and 2021, respectively, and noncash additions to operating lease assets totaled $ 0.5 million and $ 13.8 million for the six months ended June 30, 2022 and 2021, respectively. 9. Share-Based Payments: The Company maintains a stock option program for key employees, executives and directors. The plans, all of which have been approved by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans typically have a six-year term and vest over a four to five -year period. The fair value of shares vested during the six months ended June 30, 2022 and 2021 aggregated $ 0.10 million and $ 0.09 million, respectively. Compensation cost, net of forfeitures, is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures are estimated based on historic trends. It is generally our policy to issue new shares upon exercise of stock options. The following table sets forth information with respect to nonvested options for the six months ended June 30, 2022: Number of Shares Weighted Average Grant-Date Fair Value Nonvested options – beginning of period 209,510 $ 13.45 Nonvested options granted — — Nonvested options vested or forfeited ( 9,960 ) $ 12.21 Nonvested options – end of period 199,550 $ 13.51 Page 12 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Share-based payment expense decreased income before income taxes by $ 1.22 million and $ 1.88 million for the three and six months ended June 30, 2022, respectively, as compared to $ 0.72 million and $ 1.45 million for the corresponding periods of the prior year. Share-based payment expense decreased income attributable to Inter Parfums, Inc. by $ 0.74 million and $ 1.18 million for the three and six months ended June 30, 2022, respectively, as compared to $ 0.46 million and $ 0.94 million for the corresponding periods of the prior year. The following table summarizes stock option information as of June 30, 2022: Shares Weighted Average Exercise Price Outstanding at January 1, 2022 524,900 $ 57.58 Options forfeited ( 1,480 ) 67.41 Options exercised ( 15,545 ) 52.10 Outstanding at June 30, 2022 507,875 $ 57.72 Options exercisable 308,325 $ 52.44 Options available for future grants 614,015 As of June 30, 2022, the weighted average remaining contractual life of options outstanding is 2.26 years ( 1.87 years for options exercisable); the aggregate intrinsic value of options outstanding and options exercisable is $ 7.8 million and $ 6.4 million, respectively; and unrecognized compensation cost related to stock options outstanding aggregated $ 2.2 million. Cash proceeds, tax benefits and intrinsic value related to stock options exercised during the six months ended June 30, 2022 and 2021 were as follows: (In thousands) June 30, 2022 June 30, 2021 Cash proceeds from stock options exercised $ 810 $ 1,583 Tax benefits 75 200 Intrinsic value of stock options exercised 698 1,496 The weighted average fair values of the options granted by Inter Parfums, Inc. during the six months ended June 30, 2021 were $11.35 per share on the date of grant using the Black-Scholes option pricing model to calculate the fair value of options granted. There were no options granted during the six months ended June 30, 2022. The assumptions used in the Black-Scholes pricing model for the period ended June 30, 2021 is set forth in the following table: June 30, 2021 Weighted average expected stock-price volatility 25 % Weighted average expected option life 5 years Weighted average risk-free interest rate 0.4 % Weighted average dividend yield 1.6 % Page 13 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 increase as the earnings of the Company and its stock price continues to increase. 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 performance 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 employees and corporate officers having more than six months of employment at grant date, subject to certain corporate performance 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 NYSE Euronext on the date of grant. The estimated number of shares to be distributed of 67,372 has been determined taking into account employee turnover. The aggregate cost of the grant of approximately $ 3.4 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 distributed 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 six months ended June 30, 2022, the Company acquired 63,281 shares at an aggregate cost of $ 3.1 million. All share purchases and issuances have been classified as equity transactions on the accompanying balance sheet. Page 14 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 10. 