# Interparfums Inc: Form 10-Q for the period ended Mar 31, 2009

- Company: [Interparfums Inc](/companies/ipar.md) (CIK 822663)
- Form: 10-Q
- Filed: 2009-05-11
- Accepted by EDGAR: May 11, 2009, 16:37 ET
- Period: 2009-03-31
- Accession: 0001144204-09-025402
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/822663/000114420409025402/v148518_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/822663/000114420409025402/

## Management's discussion and analysis

As filed, 36,095 characters.

### 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, 2008 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. Our prestige fragrance products are produced and marketed by our European operations through our 75% owned subsidiary in Paris, Inter Parfums, S.A., which is also a publicly traded company as 25% of Inter Parfums, S.A. shares trade on the Euronext. Prestige cosmetics and prestige skin care products represent less than 3% of consolidated net sales.

We produce and distribute our prestige products primarily under license agreements with brand owners and European based prestige product sales represented 91% and 90% of net sales for the three months ended March 31, 2009 and 2008, respectively. We have built a portfolio of brands, which include *Burberry, Lanvin, Van Cleef & Arpels, Paul Smith, S.T. Dupont, Christian Lacroix, Quiksilver/Roxy* and *Nickel* whose products are distributed in over 120 countries around the world. Burberry is our most significant license; sales of Burberry products represented 61% and 63% of net sales for the three months ended March 31, 2009 and 2008, respectively.

Our specialty retail and mass-market fragrance and fragrance related products are marketed through our United States operations and represented 9% of net sales for the three month period ended March 31, 2009. These products are sold under trademarks owned by us or pursuant to license or other agreements with the owners of the *Gap, Banana Republic, New York & Company, Brooks Brothers, bebe* and *Jordache* trademarks.

Historically, seasonality has not been a major factor for our Company. However, with the commencement of operations in 2007 of our four majority-owned European distribution subsidiaries and our expanding specialty retail product lines, sales are more concentrated in the second half of the year.

We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses or out-right acquisitions of brands. Second, we grow through the introduction of new products and supporting new and established products through advertising, merchandising and sampling as well as phasing out existing products that no longer meet the needs of our consumers. 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 good for us and ship it back to our distribution center.

As with any business, many aspects of our operations are subject to influences outside our control. These factors include the effect of the current financial crisis and therefore the potential for further deterioration in consumer spending and consumer debt levels, as well as the continued availability of favorable credit sources and capital market conditions in general. The recent economic challenges and uncertainties in a number of countries where we do business, including the United States, have impacted our business. This financial crisis is global in scale and has negatively affected consumer demand, which is having an adverse impact on our distributors and our retail customers. These events have led distributors and retailers to carry less inventory than usual and have resulted in changes in their ordering patterns for the products that we sell. The impact of this financial crisis is expected to be challenging for us in 2009.

We have reviewed our plans and have taken actions to mitigate the impact of these conditions. Advertising and promotional budgets are being adjusted to align our spending with anticipated sales. In addition, we are implementing cost saving initiatives to right size our staff in an effort to maintain long-term profitable growth. As part of our strategy, we plan to continue to make investments behind fast-growing markets and channels to grow market share. While our business strategies are designed to strengthen our Company over the long-term, we believe the uncertainty about future market conditions, consumer spending patterns and the financial strength of some of our customers, combined with the fact that distributors and retailers are carrying less inventory, will negatively affect our net sales and operating results.

In addition to the ongoing global financial crisis, our reported net sales have been negatively impacted by changes in foreign currency exchange rates caused by the dramatic strengthening of the U.S. dollar during the fourth quarter of 2008. If the current exchange rates persist or the U.S. dollar continues to strengthen, there will be a continuing adverse impact on our net sales in 2009.

### Recent Important Events

### bebe Stores, Inc.

In July 2008, we entered into an exclusive six year worldwide agreement with bebe Stores, Inc. under which we will design, manufacture and supply fragrance, bath and body products and color cosmetics for company-owned bebe stores in the United States and Canada as well as select specialty and department stores worldwide.

