INTERPARFUMS INC 10-Q

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 nine months ended September 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) ASSETS September 30, 2022 December 31, 2021 Current assets: Cash and cash equivalents $ 41,277 $ 159,613 Short-term investments 135,443 160,014 Accounts receivable, net 220,112 159,281 Inventories 283,237 198,914 Receivables, other 8,050 10,308 Other current assets 19,310 21,375 Income taxes receivable 211 210 Total current assets 707,640 709,715 Property, equipment and leasehold improvements, net 153,246 149,352 Right-of-use assets, net 27,834 33,728 Trademarks, licenses and other intangible assets, net 189,273 214,047 Deferred tax assets 10,344 7,936 Other assets 22,857 30,586 Total assets $ 1,111,194 $ 1,145,364 LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt $ 12,593 $ 15,911 Current portion of lease liabilities 4,852 6,014 Accounts payable – trade 81,415 81,980 Accrued expenses 132,834 136,677 Income taxes payable 16,820 4,328 Total current liabilities 248,514 244,910 Long–term debt, less current portion 107,942 132,902 Lease liabilities, less current portion 24,590 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 31,875,625 and 31,830,420 shares at September 30, 2022 and December 31, 2021, respectively 32 32 Additional paid-in capital 85,660 87,132 Retained earnings 618,884 560,663 Accumulated other comprehensive loss ( 92,405 ) ( 38,432 ) Treasury stock, at cost, 9,864,805 shares at September 30, 2022 and December 31, 2021 ( 37,475 ) ( 37,475 ) Total Inter Parfums, Inc. shareholders’ equity 574,696 571,920 Noncontrolling interest 155,452 166,412 Total equity 730,148 738,332 Total liabilities and equity $ 1,111,194 $ 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net sales $ 280,462 $ 262,696 $ 775,865 $ 668,797 Cost of sales 98,562 95,269 281,525 243,772 Gross margin 181,900 167,427 494,340 425,025 Selling, general and administrative expenses 117,424 99,788 323,249 262,379 Impairment loss — — — 2,393 Income from operations 64,476 67,639 171,091 160,253 Other expenses (income): Interest expense 682 1,697 2,589 3,344 (Gain) loss on foreign currency 273 ( 613 ) ( 2,245 ) ( 2,169 ) Interest and investment income ( 3,343 ) ( 233 ) ( 2,341 ) ( 1,388 ) Other (income) expense 346 ( 36 ) ( 98 ) ( 135 ) Nonoperating Income (Expense) ( 2,042 ) 815 ( 2,095 ) ( 348 ) Income before income taxes 66,518 66,824 173,186 160,601 Income taxes 13,221 16,997 39,078 45,112 Net income 53,297 49,827 134,108 115,489 Less: Net income attributable to the noncontrolling interest 11,874 11,511 29,769 26,854 Net income attributable to Inter Parfums, Inc. $ 41,423 $ 38,316 $ 104,339 $ 88,635 Earnings per share: Net income attributable to Inter Parfums, Inc. common shareholders: Basic $ 1.30 $ 1.21 $ 3.28 $ 2.80 Diluted $ 1.30 $ 1.20 $ 3.26 $ 2.79 Weighted average number of shares outstanding: Basic 31,860 31,659 31,848 31,648 Diluted 31,968 31,807 31,977 31,793 Dividends declared per share $ 0.50 $ 0.25 $ 1.50 $ 0.75 See notes to consolidated financial statements. Page 3 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Comprehensive income: Net income $ 53,297 $ 49,827 $ 134,108 $ 115,489 Other comprehensive income: Net derivative instrument gain (loss), net of tax 1,315 ( 609 ) ( 173 ) ( 703 ) Transfer from OCI into earnings — — 992 — Translation adjustments, net of tax ( 32,944 ) ( 15,396 ) ( 79,015 ) ( 33,203 ) Comprehensive income 21,668 33,822 55,912 81,583 Comprehensive income attributable to the noncontrolling interests: Net income 11,874 11,511 29,769 26,854 Other comprehensive income (loss): Net derivative instrument gain (loss), net of tax 362 ( 166 ) ( 49 ) ( 192 ) Translation adjustments, net of tax ( 10,012 ) ( 3,974 ) ( 24,174 ) ( 10,389 ) Comprehensive income attributable to the noncontrolling interests 2,224 7,371 5,546 16,273 Comprehensive income attributable to Inter Parfums, Inc. $ 19,444 $ 26,451 $ 50,366 $ 65,310 See notes to consolidated financial statements. Page 4 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In thousands) (Unaudited) Nine months ended September 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 1,816 1,727 Share-based compensation 1,017 1,175 Purchase of subsidiary shares ( 4,305 ) — Shares issued for license acquisition — 5,000 Transfer of subsidiary shares purchased — ( 540 ) Additional paid-in capital, end of period 85,660 83,070 Retained earnings, beginning of period 560,663 503,567 Net income 104,339 88,635 Dividends ( 47,782 ) ( 23,740 ) Share-based compensation 1,664 892 Retained earnings, end of period 618,884 569,354 Accumulated other comprehensive loss, beginning of period ( 38,432 ) ( 5,997 ) Foreign currency translation adjustment, net of tax ( 54,841 ) ( 22,814 ) Transfer from other comprehensive income into earnings 992 — Net derivative instrument loss, net of tax ( 124 ) ( 511 ) Accumulated other comprehensive loss, end of period ( 92,405 ) ( 29,322 ) ( 