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: Three months ended Six months ended (In thousands) June 30, June 30, 2022 2021 2022 2021 Numerator: Net income attributable to Inter Parfums, Inc. $ 27,617 $ 22,657 $ 62,916 $ 50,319 Denominator: Weighted average shares 31,845 31,653 31,843 31,642 Effect of dilutive securities: Stock options 107 146 138 144 Denominator for diluted earnings per share 31,952 31,799 31,981 31,786 Earnings per share: Net income attributable to Inter Parfums, Inc. common shareholders: Basic $ 0.87 $ 0.72 $ 1.98 $ 1.59 Diluted 0.86 0.71 1.97 1.58 Not included in the above computations are the effect of antidilutive potential common shares which consist of outstanding options to purchase 0.15 million shares of common stock for both three and six months ended June 30, 2022, as compared to 0.18 and 0.26 million shares of common stock for the three and six months ended June 30, 2021, respectively. Page 15 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 11. Segment and Geographic 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 operations and United States operations primarily represent the sale of prestige brand name fragrances. Information on our operations by geographical areas is as follows: (In thousands) Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Net sales: United States $ 78,444 $ 46,511 $ 146,946 $ 85,707 Europe 166,287 161,151 348,469 320,917 Eliminations ( 6 ) ( 89 ) ( 12 ) ( 523 ) $ 244,725 $ 207,573 $ 495,403 $ 406,101 Net income attributable to Inter Parfums, Inc.: United States $ 9,991 $ 6,090 $ 16,505 $ 10,277 Europe 17,626 16,567 46,411 40,042 $ 27,617 $ 22,657 $ 62,916 $ 50,319 June 30, December 31, 2022 2021 Total Assets: United States $ 270,839 $ 247,703 Europe 854,886 931,735 Eliminations ( 23,273 ) ( 34,074 ) $ 1,102,452 $ 1,145,364 Page 16 INTER PARFUMS, INC. AND SUBSIDIARIES Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Information Statements in this report which are not historical in nature are forward-looking statements. Although we believe that our plans, intentions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. 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 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, 2021, 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. Overview We operate in the fragrance business, and manufacture, market and distribute a wide array of fragrances and fragrance related products. We manage our business in two segments, European based operations and United States based operations. Certain prestige fragrance products are produced and marketed by our European operations through our 73% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 27% of Interparfums SA shares trade on the NYSE Euronext. We produce and distribute our European based fragrance products primarily under license agreements with brand owners, and European based fragrance product sales represented approximately 70% and 79% of net sales for the six months ended June 30, 2022 and 2021, respectively. We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade, Lanvin, Moncler, Montblanc, S.T. Dupont, Rochas and Van Cleef & Arpels , whose products are distributed in over 120 countries around the world. Through our United States operations, we also market fragrance and fragrance related products. United States operations represented 30% and 21% of net sales for the six months ended June 30, 2022 and 2021, respectively. These fragrance products are sold primarily pursuant to license or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, Donna Karan, DKNY, Ferragamo, Graff, GUESS, Hollister, MCM, Oscar de la Renta and Ungaro brands. 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 , Coach , Jimmy Choo and GUESS brand names. Page 17 INTER PARFUMS, INC. AND SUBSIDIARIES As a percentage of net sales, product sales for the Company’s largest brands were as follows: Six Months Ended June 30, 2022 2021 Montblanc 19 % 21 % Jimmy Choo 15 % 18 % Coach 15 % 16 % GUESS 12 % 10 % Quarterly sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season. In certain markets where we sell directly to retailers, seasonality is more evident. We primarily sell directly to retailers in France and the United States. We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses or other arrangements or out-right acquisitions of brands. Second, we grow through the introduction of new products and by supporting new and established products through advertising, merchandising and sampling as well as phasing out underperforming products so we can devote greater resources to those products with greater potential. The economics of developing, producing, launching and supporting products influence our sales and operating performance each year. Our introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning. Our business is not capital intensive, and it is important to note that we do not own manufacturing facilities. We act as a general contractor and source our needed components from our suppliers. These components are received at one of our distribution centers and then, based upon production needs, the components are sent to one of several third party fillers, which manufacture the finished product for us and then deliver them to one of our distribution centers. As with any global business, many aspects of our