### Gap and Banana Republic International

In April 2008, we expanded our current relationship with Gap Inc. with the signing of a licensing agreement for international distribution of personal care products through Gap and Banana Republic stores as well as select specialty and department stores outside the United States, including duty-free and other travel related retailers. The agreement is effective through December 31, 2011.

### Discussion of Critical Accounting Policies

We make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations. These accounting policies generally require our management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

The judgments used by management in applying critical accounting policies could be affected by a further and prolonged general deterioration in the economic environment, which could negatively influence future financial results and availability of continued financing. Specifically, subsequent evaluations of our accounts receivables, inventories, and deferred tax assets in light of the factors then prevailing, could result in significant changes in our allowance and reserve accounts in future periods which in turn could generate significant additional charges. Similarly, the valuation of certain intangible assets could be negatively impacted by prolonged and severely depressed market conditions thus leading to the recognition of impairment losses. The following is a brief discussion of the more critical accounting policies that we employ.

### Revenue Recognition

We sell our products to department stores, perfumeries, specialty retailers, mass-market retailers, supermarkets and domestic and international wholesalers and distributors. Sales of such products by our domestic subsidiaries are denominated in U.S. dollars and sales of such products by our foreign subsidiaries are primarily denominated in either Euros or U.S. dollars. Accounts receivable reflect the granting of credit to these customers. We generally grant credit based upon our analysis of the customer’s financial position as well as previously established buying patterns. We recognize revenues when merchandise is shipped and the risk of loss passes to the customer. Net sales are comprised of gross revenues less returns, trade discounts and allowances.

### Sales Returns

Generally, we do not permit customers to return their unsold products. However, on a case-by-case basis we occasionally allow customer returns. We regularly review and revise, as deemed necessary, our estimate of reserves for future sales returns based primarily upon historic trends and relevant current data. We record estimated reserves for sales returns as a reduction of sales, cost of sales and accounts receivable. Returned products are recorded as inventories and are valued based upon estimated realizable value. The physical condition and marketability of returned products are the major factors we consider in estimating realizable value. Actual returns, as well as estimated realizable values of returned products, may differ significantly, either favorably or unfavorably, from our estimates, if factors such as economic conditions, inventory levels or competitive conditions differ from our expectations.

### Promotional Allowances

We have various performance-based arrangements with certain retailers. These arrangements primarily allow customers to take deductions against amounts owed to us for product purchases. The costs that our Company incurs for performance-based arrangements, shelf replacement costs and slotting fees are netted against revenues on our Company’s consolidated statement of income. Estimated accruals for promotions and advertising programs are recorded in the period in which the related revenue is recognized. We review and revise the estimated accruals for the projected costs for these promotions. Actual costs incurred may differ significantly, either favorably or unfavorably, from estimates if factors such as the level and success of the retailers’ programs or other conditions differ from our expectations.

### Inventories

Inventories are stated at the lower of cost or market value. Cost is principally determined by the first-in, first-out method. We record adjustments to the cost of inventories based upon our sales forecast and the physical condition of the inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions or competitive conditions differ from our expectations.

### Equipment and Other Long-Lived Assets

Equipment, which includes tools and molds, is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets. Changes in circumstances such as technological advances, changes to our business model or changes in our capital spending strategy can result in the actual useful lives differing from our estimates. In those cases where we determine that the useful life of equipment should be shortened, we would depreciate the net book value in excess of the salvage value, over its revised remaining useful life, thereby increasing depreciation expense. Factors such as changes in the planned use of equipment, or market acceptance of products, could result in shortened useful lives.

