# Interparfums Inc: Form 10-Q for the period ended Mar 31, 2019

- Company: [Interparfums Inc](/companies/ipar.md) (CIK 822663)
- Form: 10-Q
- Filed: 2019-05-06
- Accepted by EDGAR: May 6, 2019, 16:24 ET
- Period: 2019-03-31
- Accession: 0001615774-19-007104
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/822663/000161577419007104/s117701_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/822663/000161577419007104/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-01-01 to 2019-03-31 | $178.2m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2019-01-01 to 2019-03-31 | $68.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2019-01-01 to 2019-03-31 | $109.8m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2019-01-01 to 2019-03-31 | $76.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-01-01 to 2019-03-31 | $33.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-01-01 to 2019-03-31 | $626.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-01-01 to 2019-03-31 | $9.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-01-01 to 2019-03-31 | $18.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-01-01 to 2019-03-31 | $0.60 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-01-01 to 2019-03-31 | $0.60 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-01-01 to 2019-03-31 | 31,679 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2019-01-01 to 2019-03-31 | −$14.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2019-01-01 to 2019-03-31 | $964.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2019-01-01 to 2019-03-31 | $8.6m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2019-03-31 | $156.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-03-31 | $570.5m | us-gaap:AssetsCurrent |
| Total assets | at 2019-03-31 | $824.5m | us-gaap:Assets |
| Current liabilities | at 2019-03-31 | $183.8m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2019-03-31 | $16.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2019-03-31 | $23.6m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2019-03-31 | $453.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,268 characters.

### Forward Looking Information

Statements in this report which are not historical in nature are forward-looking statements. Although we believe that our plans, intentions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. In some cases you can identify forward-looking statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and “would” or similar words. You should not rely on forward-looking statements because actual events or results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. These factors include, but are not limited to, the risks and uncertainties discussed under the headings “Forward Looking Statements” and “Risk Factors” in Inter Parfums’ annual report on Form 10-K for the fiscal year ended December 31, 2018 and the reports Inter Parfums files from time to time with the Securities and Exchange Commission. Inter Parfums does not intend to and undertakes no duty to update the information contained in this report.

### Overview

We operate in the fragrance business, and manufacture, market and distribute a wide array of fragrances and fragrance related products. We manage our business in two segments, European based operations and United States based operations. Certain prestige fragrance products are produced and marketed by our European operations through our 73% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 27% of Interparfums SA shares trade on the NYSE Euronext.

We produce and distribute our European based fragrance products primarily under license agreements with brand owners, and European based fragrance product sales represented approximately 81% and 87% of net sales for the three months ended March 31, 2019 and 2018, respectively. We have built a portfolio of prestige brands, which include *Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Lanvin, Montblanc, Paul Smith, Repetto, Rochas, S.T. Dupont* and *Van Cleef & Arpels*, whose products are distributed in over 100 countries around the world.

Through our United States operations, we also market fragrance and fragrance related products. United States operations represented 19% and 13% of net sales for the three months ended March 31, 2019 and 2018, respectively. These fragrance products are sold or to be sold primarily pursuant to license or other agreements with the owners of the *Abercrombie & Fitch, Agent Provocateur, Anna Sui, bebe, Dunhill, French Connection, Graff, GUESS, Hollister, Lily Aldridge* and *Oscar de la Renta* brands.

Substantially all of our prestige fragrance brands are licensed from unaffiliated third parties, and our business is dependent upon the continuation and renewal of such licenses. With respect to the Company’s largest brands, we license the Montblanc, Jimmy Choo and Coach brand names and own the Lanvin brand name for our class of trade. As a percentage of net sales, product sales for the Company’s largest brands were as follows:

|  | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Montblanc. | 26% | 24% |
| Jimmy Choo. | 17% | 14% |
| Coach. | 12% | 16% |
| Lanvin. | 9% | 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 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 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.

We believe general economic and other uncertainties exist in select markets in which we do business, and we monitor these uncertainties and other risks that may affect our business.

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. Our Company addresses 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. We continue to carefully monitor currency trends in the United Kingdom as a result of the volatility created from the United Kingdom’s decision to exit 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

### Lily Aldridge License

In September 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. The license agreement with Lily Aldridge runs through December 31, 2023, and is subject to royalty payments as are customary in our industry. This deal marks the beginning of a strategic partnership between Interstellar and IMG Models, which manages Lily Aldridge, to develop direct-to-consumer e-commerce fragrance and beauty businesses for IMG Models’ diverse and dynamic client base. Our initial fragrance product launch, a multi-scent collection, is planned for September 2019.