operations are subject to influences outside our control. We believe we have a strong brand portfolio with global reach and potential. As part of our strategy, we plan to continue to make investments behind fast-growing markets and channels to grow market share. Our reported net sales are impacted by changes in foreign currency exchange rates. A strong U.S. dollar has a negative impact on our net sales. However, earnings are positively affected by a strong dollar, because almost 50% of net sales of our European operations are denominated in U.S. dollars, while almost 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 address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments and primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates. Page 18 INTER PARFUMS, INC. AND SUBSIDIARIES The Russian invasion of Ukraine has negatively impacted our operations in both Russia and Ukraine. Since the invasion, we have been following regulations and sanctions which vary by country. In fiscal 2021, our operations in Ukraine and Russia accounted for approximately 4% of consolidated net sales. Future impacts on our business, including sanctions and counter-sanctions, are difficult to predict due to the high level of uncertainty as to how these developments will evolve. We are monitoring the effects of this conflict, including the risks that may affect our business, and expect that we will adjust our plans accordingly as the situation progresses. We do not expect any material credit losses as most of our receivables on sales to Russia and Ukraine are covered by insurance or are being paid in advance. For the six months ended June 30, 2022, the activities related to Russia and Ukraine did not have a material impact on our consolidated financial statements. Impact of COVID-19 Pandemic A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and in March 2020, the World Health Organization declared COVID-19 a pandemic. In response, various national, state, and local governments issued decrees prohibiting certain businesses from operating and certain classes of workers from reporting to work. 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 operations in 2020. Business significantly improved in the second half of 2020 and continued to improve throughout 2021 and thus far in 2022, as retail stores reopened, and consumers increased online purchasing. While we expect this trend to continue, the introduction of variants of COVID-19 in various parts of the world has caused the temporary re-implementation of governmental restrictions to prevent further spread of the virus. In addition, international air travel remains curtailed in many jurisdictions due to both governmental restrictions and consumer health concerns. While COVID-19 has significantly restricted international travel, the travel retail business is beginning to pick up. We remain confident that travel retail will once again be a source of growth over the long-term. Lastly, the improved economy has put significant strains on our supply chain causing disruptions affecting the procurement of components, the ability to transport goods, and related cost increases. These 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 in advance of need and in larger quantities. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold. We do not expect the supply chain bottlenecks to begin lifting until later in 2022. Therefore, despite recent business improvement, the impact of the COVID-19 pandemic may have a material adverse effect on our results of our operations, financial position and cash flows through at least the end of 2022. Page 19 INTER PARFUMS, INC. AND SUBSIDIARIES Recent Important Events Salvatore Ferragamo In October 2021, we closed on a transaction agreement with Salvatore Ferragamo S.p.A., whereby an exclusive and worldwide license was granted for the production and distribution of Ferragamo brand perfumes. Our rights under this license are subject to certain minimum advertising expenditures and 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. With respect to the management and coordination of activities related to the license agreement, the Company operates through a wholly-owned Italian subsidiary based in Florence, that was acquired from Salvatore Ferragamo on October 1, 2021. The acquisition together with the license agreement was accounted for as an asset acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on October 1, 2021. All amounts have been translated to U.S. dollars at the October 1, 2021 exchange rate. (In thousands) Inventories $ 17,805 Trademarks and licenses 15,880 Other assets 3,033 Assets acquired 36,718 Liabilities assumed (958 ) Total consideration $ 35,760 Emanuel Ungaro In October 2021, we also entered into a 10-year exclusive global licensing agreement a with a 5-year optional term subject to certain conditions, with Emanuel Ungaro Italia S.r.l, for the creation, development and distribution of fragrances and fragrance related products, under the Emanuel Ungaro brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. Donna Karan and DKNY In September 2021, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance related products under the Donna Karan and DKNY brands. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. With this agreement, we are gaining several well-established and valuable fragrance franchises, most notably Donna Karan Cashmere Mist and DKNY Be Delicious , as well as a significant loyal consumer base around the world. In connection with the grant of license, we issued 65,342 shares of Inter Parfums, Inc. common stock valued at $5.0 million to the licensor. The exclusive license became effective July 1, 2022, and we are planning to launch new fragrances under these brands in 2023. Page 20 INTER PARFUMS, INC. AND SUBSIDIARIES Land and Building Acquisition - Future Headquarters in Paris In April 2021, Interparfums SA, our 73% owned French Subsidiary, completed the acquisition of its headquarters at 10 rue de Solférino in the 7th arrondissement of Paris from the property developer. This is an office complex combining three buildings connected by two inner courtyards, and consists of approximately 40,000 total sq. ft. The purchase price includes the complete renovation of the site and includes the purchase of several apartments in the surrounding area to be used as additional office space . As of June 30, 2022, $142.7 million of the purchase price, including approximately $4.4 million of acquisition costs, is included in property, equipment and leasehold improvements on the accompanying balance sheet as of June 30, 2022. The purchase price has been allocated approximately $59.5 million to land and $83.2 million to the building. The building, which was delivered on February 28, 2022, includes the building 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 Company has elected to depreciate the building cost based on the useful lives of its components. Approximately $5.1 million of cash held in escrow is included in property, equipment and leasehold improvements on the accompanying balance sheet as of June 30, 2022. The acquisition was financed by a 10-year €120 million (approximately $125 million) bank loan which bears interest at one-month Euribor plus 0.75%. Approximately €80 million of the variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. Discussion of Critical Accounting Policies Information regarding our critical accounting policies can be found in our 2021 Annual Report on Form 10-K filed with the SEC. Results of Operations Three and Six Months Ended June 30, 2022 as Compared to the Three and Six Months Ended June 30, 2021 Net Sales: (in millions) Three months ended June 30, Six months ended June 30, 2022 2021 % Change 2022 2021 % Change European based product sales $ 166.3 $ 161.2 3 % $ 348.5 $ 320.9 9 % United States based product sales 78.4 46.4 69 % 146.9 85.2 72 % $ 244.7 $ 207.6 18 % $ 495.4 $ 406.1 22 % Page 21 INTER PARFUMS, INC. AND SUBSIDIARIES Net sales for the three months ended June 30, 2022, increased 18% from the three months ended June 30, 2021. At comparable foreign currency exchange rates, net sales increased 24% from the second quarter of 2021. The average dollar/euro exchange rate for the current second quarter was 1.06 compared to 1.20 in the second quarter of 2021 while for the first half of 2022, the average dollar/euro exchange rate was 1.09 compared to 1.20 in the first half of 2021. Net sales for the six months ended June 30, 2022, increased 22% as compared to the first half of 2021. At comparable foreign currency exchange rates, net sales increased 27% from the first half of 2021. Despite supply chain disruptions, inflation, lockdowns, transportation issues, the strength of the dollar, sanctions, the slow recovery of international travel, logistics difficulties in the U.S. caused by a change in shipping software by our local partner, and the war in Eastern Europe, 2022 is proving to be an exceptionally strong year for us on both sides of the Atlantic. Continuing the growth trend of the first quarter of 2022, second quarter sales by our U.S. operations were up substantially with comparable quarterly gains by GUESS, Abercrombie & Fitch, Oscar de la Renta, and MCM, increasing 39%, 40%, 35%, and 56%, respectively. Incremental sales of Ferragamo fragrances also factored into the increase. Of note, Uomo by GUESS was the only major launch during the second quarter; legacy scents and flankers fueled the gains by the other brands. Among the new flankers which launched in the second quarter were Authentic Moment by Abercrombie & Fitch, and a collector’s edition of our MCM scent. The surge in the dollar masked the gains by our leading brands within our European operations. Montblanc, for example, grew net sales by 6% in dollars but 20% in euro. Similarly, Jimmy Choo brand sales rose 4% in dollars and 18% in euro, while Coach