We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis or if impairment indicators exist. For indefinite-lived intangible assets, the evaluation requires a comparison of the estimated fair value of the asset to the carrying value of the asset. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, as generally estimated using discounted future net cash flow projections and discounted terminal values, the carrying value of the asset would be reduced to its fair value. For goodwill, the evaluation requires a comparison of the estimated fair value of the reporting unit, to the sum of the carrying value of the assets and liabilities of that unit. If the sum of the carrying value of the assets and liabilities of the reporting unit exceeds the fair value of the reporting unit, the carrying value is reduced through an adjustment to the goodwill balance, resulting in an impairment charge.

The fair values used in our evaluation are estimated based upon discounted future cash flow projections. The cash flow projections are based upon a number of assumptions, including risk-adjusted discount rates, future sales levels and future cost of goods and operating expense levels, as well as economic conditions, changes to our business model or changes in consumer acceptance of our products which are more subjective in nature. We believe that the assumptions that we have made in projecting future cash flows for the evaluations described above are reasonable. However, if future actual results do not meet our expectations, we may be required to record an impairment charge, the amount of which could be material to our results of operations.

Intangible assets subject to amortization are evaluated for impairment testing whenever events or changes in circumstances indicate that the carrying amount of an amortizable intangible asset may not be recoverable. If impairment indicators exist for an amortizable intangible asset, the undiscounted future cash flows associated with the expected service potential of the asset are compared to the carrying value of the asset. If our projection of undiscounted future cash flows is in excess of the carrying value of the intangible asset, no impairment charge is recorded. If our projection of undiscounted future cash flows is less than the carrying value of the intangible asset, an impairment charge would be recorded to reduce the intangible asset to its fair value. The cash flow projections are based upon a number of assumptions, including future sales levels and future cost of goods and operating expense levels, as well as economic conditions, changes to our business model or changes in consumer acceptance of our products which are more subjective in nature. In those cases where we determine that the useful life of long-lived assets should be shortened, we would depreciate the net book value in excess of the salvage value (after testing for impairment as described above), over the revised remaining useful life of such asset thereby increasing amortization expense.

### Derivatives

We account for derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This statement also requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet and that they be measured at fair value.

We currently use derivative financial instruments to hedge certain anticipated transactions and interest rates, as well as receivables denominated in foreign currencies. We do not utilize derivatives for trading or speculative purposes. Hedge effectiveness is documented, assessed and monitored by employees who are qualified to make such assessments and monitor the instruments. Variables that are external to us such as social, political and economic risks may have an impact on our hedging program and the results thereof.

### Income Taxes

Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Tax benefits recognized are reduced by a valuation allowance where it is more likely than not that the benefits may not be realized.

### Results of Operations

### Three Months Ended March 31, 2009 as Compared to the Three Months Ended March 31, 2008

### Net Sales

*(in millions)*

|  | Three months ended March 31, 2009 | % Change | 2008 | % Change | 2007 |
| --- | ---: | ---: | ---: | ---: | ---: |
| European based product sales | $82.0 | (26)% | $110.6 | 46% | $75.6 |
| United States based product sales | 8.4 | (33)% | 12.6 | 31% | 9.5 |
| Total net sales | $90.4 | (27)% | $123.2 | 45% | $85.1 |

After increasing 45% in the 2008 period as compared to 2007, net sales for the three months ended March 31, 2009 decreased 27% to $90.4 million, as compared to $123.2 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales in 2009 decreased 21%.

European based prestige product sales decreased 26% to $82.0 million, as compared to $110.6 million in the corresponding period of the prior year. First quarter net sales were impacted by several factors including the global financial crisis which has negatively affected consumer demand. In addition, the continued strength of the U.S. dollar relative to the euro, had the net effect of depressing 2009 first quarter sales by about 6% as compared to last year. Furthermore, last year’s first quarter included our largest ever global launch for our largest licensed brand, Burberry *The Beat* for women resulting in a 53% increase in Burberry fragrance sales. Burberry fragrance sales aggregated $54.8 million in 2009, as compared to $77.8 in 2008. In 2009, aided by reorders of the *Jeanne Lanvin* fragrance and the new Lanvin *L’Homme Sport* line, with tennis star, Rafael Nadal as its spokesperson, Lanvin fragrance sales were $11.4 million in 2009, as compared to $11.5 million in 2008.