### Graff License

In April 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. Our rights under such license agreement are subject to certain advertising expenditures and royalty payments as are customary in our industry. Initial product development includes a multi-scent collection planned for a late 2019 or early 2020 launch. Additionally, we are exploring opportunities for luxury travel amenities, including five star hotels.

### GUESS License

In February 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. This license took effect on April 1, 2018, and our rights under such license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. In 2018, our sales efforts were focused on existing fragrances; in 2019, we plan to add several flankers to existing product and in 2020, an entirely new fragrance line is scheduled for launch.

### Discussion of Critical Accounting Policies

Information regarding our critical accounting policies can be found in our 2018 Annual Report on Form 10-K filed with the SEC.

### Results of Operations

### Three Months Ended March 31, 2019 as Compared to the Three Months Ended March 31, 2018

*(in millions)*

| Net Sales | Three months ended March 31, 2019 | % Change | 2018 |
| --- | ---: | ---: | ---: |
| European based product sales | $143.7 | (3.8%) | $149.5 |
| United States based product sales | 34.5 | 54.8% | 22.3 |
| Total net sales | $178.2 | 3.8% | $171.8 |

Net sales for the three months ended March 31, 2019 increased 3.8% to $178.2 million, as compared to $171.8 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 7.4%. For the 2019 first quarter, the average U.S. dollar/euro exchange rate was 1.14 as compared to 1.23 in the first quarter of 2018.

European based product sales decreased 3.8% to $143.7 million for the three months ended March 31, 2019, as compared to $149.5 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales were relatively unchanged. The launch of Montblanc *Explorer* was the catalyst behind the brand’s 9.9% sales gain and is expected to continue to contribute to sales growth in the second quarter. For Jimmy Choo, the 25.7% increase in comparable quarter sales reflects the recent launch of the Jimmy Choo *Floral* line and the continued popularity of the brand’s entire suite of fragrances, including Jimmy Choo *Man Blue* and Jimmy Choo *Fever*, which debuted last year in April and September, respectively. Coach, our third largest brand, saw a 22.3% drop in net sales, but factoring in last year’s 242.1% increase in first quarter brand sales, fueled in part by the launch of Coach *Floral*, the current quarter decline is understandable. Our distributors are awaiting the imminent release of Lanvin’s *A Girl in Capri*, which is expected to reverse the 18.9% decrease in first quarter Lanvin brand sales. While we have brand extensions and flankers unveiling for most of our European brands throughout the year, the next major launch is planned for the fall, and that is a new men’s fragrance pillar for Jimmy Choo.

United States based product sales increased 54.8% to $34.5 million for the three months ended March 31, 2019, as compared to $22.3 million for the corresponding period of the prior year. The inclusion of GUESS legacy scents was far and away the primary contributor to the 54.8% increase in first quarter net sales, as GUESS brand sales began during the second quarter of 2018. While Anna Sui fragrance sales approximated those of last year’s first quarter, Oscar de la Renta enjoyed an increase in sales due in part to the introduction of *Bella Rosa*, building upon last year’s launch of *Bella Blanca*. We have several major launches ahead of us, including *Authentic* by Abercrombie & Fitch and *Mermaid* by Anna Sui, plus brand extensions for the GUESS *1981* and *Seductive* collections. Finally, our new initiatives are progressing, with initial Lily Aldridge fragrances making their e-commerce debut later this year, and our ultra-deluxe Graff scents unveiling late this year or early next year.

### INTER PARFUMS, INC. AND SUBSIDIARIES

*(in millions)*

| Net Sales to Customers by Region | Three months ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| North America | $47.2 | $43.5 |
| Western Europe | 46.8 | 41.6 |
| Asia | 32.8 | 36.2 |
| Middle East | 25.5 | 20.7 |
| Central and South America | 13.3 | 15.9 |
| Eastern Europe | 9.0 | 11.0 |
| Other | 3.6 | 2.9 |
|  | $178.2 | $171.8 |

Sustained growth in the major markets of North America, Western Europe and Middle East was the result of increased product sales from the Montblanc, Jimmy Choo and Boucheron brands. The decrease in Asia is primarily the result of the decline in Lanvin brand sales.

*(in millions)*

| Gross Profit Margin | Three months ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Net sales | $178.2 | $171.7 |
| Cost of sales | 68.4 | 66.1 |
| Gross margin | $109.8 | $105.6 |
| Gross margin as a % of net sales | 61.6% | 61.5% |

Gross profit margin was 61.6% of net sales for the three months ended March 31, 2019, as compared to 61.5% for the corresponding period of the prior year. For European operations, gross profit margin was 63.2% and 63.0% in the first quarters of 2019 and 2018, respectively. We carefully monitor movements in foreign currency exchange rates as over 45% of our European based operations net sales are 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 profit margin while a weak U.S. dollar has a negative effect. The stronger dollar in 2019 resulted in a benefit to our gross margin during the three months ended March 31, 2019. However, our new Montblanc *Explorer* product line, which was designed by some of the most highly sought after designers, has a greater than typical cost of sales, which offset much of the benefit of the stronger dollar.

