# Interparfums Inc: Form 10-K for the period ended Dec 31, 2019

- Company: [Interparfums Inc](/companies/ipar.md) (CIK 822663)
- Form: 10-K
- Filed: 2020-03-02
- Accepted by EDGAR: Mar 2, 2020, 16:17 ET
- Period: 2019-12-31
- Accession: 0001213900-20-005153
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/822663/000121390020005153/ipar-20191231.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/822663/000121390020005153/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 12 months, 2019-01-01 to 2019-12-31 | $267.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 12 months, 2019-01-01 to 2019-12-31 | $445.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 12 months, 2019-01-01 to 2019-12-31 | $341.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 12 months, 2019-01-01 to 2019-12-31 | $104.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 12 months, 2019-01-01 to 2019-12-31 | $2.1m | us-gaap:InterestExpense |
| Income tax | 12 months, 2019-01-01 to 2019-12-31 | $29.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 12 months, 2019-01-01 to 2019-12-31 | $60.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 12 months, 2019-01-01 to 2019-12-31 | $1.90 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 12 months, 2019-01-01 to 2019-12-31 | $1.92 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 12 months, 2019-01-01 to 2019-12-31 | 31,688,700 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 12 months, 2019-01-01 to 2019-12-31 | $76.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2019-01-01 to 2019-12-31 | $5.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2019-12-31 | $192.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-12-31 | $573.3m | us-gaap:AssetsCurrent |
| Total assets | at 2019-12-31 | $828.8m | us-gaap:Assets |
| Current liabilities | at 2019-12-31 | $184.5m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2019-12-31 | $10.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2019-12-31 | $12.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2019-12-31 | $468.0m | us-gaap:StockholdersEquity |

## Business

As filed, 48,057 characters.

### Introduction

Founded in 1982, we operate in the fragrance business, and manufacture, market and distribute a wide array of prestige fragrance, and fragrance related products.

Our worldwide headquarters and the office of our four (4) wholly-owned United States subsidiaries, Jean Philippe Fragrances, LLC, Inter Parfums USA, LLC and Interstellar Brands LLC, all New York limited liability companies, and IP Beauty, Inc., a Delaware corporation, are located at 551 Fifth Avenue, New York, New York 10176, and our telephone number is 212.983.2640. We also own 100% of Inter Parfums USA Hong Kong Limited indirectly through our wholly-owned subsidiary, Inter Parfums USA, LLC.

Our consolidated wholly-owned subsidiary, Inter Parfums Holdings, S.A., and its majority-owned subsidiary, Interparfums SA, maintain executive offices at 4 Rond Point des Champs Elysees, 75008 Paris, France. Our telephone number in Paris is 331.5377.0000. Interparfums SA is the sole owner of three (3) distribution subsidiaries: Inter Parfums srl for Italy, Inter España Parfums et Cosmetiques, SL, for Spain and Interparfums Luxury Brands, Inc., a Delaware corporation, for distribution of prestige brands in the United States. Interparfums SA is also the majority owner of Parfums Rochas Spain, SL, a Spanish limited liability company, which specializes in the distribution of Rochas fragrances. In addition, Interparfums SA is also the sole owner of Interparfums (Suisse) SARL, a company formed to hold and manage certain brand names, and Interparfums Asia Pacific Pte., Ltd., an Asian sales and marketing office.

Our common stock is listed on The Nasdaq Global Select Market under the trading symbol “IPAR”. The common shares of our subsidiary, Interparfums SA, are traded on the Euronext Exchange.

The Securities and Exchange Commission (“SEC”) maintains an internet site at http://www.sec.gov that contains financial reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We maintain our internet website at www.interparfumsinc.com, which is linked to the SEC internet site. You can obtain through our website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, interactive data files, current reports on Form 8-K, beneficial ownership reports (Forms 3, 4 and 5) and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable after they have been electronically filed with or furnished to the SEC.

### Company Overview

*The following information is qualified in its entirety by and should be read together with the more detailed information and audited financial statements, including the related notes, contained or incorporated by reference in this report.*

#### General

We operate in the fragrance business and manufacture, market and distribute a wide array of fragrance 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.

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 deliver them to one of our distribution centers.

Our fragrance products focus on prestige brands, each with a devoted following. By concentrating in markets where the brands are best known, we have had many successful product launches. We typically launch new fragrance families for our brands every year or two, and more frequently seasonal and limited edition fragrances are introduced as well.

The creation and marketing of each product family is intimately linked with the brand’s name, its past and present positioning, customer base and, more generally, the prevailing market atmosphere. Accordingly, we generally study the market for each proposed family of fragrance products for almost a full year before we introduce any new product into the market. This study is intended to define the general position of the fragrance family and more particularly its scent, bottle, packaging and appeal to the buyer. In our opinion, the unity of these four elements of the marketing mix makes for a successful product.

As with any 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. We discuss in greater detail risk factors relating to our business in Item 1A of this Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and the reports that we file from time to time with the SEC.

#### European Operations

We produce and distribute our fragrance products primarily under license agreements with brand owners, and fragrance product sales through our European operations represented approximately 76% of net sales for 2019. We have built a portfolio of prestige brands, which include *Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade New York, Lanvin, Montblanc, Paul Smith, Repetto, Rochas, S.T. Dupont* and *Van Cleef & Arpels*, whose products are distributed in over 120 countries around the world.

#### United States Operations

Prestige brand fragrance products are also marketed through our United States operations, and represented 24% of sales for the year ended December 31, 2019. These fragrance products are sold under trademarks owned by us or pursuant to license or other agreements with the owners of brands, which include *Abercrombie & Fitch, Anna Sui, bebe, Dunhill, French Connection, Graff, GUESS, Hollister, MCM* and *Oscar de la Renta.*

### Recent Developments

#### Abercrombie & Fitch and Hollister

In November 2019, we extended our license for both the Abercrombie & Fitch and Hollister brands until December 31, 2022, and added automatic renewals unless terminated on 3 years notice.

#### MCM

In September 2019, we entered into an exclusive, 10-year worldwide license agreement with German luxury fashion house MCM for the creation, development and distribution of fragrances under the MCM brand. Our rights under such license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry.

#### Oscar de la Renta

In September 2019, we extended our license through December 31, 2031, and added an additional five-year extension option through December 31, 2036. The original license agreement, signed in October 2013, would have expired on December 31, 2025.

#### Kate Spade New York

In June 2019, we entered into an exclusive 11-year worldwide license agreement with Kate Spade New York for the creation, development and distribution under the Kate Spade brand. Our rights under such license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry.

### Fragrance Products

#### General

We are the owner of the Rochas brand, and the Lanvin brand name and trademark for our class of trade. In addition, we have built a portfolio of licensed prestige brands whereby we produce and distribute our prestige fragrance products under license agreements with brand owners. Under license agreements, we obtain the right to use the brand name, create new fragrances and packaging, determine positioning and distribution, and market and sell the licensed products, in exchange for the payment of royalties. Our rights under license agreements are also generally subject to certain minimum sales requirements and advertising expenditures as are customary in our industry. As a percentage of net sales, product sales for the Company’s largest brands were as follows:

|  | Year Ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Montblanc | 22% | 19% | 21% |
| Jimmy Choo | 16% | 17% | 18% |
| Coach | 14% | 15% | 10% |
| GUESS (license commenced April, 1 2018) | 10% | n/a | n/a |
| Lanvin | 8% | 10% | 11% |

4

Our licenses expire on the following dates:

| Brand Name | Expiration Date |
| --- | --- |
| Abercrombie & Fitch | Extends until either party terminates on 3 years notice |
| Anna Sui | December 31, 2021, plus two 5-year optional terms if certain conditions are met |
| bebe Stores | June 30, 2023 |
| Boucheron | December 31, 2025, plus a 5-year optional term if certain sales targets are met |
| Coach | June 30, 2026 |
| Dunhill | September 30, 2023 |
| French Connection | December 31, 2027, plus a 10-year optional term if certain sales targets are met |
| Graff | December 31, 2026, plus 3 optional 3-year terms if certain sales targets are met |
| GUESS | December 31, 2033 |
| Hollister | December 31, 2022, plus automatic renewals unless terminated on 3 years notice |
| Kate Spade New York | June 30, 2030 |
| Jimmy Choo | December 31, 2031 |
| Karl Lagerfeld | October 31, 2032 |
| Lily Aldridge | December 31, 2023 |
| MCM | December 31, 2030, plus 4 option years |
| Montblanc | December 31, 2025 |
| Oscar de la Renta | December 31, 2031, plus a 5-year optional term if certain sales targets are met |
| Paul Smith | December 31, 2021 |
| Repetto | December 31, 2024 |
| S.T. Dupont | December 31, 2020, plus automatic annual renewals, unless terminated on 6 months’ notice by either party |
| Van Cleef & Arpels | December 31, 2024 |

In connection with the acquisition of the Lanvin brand names and trademarks for our class of trade, we granted the seller the right to repurchase the brand names and trademarks in 2025 for the greater of €70 million (approximately $79 million) or one times the average of the annual sales for the years ending December 31, 2023 and 2024.

#### Fragrance Portfolio

**Abercrombie & Fitch —** In 2014, we entered into a worldwide license to create, produce and distribute new fragrances and fragrance related products under the Abercrombie & Fitch brand name. We distribute these fragrances internationally in specialty stores, high-end department stores and duty free shops, and in the U.S., in duty free shops and in select Abercrombie & Fitch retail stores. Our initial men’s scent, *First Instinct* was launched in 2016 followed by a women’s version in 2017. During 2018 and early 2019, we introduced several *First Instinct* brand extensions. In the spring of 2019, we unveiled a new fragrance family for Abercrombie & Fitch, *Authentic*, for men and women, and for 2020, we have a brand extension duo planned.

Abercrombie & Fitch believes that every day should feel as exceptional as the start of the long weekend. Since 1892, the brand has been a specialty retailer of quality apparel, outerwear and fragrance – designed to inspire our global customers to feel confident, be comfortable and face their Fierce.

**Anna Sui—**In 2011, we entered into an exclusive worldwide fragrance license to create, produce and distribute fragrances and fragrance related products under the Anna Sui brand. We work in partnership with American designer, Anna Sui, and her creative team to build upon the brand’s growing customer appeal, and develop new fragrances that capture the brand’s very sweet feminine girly aspect, combined with touch of nostalgia, hipness and rock-and-roll. Anna Sui’s devoted customer base, which spans the world, is concentrated in Asia.

After a period of weaker sales, due primarily to a decline in China’s economy, the 2017 successful launch of *Fantasia* by Anna Sui and the benefit that accrued from our continued commitment to advertising and marketing commitment, produced a significant increase in 2018 brand sales. However, brand sales declined modestly 2019, as the 2018 and 2019 product launches were primarily brand extensions. We look to *Sky* by Anna Sui to reinvigorate brand sales when it debuts in the fall of 2020.

**Boucheron—** In 2010, we entered into an exclusive 15-year worldwide license agreement for the creation, development and distribution of fragrances under the Boucheron brand. Boucheron is the French jeweler “par excellence”. Founded by Frederic Boucheron in 1858, the House has produced some of the world’s most beautiful and precious creations. Today Boucheron creates jewelry and timepieces and, under license from global brand leaders, fragrances and sunglasses. Currently Boucheron operates through over 40 boutiques worldwide as well as an e-commerce site.

Boucheron brand sales continue to be driven by legacy scents Boucheron *Femme* and Boucheron *Homme* as well as its legendary *Jaipur* lines. A six scent collection was launched under the Boucheron brand in 2017, and additional scents were added in 2018. In 2019, two new fragrances, *Boucheron Fleurs* and *Boucheron Quatre en Rouge,* were added to the Boucheron collection.

