Interparfums Inc: Form 10-Q for the period ended Sep 30, 2025

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 Interparfums’ annual report on Form 10-K for the fiscal year ended December 31, 2024, and the reports Interparfums files from time to time with the Securities and Exchange Commission (“SEC”). Interparfums 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 prestige 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 based operations through our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 28% of Interparfums SA shares trade on the Euronext.

We produce and distribute fragrance products through our European based operations primarily under license agreements with brand owners, and European based fragrance product sales represented approximately 70% and 67% of net sales for the nine months ended September 30, 2025 and 2024, respectively. We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade, Lacoste, Lanvin, Moncler, Montblanc, Rochas, Solférino and Van Cleef & Arpels, whose products are distributed in over 120 countries around the world.

Through our United States based operations, we also produce and distribute fragrance and fragrance related products. United States based operations represented 30% and 33% of net sales for the nine months ended September 30, 2025 and 2024, respectively. These fragrance products are sold primarily pursuant to license or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, Donna Karan/DKNY, Emanuel Ungaro, Ferragamo, Graff, GUESS, Hollister, MCM, Oscar de la Renta and Roberto Cavalli 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 Jimmy Choo, Coach, Montblanc, GUESS, Lacoste, Donna Karan/DKNY, and Ferragamo brand names.

As a percentage of net sales for the nine months ended September 30, 2025 and 2024, product sales for the Company’s largest brands represented 78% and 75%, respectively, with a split by brand as follows:

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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 primarily sell directly to retailers in France, the United States, and Italy.

We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, through new licenses or other arrangements, or outright 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. The 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 and stored directly at our third party fillers or received at one of our distribution centers. For those components received at one of our distribution centers, based upon production needs, the components are subsequently 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 and well diversified 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 as approximately 50% of net sales of our European based operations are denominated in U.S. dollars, while almost all costs of our European based operations are incurred in euro. 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.

Recent Important Events

Please see our discussion of Recent Important Events, which is incorporated by reference to Note 2 to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2025.

Discussion of Critical Accounting Policies

Information regarding our critical accounting policies can be found in our 2024 Annual Report on Form 10-K filed with the SEC.

Results of Operations

Three and Nine Months Ended September 30, 2025 as Compared to the Three and Nine Months Ended September 30, 2024

Net Sales:

(in millions)

*n/a = not applicable

Net sales for the three months ended September 30, 2025 increased 1% from the three months ended September 30, 2024. The average dollar/euro exchange rate for the current third quarter was 1.17 compared to 1.10 in the third quarter of 2024, resulting in a positive foreign exchange impact on net sales of 2.2% in the three months ended September 30, 2025 as compared to the prior year period. Net sales for the nine months ended September 30, 2025 also increased 1% as compared to the nine months ended September 30, 2024. The average dollar/euro exchange rate for the nine months ended September 30, 2025 was 1.12 compared to 1.09 for the nine months ended September 30 2024, resulting in a positive foreign exchange impact on nets sales of 1.1% as compared to the prior year period. The discontinuation of the Dunhill license decreased net sales for the nine months ended September 30, 2025 1% compared to the prior year period and a moderate impact in the current quarter compared to the prior year period. Overall organic growth on a year to date basis is 1.2% compared to the prior year period as consumers are being more selective and retailers are taking a cautious approach to inventory.

For European based operations, sales in the three months ended September 30, 2025 increased 5%, compared to the corresponding period of the prior year, driven by Jimmy Choo, Lacoste and Coach, which grew by 16%, 8% and 6%, respectively. These increases were driven by continued strong performance in these brands' established lines. Sales of Montblanc were down 2% in the third quarter, despite the recent release of the Montblanc Explorer Extreme, resulting in a 6% decline for the nine months ended September 30, 2025, as compared to the prior year period. We have further enhanced the brand with the launch of Montblanc Signature Elixir and believe it will gain traction through the balance of the year and into 2026.