Despite the challenging economic environment in most parts of the world, certain countries continue to perform at satisfactory levels, notably, France, Italy, China and Saudi Arabia.

We are in the midst of an active 2009 new product launch schedule for European-based operations which began in January with the global rollout of the men’s version of Burberry *The Beat*. We also have a new Paul Smith fragrance for men, and a Lanvin *L’Homme Sport* line, with tennis star, Rafael Nadal as its spokesperson. The Quiksilver signature fragrance for men is also in our rollout schedule, as is a limited edition, high-end women’s fragrance for the Van Cleef & Arpels brand later in 2009.

With respect to our United States specialty retail and mass-market products, net sales declined 33% for the first quarter of 2009 after increasing 31% for the first quarter of 2008. In 2008, we expanded our relationship with Gap Inc. with the signing of a licensing agreement for international distribution of personal care products through Gap and Banana Republic stores as well as select specialty and department stores outside the United States, including duty-free and other travel related retailers. In early 2008, United States specialty retail and mass-market product net sales were climbing as a steady domestic business combined with a new and vibrant international business to drive sales growth. However, beginning in the fourth quarter of 2008, United States specialty retail and mass-market product sales came under pressure. A portion of sales by our United States operations are direct to retailers and it was our level of sales to these customers where we first saw the effect of the global financial crisis discussed above.

In April 2009, Close, a new Gap fragrance was launched at approximately 550 Gap stores and roughly 175 Gap Body stores nationwide. International distribution is expected to follow and reach 5,000 doors in the second half of 2009. In August 2009, new fragrances for men and women will be launched at Banana Republic stores in North America with international distribution to follow shortly thereafter.

New product introductions are also in the works for our other specialty retail partners. In November 2008, we shipped the Brooks Brothers *New York* collection for men and women to Brooks Brothers U.S. stores and international distribution is scheduled later in 2009. In addition, a new fragrance introduction for the spring of 2009, called *Black Fleece* is in the works. In July 2008, we entered into an exclusive six year worldwide agreement with bebe Stores, Inc. under which we design, manufacture and supply fragrance, bath and body products and color cosmetics for company-owned bebe stores in the United States and Canada as well as select specialty and department stores worldwide. Our signature bebe fragrance will be unveiled at bebe stores in the U.S. in August followed by worldwide distribution later in the third quarter of 2009. We also have plans to introduce a new fragrance for New York & Company in the second half of 2009.

Sales of our mass-market fragrance products have been in a decline for several years. The current global economic crisis has affected both our domestic and international customers. Credit availability has been curtailed and has resulted in continued sales declines. We have no plans to discontinue sales to this market, which aggregated approximately $3.6 million and $4.9 million for the three months ended March 31, 2009 and 2008, respectively, and contributes to our United States based operations.

In addition, we are actively pursuing other new business opportunities. However, we cannot assure you that any new licenses, acquisitions or specialty retail agreements will be consummated.

*(in millions)*

| Gross margins | Three months ended March 31, 2009 | 2008 |
| --- | ---: | ---: |
| Net sales | $90.4 | $123.2 |
| Cost of sales | 36.8 | 49.1 |
| Gross margin | $53.6 | $74.1 |
| Gross margin as a % of net sales | 59% | 60% |

Gross profit margin was 59% in 2009 and 60% in 2008. We expected an increase in gross margin in the first quarter of 2009 as a result of the effect that a strong U.S. dollar relative to the euro has on our European based product sales to United States customers. Sales to these customers are denominated in dollars while our costs are incurred in euro. However, any benefits that gross margin may have received as a result of the strong U.S. dollar was mitigated by gross margin declines resulting from product sales mix within individual lines of Company products.

