Temporary working capital

INTER PARFUMS INC: MANAGEMENT REPORT ON FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

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.



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                      INTER PARFUMS, INC. AND SUBSIDIARIES


As a percentage of net sales, product sales for the Company’s major brands are 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 holiday season in the third and fourth quarters. In some markets where we sell directly to retailers, seasonality is more evident. We mainly sell direct to retailers of France and 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.



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                      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, 2022activities 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 closures, event cancellations and the cessation of international air travel have virtually crippled our sales and had a material adverse impact on our operating results 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.



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                      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 Florencewhich was acquired from Salvatore Ferragamo on
October 1, 2021. Both the acquisition and the license agreement have been 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.



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                      INTER PARFUMS, INC. AND SUBSIDIARIES


earth and Purchase of building – Future head office 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 SECOND.


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 30th,

                               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 %





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                      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.



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                      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.



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                      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.



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                      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.



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                      INTER PARFUMS, INC. AND SUBSIDIARIES



Income Taxes


Our consolidated effective tax rate was 24% for the six months ended June 30, 2022compared to 30.0% for the corresponding periods of the previous fiscal 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.

Except as noted above, we have not experienced any material changes in tax rates, and none were expected in the jurisdictions where we operate.


Net Income



                                            Three months ended             Six months ended
                                                 June 30,                      June 30,
                                           2022            2021           2022           2021
(In thousands)

Net income from European operations $24,529 $22,927 $64,305 $55,367
Net revenue 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.



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                      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.



Cash 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.



Of the June 30, 2022aggregate working capital $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 trademarks, licenses and other intangible assets are also held by the 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.



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                      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.

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