For United States based operations, sales in the three months ended September 30, 2025 decreased 6% compared to the corresponding period of the prior year as a result of the discontinuation of the Dunhill license. With the phase-out of Dunhill fragrances completed in August of 2024, we expect minimal impact on a quarter-over-quarter comparison going forward. GUESS fragrance sales declined moderately by 3% in the three months ended September 30, 2025, compared to the corresponding period of the prior year, due to a high base in the prior period third quarter and the phasing of innovation. The brand continues to perform well, and we believe the brand is poised for sales growth in the final quarter of the year. Donna Karan/DKNY fragrance sales declined 14% in the three months ended September 30, 2025, compared to the corresponding period of the prior year, due to robust growth levels achieved last year. Based on planned shipments through year end and the brand's popularity during the holiday season, particularly in the Americas, we believe the brand will grow in the final quarter of the year. Roberto Cavalli fragrance sales continue to benefit from increased focus, investment and innovation, growing 44% and 33% in the three and nine months ended September 30, 2025, respectively, compared to the corresponding periods in the prior year. The brand continues to benefit from strong innovation, including the blockbuster launch of Roberto Cavalli Serpentine and a new duo, Just Cavalli Give Me Magic. MCM sales rose by 6% in the third quarter of 2025 compared to the third quarter of 2024 with the continued success from the launch of the MCM Collection. For the nine months ended September 30, 2025, United States based operations sales decreased 10% on a reported basis and 6% on an organic basis, compared to the corresponding period of the prior year.

While the 2025 third quarter saw only a slight overall increase, we are encouraged by our agility and pricing actions that are underway and expect to see the full impact of our efforts throughout the remainder of 2025 and through 2026. We continue to focus on our long-term strategy, innovative product development, and high service levels for our global retail and distribution partners. While the pace of growth in the fragrance market is starting to slow down, the power of our diverse brand portfolio, in combination with our agile operating model, should help us gain market share.

INTERPARFUMS, INC. AND SUBSIDIARIES

(In millions)

In the nine months ended September 30, 2025, net sales in our largest market, North America, rose 4% as compared to the prior year period, followed by an increase in Western Europe of 3%. Our sales in Asia/Pacific decreased by 9% driven by distribution disruptions in South Korea and India in the current year. Our net sales in Eastern Europe were also robust, up 6% in the nine months ended September 30, 2025 as compared to the prior year period when we faced temporary sourcing constraints. Central and South America net sales increased 12%. Middle East and Africa net sales declined 16% primarily related to a disproportionate impact from the exit of the Dunhill license due to its significant presence. Excluding the impact of Dunhill, Middle East and Africa net sales declined 7% due to the impacts of the conflicts in the region and a reduction in the number of doors in many markets that are now more focused on higher-end luxury fragrances.

(in millions)

The Company’s gross profit margin as a percentage of net sales was 63.5% and 64.4% for the three and nine months ended September 30, 2025 as compared to 63.9% and 63.6% for the corresponding periods of the prior year. The Company continued to benefit from favorable segment, brand, and channel mix, in the nine months ended September 30, 2025 as compared to the prior year period. However, during the three months ended September 30, 2025 as compared to the prior year period, these favorable tailwinds as well as additional pricing actions that were taken at the back end of the quarter were not sufficient to offset the impacts of higher tariffs on our US imports, which represented $6 million.

For European based operations, gross profit margin as a percentage of net sales was 66.0% and 66.6% for the three and nine months ended September 30, 2025, respectively, as compared to 66.2% and 66.3% for the corresponding period of the prior year. European based operations were negatively impacted by tariffs during the three months ended September 30, 2025 as compared to the prior year period, offset by pricing increases in the United States and brand and channel mix. During the nine months ended September 30, 2025, favorable channel mix resulted in the increase in gross profit as percentage of sales compared to the prior year period.

For United States based operations, gross profit margin as a percentage of net sales was at 58.1% and 59.0% for the three and nine months ended September 30, 2025 respectively, as compared to 59.2% and 58.2% for the corresponding periods of the prior year. United States based operations saw a moderate decline due to the negative impact of tariffs as well as brand and channel mix in the three months ended September 30, 2025. The increase in the nine months ended September 30, 2025 was mainly driven by the discontinuation of Dunhill products, which were sold at lower margins in 2024 as is customary during sell-off periods.

Generally, we do not bill customers for shipping and handling costs, which 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.

(In millions)

The Company’s selling, general and administrative expenses as a percentage of net sales were 38.2% and 42.4% for the three and nine months ended September 30, 2025 as compared to 38.9% and 41.8% for the three and nine months ended September 30, 2024. The decrease in the quarter was driven by the phasing of promotional and advertising activities. The increase in the first three quarters of the year was largely driven by increased overall spending on promotional and advertising activities and increased employee related costs, as well as negative foreign exchange impacts.