Generally, we do not bill customers for shipping and handling costs and such costs, which aggregated $1.2 million and $1.6 million for the three month period ended March 31, 2009 and 2008, respectively, are included in selling, general and administrative expense 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.

*(in millions)*

| Selling, general & administrative expenses | Three months ended March 31, 2009 | 2008 |
| --- | ---: | ---: |
| Selling, general & administrative expenses | $43.3 | $54.9 |
| Selling, general & administrative expenses as a % of net sales | 48% | 45% |

Selling, general and administrative expenses decreased 21% for the three month period ended March 31, 2009, as compared to the corresponding period of the prior year. As a percentage of sales selling, general and administrative expenses were 48% and 45% for the three month period ended March 31, 2009 and 2008, respectively.

Promotion and advertising included in selling, general and administrative expenses aggregated approximately $13.0 million (14.4% of net sales) and $16.6 million (13.5% of net sales) for the three month period ended March 31, 2009 and 2008, respectively. Although our 2008 first quarter sales include a significant contribution from the launch of Burberry, *The Beat* for women, the advertising expenditure requirements pursuant to our license with Burberry does not require such spending to be incurred until our distributors sell such product to retailers. As a result, the second quarter of 2008 bore a significant portion of such required advertising expenditures.

Royalty expense included in selling, general, and administrative expenses aggregated $8.5 million (9.4% of net sales) and $12.2 million (9.9% of net sales), for the three month periods ended March 31, 2009 and 2008, respectively.

Selling, general and administrative expenses also include approximately $2.4 million and $3.6 million for the three month period ended March 31, 2009 and 2008, respectively, in servicing fees related to the operations of our majority-owned European distribution subsidiaries.

Income from operations decreased 46% to $10.8 million for the three month period ended March 31, 2009, as compared to $19.1 million for the corresponding period of the prior year. Operating margins were 11.4% of net sales in the current period as compared to 15.5% for the corresponding period of the prior year.

Interest expense aggregated $1.3 million for the three month period ended March 31, 2009, as compared to $1.1 million in 2008. We use the credit lines available to us, as needed, to finance our working capital needs as well as our financing needs for acquisitions. We entered into an €18 million and a €22 million long-term credit facility in January and September 2007, respectively, to finance payments required for the Van Cleef & Arpels license agreement and the acquisition of the Lanvin trademarks. In connection with certain debt facilities, we entered into swap transactions. These derivative instruments are recorded at fair value and changes in fair value are reflected in the consolidated statements of income. As a result of the continued decline in interest rates during the first quarter of 2009, we recorded a charge to interest expense of $0.2 million relating to the change in the fair value of interest rate swaps.

Foreign currency gains or (losses) aggregated $1.3 million and ($0.4) million for the three month period ended March 31, 2009 and 2008, respectively. We enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments. As a result of the dramatic strengthening of the U.S. dollar during our fourth quarter ended December 31, 2008, we entered into foreign currency forward exchange contracts to hedge approximately 80% of our 2009 sales expected to be invoiced in U.S. dollars. Hedge effectiveness 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. As of March 31, 2009, the Company recorded a gain of $0.8 million relating to the change in spot-forward difference.

Our effective income tax rate was 33% and 39% for the three month period ended March 31, 2009 and 2008, respectively. Our effective tax rates differ from statutory rates due to the effect of state and local taxes and tax rates in foreign jurisdictions which are slightly higher than those in the United States. Our effective tax rate is usually around 35%. The lower rate in 2009 is due to losses in our United States segment which carries a higher effective rate due to state and local taxes. Our high effective rate in 2008 resulted primarily from valuation allowances that were provided in 2008 on deferred tax assets relating to foreign net operating loss carryforwards, as future profitable operations from our four European based distribution subsidiaries is not assured. No significant changes in tax rates were experienced nor were any expected in jurisdictions where we operate.