**Coach—** In 2015, we entered into an exclusive 11-year worldwide license to create, produce and distribute new men’s and women’s fragrances and fragrance related products under the Coach brand name. We distribute these fragrances globally to department stores, specialty stores and duty free shops, as well as in Coach retail stores.

Coach, established in New York City in 1941, is a leading design house of modern luxury accessories and lifestyle collections with a rich heritage of pairing exceptional leathers and materials with innovative design. Coach branded products are sold worldwide through Coach stores, select department stores and specialty stores, and through Coach’s website.

In 2016, we launched our first Coach fragrance, a women’s scent, and in 2017, a men’s scent, both of which have quickly become top selling prestige fragrances. In 2018, the Coach brand achieved remarkable sales growth and quickly become one of the largest brands in our portfolio. Coach sales were driven by the continued popularity of the Coach signature lines, as well as the success of flankers, *Coach Floral* and *Coach Platinum*, which rolled out in 2018. For 2019 we added *Coach Floral Blush,* and we have a new Coach women’s scent *Coach Dreams* debuting in early 2020. Coach is part of the Tapestry house of brands.

**Dunhill—**In 2012, we entered into an exclusive 10-year worldwide fragrance license to create, produce and distribute fragrances and fragrance related products under the Dunhill brand.

The house of Dunhill was established in 1893 and since that time has been dedicated to providing high quality men’s luxury products, with core collections offered in menswear, leather goods and accessories. The brand has global reach through a premium mix of self-managed retail outlets, high-level department stores and specialty stores. Known for its commitment to elegance and innovation and being a leader of British men’s style, the brand continues to blend innovation and creativity with traditional craftsmanship.

Beginning in 2015, we rolled out a new Dunhill scent, *Icon,* the success of which has made the Dunhill brand one of the stars within our United States based operations. Building upon the established success of the *Icon* fragrance family, we launched several product extensions including *Icon Absolute, Icon Elite* and *Icon Racing*. In 2018 we introduced a new Dunhill scent for men called *Century,* and in 2019 *Century Blue*. Also in 2019 the Dunhill *Signature Collection* debuted exclusively at Harrod’s followed by a global rollout. Brand extensions dominate our plans for Dunhill in 2020.

**Graff—** In 2018, the Company entered into an exclusive, 8-year worldwide license agreement with London-based Graff for the creation, development and distribution of fragrances under the Graff brand. The 8-year agreement has three 3-year automatic renewal options, potentially extending the license until December 31, 2035.

Since Laurence Graff OBE founded the company in 1960, Graff has been dedicated to sourcing and crafting diamonds and gemstones of untold beauty and rarity, and transforming them into spectacular pieces of jewelry that move the heart and stir the soul. Throughout its rich history, Graff has become the world leader for diamonds of rarity, magnitude and distinction. Most notably, it has dominated the list of historical and important rough diamonds discovered, cut and polished this century. Each jewelry creation is designed and manufactured in Graff’s London atelier, where master craftsman employ stone-led design techniques to emphasize the beauty of each individual stone. The company remains a family business, overseen by Francois Graff, Chief Executive Officer.

For Graff, we will have a six-scent collection for women debuting exclusively at Harrods beginning in March 2020. In the fall of 2020, the global rollout will begin with selective luxury distribution limited to only the most exclusive, upmarket retail outlets. Additionally, we are exploring opportunities for luxury travel amenities, including five star hotels.

**GUESS—** In 2018, the Company entered into an exclusive, 15-year worldwide license agreement with GUESS?, Inc. for the creation, development and distribution of fragrances under the GUESS brand.

Established in 1981, GUESS began as a jeans company and has since successfully grown into a global lifestyle brand. GUESS?, Inc. designs, markets, distributes and licenses a lifestyle collection of contemporary apparel, denim, handbags, watches, footwear and other related consumer products. GUESS products are distributed through branded GUESS stores as well as better department and specialty stores around the world.

This license took effect on April 1, 2018 and we began selling GUESS legacy scents in 2018. In 2019 the GUESS brand became the largest within our U.S. operations, with legacy fragrances dominating the sales mix. In the 2019 third quarter, we began shipments of *1981 Los Angeles* and *Seductive Noir*, both flankers of established scents, which accelerated brand growth further.

Nearly two years in the making, our first new blockbuster scent will debut for the GUESS brand domestically in spring 2020, followed in the fall by an international rollout. In addition, a new men’s grooming and fragrance collection is being readied for a fall 2020 launch. In its first full year of sales, GUESS has become the fourth largest brand in our portfolio.

**Hollister—** We have a worldwide license to create, produce and distribute new fragrances and fragrance related products under the Hollister brand name. The Company distributes these fragrances internationally in specialty stores, high-end department stores and duty free shops, and in the U.S., in duty free shops as well as select Hollister retail stores. In 2016 we launched a men’s and women’s scent, *Wave*, for Hollister. In 2017, we introduced a fragrance duo, *Wave 2*, to complement the *Wave* franchise by Hollister. During 2018 we debuted an entirely new fragrance family for Hollister, *Festival Vibes*, as well as *Free Wave*, both for men and women. In 2019, we launched the *Wave* limited edition duo, plus our first *Festival* brand extension, *Festival Nite*. For 2020, we have a duo in the works, *Canyon Escape* for men and women scheduled for a spring launch.

The quintessential retail brand of the global teen consumer, Hollister Co. believes in liberating the spirit of an endless summer inside everyone. At Hollister, summer isn’t just a season; it’s a state of mind. Hollister creates carefree style designed to make all teens feel celebrated and comfortable in their own skin, so they can live in a summer mindset all year long, whatever the season.

**Jimmy Choo—** In 2009, we entered into an exclusive 12-year worldwide license agreement for the creation, development and distribution of fragrances under the Jimmy Choo brand, and in 2017, we extended the license agreement which now runs through December 31, 2031.

Jimmy Choo encompasses a complete luxury accessories brand. Women’s shoes remain the core of the product offering, alongside handbags, small leather goods, scarves, eyewear, belts, fragrance and men’s shoes. Management at Jimmy Choo share a vision to create one of the world’s most treasured luxury brands. Jimmy Choo has a global store network encompassing more than 150 stores and is present in the most prestigious department and specialty stores worldwide. Jimmy Choo is part of the Capri Holdings Limited luxury fashion group.

Our first fragrance under the Jimmy Choo brand, a women’s signature scent, rolled out globally in 2011. In 2013, we launched our second Jimmy Choo line, *Flash*, and in 2014, we debuted Jimmy Choo *Man,* our first men’s scent. In 2015, the launch of Jimmy Choo *Illicit*, our third women’s fragrance under that label hit the market. In 2017, building on the very strong fragrance family trees of the women’s signature scent and Jimmy Choo *Man*, we successfully launched Jimmy Choo *L’Eau* for women and Jimmy Choo *Man Ice*. In 2018 we released another men’s flanker, Jimmy Choo *Man Blue*, and the brand’s women’s signature scent added Jimmy Choo *Fever*. During 2019, we introduced a Jimmy Choo *Floral* line, and an entirely new scent for men, Jimmy Choo *Urban Hero*, launched late in the year. For 2020, we are expanding our product line to include a lipstick and nail polish line, and our new women’s fragrance, *I want Choo* should be ready towards the end of the year with much of the sell-in continuing into 2021.

**Karl Lagerfeld—** In 2012, we entered into a 20-year worldwide license agreement with Karl Lagerfeld B.V., the internationally renowned haute couture fashion house, to create, produce and distribute fragrances under the Karl Lagerfeld brand.

Under the creative direction of the late Karl Lagerfeld, one of the world’s most influential and iconic designers, the Lagerfeld Portfolio represents a modern approach to distribution, an innovative digital strategy and a global 360 degree vision that reflects the designer’s own style and soul. In 2017, we changed the strategic positioning and instituted new pricing with the launch of a new duo called *Les Parfums Matières.* Building on excellent sales results of the initial scents, in the second half of 2018, we expanded the *Les Parfums Matières* line with another fragrance duo, and in 2019, we added new scents to the brand’s expanding multi-scent collection.

**Kate Spade—** In 2019, we entered into an exclusive, 11-year worldwide license agreement with Kate Spade New York to create, produce and distribute new perfumes and fragrance-related products under the Kate Spade brand. We will distribute these fragrances globally to department and specialty stores and duty-free shops, as well as in Kate Spade New York retail stores beginning with our first new scent in summer 2020. We will also take over distribution of the Kate Spade’s existing fragrance portfolio in April 2020.

Since its launch in 1993 with a collection of six essential handbags, Kate Spade New York has always stood for optimistic femininity. Today, the brand is a global life and style house with handbags, ready-to-wear, jewelry, footwear, gifts, home décor and more. Polished ease, thoughtful details and a modern, sophisticated use of color—Kate Spade New York’s founding principles define a unique style synonymous with joy. Under the vision of its creative director, the brand continues to celebrate confident women with a youthful spirit. Kate Spade New York is part of the Tapestry house of brands.

**Lanvin—** In 2007, we acquired the worldwide rights to the Lanvin brand names and international trademarks listed in Class 3, our class of trade. A synonym of luxury and elegance, the Lanvin fashion house, founded in 1889 by Jeanne Lanvin, expanded into fragrances in the 1920s.

Lanvin fragrances occupy an important position in the selective distribution market in France, Eastern Europe and Asia, and we have several lines currently in distribution, including: *Arpège, Lanvin L’Homme, Éclat d’Arpège, Rumeur 2 Rose, Jeanne Lanvin, Marry Me, Modern Princess and A Girl in Capri*. Our *Éclat d’Arpège* line accounts for almost 50% of brand sales. To capitalize on the success of our *Éclat d’Arpège* line, in 2015 we launched *Éclat d’Arpège Homme* as well as *Éclat de Fleurs.* In late 2016, we released a new women’s line, *Modern Princess* which rolled out to broader international distribution in 2017. We added two flankers, *Modern Princess Eau Sensuelle* and *Éclat de Nuit* in 2018, and we debuted a new scent called *A Girl in Capri* in 2019.

**Lily Aldridge—** In 2018, Interstellar Brands LLC, a wholly-owned subsidiary of the Company announced the development of a new fragrance line in collaboration with supermodel Lily Aldridge after signing a license that expires December 31, 2023. This marked the beginning of a strategic partnership between Interstellar and IMG Models, which manages Lily Aldridge, to develop a direct-to-consumer e-commerce fragrance and beauty businesses for IMG Models’ diverse and dynamic client base. Despite her popularity on social media fragrance, sales to date have been modest for our initial multi-scent fragrance line launched in September 2019. We are evaluating the potential for further product development.

**MCM—** In 2019, we entered into an exclusive, 10-year worldwide license agreement with German luxury fashion house MCM for the creation, development and distribution of fragrances under the MCM brand. The agreement has a 4-year automatic renewal option, potentially extending the license until December 31, 2034.

Fusing modern German craftsmanship and the traditional art of French perfumery, Inter Parfums will develop exceptional fragrances for women and men that will celebrate the boldness, attitude and essence of MCM which defined the brand since its birth in Munich. The long-term collaboration will thrive on innovation with a passionate, tailor-made approach built on a mastery of fragrance expertise. Positioned in the prestige fine fragrance arena, MCM fragrances will fuse luxury with an expressive spirit of originality and optimism. Every detail will enhance MCM’s identity, transcending perfumery with elegance and excellence.

Our plan is to develop extraordinary fragrances for women and men that capture the creative spirit of MCM, with the first launch targeted for the first quarter of 2021. We expect our distribution strategy to include MCM stores, high-end department stores and prestige beauty retailers, with a geographic focus on Asia, the Americas and Europe.

**Montblanc—**In 2010, we entered into an exclusive license agreement to create, develop and distribute fragrances and fragrance related products under the Montblanc brand. In 2015, we extended the agreement which now runs through December 31, 2025.