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 29,769 26,854 Foreign currency translation adjustment, net of tax ( 24,174 ) ( 10,389 ) Net derivative instrument loss, net of tax ( 49 ) ( 192 ) Share-based compensation (adjustment) ( 353 ) ( 69 ) Purchase of subsidiary shares ( 152 ) — Transfer of subsidiary shares purchased 55 1,153 Dividends ( 16,056 ) ( 9,836 ) Noncontrolling interest, end of period 155,452 174,136 738,332 702,450 134,108 115,489 Total equity $ 730,148 $ 759,795 See notes to consolidated financial statements. Page 5 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine months ended September 30, 2022 2021 Cash flows from operating activities: Net income $ 134,108 $ 115,489 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 10,936 7,273 Provision for doubtful accounts 2,004 1,369 Noncash stock compensation 2,353 2,158 Share of income of equity investment ( 98 ) ( 135 ) Impairment loss — 2,393 Noncash lease expense 4,074 6,953 Deferred tax provision (benefit) ( 3,658 ) 739 Change in fair value of derivatives 1,348 1,844 Changes in: Accounts receivable ( 89,605 ) ( 79,112 ) Inventories ( 109,377 ) ( 3,727 ) Other assets 2,615 ( 13,460 ) Operating lease liabilities ( 3,887 ) ( 6,169 ) Accounts payable and accrued expenses 26,406 41,830 Income taxes, net 14,606 23,816 Net cash provided by (used in) operating activities ( 8,175 ) 101,261 Cash flows from investing activities: Purchases of short-term investments ( 2,862 ) ( 41,406 ) Proceeds from sale of short-term investments 5,346 10,753 Purchases of property, equipment and leasehold improvements ( 32,615 ) ( 131,322 ) Payment for intangible assets acquired ( 3,757 ) ( 858 ) Net cash used in investing activities ( 33,888 ) ( 162,833 ) Cash flows from financing activities: Proceeds from issuance of long-term debt — 158,992 Repayment of long-term debt ( 14,210 ) ( 38,232 ) Proceeds from exercise of options 1,816 1,727 Purchase of subsidiary shares from noncontrolling interest ( 4,402 ) — Dividends paid ( 47,782 ) ( 23,741 ) Dividends paid to noncontrolling interest ( 16,056 ) ( 9,831 ) Net cash provided by (used in) financing activities ( 80,634 ) 88,915 Effect of exchange rate changes on cash ( 4,413 ) ( 7,934 ) Net increase (decrease) in cash and cash equivalents ( 127,110 ) 19,409 Cash and cash equivalents - beginning of period 168,387 169,681 Cash and cash equivalents - end of period $ 41,227 $ 189,090 Supplemental disclosure of cash flow information: Cash paid for: Interest $ 2,091 $ 1,582 Income taxes 27,718 21,103 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 the second half of 2023. Therefore, despite recent business improvement, the impact of the COVID-19 pandemic might continue to have adverse effects on our results of our operations, financial position and cash flows through at least the first half of 2023. 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 2024. 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 September 30, 2022, $ 135.5 million of the purchase price, including approximately $ 4.1 million of acquisition costs, is included in property, equipment and leasehold improvements on the accompanying balance sheet as of September 30, 2022. The purchase price has been allocated approximately $ 55.9 million to land and $ 79.6 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 $ 3.4 million of cash held in escrow is included in property, equipment and leasehold improvements on the accompanying balance sheet as of September 30, 2022. Page 8 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The acquisition was financed by a 10 -year € 120 million (approximately $ 117 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) September 30, 2022 December 31, 2021 Raw materials and component parts $ 134,002 $ 111,312 Finished goods 149,235 87,602 Inventories $ 283,237 $ 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 September 30, 2022 Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Assets: Short-term investments $ 135,444 $ 16,248 $ 119,196 $ — Interest rate swaps 6,066 — 6,066 — Total assets $ 141,510 $ 16,248 $ 125,262 $ — Liabilities: Foreign currency forward exchange contracts accounted for using hedge accounting $ 1,840 $ — $ 1,840 $ — Foreign currency forward exchange contracts not accounted for using hedge accounting 7,154 — 7,154 — Total liabilities $ 8,994 $ — $ 8,994 $ — Fair Value Measurements at December 31, 2021 Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs Total (Level 1) (Level 2) (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 nine months ended September 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 September 30, 2022, resulted in a net liability and is included in accrued expenses on the accompanying balance sheet. At September 30, 2022, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $ 90.0 million, GB £ 2.0 million and JPY ¥ 50.0 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 September 30, 2022, the weighted average