*(in millions)*

|  | Three months ended March 31, 2009 | 2008 |
| --- | ---: | ---: |
| **Net income** | $7,256 | $11,136 |
| Less: Net income attributable to the noncontrolling interest | 1,828 | 2,428 |
| **Net income attributable to Inter Parfums, Inc.** | $5,428 | $8,708 |
| **Earnings per share:** |  |  |
| **Net income attributable to Inter Parfums, Inc. common shareholders:** |  |  |
| Basic | $0.18 | $0.28 |
| Diluted | $0.18 | $0.28 |
| **Weighted average number of shares outstanding:** |  |  |
| Basic | 30,166 | 30,721 |
| Diluted | 30,166 | 30,808 |

Net income decreased 35% to $7.3 million for the three month period ended March 31, 2009, as compared to $11.1 million for the corresponding period of the prior year. Net income attributable to the noncontrolling interest aggregated 25% of net income in 2009 and 22% in 2008. In 2008, losses from our 51% owned European distribution subsidiaries offset profits from our other 75% owned European subsidiaries. Net income attributable to Inter Parfums, Inc. decreased 38% to $5.4 million for the three month period ended March 31, 2009, as compared to $8.7 million for the corresponding period of the prior year.

Basic and diluted earnings per share decreased 36% to $0.18 for the three month period ended March 31, 2009, as compared to $0.28 for the corresponding period of the prior year.

Weighted average shares outstanding aggregated 30.2 million for the three months ended March 31, 2009, as compared to 30.7 million for the corresponding period of the prior year. On a diluted basis, average shares outstanding were 30.2 million for the three months ended March 31, 2009, as compared to 30.8 million for the corresponding period of the prior year.

### Liquidity and Capital Resources

Our financial position remains strong. At March 31, 2009, working capital aggregated $168 million and we had a working capital ratio of 2.5 to 1. Cash and cash equivalents aggregated $34 million.

Cash provided by (used in) operating activities aggregated $1.9 million and ($18.9) million for the three month periods ended March 31, 2009 and 2008, respectively. As of December 31, 2007 and continuing through the period ended March 31, 2008, we had a significant buildup of inventory to support the first quarter launch of the women’s version of Burberry, *The Beat*. In addition, the statement of cash flows as of March 31, 2008 shows that accounts payable and accrued expenses decreased $18 million or 15% as our vendor obligations for the inventory buildup became due. In terms of cash flows, for the three month period ended March 31, 2009, inventories and accounts receivable were virtually unchanged. The global economic crisis has resulted in lower sales levels and extended payment terms to certain international distributors prevented further declines in accounts receivables and inventories during the period. In addition, in the 2009 period, accounts payable and accrued expenses decreased $8 million or 9% as again our vendor obligations for the year end inventory buildup became due.

Cash flows used in investing activities in 2009 reflects payments of approximately $1.4 million for capital items. Our business is not capital intensive as we do not own any manufacturing facilities. We typically spend between $2.0 million and $3.0 million per year on tools and molds, depending on our new product development calendar. The balance of capital expenditures is for office fixtures, computer equipment and industrial equipment needed at our distribution centers. Capital expenditures in 2009 are expected to be in the range of $3.5 million to $4.5 million, considering our 2009 launch schedule.

Our short-term financing requirements are expected to be met by available cash on hand at March 31, 2009, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2009 consist of a $15.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $45.0 million in credit lines provided by a consortium of international financial institutions. As of March 31, 2009, short-term borrowings aggregated $12.0 million.

In 2007, we financed the acquisition of the worldwide rights to the Lanvin brand names and international trademarks and the license for the Van Cleef & Arpels brand and related trademarks by entering into five-year credit agreements. The long-term credit facilities provides for principal and interest to be repaid in 20 quarterly installments. As of March 31, 2009, total long-term debt including current maturities aggregated $35.5 million.