Montblanc has achieved a world-renowned position in the luxury segment and has become a purveyor of exclusive products, which reflect today’s exacting demands for timeless design, tradition and master craftsmanship. Through its leadership positions in writing instruments, watches and leather goods, promising growth outlook in women’s jewelry, active presence in more than 70 countries, network of more than 350 boutiques worldwide and high standards of product design and quality, Montblanc has grown to be our largest fragrance brand.

In 2011, we launched our first new Montblanc fragrance, *Legend,* which quickly became our best-selling men’s line. In 2012, we launched our first women’s fragrance under the Montblanc brand, and our second men’s line, *Emblem*, was launched in 2014. The *Emblem* line was expanded in 2015 to include Montblanc *Emblem Intense* and a new women’s scent, *Lady Emblem*. In 2016, we further extended our successful Montblanc *Legend* line with another men’s scent, Montblanc *Legend Spirit*. For 2017, we continued the rollout of the highly successful launch of Montblanc *Legend Spirit* and launched Montblanc *Legend Night*. In 2019, we unveiled Montblanc *Explorer*, a new men’s scent, with distribution in all geographic markets around the globe. For 2020, the Montblanc brand will introduce a new women’s scent, which will debut in the fall.

**Oscar de la Renta—** In 2013, we entered into an exclusive worldwide license to create, produce and distribute fragrances and fragrance related products under the Oscar de la Renta brand. In 2019, the agreement was extended through December 31, 2031, with an additional five-year option potentially extending the agreement through December 31, 2036. In 2014, we took over distribution of fragrances within the brand’s legacy fragrance portfolio, and our first new women’s fragrance under the Oscar de la Renta brand, *Extraordinary*, was launched in 2015. Oscar de la Renta *Bella Blanca*, a new Oscar de la Renta scent, debuted in early 2018, and the *Bella Rosa* flanker was introduced in 2019. In 2020, the Oscar de la Renta *Bella* pillar will add *Bella Essence* to the family tree.

Oscar de la Renta is one of the world’s leading luxury goods firms. The New York-based company was established in 1965, and encompasses a full line of women’s accessories, bridal, children’s wear, fragrance, beauty and home goods, in addition to its internationally renowned signature women’s ready to wear collection. Oscar de la Renta products are sold globally in fine department and specialty stores, www.oscardelarenta.com and through wholesale channels. The Oscar de la Renta brand has a loyal following in the United States, Canada and Latin America.

**Paul Smith—** In 2017, the Company renewed its license agreement for an additional four years with Paul Smith for the creation, development, and distribution of fragrance products through December 2021, without any material changes in terms and conditions. Our initial 12-year license agreement with Paul Smith was signed in 1998, and had previously been extended through December 31, 2017.

Paul Smith is an internationally renowned British designer who creates fashion with a clear identity. Paul Smith has a modern style which combines elegance, inventiveness and a sense of humor and enjoys a loyal following, especially in the UK and Japan. Fragrances include: *Paul Smith, Paul Smith Extrême, Paul Smith Rose Hello You*, and *Paul Smith Essential.*

**Repetto—** In 2011, we entered into a 13-year exclusive worldwide license agreement to create, produce and distribute fragrances under the Repetto brand.

Created in 1947 by Rose Repetto at the request of her son, dancer and choreographer Roland Petit, Repetto is today a legendary name in the world of dance. For a number of years, it has developed timeless and must-have collections with a fully modernized signature style ranging from dance shoes, ballet slippers, flat shoes, and sandals to more recently handbags and high-end accessories.

With Repetto boutiques in several countries throughout the world, the brand has branched out into Asia, notably China, Hong Kong, Singapore, Thailand, South Korea and Japan with a mix of cross-generational appeal and French chic. Our first Repetto fragrance line was launched in 2013 and a floral scent was added in 2015. Despite this brand’s success with footwear, handbags and high-end accessories, fragrance sales have been modest. Repetto’s most recent new scent, *Dance with Repetto*, debuted in 2018.

**Rochas—** In 2015, we acquired the Rochas brand from The Procter & Gamble Company. Founded by Marcel Rochas in 1925, the brand began as a fashion house and expanded into perfumery in the 1950s under Hélène Rochas’ direction. This transaction included all brand names and registered trademarks for Rochas (*Femme, Madame, Eau de Rochas*, etc.), mainly for fragrance, cosmetics and fashion.

This acquisition opened a new page in the Company’s history by integrating for the first time both fragrances and fashion, allowing us to apply a global approach to managing a fragrance brand with complete freedom in terms of creativity and aesthetic choices. At the same time, we enjoy a very high degree of visibility establishing a position of even greater preeminence for Rochas in the luxury goods universe. Rochas brand sales currently include approximately $2.2 million of royalties generated by the fashion and accessory business via its portfolio of license agreements. Our first new fragrance for Rochas, *Mademoiselle Rochas*, had a successful launch that began in the first quarter of 2017 in its traditional markets of France and Spain. In 2018, we debuted flankers for *Eau de Rochas* and *Mademoiselle Rochas* and in late 2018, we launched our first new men’s line, Rochas *Moustache*. In 2019, a seasonal limited edition called *Escapade Exotique* came to market, as well as the debut of *Mademoiselle Rochas Couture.* A new men’s line, *Byzance,* debuted in early 2020.

**S.T. Dupont—** In 1997, we signed an exclusive worldwide license agreement with S.T. Dupont for the creation, manufacture and distribution of S.T. Dupont fragrances. The license agreement had been renewed several times and is now renewed annually, without any material changes in terms and conditions. S.T. Dupont is a French luxury goods house founded in 1872, which is known for its fine writing instruments, lighters and leather goods. S.T. Dupont fragrances include: *S.T. Dupont Classic, S.T. Dupont Essence Pure, S.T. Dupont Collection* and *Be Exceptional.*

**Van Cleef & Arpels—** In 2018, the Company renewed its license agreement for an additional six years with Van Cleef & Arpels for the creation, development, and distribution of fragrance products through December 2024. Our initial 12-year license agreement with Van Cleef & Arpels was signed in 2006.

Van Cleef & Arpels fragrances in current distribution include: *First* and *Collection Extraordinaire.* Sales of the *Collection Extraordinaire* line have experienced continued growth since its debut. We continue to introduce new additions to the Van Cleef & Arpels *Collection Extraordinaire* assortment annually.

### Business Strategy

**Focus on prestige beauty brands**. Prestige beauty brands are expected to contribute significantly to our growth. We focus on developing and launching quality fragrances utilizing internationally renowned brand names. By identifying and concentrating in the most receptive market segments and territories where our brands are known, and executing highly targeted launches that capture the essence of the brand, we have had a history of successful launches. Certain fashion designers and other licensors choose us as a partner, because our Company’s size enables us to work more closely with them in the product development process as well as our successful track record.

**Grow portfolio brands through new product development and marketing**. We grow through the creation of fragrance family extensions within the existing brands in our portfolio. Every year or two, we create a new family of fragrances for each brand in our portfolio. We frequently introduce seasonal and limited edition fragrances as well. With new introductions, we leverage our ability and experience to gauge trends in the market and further leverage the brand name into different product families in order to maximize sales and profit potential. We have had success in introducing new fragrance families (sub-brands, flanker brands or flankers) within our brand franchises. Furthermore, we promote the performance of our prestige fragrance operations through knowledge of the market, detailed analysis of the image and potential of each brand name, and a highly professional approach to international distribution channels.

**Continue to add new brands to our portfolio, through new licenses or acquisitions**. Prestige brands are the core of our business and we intend to add new prestige beauty brands to our portfolio. Over the past 25 years, we have built our portfolio of well-known prestige brands through acquisitions and new license agreements. We intend to further build on our success in prestige fragrances and pursue new licenses and acquire new brands to strengthen our position in the prestige beauty market. To that end, in 2017, we extended our Jimmy Choo license through December 31, 2031 and our Paul Smith license until December 2021. In 2018, we signed new license agreements with GUESS?, Inc., Graff and Lily Aldridge and extended our license with Van Cleef & Arpels. In 2019, we extended our license agreements for Abercrombie & Fitch, Hollister and Oscar de la Renta, and signed new licenses for Kate Spade New York and MCM. As of December 31, 2019, we had cash, cash equivalents and short-term investments of approximately $253 million, which we believe should assist us in entering new brand licenses or out-right acquisitions. We identify prestige brands that can be developed and marketed into a full and varied product families and, with our technical knowledge and practical experience gained over time, take licensed brand names through all phases of concept, development, manufacturing, marketing and distribution.

**Expand existing portfolio into new categories**. We selectively broaden our product offering beyond the fragrance category and offer other fragrance related products and personal care products under some of our existing brands. We believe such product offerings meet customer needs and further strengthen customer loyalty.

**Continue to build global distribution footprint**. Our business is a global business and we intend to continue to build our global distribution footprint. In order to adapt to changes in the environment and our business, in addition to our arrangements with third party distributors globally, we are operating distribution subsidiaries or divisions in the major markets of the United States, France and Spain for distribution of prestige fragrances. We may look into future joint arrangements or acquire distribution companies within other key markets to distribute certain of our prestige brands. While building a global distribution footprint is part of our long-term strategy, we may need to make certain decisions based on the short-term needs of the business. We believe that in certain markets, vertical integration of our distribution network may be one of the keys to future growth of our Company, and ownership of such distribution should enable us to better serve our customers’ needs in local markets and adapt more quickly as situations may determine.

### Production and Supply

The stages of the development and production process for all fragrances are as follows:

- Simultaneous discussions with perfume designers and creators (includes analysis of esthetic and olfactory trends, target clientele and market communication approach)
- Concept choice
- Produce mock-ups for final acceptance of bottles and packaging
- Receive bids from component suppliers (glass makers, plastic processors, printers, etc.) and packaging companies
- Choose suppliers
- Schedule production and packaging
- Issue component purchase orders
- Follow quality control procedures for incoming components; and
- Follow packaging and inventory control procedures.

Suppliers who assist us with product development include:

- Independent perfumery design companies (Aesthete, Carré Basset, PI Design, Cent Degres)
- Perfumers (IFF, Givaudan, Firmenich, Robertet, Takasago, Mane) which create a fragrance consistent with our expectations and, that of the fragrance designers and creators
- Bottle manufacturers (Pochet du Courval, Verescence, Verreries Brosse, Bormioli Luigi, Stoelzle Masnières ), caps (Qualipac, ALBEA, RPC, Codiplas, LF Beauty, Texen Group)) or boxes (Autajon , MMPP, Nortier, Draeger)
- Production specialists who carry out packaging (CCI, Edipar , Jacomo, SDPP, MF Productions, Biopack) or logistics (Bolloré Logistics for storage, order preparation and shipment)

Suppliers’ accounts for our European operations are primarily settled in euro and for our United States operations, suppliers’ accounts are primarily settled in U.S. dollars. For our European operations components for our prestige fragrances are purchased from many suppliers around the world and are primarily manufactured in France. For United States operations, components for our prestige fragrances are sourced from many suppliers around the world and are primarily manufactured in the United States.

### Marketing and Distribution

Our products are distributed in over 120 countries around the world through a selective distribution network. For our international distribution, we either contract with independent distribution companies specializing in luxury goods or distribute prestige products through our distribution subsidiaries. In each country, we designate anywhere from one to three distributors on an exclusive basis for one or more of our name brands. We also distribute our products through a variety of duty free operators, such as airports and airlines and select vacation destinations.

As our business is a global one, we intend to continue to build our global distribution footprint. For distribution of brands within our European based operations we operate through our distribution subsidiaries or divisions in the major markets of the United States, France, Italy and Spain, in addition to our arrangements with third party distributors globally. Our third party distributors vary in size depending on the number of competing brands they represent. This extensive and diverse network together with our own distribution subsidiaries provides us with a significant presence in over 100 countries around the world.