For European based operations, selling, general and administrative expenses increased 1.5% and 4.9% for the three and nine months ended September 30, 2025, respectively as compared to the corresponding periods of the prior year, and represented 37.2% and 41.1% of net sales for the three and nine months ended September 30, 2025, as compared to 38.3% and 41.5% for the three and nine months ended September 30, 2024. A significant portion of our expense in European based operations are denominated in euros, resulting in costs as reported in USD. The decrease in selling, general and administrative expenses as a percentage of net sales in the third quarter and first nine months of the year was driven by the expiration of the 2022 free-share plan and distribution of shares in France in the second quarter resulting in the decrease in stock compensation amortization. For United States based operations, selling, general and administrative expenses decreased 4.4% and 2.3% for the three and nine months ended September 30, 2025 as compared to the corresponding periods of the prior year, and represented 39.7% and 44.4% of net sales for the three and nine months ended September 30, 2025, as compared to 39.0% and 41.1% for the three and nine months ended September 30, 2024. The increase in selling, general and administrative expenses as a percentage of net sales was largely driven by lower sales in 2025 with the discontinuation of Dunhill in 2024.

Promotion and advertising included in selling, general and administrative expenses aggregated $65.5 million and $185.9 million for the three and nine months ended September 30, 2025, respectively, as compared to $66.8 million and $181.5 million for the corresponding periods of the prior year and represented 15.3% and 16.9% of net sales for the three and nine months ended September 30, 2025, respectively, as compared to 15.7% and 16.6% for the corresponding periods of the prior year. Promotion and advertising are integral parts of our industry, and we continue to invest heavily to support new product launches and to build brand awareness. We are also investing in line with anticipated sell out by our retailers, which we believe are higher than our reported sales. We believe that our promotion and advertising efforts have a beneficial effect on sales. As such, the Company is focused on increasing promotional and advertising spending to support the continued success of our brands. Long term, we continue to anticipate that on a full year basis, promotion and advertising expenditures will aggregate approximately 21% of net sales.

Royalty expense included in selling, general and administrative expenses aggregated $34.7 million and $90.5 million for the three and nine months ended September 30, 2025, respectively, as compared to $34.0 million and $88.2 million for the corresponding periods of the prior year. Royalty expense represented 8.1% and 8.2% of net sales for both the three and nine months ended September 30, 2025 as compared to 8.0% and 8.1% of net sales for the corresponding periods of the prior year. This increase was primarily driven by unfavorable brand mix.

Income from Operations

As a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, our operating margins aggregated 25.3% and 22.0% for the three and nine months ended September 30, 2025, respectively, as compared to 25.0% and 21.9% for the corresponding period of the prior year.

Other Income and Expense

Overall, other income and expense for the nine months ended September 30, 2025, was a loss of $7.7 million as compared to a loss of $7.1 million in the corresponding prior year period. One of the main drivers is the impact of our gains and losses on foreign currency where we recognized a loss of $4.6 million in the first nine months of 2025 compared to $3.1 million in the first nine months of 2024. Another driver of this change is the impact of our gains and losses on marketable securities where we recorded a loss of $2.5 million in the first nine months of 2025 and a loss of $0.8 million in the first nine months of 2024. Changes in interest expense and interest income were favorable year-over-year with net interest expense of $1.8 million during the nine months ended September 30, 2025 as compared to a net interest expense of $2.9 million in the prior year period.

Interest expense is primarily related to the financing of brand and licensing acquisitions, as well as our headquarters in Paris. Long-term debt including current maturities aggregated $196.9 million and $157.3 million as of September 30, 2025 and December 31, 2024, respectively. Interest expense was $5.1 million in the nine months ended September 30, 2025 compared to $5.3 million in the prior year period.

We enter into foreign currency forward exchange contracts to manage exposure related to receivables from unaffiliated third parties denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Approximately 50% of net sales of our European based operations are denominated in U.S. dollars. Gains and losses in derivatives designated as hedges are accumulated in other comprehensive income and gains and losses in derivatives not designated as hedges are included in (gain) loss on foreign currency on the accompanying consolidated income statements. Such gains and losses were immaterial in the three and nine months ended September 30, 2025 and 2024.