sales increased 13% in dollars and 28% in euros. In fact, in total, our European operations generated sales growth of 17% in euro but only 3% in dollars. In the second quarter, we launched the Moncler duo, Jimmy Choo Man Aqua and Lanvin Mon Éclat , along with the rollouts of Montblanc Legend Red , Kate Spade Sparkle and Coach Wild Rose which debuted in the first quarter. The first half of 2022 started on a strong note and we look forward to executing our plans for the remainder of the year. Our brands are in high demand in a robust environment for the fragrance industry. We have a number of new product launches in the second half of the year, including Cosmic Sky for Anna Sui, a new Away flanker for Abercrombie & Fitch, and Ferragamo Bright Leather for U.S. operations. In addition, during the second half of the year, we will generate our first ever sales of Donna Karan and DKNY fragrance. For European operations, a new Coach men’s line will debut along with an extension of the Jimmy Choo I Want Choo line. Also planned is a new men’s line for Boucheron, two Rochas flankers for Byzance and Eau de Rochas , and a new member of the Collection Extraordinaire by Van Cleef & Arpels. In sum, 2022 has all the earmarks of another superb year as the growth catalysts currently far outweigh the headwinds. Page 22 INTER PARFUMS, INC. AND SUBSIDIARIES Net Sales to Customers by Region Six months ended June 30, (In millions) 2022 2021 North America $ 167.4 $ 154.5 Western Europe 124.4 88.7 Asia 87.2 62.8 Middle East 44.9 34.3 Central and South America 38.7 28.6 Eastern Europe 28.4 33.0 Other 4.4 4.2 $ 495.4 $ 406.1 Our U.S. distribution subsidiary for European based products encountered shipping related issues following a change in the distribution software by its logistics partner. Although those issues are now largely resolved, U.S. sales of European brands were negatively impacted in the first half. As a result, sales in our largest market, North America, rose only 8% as compared to Western Europe and Asia where comparable sales increased 40% and 39%, respectively. Our sales in the Middle East, and Central and South America, were also robust, up 31% and 35%, respectively. Gross Profit margin Three months ended Six months ended June 30, June 30, (in millions) 2022 2021 2022 2021 European operations Net sales $ 166.3 $ 161.2 $ 348.5 $ 320.9 Cost of sales 55.1 53.6 115.6 108.7 Gross margin $ 111.2 $ 107.6 $ 232.9 $ 212.2 Gross margin as a % of net sales 66.9 % 66.8 % 66.8 % 66.1 % United States operations Net sales $ 78.4 $ 46.4 $ 146.9 $ 85.2 Cost of sales 35.8 21.7 67.4 39.8 Gross margin $ 42.6 $ 24.7 $ 79.5 $ 45.4 Gross margin as a % of net sales 54.3 % 53.3 % 54.1 % 53.2 % For European based operations, gross profit margin as a percentage of net sales was 66.9% and 66.8% for the three and six months ended June 30, 2022, respectively, as compared to 66.8% and 66.1% for the corresponding periods of the prior year. We carefully monitor movements in foreign currency exchange rates as almost 50% of our European based operations net sales is denominated in U.S. dollars, while most of our costs are incurred in euro. From a margin standpoint, a strong U.S. dollar has a positive effect on our gross margin while a weak U.S. dollar has a negative effect. The average dollar/euro exchange rate was 1.09 in the 2022 second quarter compared to 1.20 in the second quarter of 2021. The margin gains in 2022 are primarily the result of the stronger U.S. dollar in 2022, however increased transportation and component costs mitigated much of the exchange rate benefit. As previously mentioned, supply chain disruptions affecting the procurement of components, the ability to transport goods, and related cost increases have and are expected to continue to have a negative impact on sales and gross margin. While we have been addressing these issues and have implemented processes to mitigate the impact, prolonged disruption could have a material negative effect on our sales and gross margin. Page 23 INTER PARFUMS, INC. AND SUBSIDIARIES For United States operations, gross profit margin was 54.3% and 54.1% for the three and six months ended June 30, 2022, respectively, as compared to 53.3% and 53.2% for the corresponding periods of the prior year. The increase in sales in the first half of 2022, allowed us to better absorb fixed expenses such as depreciation and point of sale expenses, as compared to the corresponding period of the prior year. Generally, we do not bill customers for shipping and handling costs, and such costs, which aggregated $2.8 million and $5.5 million for the three and six months ended June 30, 2022, respectively, as compared to $2.0 million and $3.8 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. Selling, general and administrative expenses Three months ended Six months ended June 30, June 30, (In millions) 2022 2021 2022 2021 European Operations Selling, general and administrative expenses $ 78.8 $ 70.9 $ 147.8 $ 130.3 Selling, general and administrative expenses as a percent of net sales 47.4 % 44.0 % 42.4 % 40.6 % United States Operations Selling, general and administrative expenses $ 29.6 $ 16.8 $ 58.1 $ 32.3 Selling, general and administrative expenses as a percent of net sales 37.8 % 36.2 % 39.5 % 37.9 % For European operations, selling, general and administrative expenses increased 11.1% and 13.4% for the three and six months ended June 30, 2022 as compared to the corresponding period of the prior year, and represented 47.4% and 42.4% of net sales for the three and six months ended June 30, 2022, respectively, as compared to 44.0% and 40.6% for the three and six months ended June 30, 2021, respectively. For United States operations, selling, general and administrative expenses increased 76.5% and 79.9% for the three and six months ended June 30, 2022, as compared to the corresponding period of the prior year, and represented 37.8% and 39.5% of net sales for the three and six months ended June 30, 2022, respectively, as compared to 36.2% and 37.9% for the three and six months ended June 30, 2021, respectively. As discussed in more detail below, the increased selling, general and administrative expenses as a percent of net sales are primarily the result of increases in promotion and advertising expenditures. Promotion and advertising included in selling, general and administrative expenses aggregated $45.9 million and $80.1 million for the three and six months ended June 30, 2022, respectively, as compared to $33.2 million and $55.0 million for the corresponding periods of the prior year. Promotion and advertising represented 18.8% and 16.2% of net sales for the three and six months ended June 30, 2022, respectively, as compared to 16.0% and 13.5% for the corresponding periods of the prior year. Throughout 2021, sales rebounded far more rapidly than originally anticipated causing us to play catchup with promotional and adverting programs throughout the year. Promotion and advertising are integral parts of our industry, and we continue to invest heavily to support new product launches and to build brand awareness. We believe that our promotion and advertising efforts have had a beneficial effect on online net sales. All of our brands have benefitted from newly launched and enhanced e-commerce sites in existing markets in collaboration with our retail customers on their e-commerce sites. We also continue to develop and implement omnichannel concepts and compelling content to deliver an integrated consumer experience. We anticipate that on a full year basis, promotion and advertising expenditures will aggregate approximately 21% of net sales, which is in line with pre-COVID historical averages. Page 24 INTER PARFUMS, INC. AND SUBSIDIARIES Royalty expense included in selling, general and administrative expenses aggregated $18.9 million and $38.3 million for the three and six months ended June 30, 2022, respectively, as compared to $16.2 million and $31.5 million for the corresponding periods of the prior year. Royalty expense represented 7.7 % of net sales for both the three and six months ended June 30, 2022, as compared to 7.8% of net sales for the corresponding periods of the prior year. Income from Operations As a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, our operating margins aggregated 18.6% and 21.5% for the three and six months ended June 30, 2022, respectively, as compared to 21.5% and 22.8% for the corresponding periods of the prior year. Other Income and Expense Traditionally, interest expense was primarily related to the financing of brand and licensing acquisitions. However, in April 2021, we completed the acquisition of the headquarters of Interparfums SA. The acquisition was financed by a 10-year €120 million (approximately $125 million) bank loan which bears interest at one-month Euribor plus 0.75%. Also in 2021, approximately €80 million of the variable rate debt was swapped for variable rate debt with a maximum interest rate of 2%. We 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. Gains and losses on foreign currency transactions have not been significant. Almost 50% of net sales of our European operations are denominated in U.S. dollars. Interest and investment (income) loss represents interest earned on cash and cash equivalents and short-term investments. As of June 30, 2022, short-term investments include approximately $16.8 million of marketable equity securities of other companies in the luxury goods sector. Interest and investment (income) loss for the three and six months ended June 30, 2022, includes approximately $2.5 million and $5.9 million of losses on such marketable equity securities. Page 25 INTER PARFUMS, INC. AND SUBSIDIARIES Income Taxes Our consolidated effective tax rate was 24% for the six months ended June 30, 2022, as compared to 30.0% for the corresponding periods of the prior year. The effective tax rate for