Over 45% of our European based prestige fragrance net sales are denominated in U.S. dollars. We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. We primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates.

The business of our European operations has become increasingly seasonal due to the timing of shipments by our distribution subsidiaries and divisions to their customers, which are weighted to the second half of the year.

For our United States operations, we distribute product to retailers and distributors in the United States as well as internationally, including duty free and other travel-related retailers. We utilize our in-house sales team to reach our third party distributors and customers outside the United States. In addition, the business of our United States operations has become increasingly seasonal as shipments are weighted toward the second half of the year.

### Competition

The market for prestige fragrance products is highly competitive and sensitive to changing preferences and demands. The prestige fragrance industry is highly concentrated around certain major players with resources far greater than ours. We compete with an original strategy, regular and methodical development of quality fragrances for a growing portfolio of internationally renowned brand names.

### Inventory

We purchase raw materials and component parts from suppliers based on internal estimates of anticipated need for finished goods, which enables us to meet production requirements for finished goods. We generally ship product to customers within 72 hours of the receipt of their orders. 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.

### Product Liability

Our United States operations maintain product liability coverage in an amount of $10.0 million, and our European operations maintain product liability coverage in an amount of €20.0 million (approximately $22.5 million). Based upon our experience, we believe this coverage is adequate and covers substantially all of the exposure we may have with respect to our products. We have never been the subject of any material product liability claims.

### Government Regulation

A fragrance is defined as a “cosmetic” under the Federal Food, Drug and Cosmetics Act. A fragrance must comply with the labeling requirements of this FDC Act as well as the Fair Packaging and Labeling Act and its regulations. Some of our color cosmetic products may contain menthol and are also classified as a “drug”. Under U.S. law, a product may be classified as both a cosmetic and a drug. Additional regulatory requirements for products which are “drugs” include additional labeling requirements, registration of the manufacturer and the semi-annual update of a drug list. In addition, various jurisdictions prohibit the use of certain ingredients in fragrances and cosmetics.

Our fragrances are subject to the approval of the Bureau of Alcohol, Tobacco and Firearms as a result of the use of specially denatured alcohol. So far we have not experienced any difficulties in obtaining the required approvals.

Our fragrance products that are manufactured or sold in Europe are subject to certain regulatory requirements of the European Union, such as Cosmetic Directive 76/768/CEE and Regulation number 1223/2009 on cosmetic products, but as of the date of this report, we have not experienced any material difficulties in complying with such requirements.

### Trademarks

The market for our products depends to a significant extent upon the value associated with our trademarks and brand names. We have licenses or other rights to use, or own, the material trademark and brand name rights used in connection with the packaging, marketing and distribution of our major products both in the United States and in other countries where such products are principally sold. Therefore, trademark and brand name protection is important to our business. Although most of the brand names we license, use or own are registered in the United States and in certain foreign countries in which we operate, we may not be successful in asserting trademark or brand name protection. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. The costs required to protect our trademarks and brand names may be substantial.

Under various license and other agreements we have the right to use certain registered trademarks throughout the world for fragrance products. These registered trademarks include:

- Abercrombie & Fitch
- Anna Sui
- bebe
- Boucheron
- Coach
- Dunhill
- French Connection
- Graff
- GUESS
- Hollister
- Jimmy Choo
- Jordache
- Kate Spade New York
- Lily Aldridge
- Karl Lagerfeld
- MCM
- Montblanc
- Oscar de la Renta
- Paul Smith
- Repetto
- S.T. Dupont
- Van Cleef & Arpels

In addition, we are the registered trademark owner of several trademarks for fragrance and beauty products, including:

- Rochas
- Lanvin
- Intimate
- Aziza

### Employees

As of January 1, 2020, we had 402 full-time employees worldwide. Of these, 296 are full-time employees of our European operations, with 114 employees engaged in sales activities and 182 in administrative, production and marketing activities. Our United States operations have 106 employees, and of these, 16 were engaged in sales activities and 90 in administrative, production and marketing activities. We believe that our relationship with our employees is good.

## Risk factors

As filed, 33,878 characters.

You should carefully consider these risk factors before you decide to purchase or sell shares of our common stock. These factors could cause our future results to differ materially from those expressed or implied in forward-looking statements made by us. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

**We are dependent upon the continuation and renewal of various licenses and other agreements for a significant portion of our sales, and the loss of one or more licenses or agreements could have a material adverse effect on us.**

All of our rights relating to prestige fragrance brands, other than Lanvin and Rochas, are derived from licenses or other agreements from unaffiliated third parties, and our business is dependent upon the continuation and renewal of such licenses and other agreements on terms favorable to us. Each license or agreement is for a specific term and may have additional optional terms. Generally, each license is subject to us making required royalty payments (which are subject to certain minimums), minimum advertising and promotional expenditures and meeting minimum sales requirements. Other agreements are generally subject to meeting minimum sales requirements. Just as the loss of a license or other significant agreement may have a material adverse effect on us, a renewal on less favorable terms may also negatively impact us.

**Our business could be adversely affected by a prolonged downturn or recession in the United States, Europe, China or other countries in which we conduct business.**

A prolonged economic downturn or recession in the United States, Europe, China or any of the other countries in which we do significant business could materially and adversely affect our business, financial condition and results of operations. In particular, such a downturn or recession could adversely impact (i) the level of spending by our ultimate consumers, (ii) our ability to collect accounts receivable on a timely basis from certain customers, (iii) our ability of certain suppliers to fill our orders for raw materials, packaging or co-packed finished goods on a timely basis, and (iv) the mix of our product sales.

**Consumers may reduce discretionary purchases of our products as a result of a general economic downturn.**

We believe that a high degree of global economic uncertainty could have a negative effect on consumer confidence, demand and spending. In addition, we believe that consumer spending on beauty products is influenced by general economic conditions and the availability of discretionary income. Accordingly, we may experience sustained periods of declines in sales during periods of economic downturn as it may affect consumer purchasing patterns. In addition, a general economic downturn may result in reduced traffic in our customers’ stores which may, in turn, result in reduced net sales to our retail store customers. Any resulting material reduction in our sales could have a material adverse effect on our business, financial condition and operating results.

**Uncertainties and deterioration in global credit markets, as evidenced by previous reductions in sovereign credit ratings in the United States and Europe, could negatively impact suppliers, customers and consumers, which could have an adverse impact on our business as a whole.**

Uncertainties and deterioration in the global credit markets as evidenced by previous reductions in sovereign credit ratings in the United States and Europe, could negatively impact our suppliers, customers and consumers which, in turn, could have an adverse impact on our business. While thus far, uncertainties in global credit markets have not significantly affected our access to credit due to our strong credit rating, a further deterioration in global financial markets could make future financing difficult or more expensive. Such lack of credit or lack of credit on favorable terms could have a material adverse effect on our business, financial condition and operating results.

**An outbreak of disease, epidemic or pandemic, or similar public health threat, such as the coronavirus, could have a material adverse impact on the Company’s business, operating results and financial condition.**

An outbreak of disease, epidemic or pandemic, or similar public threat, or fear of such an event, that negatively impacts consumer spending on or our products could have a material adverse impact on the Company’s business, financial condition and operating results. Like most companies doing business around the globe, ours is being impacted by the coronavirus. There are many unknowns as to the duration and severity of the situation which we are closely monitoring. As a result of the trends in 2020 we have seen, there has been a significant decline in air travel and consumer traffic in key shopping and tourist areas. The extent and potential short and long term impact of the coronavirus on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the outbreak, our customers’ willingness to travel and purchase our products, and the impact on our supply chain and the financial markets, all of which are highly uncertain and cannot be predicted.

**If our intangible assets, such as trademarks and licenses, become impaired, we may be required to record a significant non-cash charge to earnings which would negatively impact our results of operations.**

Under United States generally accepted accounting principles, we review our intangible assets, including our trademarks and licenses, for impairment annually in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate the carrying value of our intangible assets may not be fully recoverable. The carrying value of our intangible assets may not be recoverable due to factors such as reduced estimates of future cash flows, including those associated with the specific brands to which intangibles relate, or slower growth rates in our industry. Estimates of future cash flows are based on a long-term financial outlook of our operations and the specific brands to which the intangible assets relate. However, actual performance in the near-term or long-term could be materially different from these forecasts, which could impact future estimates and the recorded value of the intangibles. Any significant impairment to our intangible assets would result in a significant charge to earnings in our financial statements during the period in which the impairment is determined to exist.

**If we are unable to protect our intellectual property rights, specifically trademarks and brand names, our ability to compete could be negatively impacted.**

The market for our products depends to a significant extent upon the value associated with trademarks and brand names that we license, use or own. We have licenses or other rights to use, or own the material trademark and brand name rights in connection with the packaging, marketing and distribution of our major products both in the United States and in other countries where such products are principally sold. Therefore, trademark and brand name protection is important to our business. Although most of the brand names we license, use or own are registered in the United States and in certain foreign countries in which we operate, we may not be successful in asserting trademark or brand name protection. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. The costs required to protect our trademarks and brand names may be substantial.

**The illegal distribution and sale by third parties of counterfeit versions of the Company’s products or the unauthorized diversion by third parties of the Company’s products could have an adverse effect on the Company’s revenues and a negative impact on the Company’s reputation and business.**

Third parties may illegally distribute and sell counterfeit versions of the Company’s products. These counterfeit products may be inferior in terms of quality and other characteristics compared to the Company’s authentic products and/or the counterfeit products could pose safety risks that the Company’s authentic products would not otherwise present to consumers. Consumers could confuse counterfeit products with the Company’s authentic products, which could damage or diminish the image, reputation and/or value of the Company’s brands and cause consumers to refrain from purchasing the Company’s products in the future. In addition, the sale of the Company’s prestige products through non-authorized “grey market” channels could damage or diminish the image, reputation and/or value of the Company’s brands and could adversely affect the Company’s revenues and have a negative impact on the Company’s reputation.

**Our success depends on our ability to operate our business without infringing, misappropriating or otherwise violating the trademarks, patents, copyrights and proprietary rights of other parties.**

Our commercial success depends at least in part on our ability to operate without infringing, misappropriating or otherwise violating the trademarks, patents, copyrights and other proprietary rights of others. However, we cannot be certain that the conduct of our business does not and will not infringe, misappropriate or otherwise violate such rights. Many companies have employed intellectual property litigation as a way to gain a competitive advantage, and to the extent we gain greater visibility and market exposure, we may also face a greater risk of being the subject of such litigation. For these and other reasons, third parties may allege that our products, services or activities infringe, misappropriate or otherwise violate their trademark, patent, copyright or other proprietary rights. Defending against allegations and litigation could be expensive, take significant time, divert management’s attention from other business concerns, and delay getting our products to market. In addition, if we are found to be infringing, misappropriating or otherwise violating third party trademark, patent, copyright or other proprietary rights, we may need to obtain a license, which may not be available on commercially reasonable terms or at all, or redesign or rebrand our products, which may not be possible. We may also be required to pay substantial damages or be subject to a court order prohibiting us and our customers from selling certain products or engaging in certain activities. Our inability to operate our business without infringing, misappropriating or otherwise violating the trademarks, patents, copyrights and proprietary rights of others could therefore have a material adverse effect on our business, financial condition and results of operations.

### The success of our products is dependent on public taste.

Our revenues are substantially dependent on the success of our products, which depends upon, among other matters, pronounced and rapidly changing public tastes, factors which are difficult to predict and over which we have little, if any, control. In addition, we have to develop successful marketing, promotional and sales programs in order to sell our fragrances and fragrance related products. If we are not able to develop successful marketing, promotional and sales programs, then such failure will have a material adverse effect on our business, financial condition and operating results.