Interest and investment income represents interest earned on cash and cash equivalents and short-term investments and realized and unrealized gains and losses on marketable equity securities. Interest income was $4.4 million in the nine months ended September 30, 2025 compared to $2.7 million in the prior year period.

Income Taxes

Our consolidated effective tax rate was 23.5% and 23.7% for the nine months ended September 30, 2025 and 2024, respectively. The effective tax rate for European based operations was 24.4% and 25.0% for the nine months ended September 30, 2025 and 2024, respectively. The decrease in taxes resulted from a $3 million favorable outcome to our mutual agreement procedure between the French and United States tax authorities in which we were able to reclaim the tax assessment paid in France in 2023. The gain was offset by a $1 million one-time tax assessment included in the tax expense as a result of a tax audit conducted for the 2022 and 2023 tax years. The effective tax rate for United States based operations was 20.0% for the nine months ended September 30, 2025, as compared to 19.8% for the corresponding period of the prior year. Our effective tax rate for United States based operations differs from the 21% statutory rate in the United States as it is a blended rate across multiple jurisdictions, and takes into account benefits received from the exercise of stock options as well as deductions we are allowed for a portion of our foreign derived intangible income, slightly offset by state and local taxes. 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

(In thousands)

Net income attributable to Interparfums, Inc. was $65.8 million and $140.3 million for the three and nine months ended September 30, 2025, respectively, as compared to $62.3 million and $140.1 million for the corresponding period of the prior year.

Net income attributable to European based operations was $63.7 million and $144.6 million for the three and nine months ended September 30, 2025, as compared to $54.4 million and $132.6 million for the corresponding periods of the prior year, while net income attributable to United States based operations was $20.8 million and $39.0 million the three and nine months ended September 30, 2025, as compared to $24.3 million and $49.0 million the corresponding periods of the prior year. The significant fluctuations in net income for both European based operations and United States based operations are directly related to the previous discussions pertaining to changes in sales, gross margin, and selling, general and administrative expenses.

The noncontrolling interest arises from our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company, as 28% of Interparfums SA shares trade on the Euronext. Net income attributable to the noncontrolling interest is directly related to the profitability of our European based operations and aggregated 28% of European based operations net income for both the nine months ended September 30, 2025 and 2024. Net profit margins attributable to Interparfums, Inc. for the nine months ended September 30, 2025 and 2024 aggregated 12.7% and 12.8%, respectively.

Liquidity and Capital Resources

Our conservative financial tradition has enabled us to amass significant cash balances. As of September 30, 2025, we had $187.9 million in cash, cash equivalents and short-term investments, the majority of which are held in euros by our European based operations and is readily convertible into U.S. dollars. We have not experienced any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments.

As of September 30, 2025, working capital aggregated $688.0 million. Approximately 77% of the Company’s total assets are held by European based operations, and approximately $294.4 million of trademarks, licenses and other intangible assets are also held by European based operations.

The Company is party to a number of licenses and other agreements for the use of trademarks and rights in connection with the manufacture and sale of its products expiring at various dates through 2039. In connection with most of these license agreements, the Company is subject to minimum annual advertising commitments, minimum annual royalties and other commitments. See Item 8. Financial Statements and Supplementary Data – Note 11 – Commitments in our 2024 annual report on Form 10-K, which is incorporated by reference herein. Future advertising commitments are estimated based on planned future sales for the license terms that were in effect at December 31, 2024, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.

The Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a proprietary basis or as a licensee. In July 2025, our 72% owned French subsidiary, Interparfums SA, signed an exclusive fragrance license agreement with Longchamp running through December 31, 2036. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. The first launch is expected in 2027. In June 2025, our 72% owned French subsidiary, Interparfums SA, acquired all intellectual property rights relating to Maison Goutal held by Amorepacific Europe, which is operating the Goutal brand under an existing license agreement that expires on December 31, 2025, when Interparfums SA will begin commercial use of the fragrance brand. Additionally, in June 2025, we renewed the Coach license agreement for an additional five-year term, extending the license through June 30, 2031.