As of December 31, 2008, the Company’s board of directors authorized the repurchase of up to 1,031,863 shares of the Company’s common stock and in March 2009, the Company repurchased 60,000 shares of its common stock at an average price of $5.81 per common share.

In December 2008, our board of directors authorized a continuation of our cash dividend of $0.133 per share, aggregating approximately $4.0 million per annum, payable $.033 per share on a quarterly basis. Our first cash dividend for 2009 was paid on April 15, 2009 to shareholders of record on March 31, 2009. The cash dividend for 2009 represents a small part of our cash position and is not expected to have any significant impact on our financial position.

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 three month period ended March 31, 2009.

### Contractual Obligations

The following table sets for a schedule of our contractual obligations over the periods indicated in the table, as well as our total contractual obligations ($ in thousands).

| Contractual Obligations | Payments due by period Total | Less than 1 year | Years 2-3 | Years 4-5 | More than 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Long-Term Debt (2) | $41,000 | $13,400 | $23,000 | $4,600 |  |
| Capital Lease Obligations |  |  |  |  |  |
| Operating Leases | $27,100 | $7,100 | $13,000 | $4,300 | $2,700 |
| Purchase obligations(1) | $1,306,500 | $137,700 | $293,400 | $313,900 | $561,500 |
| Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet under GAAP |  |  |  |  |  |
| Total | $1,374,600 | $158,200 | $329,400 | $322,800 | $564,200 |

(1) Consists of purchase commitments for advertising and promotional items, minimum royalty guarantees, including fixed or minimum obligations, and estimates of such obligations subject to variable price provisions. Future advertising commitments were estimated based on planned future sales for the license terms that were in effect at December 31, 2008, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.

(2) Interest due on the Company’s long-term debt is payable $1.10 million, $0.70 million, $0.40 million and $0.07 million in 2009, 2010, 2011 and 2012, respectively.

## Market risk

As filed, 4,141 characters.

### General

We address certain financial exposures through a controlled program of risk management that primarily consists of the use of derivative financial instruments. Our French subsidiary primarily enters 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.

### 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 foreign 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 Inter Parfums, S.A., our French subsidiary, 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, 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.

As a result of the dramatic strengthening of the U.S. dollar during our fourth quarter ended December 31, 2008, we entered into foreign currency forward exchange contracts to hedge approximately 80% of our 2009 sales expected to be invoiced in U.S. dollars. Hedge effectiveness 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. As of March 31, 2009, the Company recorded a gain of $0.8 million relating to the change in spot-forward difference. At March 31, 2009, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $130 million, GB pounds 2.8 million, and Japanese yen 95.8 million which have varying maturities of less than one year except for contracts for U.S. $3 million which have maturities of 13 months. 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 continually monitoring interest rates, and then determining whether fixed interest rates should be swapped for floating rate debt, or if floating rate debt should be swapped for fixed rate debt. We have entered into two (2) interest rate swaps to reduce exposure to rising variable interest rates. The first swap, entered into in 2004, effectively exchanged the variable interest rate of 0.6% above the three month EURIBOR to a variable rate based on the 12 month EURIBOR rate with a floor of 3.25% and a ceiling of 3.85%. The remaining balance owed pursuant to this facility is €0.8 million. The second swap entered into in September 2007 on €22 million of debt, effectively exchanged the variable interest rate of 0.6% above the three month EURIBOR to a fixed rate of 4.42%. The remaining balance owed pursuant to this facility is €15.4 million. These derivative instruments are recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income.

## Controls and procedures

As filed, 1,237 characters.

### 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.

### Changes in Internal Controls

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, 3, Defaults Upon Senior Securities, 4, Submission of Matters to Vote of Security Holders** and **5, Other Information**, are omitted as they are either not applicable or have been included in **Part I.**

Filed May 11, 2009.
Source: SEC EDGAR, the filing index for accession 0001144204-09-025402. Last ingested by Listed: Nov 4, 2026, 18:31 ET. No prices; not investment advice.