### We are subject to extreme competition in the fragrance industry.

The market for fragrance products is highly competitive and sensitive to changing market preferences and demands. Many of our competitors in this market are larger than we are and have greater financial resources than are available to us, potentially allowing them greater operational flexibility. Our success in the prestige fragrance industry is dependent upon our ability to continue to generate original strategies and develop quality products that are in accord with ongoing changes in the market.

If there is insufficient demand for our existing fragrance products, or if we do not develop future strategies and products that withstand competition or we are unsuccessful in competing on price terms, then we could experience a material adverse effect on our business, financial condition and operating results.

**If we are unable to acquire or license additional brands, or obtain the required financing for these agreements and arrangements, then the growth of our business could be impaired.**

Our future expansion through acquisitions or new product license or distribution arrangements, if any, will depend upon the capital resources and working capital available to us. Further, we may be unable to obtain financing or credit that we may require for additional licenses, acquisitions or other transactions. We may be unsuccessful in identifying, negotiating, financing and consummating such acquisitions or arrangements on terms acceptable to us, or at all, which could hinder our ability to increase revenues and build our business. Just as the loss of a license or other significant agreement may have a material adverse effect on us, our failure to acquire rights to new brands may also negatively impact us.

**We may engage in future acquisitions that we may not be able to successfully integrate or manage. These acquisitions may dilute our stockholders and cause us to incur debt and assume contingent liabilities.**

We continuously review acquisition prospects that would complement our current product offerings, increase our size and geographic scope of operations or otherwise offer growth and operating efficiency opportunities. The financing, if available, for any of these acquisitions could significantly dilute our stockholders and/or result in an increase in our indebtedness. We may acquire or make investments in businesses or products in the future, and such acquisitions may entail numerous integration risks and impose costs on us, including:

- difficulties in assimilating acquired operations or products, including the loss of key employees from acquired businesses
- diversion of management’s attention from our core business
- adverse effects on existing business relationships with suppliers and customers
- risks of entering markets in which we have no or limited prior experience
- dilutive issuances of equity securities
- incurrence of substantial debt
- assumption of contingent liabilities
- incurrence of significant amortization expenses related to intangible assets and the potential impairment of acquired assets and
- incurrence of significant immediate write-offs.

Our failure to successfully complete the integration of any acquired business could have a material adverse effect on our business, financial condition and operating results.

**Joint arrangements or strategic alliances in geographic markets in which we have limited or no prior experience may expose us to additional risks.**

We review, and from time to time may establish, arrangements and strategic alliances that we believe would complement our current product offerings, increase the size and geographic scope of our operations or otherwise offer growth and operating efficiency opportunities. These business relationships may require us to rely on the local expertise of our partners with respect to market development, sales, local regulatory compliance and other matters. Further, there may be challenges with ensuring that such arrangements or strategic alliances implement the appropriate internal controls to ensure compliance with the various laws and regulations applicable to us as a U.S. public company. Accordingly, in addition to commercial and operational risk, these arrangements and strategic alliances may entail risks such as reputational risk and regulatory compliance risk. In addition, there can be no assurance that we will be able to identify suitable alliance or candidates, that we will be able to consummate any such alliances or arrangements on favorable terms, or that we will realize the anticipated benefits of entering into any such alliances or arrangements.

**We are dependent upon Messrs. Jean Madar and Philippe Benacin, and the loss of their services could harm our business.**

Jean Madar, our Chief Executive Officer, and Philippe Benacin, our President and Chief Executive Officer of Interparfums SA, are responsible for day-to-day operations as well as major decisions. Termination of their relationships with us, whether through death, incapacity or otherwise, could have a material adverse effect on our operations, and we cannot assure you that qualified replacements can be found.

**Our reliance on third party manufacturers could have a material adverse effect on us.**

We rely on outside sources to manufacture our fragrances and cosmetics. The failure of such third party manufacturers to deliver either compliant, quality components or finished goods on a timely basis could have a material adverse effect on our business. Although we believe there are alternate manufacturers available to supply our requirements, we cannot assure you that current or alternative sources will be able to supply all of our demands on a timely basis. We do not intend to develop our own manufacturing capacity. As these are third parties over whom we have little or no control, the failure of such third parties to provide components or finished goods on a timely basis could have a material adverse effect on our business, financial condition and operating results.

**Our reliance on third party distributors could have a material adverse effect on us.**

We sell a substantial percentage of our prestige fragrances through independent distributors specializing in luxury goods. Given the growing importance of distribution, we have modified our distribution model by owning a controlling interest in certain of our distributors within key markets. However, we have little or no control over third party distributors and the failure of such third parties to provide services on a timely basis could have a material adverse effect on our business, financial condition and operating results. In addition, if we replace existing third party distributors with new third party distributors or with our own distribution arrangements, then transition issues could have a material adverse effect on our business, financial condition and operating results.

**Terrorist attacks, acts of war or military actions, other civil unrest or natural disasters may adversely affect territories in which we operate, and therefore affect our business, financial condition and operating results.**

Terrorist attacks such as those that have occurred in Paris, France where we have our European headquarters, amongst other locations, and attempted terrorist attacks, military responses to terrorist attacks, other military actions, or governmental action in response to or in anticipation of a terrorist attack, or civil unrest as occurring in the Middle East, the Ukraine and Africa or natural disasters, may adversely affect prevailing economic conditions. These events could result in work stoppages, reduced consumer spending or reduced demand for our products. These developments subject our worldwide operations to increased risks and, depending on their magnitude, could reduce net sales and therefore could have a material adverse effect on our business, financial condition and operating results.

**The loss of or disruption in our distribution facilities could have a material adverse effect on our business, financial condition and operating results.**

We currently have several distribution facilities in Europe, China and the United States. The loss of any of those facilities, as well as the inventory stored in those facilities, would require us to find replacement facilities and assets. In addition, acts of God, such as extreme weather conditions, natural disasters and the like or terrorist attacks, could disrupt our distribution operations. If we cannot replace our distribution capacity and inventory in a timely, cost-efficient manner, then such failure could have a material adverse effect on our business, financial condition and operating results.

**Changes in laws, regulations and policies that affect our business could adversely affect our financial results.**

Our business is subject to numerous laws, regulations and policies. Changes in the laws, regulations and policies, including the interpretation or enforcement thereof, that affect, or will affect, our business, including changes in accounting standards, tax laws and regulations, environmental or climate change laws, regulations or accords, trade rules and customs regulations, or increased cosmetics regulation, and the outcome and expense of legal or regulatory proceedings, and any action we may take as a result could adversely affect our financial results.

### Our success depends, in part, on the quality and safety of our products.

Our success depends, in part, on the quality and safety of our products. If our products are found to be defective or unsafe, or if they otherwise fail to meet our consumers’ standards, then our relationships with customers or consumers could suffer, the appeal of one or more of our brands could be diminished, and we could lose sales and/or become subject to liability claims, any of which could result in a material adverse effect on our business, results of operations and financial condition.

**We are subject to risks related to our foreign operations, and a disruption in our operations or supply chain could adversely affect our business and financial results.**

We operate on a global basis, with a substantial portion of our net sales and net income generated outside the United States, and we anticipate for the foreseeable future that a substantial portion of our net sales and net income will be generated outside the United States. A substantial portion of our cash, cash equivalents and short-term investments that result from these earnings remain outside the United States. As a company engaged in manufacturing and distribution on a global scale, we are subject to many risks and uncertainties, including:

- changes in foreign laws, regulations and policies, including restrictions on trade, import and export license requirements, and tariffs and taxes, as well as changes in United States laws and regulations relating to foreign trade and investment; and
- industrial accidents, environmental events, strikes and other labor disputes, disruptions in supply chain or information technology, loss or impairment of key manufacturing sites or suppliers, product quality control, safety, as well as natural disasters, adverse weather conditions, social, economic and geopolitical conditions, such as terrorist attacks, war or other military action and other external factors over which we have no control.

These risks could have a material adverse effect on our business, prospects, results of operations and financial condition.

**Changing political conditions could adversely impact our business and financial results.**

Changes in the political conditions in markets in which we manufacture, sell or distribute our products may be difficult to predict and may adversely affect our business and financial results. For example, the United Kingdom’s recent withdrawal from the European Union (“Brexit”) has created uncertainty regarding, among other things, the U.K.’s future legal and economic framework and how the U.K. will interact with other countries, including with respect to the free movement of goods, services, capital and people. In addition, results of elections, referendums or other political processes in certain markets in which our products are manufactured, sold or distributed could create uncertainty regarding how existing governmental policies, laws and regulations may change, including with respect to sanctions, taxes, the movement of goods, services, capital and people between countries and other matters. The potential implications of such uncertainty, which include, among others, exchange rate fluctuations, tariffs, trade barriers and market contraction, could adversely affect the Company’s business and financial results.

**Changes in foreign tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our profitability and cash flows.**

In addition to being subject to taxation in the United States, we are subject to income and other taxes in other foreign jurisdictions. Our effective tax rate in the future could be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and the discovery of new information in the course of our tax return preparation process. From time to time, tax proposals are introduced or considered by the United States Congress or the legislative bodies in foreign jurisdictions that could also affect our tax rate, the carrying value of our deferred tax assets, or our other tax liabilities. Our tax liabilities are also affected by the amounts we charge for inventory, services, licenses, funding, cross-jurisdictional transfer pricing, and other items in intercompany transactions. A negative determination or ultimate disposition in any tax audit, changes in tax laws or tax rates, or the ability to utilize our deferred tax assets could materially affect our tax provision, net income and cash flows in future periods.

**The international character of our business renders us subject to fluctuation in foreign currency exchange rates and international trade tariffs, barriers and other restrictions.**

A substantial portion of our European operations’ net sales (over 45%) are sold in U.S. dollars. In an effort to reduce our exposure to foreign currency exchange fluctuations, we engage in a controlled program of risk management that includes the use of derivative financial instruments for all major currencies with which we operate. Despite such actions, fluctuations in foreign currency exchange rates for the U.S. dollar, particularly with respect to the euro, could have a material adverse effect on our operating results. Possible import, export, tariff and other trade barriers, which could be imposed by the United States, the European Union or other countries might also have a material adverse effect on our operating results.

**Our business is subject to governmental regulation, which could impact our operations.**

Fragrance products must comply with the labeling requirements of the Federal Food, Drug and Cosmetics Act as well as the Fair Packaging and Labeling Act and their regulations. Some of our color cosmetic products may also be classified as a “drug”. Additional regulatory requirements for products which are “drugs” include additional labeling requirements, registration of the manufacturer and the semi-annual update of a drug list. In addition, various jurisdictions prohibit the use of certain ingredients in fragrances and cosmetics.

Our fragrances are subject to the approval of the Bureau of Alcohol, Tobacco and Firearms as a result of the use of specially denatured alcohol. So far, we have not experienced any difficulties in obtaining the required approvals.

Our fragrance products that are manufactured or sold in Europe are subject to certain regulatory requirements of the European Union, such as Cosmetic Directive 76/768/CEE and Regulation number 1223/2009 on cosmetic products, but as of the date of this report, we have not experienced any material difficulties in complying with such requirements.

However, we cannot assure you that, should we use proscribed ingredients in our fragrance products that we develop or market, or develop or market fragrance products with different ingredients, or should existing regulations or requirements be revised, we would not in the future experience difficulty in complying with such requirements, which could have a material adverse effect on our results of operations.

**Our information systems and websites may be susceptible to outages, hacking and other risks.**

We have information systems that support our business processes, including product development, production, marketing, order processing, sales, distribution, finance and intra-company communications. We also have Internet websites in the United States and Europe. These systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, hacking and similar events. Despite the implementation of network security measures, our systems may be vulnerable to computer viruses, hacking and similar disruptions from unauthorized tampering. The occurrence of these or other events could disrupt or damage our information systems and adversely affect our business and results of operations.