In December 2024, our 72% owned French subsidiary, Interparfums SA, obtained all Off-White brand names and registered trademarks for Class 3 fragrance and cosmetics products, subject to an existing license that expires on December 31, 2025, when Interparfums SA will begin commercial use of the fragrance brands. Furthermore, in December 2024, we renewed the Van Cleef & Arpels license agreement for an additional nine-year term, beginning January 1, 2025. In July 2023, we entered into a global licensing agreement for the creation, development and distribution of fragrances and fragrance related products under the Roberto Cavalli brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. This license took effect in July 2023, and we began shipping products in February 2024.

In December 2022, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance related products under the Lacoste brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. This license took effect, and products began shipping in January 2024.

Cash provided by operating activities aggregated $68.4 million for the nine months ended September 30, 2025 compared to $49.7 million for the nine months ended September 30, 2024. For the nine months ended September 30, 2025, working capital items used $133.9 million in cash from operating activities, as compared to $147.0 million in the 2024 period. From a cash flow perspective, accounts receivables are up 23% from year end 2024. The balance is reasonable based on third quarter 2025 sales levels and seasonality of the business. Days' sales outstanding increased to 89 days, up from 83 days in the corresponding period of the prior year, driven by changes in our channel mix. Despite the increase, we are still seeing strong collection activity and do not anticipate any issues with collections of accounts receivable. From a cash flow perspective, inventory levels as of September 30, 2025 decreased 5% from year end 2024 as we continue to drive inventory efficiencies. We are doing this by increasing conversion of raw materials into finished goods, resulting in finished goods making up 68% of our inventory levels at September 30, 2025 as compared to 63% at September 30, 2024.

Cash flows provided by investing activities in 2025 are comprised of the net effect of purchases and sales of short-term investments. These investments consist of certificates of deposit with maturities greater than six months, marketable equity securities and other contracts. At September 30, 2025, approximately $2.3 million of certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal.

These proceeds were offset by the payment for capital expenditures during the year. In March 2025, the Company paid approximately $19.7 million for the purchase of the Goutal trademark. Additionally, during the second and third quarters the Company purchased approximately $18.2 million of additional property in Paris attached to its French headquarters.

Our business is not capital intensive as we do not own any manufacturing facilities. On a full year basis, we typically spend approximately $5 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.

Cash flows used in financing activities in 2025 reflect issuances and repayments of debt to institutional lenders and payment of dividends to stockholders.

Our short-term financing requirements are expected to be met by available cash on hand at September 30, 2025, and by short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2025 consist of $70.0 million unsecured revolving lines of credit provided by a consortium of domestic commercial banks and approximately $9.4 million (€8 million) in credit lines provided by a consortium of international financial institutions. There was $9.4 million of short-term borrowings outstanding pursuant to these facilities as of September 30, 2025 and $9.0 million outstanding as of September 30, 2024.

In February 2024, the Board of Directors authorized an annual dividend of $3.00 per share. In February 2025, the Board of Directors further increased the annual dividend to $3.20 per share. The next quarterly cash dividend of $0.80 per share is payable on December 31, 2025, to shareholders of record on December 15, 2025.

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 United States and foreign countries in which we operate did not have a significant impact on operating results for the nine months ended September 30, 2025; however, we have already started to see the impacts of tariffs on our cost structure and have adjusted our pricing accordingly, as such, we anticipate potential inflationary impacts in the last quarter of 2025 and beyond as our suppliers potentially adjust their pricing as well.

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, 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 September 30, 2025, we had foreign currency contracts in the form of forward exchange contracts of approximately USD $60 million with 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.

Evaluation of Disclosure Controls and Procedures

Please see Item 9A. Controls and Procedures, “Evaluation of Disclosure Controls and Procedures” and “Remediation Plan,” as contained in our 2024 annual report on Form 10-K as filed with the SEC (“2024 Annual Report”), which are incorporated by reference in this quarterly report. As stated in our 2024 Annual Report, we believe that the actions set forth under “Remediation Plan,” will collectively remediate the material weaknesses identified. However, our material weaknesses will not be considered remediated until the controls operate for a sufficient period of time and management has concluded, through testing, that the related controls are operating effectively. We will continue to monitor the design and effectiveness of these and other processes, procedures, and controls and will make any further changes management deems appropriate. The above disclosure is applicable to the evaluation of our disclosure controls and procedures for this third quarter of 2025.

Changes in Internal Control Over Financial Reporting

Except as described above, there has been no significant 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.