For U.S. operations, gross profit margin was 55.1% and 51.4% in the first quarters of 2019 and 2018, respectively. Sales growth for our United States operations has primarily come from increased sales of higher margin prestige products under license.

Generally, we do not bill customers for shipping and handling costs and such costs, which aggregated $1.6 million for both the three months ended March 31, 2019 and 2018, are included in selling, general and administrative expenses in the consolidated statements of income. As such, our Company’s gross profit may not be comparable to other companies which may include these expenses as a component of cost of goods sold.

### INTER PARFUMS, INC. AND SUBSIDIARIES

*(in millions)*

| Selling, General and Administrative Expenses | Three months ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Selling, general and administrative expenses | $76.5 | $75.2 |
| Selling, general and administrative expenses as a % of net sales | 42.9% | 43.8% |

Selling, general and administrative expenses increased 1.8% for the three months ended March 31, 2019, as compared to the corresponding period of the prior year. However, as a percentage of sales, selling, general and administrative expenses were 42.9% and 43.8% for the three months ended March 31, 2019 and 2018, respectively. For European operations, with sales down 3.8%, selling, general and administrative expenses declined 4.4% in 2019, as compared to 2018 and represented 42.5% of sales in 2019, as compared to 42.8% of sales in 2018. For U.S. operations, with sales up 54.8%, selling, general and administrative expenses increased 36.5% in 2019, as compared to 2018 and represented 44.7% and 50.8% of sales in 2019 and 2018, respectively. Improved quarterly sales comparisons are expected to provide further leverage of our selling, general and administrative expenses.

Promotion and advertising included in selling, general and administrative expenses aggregated approximately $27.4 million (15.4% of net sales) for the 2019 period, as compared to $26.9 million (15.6% of net sales) for the 2018 period. We continue to invest heavily in promotional spending to support new product launches and building brand awareness. We have significant promotion and advertising programs underway for 2019, and anticipate that on a full year basis, promotion and advertising expenditure will aggregate approximately 21% of 2019 net sales, which is in line with that of the past two years.

Royalty expense included in selling, general and administrative expenses aggregated $13.0 million for the 2019 period, as compared to $11.8 million in 2018 and represented 7.3% and 6.9% of net sales in 2019 and 2018, respectively. The increase in 2019, as a percentage of sales, is directly related to new licenses and increased royalty based product sales.

As a result of the above analysis regarding sales, margins and selling, general and administrative expenses, income from operations increased 9.5% to $33.3 million for the three months ended March 31, 2019, as compared to $30.4 million for the corresponding period of the prior year. Operating margins were 18.7% of net sales in the current period as compared to 17.7% for the corresponding period of the prior year.

### Other Income and Expense

Interest expense aggregated $0.6 million and $0.5 million for the three months ended March 31, 2019 and 2018, respectively. Interest expense is primarily related to the financing of brand and licensing acquisitions and in 2019, is incurred in connection with lease liabilities. We use the credit lines available to us, as needed, to finance our working capital needs as well as our financing needs for acquisitions.

Foreign currency losses aggregated $0.2 million for both the three months ended March 31, 2019 and 2018. 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 net sales of our European operations are denominated in U.S. dollars.

Interest income aggregated $1.9 million and $1.7 million for the three months ended March 31, 2019 and 2018, respectively. Cash and cash equivalents and short-term investments are primarily invested in certificates of deposit with varying maturities.

### Income Taxes

Our effective tax rate was 27.4% and 30.5% for the three months ended March 31, 2019 and 2018, respectively. Pursuant to an action plan released by the French Prime Minister, the French corporate income tax rate is to be cut from 33% to 25% over a five-year period beginning in 2018. Our effective tax rate for European operations was 29% and 31% for the three months ended March 31, 2019 and 2018, respectively.

In December 2017, the U.S. government passed the Tax Cuts and Jobs Act (“the Tax Act”). The Tax Act makes 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. The Tax Act also established a new provision designed to tax global intangible low-taxed income (“GILTI”) as well as a provision that allows a domestic corporation an immediate deduction for a portion of its foreign derived intangible income (“FDII”).