**Our failure to protect our reputation, or the failure of our partners to protect their reputations, could have a material adverse effect on our brand images.**

Our ability to maintain our reputation is critical to our various brand images. Our reputation could be jeopardized if we fail to maintain high standards for merchandise quality and integrity or if we, or the third parties with whom we do business, do not comply with regulations or accepted practices. Any negative publicity about these types of concerns may reduce demand for our merchandise. Failure to comply with ethical, social, product, labor and environmental standards, or related political considerations, such as animal testing, could also jeopardize our reputation and potentially lead to various adverse consumer actions, including boycotts. Failure to comply with local laws and regulations, including applicable U.S. trade sanctions, to maintain an effective system of internal controls or to provide accurate and timely financial statement information could also hurt our reputation. We are also dependent on the reputations of our brand partners and licensors, which can be affected by matters outside of our control. Damage to our reputation or the reputations of our brand partners or licensors or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations, financial condition and cash flows, as well as require additional resources to rebuild our reputation.

### Our business is subject to seasonal variability.

Our business is somewhat seasonal due to the timing of shipments to our customers, which are weighted to the second half of the year. Accordingly, our financial performance, sales, working capital requirements, cash flow and borrowings generally experience variability during the third and fourth quarters.

**The trading prices of our securities periodically may rise or fall based on the accuracy of predictions of our earnings or other financial performance.**

Our business planning process is designed to maximize our long-term strength, growth and profitability, not to achieve an earnings target in any particular fiscal quarter. We believe that this longer-term focus is in the best interests of our Company and our stockholders. At the same time, however, we recognize that it may be helpful to provide investors with guidance as to our forecast of annual net sales and earnings per share. Accordingly, we provide guidance as to our expected annual net sales, and earnings per share, which is updated as appropriate throughout the year. While we generally provide updates to our guidance when we report our results each fiscal quarter if called for, we assume no responsibility to update any of our forward-looking statements at such times or otherwise. In addition, longer-term guidance that we may from time to time provide is based on goals that we believe, at the time guidance is given, are reasonably attainable.

In all of our public statements when we make, or update, a forward-looking statement about our sales and/or earnings expectations or expectations regarding other initiatives, we accompany such statements directly, or by reference to a public document, with a list of factors that could cause our actual results to differ materially from those we expect. Such a list is included, among other places, in our earnings press releases (by reference to our periodic filings with the Securities and Exchange Commission) and in our periodic filings with the Securities and Exchange Commission (*e.g.,* in our reports on Form 10-K and Forms 10-Q). These and other factors may make it difficult for outside observers, such as research analysts, to predict what our earnings will be in any given fiscal quarter or year.

Outside analysts and investors have the right to make their own predictions of our financial results for any future period. Outside analysts, however, have access to no more material information about our results or plans than any other public investor, and we do not endorse or adopt their predictions as to our future performance. Nor do we assume any responsibility to correct the predictions of outside analysts or others when they differ from our own internal expectations. If and when we announce actual results that differ from those that outside analysts or others have been predicting, the market price of our securities could be affected. Investors who rely on the predictions of outside analysts or others when making investment decisions with respect to our securities do so at their own risk. We take no responsibility for any losses suffered as a result of such changes in the prices of our securities.

## Properties

As filed, 1,973 characters.

### United States Operations

We maintain our corporate headquarters and United States operations in approximately 24,900 square feet with a term that expires on December 31, 2029, and have been at the same location in New York City since 1992. We also have a 140,000 square foot distribution center in New Jersey, and this lease expires on October 31, 2025. In addition, we maintain office space in Hong Kong with a lease that expires in June 2020. In August 2019 we opened a small distribution center in Shanghai, China that expires in July 2020.

### European Operations

Our European operations maintain their corporate headquarters on the Champs Elysees in Paris France, with leases for various units that expire from March 2022 to September 2026, and a studio and operations departments at a second location in Paris with a lease that expires in June 2021. United States distribution operations for European operations maintain their headquarters in New York City, with a lease that expires in May 2029. A small office is located Singapore for Asia-Pacific distribution by European operations.

The approximately 333,700 square foot distribution center for European operations is located in Criquebeuf sur Seine, France, with a seven year term that expires May 2027 and an option to extend the term for an additional two years.

Interparfums SA has had an agreement with Bolloré Logistics (and its predecessor, Sagatrans, S.A.) for warehousing and distribution services for several years. The current agreement with Bolloré Logistics for warehousing and distribution services expires on December 31, 2020. Service fees payable to Bolloré Logistics are calculated based upon a percentage of sales, which is customary in the industry. Service fees actually paid were €4.9 million, €5.2 million and €4.2 million in 2019, 2018 and 2017, respectively.

We believe our office and warehouse facilities are satisfactory for our present needs and those for the foreseeable future.

## Management's discussion and analysis

As filed, 44,019 characters.

### 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 76%, 80% and 81% of net sales for 2019, 2018 and 2017, respectively. We have built a portfolio of prestige brands, which include *Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade New York, Lanvin, Montblanc, Paul Smith, Repetto, Rochas, S.T. Dupont* 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 24%, 20% and 19% of net sales in 2019, 2018 and 2017, respectively. These fragrance products are sold or to be sold primarily pursuant to license or other agreements with the owners of the *Abercrombie & Fitch, Anna Sui, bebe, Dunhill, French Connection, Graff, GUESS, Hollister, MCM* and *Oscar de la Renta* brands.

With respect to the Company’s largest brands, we own the Lanvin brand name for our class of trade, and license the Montblanc, Jimmy Choo, Coach and GUESS brand names. As a percentage of net sales, product sales for the Company’s largest brands were as follows:

|  | Year Ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Montblanc | 22% | 19% | 21% |
| Jimmy Choo | 16% | 17% | 18% |
| Coach | 14% | 15% | 10% |
| GUESS (license commenced April 1, 2018) | 10% | n/a | n/a |
| Lanvin | 8% | 10% | 11% |

Quarterly sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season. In certain markets where we sell directly to retailers, seasonality is more evident. We sell directly to retailers in France as well as through our own distribution subsidiaries in Italy, Spain and the United States.

We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses or other arrangements or out-right acquisitions of brands. Second, we grow through the introduction of new products and by supporting new and established products through advertising, merchandising and sampling as well as by 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 over 45% 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. We are also carefully monitoring currency trends in the United Kingdom as a result of the volatility created from the United Kingdom’s exit from the European Union. We have evaluated our pricing models and we do not expect any significant pricing changes. However, if the devaluation of the British Pound worsens, it may affect future gross profit margins from sales in the territory.

### Recent Important Events

### Abercrombie & Fitch and Hollister

In November 2019, we extended our license for both the Abercrombie & Fitch and Hollister brands until December 31, 2022, and added automatic renewals unless terminated on 3 years’ notice.

### MCM

In September 2019, we entered into an exclusive, 10-year worldwide license agreement with German luxury fashion house MCM for the creation, development and distribution of fragrances under the MCM brand. Our rights under such license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry.

### Oscar de la Renta

In September 2019, we extended our license through December 31, 2031, and added an additional five-year extension option through December 31, 2036. The original license agreement, signed in October 2013, would have expired on December 31, 2025.

### Kate Spade New York

In June 2019, we entered into an exclusive 11-year worldwide license agreement with Kate Spade New York for the creation, development and distribution of fragrances under the Kate Spade brand. Our rights under such license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry.

### 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. Management of the Company has discussed the selection of significant accounting policies and the effect of estimates with the Audit Committee of the Board of Directors.

### Sales Returns

Generally, we do not permit customers to return their unsold products. However, for U.S. based customers, we allow returns if properly requested, authorized and approved. 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, including information provided by retailers regarding their inventory levels. In addition, as necessary, specific accruals may be established for significant future known or anticipated events. The types of known or anticipated events that we consider include, but are not limited to, the financial condition of our customers, store closings by retailers, changes in the retail environment and our decision to continue to support new and existing products. We record our estimate of potential sales returns as a reduction of sales and cost of sales with corresponding entries to accrued expenses, to record the refund liability, and inventory, for the right to recover goods from the customer. Returned products are valued based upon their 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.

### Long-Lived Assets

We evaluate indefinite-lived intangible assets for impairment at least annually during the fourth quarter, or more frequently when events occur or circumstances change, such as an unexpected decline in sales, that would more likely than not indicate that the carrying value of an indefinite-lived intangible asset may not be recoverable. When testing indefinite-lived intangible assets for impairment, the evaluation requires a comparison of the estimated fair value of the asset to the carrying value of the asset. The fair values used in our evaluations are estimated based upon discounted future cash flow projections using a weighted average cost of capital of 7.94%. 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. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment charge is recorded.

We believe that the assumptions 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.

At December 31, 2019 indefinite-lived intangible assets aggregated $121.0 million. The following table presents the impact a change in the following significant assumptions would have had on the calculated fair value in 2019 assuming all other assumptions remained constant:

*$ in millions*

|  | Change | Increase (decrease) to fair value |
| --- | ---: | ---: |
| Weighted average cost of capital | +10% | $(14.9) |
| Weighted average cost of capital | -10% | $15.0 |
| Future sales levels | +10% | $13.3 |
| Future sales levels | -10% | $(13.3) |

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 amortize 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. We believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable.

In determining the useful life of our Lanvin brand names and trademarks, we applied the provisions of ASC topic 350-30-35-3. The only factor that prevented us from determining that the Lanvin brand names and trademarks were indefinite life intangible assets was Item c. “Any legal, regulatory, or contractual provisions that may limit the useful life.” The existence of a repurchase option in 2025 may limit the useful life of the Lanvin brand names and trademarks to the Company. However, this limitation would only take effect if the repurchase option were to be exercised and the repurchase price was paid. If the repurchase option is not exercised, then the Lanvin brand names and trademarks are expected to continue to contribute directly to the future cash flows of our Company and their useful life would be considered to be indefinite.

With respect to the application of ASC topic 350-30-35-8, the Lanvin brand names and trademarks would only have a finite life to our Company if the repurchase option were exercised, and in applying ASC topic 350-30-35-8, we assumed that the repurchase option is exercised. When exercised, Lanvin has an obligation to pay the exercise price and the Company would be required to convey the Lanvin brand names and trademarks back to Lanvin. The exercise price to be received (Residual Value) is well in excess of the carrying value of the Lanvin brand names and trademarks, therefore no amortization is required.

### Quantitative Analysis

During the three-year period ended December 31, 2019, we have not made any material changes in our assumptions underlying these critical accounting policies or to the related significant estimates. The results of our business underlying these assumptions have not differed significantly from our expectations.

While we believe the estimates we have made are proper and the related results of operations for the period are presented fairly in all material respects, other assumptions could reasonably be justified that would change the amount of reported net sales, cost of sales, and selling, general and administrative expenses as they relate to the provisions for anticipated sales returns, allowance for doubtful accounts and inventory obsolescence reserves. For 2019, had these estimates been changed simultaneously by 5% in either direction, our reported gross profit would have increased or decreased by approximately $0.5 million and selling, general and administrative expenses would have changed by approximately $0.1 million. The collective impact of these changes on 2019 operating income, net income attributable to Inter Parfums, Inc., and net income attributable to Inter Parfums, Inc. per diluted share would be an increase or decrease of approximately $0.5 million, $0.2 million and $0.01, respectively.

### Results of Operations

*(in millions)*

| Net Sales | Years ended December 31, 2019 | % Change | 2018 | % Change | 2017 |
| --- | ---: | ---: | ---: | ---: | ---: |
| European based product sales | $542.1 | 1% | $537.6 | 13% | $476.5 |
| United States based product sales | 171.4 | 24% | 138.0 | 20% | 114.8 |
| Total net sales | $713.5 | 6% | $675.6 | 14% | $591.3 |

Net sales increased 6% in 2019 to $713.5 million, as compared to $675.6 million in 2018. At comparable foreign currency exchange rates, net sales increased 8%. Net sales increased 14% in 2018 to $675.6 million, as compared to $591.3 million in 2017. At comparable foreign currency exchange rates, net sales increased 13%. The average U.S. dollar/euro exchange rates were 1.12 in 2019 and 1.18 in 2018 and 1.13 in 2017.