remaining lease term was 6.0 years and the weighted average discount rate used to determine the operating lease liability was 2.6 %. Rental expense related to operating leases was $ 1.2 million and $ 4.3 million for the three and nine months ended September 30, 2022, respectively, as compared to $ 1.9 million and $ 6.8 million for the corresponding periods of the prior year. Operating lease payments included in operating cash flows totaled $ 3.9 million and $ 6.2 million for the nine months ended September 30, 2022 and 2021, respectively, and noncash additions to operating lease assets totaled $ 0.5 million and $ 14.0 million for the nine months ended September 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 nine months ended September 30, 2022 and 2021 aggregated $ 0.11 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 nine months ended September 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 ( 10,460 ) $ 12.14 Nonvested options – end of period 199,050 $ 13.52 Page 12 INTER PARFUMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Share-based payment expense decreased income before income taxes by $ 0.47 million and $ 2.35 million for the three and nine months ended September 30, 2022, respectively, as compared to $ 0.71 million and $ 2.16 million for the corresponding periods of the prior year. Share-based payment expense decreased income attributable to Inter Parfums, Inc. by $ 0.34 million and $ 1.52 million for the three and nine months ended September 30, 2022, respectively, as compared to $ 0.48 million and $ 1.42 million for the corresponding periods of the prior year. The following table summarizes stock option information as of September 30, 2022: Shares Weighted Average Exercise Price Outstanding at January 1, 2022 524,900 $ 57.58 Options forfeited ( 1,480 ) 67.41 Options exercised ( 45,205 ) 40.16 Outstanding at September 30, 2022 478,215 $ 59.20 Options exercisable 279,165 $ 54.40 Options available for future grants 614,015 As of September 30, 2022, the weighted average remaining contractual life of options outstanding is 2.12 years ( 1.76 years for options exercisable); the aggregate intrinsic value of options outstanding and options exercisable is $ 7.8 million and $ 5.9 million, respectively; and unrecognized compensation cost related to stock options outstanding aggregated $ 1.9 million. Cash proceeds, tax benefits and intrinsic value related to stock options exercised during the nine months ended September 30, 2022 and 2021 were as follows: (In thousands) September 30, 2022 September 30, 2021 Cash proceeds from stock options exercised $ 1,816 $ 1,727 Tax benefits 320 240 Intrinsic value of stock options exercised 2,105 1,562 The weighted average fair values of the options granted by Inter Parfums, Inc. during the nine months ended September 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 nine months ended September 30, 2022. The assumptions used in the Black-Scholes pricing model for the period ended September 30, 2021 is set forth in the following table: September 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 66,905 has been determined taking into account employee turnover. The aggregate cost of the grant of approximately $ 3.2 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 nine months ended September 30, 2022, the Company acquired 63,281 shares at an aggregate cost of $ 3.0 million. All share purchases and issuances have been classified as equity transactions on the accompanying balance sheet. 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 Nine months ended (In thousands) September 30, September 30, 2022 2021 2022 2021 Numerator: Net income attributable to Inter Parfums, Inc. $ 41,422 $ 38,316 $ 104,339 $ 88,635 Denominator: Weighted average shares 31,860 31,659 31,848 31,648 Effect of dilutive securities: Stock options 108 148 128 145 Denominator for diluted earnings per share 31,968 31,807 31,976 31,793 Earnings per share: Net income attributable to Inter Parfums, Inc. common shareholders: Basic $ 1.30 $ 1.21 $ 3.28 $ 2.80 Diluted 1.30 1.20 3.26 2.79 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 nine months ended September 30, 2022, as compared to 0.17 and 0.23 million shares of common stock for the three and nine months ended September 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 September 30, Nine months ended September 30, 2022 2021 2022 2021 Net sales: United States $ 82,183 $ 56,382 $ 229,129 $ 142,089 Europe 198,318 206,087 546,787 527,004 Eliminations ( 39 ) 227 ( 51 ) ( 296 ) $ 280,462 $ 262,696 $ 775,865 $ 668,797 Net income attributable to Inter Parfums, Inc.: United States $ 10,881 $ 8,391 $ 27,386 $ 18,668 Europe 30,542 29,925 76,953 69,967 $ 41,423 $ 38,316 $ 104,339 $ 88,635 September 30, December 31, 2022 2021 Total Assets: United States $ 280,270 $ 247,703 Europe 858,342 931,735 Eliminations ( 27,418 ) ( 34,074 ) $ 1,111,194 $ 1,145,364 Page 16 INTER PARFUMS, INC. AND SUBSIDIARIES