European operations was 25% for the six months ended June 30, 2022, as compared to 32% for the corresponding period of the prior year. As previously disclosed, a global settlement agreement was reached with the French Tax Authorities in June 2021, whereby Interparfums SA agreed to pay €2.5 million (approximately $3.0 million) relating to activities between Interparfums SA and its wholly owned subsidiary, IP Suisse. The balance of the decline is primarily the result of a decrease in the French corporate income tax rate. Our effective tax rate for U.S. operations was 22% for the six months ended June 30, 2022, as compared to 19% for the corresponding period of the prior year. Our effective tax rate differs from the 21% statutory rate due to state and local 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. The lower effective tax rate in 2021 is primarily a result of discrete tax items related to benefits received from the exercise of stock options. Other than as discussed above, we did not experience any significant changes in tax rates, and none were expected in jurisdictions where we operate. Net Income Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 (In thousands) Net income European operations $ 24,529 $ 22,927 $ 64,305 $ 55,367 Net income United States operations 9,991 6,109 16,506 10,295 Net income 34,520 29,036 80,811 65,662 Less: Net income attributable to the noncontrolling interest 6,903 6,379 17,895 15,343 Net income attributable to Inter Parfums, Inc. $ 27,617 $ 22,657 $ 62,916 $ 50,319 Net income attributable to European operations was $24.5 million and $64.3 million for the three and six months ended June 30, 2022, respectively, as compared to $22.9 million and $55.4 million for the corresponding period of the prior year. Net income attributable to United States operations was $10.0 million and $16.5 million for the three and six months ended June 30, 2022, respectively, as compared to $6.1 million and $10.3 million for the corresponding period of the prior year. The 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. Page 26 INTER PARFUMS, INC. AND SUBSIDIARIES The noncontrolling interest arises from our 73% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 27% of Interparfums SA shares trade on the NYSE Euronext. Net income attributable to the noncontrolling interest is directly related to the profitability of our European operations and aggregated 28% of European operations net income for all periods presented. Net margins attributable to Inter Parfums, Inc. for the six months ended June 30, 2022 and 2021 aggregated 12.7% and 12.4%, respectively. Liquidity and Capital Resources Our conservative financial tradition has enabled us to amass significant cash balances. As of June 30, 2022, we had $196 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. 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 June 30, 2022, short-term investments include approximately $16.8 million of marketable equity securities. As of June 30, 2022, working capital aggregated $445 million and we had a working capital ratio of 2.9 to 1. Approximately 78% of the Company’s total assets are held by European operations, and approximately $156 million of trademarks, licenses and other intangible assets are also held by European operations. 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 2033. 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 our 2021 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, 2021, 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. As we recently reported, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance related products under the Donna Karan and DKNY brands. This license took effect on July 1, 2022. Opportunities for external growth are regularly examined, with the priority of maintaining the quality and homogeneous nature of our portfolio. However, we cannot assure you that any new license or acquisition agreements will be consummated. Cash used in operating activities aggregated $28.5 million for the six months ended June 30, 2022, as compared to cash provided by operating activities of $38.1 million for the corresponding period of the prior year. For the six months ended June 30, 2022, working capital items used $117.2 million in cash from operating activities, as compared to $45.3 million in the 2021 period. Although from a cash flow perspective accounts receivable is up 30% from year end 2021, the balance is reasonable based on second quarter 2022 record sales levels and reflects strong collection activity as day’s sales outstanding was 76 days, down slightly from 79 days in the corresponding period of the prior year. From a cash flow perspective, inventory levels as of June 30, 2022, increased 41% from year end 2021. As of December 31, 2021, although inventories include product needed to support new launches, the overall balance was lower than historic levels due primarily to supply chain disruptions. We have been addressing this issue by ordering well in advance of need and in larger quantities. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold. We believe that our inventory levels are reasonable to support our projected sales and new product pipeline. Page 27 INTER PARFUMS, INC. AND SUBSIDIARIES Cash flows used in investing activities in 2022 reflect purchases and sales of short-term investments. These investments include certificates of deposit with maturities greater than three months. Approximately $44 million of such certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal. Our business is not capital intensive as we do not own any manufacturing facilities. On a full year basis, we typically spend approximately $5.0 million on tools and molds, depending on our new product development calendar. During the six months ended June 30, 2022, approximately $24.2 million was added to property costs relating to our new Paris corporate headquarters. Capital expenditures also include amounts for office fixtures, computer equipment and industrial equipment needed at our distribution centers. Our short-term financing requirements are expected to be met by available cash on hand at June 30, 2022, and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2022 consist of a $20.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $26 million in credit lines provided by a consortium of international financial institutions. There were no short-term borrowings outstanding pursuant to these facilities as of both June 30, 2022 and 2021. In February 2021, our Board of Directors authorized an annual dividend of $1.00, payable quarterly. In February 2022, our Board authorized a 100% increase in the annual dividend to $2.00 per share. The next quarterly cash dividend of $0.50 per share is payable on September 30, 2022, to shareholders of record on September 15, 2022. We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs. Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the six months ended June 30, 2022. 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 do not engage in the trading of foreign currency forward exchange contracts or interest rate swaps. Page 28 INTER PARFUMS, INC. AND SUBSIDIARIES Foreign Exchange Risk Management 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 currency other than our functional currency. We enter into these exchange contracts 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 Interparfums SA, whose functional currency is the euro. 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. All derivative instruments are required to be reflected 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, then the changes in fair value of the derivative instrument will be recorded in other comprehensive income. Before entering into a derivative transaction for hedging purposes, we determine that the change in the value of the derivative will effectively offset the change in the fair value of the hedged item from a movement in foreign currency rates. Then, we measure the effectiveness of each hedge throughout the hedged period. Any hedge ineffectiveness is recognized in the income statement. At June 30, 2022, we had foreign currency contracts in the form of forward exchange contracts of approximately U.S. $103.0 million and GB £3.0 million with maturities of less than one year. We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote. Interest Rate Risk Management We mitigate interest rate risk by 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. Item 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based on their review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our Company’s disclosure controls and procedures were effective. Page 29 INTER PARFUMS, INC. AND SUBSIDIARIES Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the quarterly period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Part II. Other Information Items 1. Legal Proceedings, 1A. Risk Factors, 2. Unregistered Sales of Equity Securities and Use of Proceeds, 3. Defaults Upon Senior Securities, 4. Mine Safety Disclosures and 5. Other Information, are omitted as they are either not applicable or have been included in Part I. Item 6 Exhibits. The following documents are filed herewith: Exhibit No. Description Page Number 31.1 Certifications required by Rule 13a-14(a) of Chief Executive Officer 32 31.2 Certifications required by Rule 13a-14(a) of Chief Financial Officer and Principal Accounting Officer 33 32.1 Certification required by Section 906 of the Sarbanes-Oxley Act of Chief Executive Officer 34 32.2 Certification required by Section 906 of the Sarbanes-Oxley Act of Chief Financial Officer and Principal Accounting Officer 35 101 Interactive data files Page 30 INTER PARFUMS, INC. AND SUBSIDIARIES 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 9th day of August 2022. INTER PARFUMS, INC. By: /s/ Russell Greenberg Executive Vice President and Chief Financial Officer Page 31