European based product sales increased 1% in 2019 to $542.1 million, as compared to $537.6 million in 2018. At comparable foreign currency exchange rates, European based product sales increased 4% in 2019. European based product sales increased 13% in 2018 to $537.6 million, as compared to $476.5 million in 2017. At comparable foreign currency exchange rates, European based product sales increased 11% in 2018.

European based product sales came in as expected in 2019 despite fighting a stronger dollar throughout the year. Our largest brand, Montblanc, grew full year sales by 23% with the excellent performance of the new Montblanc *Explorer* scent as well as the continued strength of the brand’s *Legend* fragrance family. In constant dollars, Jimmy Choo brand sales were up slightly. However, due to the strengthening of the dollar brand sales for our second largest brand were down nominally in actual dollars. Coach brand sales were also down slightly in 2019 in actual dollars but ahead of 2018 in constant dollars. Of note, Coach brand sales in 2018 were 73.3% ahead of the prior year. Two of our mid-sized brands, Karl Lagerfeld and Van Cleef & Arpels, achieved year-over-year sales growth of 5.0% and 6.8%, respectively.

European based product sales in 2018 were stronger than our original expectations even though no new fragrance families were launched that year. Top line growth was primarily attributed to established scents and brand extensions for our largest brands. Coach brand sales accounted for much of the 2018 upside surprise with brand sales increasing 73.3% in 2018 to $99.7 million, as compared to $57.5 million in 2017, making it our portfolio’s third largest brand. The other largest brands in our European operations portfolio performed as expected with Montblanc, Jimmy Choo and Lanvin, achieving year-over-year sales growth of 1%, 8%, and 7%, respectively.

United States based product sales increased 24% in 2019 to $171.4 million, as compared to $138.0 million in 2018. GUESS brand fragrances had an extraordinary year due to the addition of two brand extensions, *1981 Los Angeles* and *Seductive Noir*, the continued popularity of legacy scents, and the success of our international distribution and marketing programs. Also contributing to the top line growth by U.S. operations were Abercrombie & Fitch and Hollister, both of which achieved significant sales growth spurred by the launch of the *Authentic* fragrance duo for Abercrombie & Fitch, and brand extensions for the *Wave* and *Festival* fragrance families for Hollister. Oscar de la Renta fragrance sales rose slightly, supported by legacy scents and our growing *Bella* fragrance family

United States based product sales increased 20% in 2018 to $138.0 million, as compared to $114.8 million in 2017. The inclusion of legacy GUESS fragrances, which began in the second quarter of 2018, was a major contributor to the increase in net sales. Also factoring into the 2018 increase was the successful launch of brand extensions for Abercrombie & Fitch and Hollister. With the popularity of Anna Sui fragrances throughout Asia, we enjoyed dramatic increases in Anna Sui brand sales in that region in 2018.

We maintain confidence in our future as we continue to strengthen advertising and promotional investments supporting all portfolio brands, accelerate brand development and build upon the strength of our worldwide distribution network. We have a more robust launch schedule in 2020 on both sides of the Atlantic. For U.S. operations, the most important launch will be our first blockbuster scent for women under the GUESS brand unveiling this spring, domestically, followed in the fall by an international rollout. A new fragrance duo for Hollister, *Canyon Escape*, is scheduled for a spring launch. We look to *Sky* by Anna Sui to reinvigorate brand sales when it debuts in the fall of 2020. Our first fragrance collection under the Graff label debuts in Harrod’s for a six-month exclusive starting in the spring, followed by select international luxury distribution. For European operations, our new Coach scent for women, Coach *Dreams*, came to market this winter. We have new women’s scents for the Montblanc brand debuting in the spring, and for Kate Spade New York our first scent is coming to market this summer. For Jimmy Choo our new women’s fragrance launch should be close to year-end, with much of the sell-in continuing into 2021. In addition, as always, we will strengthen fragrance families with brand extensions as well as limited edition and holiday programs throughout the year.

Lastly, we hope to benefit from our strong financial position to potentially acquire one or more brands, either on a proprietary basis or as a licensee. However, we cannot assure you that any new license or acquisition agreements will be consummated.

### Net Sales to Customers by Region

*(in millions)*

|  | Years ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| North America | $234.2 | $210.1 | $176.9 |
| Western Europe | 185.5 | 180.9 | 165.4 |
| Asia | 106.3 | 109.0 | 88.0 |
| Middle East | 72.6 | 59.3 | 50.5 |
| Eastern Europe | 55.3 | 52.8 | 49.4 |
| Central and South America | 46.2 | 51.7 | 51.2 |
| Other | 13.4 | 11.8 | 9.9 |
|  | $713.5 | $675.6 | $591.3 |

39

Virtually all regions registered growth for the year ended December 31, 2019, as compared to 2018 with Central and South America being the only decline. Even Asia, which appears to be down slightly in 2019, is actually up in constant dollars. The strongest gains were achieved by the Middle East, North America and Eastern Europe, which increased sales by 22%, 11% and 5%, respectively. For the year ended December 31, 2018, as compared to 2017, the strongest gains were achieved by Asia, North America and the Middle East, which increased sales by 24%, 19% and 17%, respectively.

### Gross Margins

*(in millions)*

|  | Years ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Net sales | $713.5 | $675.6 | $591.3 |
| Cost of sales | 267.6 | 248.0 | 215.0 |
| Gross margin | $445.9 | $427.6 | $376.3 |
| Gross margin, as a percent of net sales | 62.5% | 63.3% | 63.6% |

As a percentage of net sales, gross profit margin was 62.5%, 63.3%, and 63.6% in 2019, 2018 and 2017, respectively. For European based operations, gross profit margin as a percentage of net sales was 65.7%, 66.3% and 67.1% in 2019, 2018 and 2017, respectively. We carefully monitor movements in foreign currency exchange rates as over 45% 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 1.12 in 2019, as compared to 1.18 in 2018. The stronger dollar in 2019 resulted in a benefit to our gross margin in 2019, however, our new Montblanc *Explorer* product line has a greater than typical cost of sales, which more than offset the benefit of the stronger dollar.

The small fluctuation in gross margin as a percentage of sales for our European operations in 2018, as compared to 2017, is primarily the effect of exchange rate changes as the average dollar/euro exchange rate was 1.18 in 2018, as compared to 1.13 in 2017.

For United States operations, gross profit margin was 52.5%, 51.4% and 49.3% in 2019, 2018 and 2017, respectively. Sales growth for our United States operations has primarily come from increased sales of higher margin prestige products under licenses.

Costs relating to purchase with purchase and gift with purchase promotions are reflected in cost of sales, and aggregated $38.9 million, $36.4 million and $33.8 million in 2019, 2018 and 2017, respectively, and represented 5.5%, 5.4% and 5.7% of net sales, respectively.

Generally, we do not bill customers for shipping and handling costs and such costs, which aggregated $7.7 million, $7.1 million and $5.9 million in 2019, 2018 and 2017, respectively, are included in selling, general and administrative expenses in the consolidated statements of income. As such, our Company’s gross margins may not be comparable to other companies, which may include these expenses as a component of cost of goods sold.

### Selling, General & Administrative Expenses

*(in millions)*

|  | Years ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Selling, general & administrative expenses | $341.2 | $332.8 | $295.5 |
| Selling, general & administrative expenses as a percent of net sales | 47.8% | 49.3% | 50.0% |

Although selling, general and administrative expenses increased 2.5% in 2019 as compared to 2018 and increased 12.6% in 2018 as compared to 2017, as a percentage of sales, selling, general and administrative expenses exhibited a steady decrease, and were 47.8%, 49.3% and 50.0% in 2019, 2018 and 2017, respectively. For European operations, selling, general and administrative expenses declined 1.0% in 2019 and increased 10.5% in 2018, as compared to the corresponding prior year period and represented 50.8%, 51.7% and 52.8% of sales in 2019, 2018 and 2017, respectively. As discussed in more detail below, the fluctuations which are in line with the fluctuations in sales for European operations, are primarily from variations in promotion and advertising expenditures.

For United States operations, selling, general and administrative expenses increased 20.2% in 2019 and 25.0% in 2018, as compared to the corresponding prior year period and represented 38.5%, 39.8% and 38.2% of sales in 2019, 2018 and 2017, respectively. The increase, which is also in line with the increase in sales, is the result of royalties and promotional and advertising expenses required under our license agreements.

Promotion and advertising included in selling, general and administrative expenses aggregated $144.6 million, $139.7 million and $123.7 million in 2019, 2018 and 2017, respectively. Promotion and advertising as a percentage of sales represented 20.3%, 20.7% and 20.9% of net sales in 2019, 2018 and 2017, respectively. We continue to invest heavily in promotional spending to support new product launches and to build brand awareness. We anticipated that on a full year basis, promotion and advertising expenditure would aggregate approximately 21% of 2019 net sales, which was in line with prior year’s annual promotion and advertising expenditures as a percentage of sales. The slight decline in promotion and advertising expense as a percentage of sales in 2019 is the result of minor fluctuations in launch schedules.

Royalty expense included in selling, general and administrative expenses aggregated $53.0 million, $48.9 million and $39.6 million in 2019, 2018 and 2017, respectively. Royalty expense as a percentage of sales represented 7.4%, 7.2% and 6.7% of net sales in 2019, 2018 and 2017, respectively. The increase in 2019 and 2018, as a percentage of sales, is directly related to new licenses and increased royalty based product sales.

Service fees, which are fees paid within our European operations to third parties relating to the activities of our distribution subsidiaries, aggregated $7.5 million, $9.7 million and $11.7 million in 2019, 2018 and 2017, respectively. The 2019 and 2018 decrease is primarily the result of the discontinuation of certain European distribution subsidiaries, and a return to a third party distribution model in those territories.

### Impairment Loss

The Company reviews intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Product sales of some of our mass market product lines have been declining for many years. In 2017, the Company set in motion a plan to discontinue several of these product lines over the next few years. As a result, the Company recorded an impairment loss of $2.1 million in 2017.

### Income from Operations

As a result of the above analysis regarding net sales, gross profit margins, selling, general and administrative expenses and impairment loss, income from operations increased 10.6% to $104.7 million in 2019 as compared to $94.7 million in 2018, which was an increase of 20.5% from $78.6 million in 2017. Operating margins aggregated 14.7%, 14.0% and 13.3% for the years ended December 31, 2019, 2018 and 2017, respectively. In summary, small fluctuations in gross margin were mitigated by small fluctuations in selling, general and administrative expenses, primarily promotion and advertising expenditures. Overall the Company has been able to increase sales with a steady increase in its operating margin.

### Other Income and Expenses

Interest expense aggregated $2.1 million, $2.6 million and $2.0 million in 2019, 2018 and 2017, respectively. Interest expense is primarily related to the financing of brand and licensing acquisitions. We use the credit lines available to us, as needed, to finance our working capital needs as well as our financing needs for acquisitions. Long-term debt including current maturities aggregated $23.1 million, $46.1 million and $60.6 million as of December 31, 2019, 2018 and 2017, respectively.

Foreign currency losses aggregated $1.1 million, $0.3 million and $1.5 million in 2019, 2018 and 2017, respectively. We typically enter into foreign currency forward exchange contracts to manage exposure related to receivables from unaffiliated third parties denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Over 45% of 2019 net sales of our European operations were denominated in U.S. dollars.

Interest and dividend income aggregated $3.7 million, $4.0 million and $3.0 million in 2019, 2018 and 2017, respectively. Cash and cash equivalents and short-term investments are primarily invested in certificates of deposit with varying maturities.