The decrease in our effective rate for the 2019 period is also related to increased profits from our United States subsidiaries for the three months ended March 31, 2019, as compared to the corresponding period of the prior year.

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 per share data) | Three months ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Net income attributable to European operations | $22,091 | $21,592 |
| Net income attributable to United States operations | 2,887 | 270 |
| Net income | 24,978 | 21,862 |
| Less: Net income attributable to the noncontrolling interest | 6,084 | 5,953 |
| Net income attributable to Inter Parfums, Inc. | $18,894 | $15,909 |
| Net income attributable to Inter Parfums, Inc. common shareholders: |  |  |
| Basic | $0.60 | $0.51 |
| Diluted | $0.60 | $0.51 |
| Weighted average number of shares outstanding: |  |  |
| Basic | 31,431 | 31,267 |
| Diluted | 31,679 | 31,429 |

Page 21

Net income increased 14.3% to $25.0 million for the three months ended March 31, 2019, as compared to $21.9 million for the corresponding period of the prior year. The reasons for significant fluctuations in net income for both European operations and United States operations are directly related to the previous discussions relating to changes in sales, gross margin, and selling, general and administrative expenses and effective tax rates. As discussed above, a slight increase in gross margin within our European operations was supplemented by increased leverage in selling, general and administrative expenses that offset the 3.8% decline in sales. For United States operations, in summary, 2019 sales increased 54.8%, gross margin increased 65.7% and selling, general and administrative expenses increased 36.5%, all as compared to the corresponding period of the prior year.

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. The noncontrolling interest is also affected by the profitability of Interparfums SA’s 51% owned distribution subsidiaries in Spain. Net income attributable to the noncontrolling interest aggregated 28% of European operations net income for both the three months ended March 31, 2019 and 2018. Net income attributable to Inter Parfums, Inc. increased 19% to $18.9 million, as compared to $15.9 million for the corresponding period of the prior year.

### Liquidity and Capital Resources

The Company’s financial position remains strong. At March 31, 2019, working capital aggregated $387 million and we had a working capital ratio of over 3.1 to 1. Cash and cash equivalents and short-term investments aggregated $228 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 84% of the Company’s total assets are held by European operations, and approximately $176 million of trademarks, licenses and other intangible assets are held by European operations.

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 used in operating activities aggregated $14.6 million and $20.7 million for the three months ended March 31, 2019 and 2018, respectively. For the three months ended March 31, 2019, working capital items used $42.1 million in cash from operating activities, as compared to $45.8 million in the 2018 period. Although accounts receivable is up 24% from year end, the balance is reasonable based on first quarter 2019 sales levels, and reflects continued strong collection activity as day’s sales outstanding is 85 days and 87 days for the three months ended March 31, 2019 and 2018, respectively. Inventory levels are relatively unchanged from year end and reflect inventory needed to support new product launches.

Cash flows used in investing activities in 2019 reflect the purchases and sales of short-term investments. These investments are primarily certificates of deposit with maturities greater than three months. At March 31, 2019, approximately $88 million of such certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal.

Our business is not capital intensive as we do not own any manufacturing facilities. On a full year basis, we spend approximately $4.0 million on tools and molds, depending on our new product development calendar. Capital expenditures also include amounts for office fixtures, computer equipment and industrial equipment needed at our distribution centers.

In 2018, in connection with a 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 $5.7 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 March 31, 2019, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2019 consist of a $20.0 million unsecured revolving line of credit provided by a domestic commercial bank, and approximately $28.0 million in credit lines provided by a consortium of international financial institutions. There were no short-term borrowings outstanding as of both March 31, 2019 and 2018.

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

In October 2018, the Board of Directors authorized a 31% increase in the annual dividend to $1.10 per share. The next quarterly cash dividend of $0.275 per share is payable on July 15, 2019 to shareholders of record on June 28, 2019.

We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.

Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the three month period ended March 31, 2019.

## Market risk

As filed, 2,968 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 March 31, 2019, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $26.5 million, GB £2.1 million and JPY ¥90.0 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, 1,288 characters.

### Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based on their review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our Company’s disclosure controls and procedures were effective.

### Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the quarterly period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

### Part II. Other Information

Items 1. Legal Proceedings, 1A. Risk Factors, 2. Unregistered Sales of Equity Securities and Use of Proceeds, 3. Defaults Upon Senior Securities, 4. Mine Safety Disclosures and 5. Other Information, are omitted as they are either not applicable or have been included in Part I.

Filed May 6, 2019.
Source: SEC EDGAR, the filing index for accession 0001615774-19-007104. Last ingested by Listed: Nov 4, 2026, 18:31 ET. No prices; not investment advice.