### Income Taxes

In December 2017, the U.S. government passed the Tax Cuts and Jobs Act (“the Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to reducing the U.S. federal corporate tax rate from 35% to 21% beginning in 2018, and requiring companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries.

The Tax Act also established new tax laws that took effect in 2018, including, but not limited to: (i) the reduction of the U.S. federal corporate tax rate discussed above; (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (iii) a provision designed to tax global intangible low-taxed income (“GILTI”); and (iv) a provision that allows a domestic corporation an immediate deduction for a portion of its foreign derived intangible income (“FDII”).

The Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118, which provides a measurement period that was not to extend beyond one year from the Tax Act enactment date for companies to complete the related accounting under ASC 740, Accounting for Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for a certain income tax effect of the Tax Act was incomplete, but it was able to determine a reasonable estimate, it was required to record a provisional estimate in the financial statements.

In connection with its initial analysis of the impact of the Tax Act, the Company recorded a tax expense of $1.1 million for the year ended December 31, 2017. This estimate consists of no expense for the one-time transition tax, and an expense of $1.1 million related to revaluation of deferred tax assets and liabilities caused by the lower corporate tax rate. There were no material differences between the Company’s 2017 estimates and the final calculated amounts.

The Company has estimated of the effect of GILTI and has determined that it has no tax liability related to GILTI as of December 31, 2019 and 2018.

The Tax Act also contains a provision that allows a domestic corporation an immediate deduction for a portion of its foreign derived intangible income (“FDII”). The Company estimated the effect of FDII and recorded a tax benefit of $0.9 million and $0.6 million as of December 31, 2019 and 2018, respectively.

Our effective income tax rate was 27.7%, 27.3% and 29.2% in 2019, 2018 and 2017, respectively. The French government had introduced a 3% tax on dividends or deemed dividends for entities subject to French corporate income tax in 2012. In 2017, the French Constitutional Court released a decision declaring that the 3% tax on dividends or deemed dividends is unconstitutional. As a result of that decision, the Company filed a claim for refund of approximately $3.9 million for these taxes paid since 2015 including accrued interest of approximately $0.4 million. The Company recorded the refund claim as of December 31, 2017 and received the entire refund in 2018.

Excluding the 2017 adjustment to deferred tax benefit as a result of the Tax Act and the 2017 claim for refund, our effective tax rate for 2017 was 32.4%.

The French authorities are considering that the existence of IP Suisse, a wholly-owned subsidiary of Interparfums SA, does not, in and of itself, constitute a permanent establishment and therefore Interparfums, SA should pay French taxes on all or part of the profits of that entity. The French Tax Authority recently notified the Company that IP Suisse will be the subject of a tax audit covering the period January 1, 2010 through December 31, 2018. No claim or assessment for any taxes or penalties has been made at this time. The Company disagrees and is prepared to vigorously defend its position. Consequently, no provision has been made in the accompanying financial statements as we believe it is more likely than not that our position will be sustained based on its technical merits. Although we believe that we have sufficient arguments to support our position, there exists a risk that the French authorities may prevail. The Company’s exposure in connection with this matter is approximately $5.8 million, net of recover taxes already paid to the Swiss authorities, and excluding interest.

Lastly, pursuant to an action plan released by the French Prime Minister, the French corporate income tax rate is expected to be cut from approximately 33% to 25% over a three-year period which began in 2020. Other than as discussed above, we did not experience any significant changes in tax rates, and none were expected in jurisdictions where we operate.

### Net Income and Earnings per Share

*(In thousands except share and per share data)*

|  | Year ended December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Net income attributable to European operations | $56,343 | $56,469 | $48,236 |
| Net income attributable to United States operations | 19,727 | 13,246 | 7,017 |
| Net income | 76,070 | 69,715 | 55,253 |
| Less: Net income attributable to the noncontrolling interest | 15,821 | 15,922 | 13,659 |
| Net income attributable to Inter Parfums, Inc. | $60,249 | $53,793 | $41,594 |
| Net income attributable to Inter Parfums, Inc. common shareholders: |  |  |  |
| Basic | $1.92 | $1.72 | $1.33 |
| Diluted | 1.90 | 1.71 | 1.33 |
| Weighted average number of shares outstanding: |  |  |  |
| Basic | 31,451,093 | 31,307,991 | 31,172,285 |
| Diluted | 31,688,700 | 31,522,371 | 31,305,101 |

Net income has continued to increase over the past three years, and aggregated $76.1 million, $69.7 million and $55.3 million in 2019, 2018 and 2017, respectively. Net income attributable to European operations was $56.3 million, $56.5 million and $48.2 million in 2019, 2018 and 2017, respectively, while net income attributable to United States operations was $19.7 million, $13.2 million and $7.0 million in 2019, 2018 and 2017, respectively. The fluctuations in net income for European operations are directly related to the previous discussions relating to changes in sales, gross profit margins, selling, general and administrative expenses and the French tax refund.

For United States operations the significant fluctuations in net income are also directly related to the previous discussions relating to changes in sales, gross profit margins and selling, general and administrative expenses. In addition, results for 2017 include the effect of the $2.1 million impairment loss.

The noncontrolling interest arises primarily 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 related to the profitability of our European operations, and aggregated 28.1%, 28.2% and 28.3% of European operations net income in 2019, 2018 and 2017, respectively. Net income attributable to Inter Parfums, Inc. aggregated $60.2 million, $53.8 million and $41.6 million in 2019, 2018 and 2017, respectively. Net margins attributable to Inter Parfums, Inc. aggregated 8.4%, 8.0% and 7.0% in 2019, 2018 and 2017, respectively.

### Liquidity and Capital Resources

The Company’s financial position remains strong. At December 31, 2019, working capital aggregated $389 million, and we had a working capital ratio of over 3 to 1. Cash and cash equivalents and short-term investments aggregated $253 million 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 held by our European operations. Approximately 81% of the Company’s total assets are held by European operations including approximately $176 million of trademarks, licenses and other intangible assets.

The Company hopes to benefit from its strong financial position to potentially acquire one or more brands, either on a proprietary basis or as a licensee. Opportunities for external growth continue to be 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 provided by operating activities aggregated $76.5 million, $63.0 million and $35.9 million in 2019, 2018 and 2017, respectively. In 2019, working capital items used $11.7 million in cash from operating activities, as compared to $20.9 million in 2018 and $32.5 million in 2017. Although accounts receivable is up slightly from that of the prior year, day’s sales outstanding improved to 68 days in 2019, as compared to 71 days and 67 days in 2018 and 2017, respectively. Inventory days on hand aggregated 225 days in 2019, as compared to 223 days in 2018 and 189 days in 2017, respectively. The increase in 2018 was primarily the result of the required buildup of inventory for new licenses entered into in 2018 where we do not have a full year of sales. At year-end 2019, higher inventory levels were needed to support our robust new product launch schedule for 2020. In terms of cash flow, inventory levels at December 31, 2019 are up only 3.7% from that date of the prior year.

Cash flows used in investing activities reflect the purchase and sales of short-term investments. These investments are primarily certificates of deposit with maturities greater than three months. At December 31, 2019, approximately $65 million of 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 spent approximately $5.4 million on capital expenditures including tools and molds needed to support our new product development calendar. Capital expenditures also include amounts for office fixtures, computer equipment and industrial equipment needed at our distribution centers. Payments for licenses, trademarks and other intangible assets primarily represent upfront entry fees incurred in connection with new license agreements. In December 2016, the Company agreed to a buyout of one of its licenses, effective December 31, 2016, for a payment aggregating approximately $5.9 million. The Company received the buyout payment in May 2017.

In 2018, in connection with a new license agreement, we agreed to pay $15.0 million in equal annual installments of $1.1 million including interest imputed at 4.1%. In 2015, in connection with a brand acquisition, we entered into a 5-year term loan payable in equal quarterly installments of €5.0 million (approximately $5.6 million) plus interest. In order to reduce exposure to rising variable interest rates, we entered into a swap transaction effectively exchanging the variable interest rate to a fixed rate of approximately 1.2%.

Our short-term financing requirements are expected to be met by available cash on hand at December 31, 2019, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2020 consist of a $20.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $28.1 million in credit lines provided by a consortium of international financial institutions. There were no balances due from short-term borrowings as of December 31, 2019 and 2018.

Purchase of subsidiary shares from noncontrolling interest primarily represents the purchase of treasury shares of Interparfums SA, which are expected to be issued to Interparfums SA employees pursuant to its Free Share Plan.

In October 2017, our Board authorized a 24% increase in the annual dividend to $0.84 per share. In October 2018, our Board authorized a 31% increase in the annual dividend to $1.10 per share and in October 2019, our Board authorized a further 20% increase in the annual dividend to $1.32 per share. The next quarterly cash dividend of $0.33 per share is payable on April 15, 2020 to shareholders of record on March 31, 2020. Dividends paid, including dividends paid once per year to noncontrolling stockholders of Interparfums SA, aggregated $44.2 million, $35.0 million and $27.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. The cash dividends to be paid in 2020 are 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 year ended December 31, 2019.

### Contractual Obligations

The following table summarizes our contractual obligations over the periods indicated, 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 | $23,060 | $12,326 | $2,142 | $2,142 | $6,450 |
| Lease Liabilities | $29,991 | $5,871 | $9,772 | $7,759 | $6,589 |
| Purchase Obligations(1) | $1,665,369 | $173,159 | $350,386 | $344,796 | $797,028 |
| Total | $1,718,420 | $191,356 | $362,300 | $354,697 | $810,067 |

(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, 2019, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.

## Market risk

As filed, 2,980 characters.

### General

We address certain financial exposures through a controlled program of risk management that primarily consists of the use of derivative financial instruments. We primarily enter into foreign currency forward exchange contracts in order to reduce the effects of fluctuating foreign currency exchange rates. We do not engage in the trading of foreign currency forward exchange contracts or interest rate swaps.

### Foreign Exchange Risk Management

We periodically enter into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and to manage risks related to future sales expected to be denominated in a currency other than our functional currency. We enter into these exchange contracts for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the receivables and cash flows of Interparfums SA, 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, then the changes in fair value of the derivative instrument will be recorded in other comprehensive income.

Before entering into a derivative transaction for hedging purposes, we determine that the change in the value of the derivative will effectively offset the change in the fair value of the hedged item from a movement in foreign currency rates. Then, we measure the effectiveness of each hedge throughout the hedged period. Any hedge ineffectiveness is recognized in the income statement.

At December 31, 2019, we had foreign currency contracts in the form of forward exchange contracts with notional amounts of approximately U.S. $18.5 million, GB £2.7 million and JPY ¥105.0 million which all have maturities of less than one year. We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote.

### Interest Rate Risk Management

We mitigate interest rate risk by monitoring interest rates, and then determining whether fixed interest rates should be swapped for floating rate debt, or if floating rate debt should be swapped for fixed rate debt. We entered into an interest rate swap in June 2015 on €100 million of debt, effectively exchanging the variable interest rate to a fixed rate of approximately 1.2%. This derivative instrument is recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income.

## Controls and procedures

As filed, 1,952 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 annual report on Form 10-K (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.

### Management’s Annual Report on Internal Control over Financial Reporting

The management of Inter Parfums, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13(a)-15(f) under the Securities Exchange Act of 1934. With the participation of the Chief Executive Officer and the Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in *Internal Control – Integrated Framework (2013)*, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2019.

Our independent auditor, Mazars USA LLP, a registered public accounting firm, has issued its report on its audit of our internal control over financial reporting. This report appears on page F-2.

### Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the fourth quarter of 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Filed Mar 2, 2020.
Source: SEC EDGAR, the filing index for accession 0001213900-20-005153. Last ingested by Listed: Nov 4, 2026, 18:31 ET. No prices; not investment advice.