EDGAR 10-K Filing

Company CIK: 822663
Filing Year: 2021
Filename: 822663_10-K_2021_0001213900-21-012513.json

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ITEM 1. BUSINESS
Item 1. Business
General Business Development
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 wholly-owned United States subsidiaries, Jean Philippe Fragrances, LLC and Inter Parfums USA, LLC, are located at 551 Fifth Avenue, New York, New York 10176, and our telephone number is 212.983.2640.
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.
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 27% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 73% 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, 2020, 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 78% of net sales for 2020. We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade New York, Lanvin, Moncler, 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 produced and marketed through our United States operations, and represented approximately 22% of net sales for the year ended December 31, 2020. 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
Anna Sui Corp.
In January 2021, we renewed our license agreement with Anna Sui Corp. for the creation, development and distribution of fragrance products through December 31, 2026, without any material changes in terms and conditions. Our initial 10-year license agreement with Anna Sui Corp. was signed in 2011. The renewal agreement also allows for an additional 5-year term through 2031 at the option of the Company.
Building Acquisition - Future Headquarters in Paris
In December 2020, our majority owned Paris-based subsidiary, Interparfums SA, signed a purchase contract, subject to certain conditions, to acquire an office building complex for its exclusive use as its future headquarters located in the heart of Paris. In order to maintain our current cash position, it is expected that approximately 90% of the €125 million ($153 million) purchase price, excluding taxes and related expenses, will be financed by a bank loan. The transaction is expected to be completed in the spring of this year with the move planned for the end of 2021 or the beginning of 2022.
This acquisition is a unique opportunity with benefits to be realized over the long-term. Owning our corporate headquarters in a very prestigious part of Paris, and customizing the complex for our European operations, will enhance our reputation, provide an exceptional work environment, as well as a welcoming and productive atmosphere for our suppliers, distributors and licensors.
Origines-Parfums
In June 2020, the Company through its 73% owned subsidiary, Interparfums SA, and Divabox SAS (“Divabox”), owner of the Origines-parfums e-commerce platform for beauty products, signed a strategic agreement and equity investment pursuant to which we acquired a 25% of Divabox capital for $14.0 million, through a capital increase. In connection with the acquisition, the Company entered into a $13.4 million term loan, which has been amended such that the loan was repaid in full in February 2021. As a website of reference for all selective fragrance brands, Origines-parfums is a key French player in the online beauty market recognized for its customer relationship expertise. This agreement should enhance the introduction of dedicated fragrance lines and products designed to address a specific consumer demand for this distribution channel and accelerate our digital development.
Moncler
In June 2020, the Company entered into an exclusive, 5-year worldwide license agreement with a potential 5-year extension with Moncler for the creation, development and distribution of fragrances under the Moncler brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. Moncler was founded at Monestier-de-Clermont, Grenoble, France, in 1952 and is currently headquartered in Italy. Over the years, the brand has combined style with constant technological research assisted by experts in activities linked to the world of the mountain. The Moncler outerwear collections marry the extreme demands of nature with those of city life. Our first fragrance launch for the Moncler brand is scheduled for the first quarter of 2022.
S.T. Dupont
In January 2021, we renewed our license agreement with S.T. Dupont for the creation, development and distribution of fragrance products through December 31, 2022, without any material changes in terms and conditions. Our initial 11-year license agreement with S.T. Dupont was signed in June 1997 and had previously been extended through December 31, 2020.
Abercrombie & Fitch and Hollister
In November 2019, we extended our license for both the Abercrombie & Fitch and Hollister brands, until either party terminates 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. Our first fragrance launch for the MCM brand is scheduled for spring 2021.
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. Our first fragrance launch for the Kate Spade New York brand began in the first quarter of 2021.
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,
Montblanc 21 % 22 % 19 %
Coach 17 % 14 % 15 %
Jimmy Choo 16 % 16 % 17 %
GUESS (license commenced April 1, 2018) 11 % 10 % n/a
Lanvin 7 % 8 % 10 %
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, 2026, plus one 5-year optional term
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
Extends until either party terminates on 3 years’ notice
Kate Spade New York
June 30, 2030
Jimmy Choo
December 31, 2031
Karl Lagerfeld
October 31, 2032
MCM
December 31, 2030, plus 4 option years
Moncler
December 31, 2026, plus a 5-year optional term if certain conditions are met
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, 2022
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 $86 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 in 2020, we released Authentic Night. In April 2021, we have Naturally Fierce Perfume ready for international distribution and in the second half of 2021, we have a new pillar ready for launch.
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.
The successful launch in 2017 of Fantasia by Anna Sui together with the benefits that accrued from our continued commitment to advertising and marketing, produced a significant increase in 2018 brand sales. Brand sales declined modestly in 2019, as new product launches were primarily brand extensions. The COVID-19 pandemic, which resulted in retail store closings and a virtual shutdown of travel retail, significantly affected Anna Sui brand sales in 2020. A recovery began in late 2020, and to take advantage of markets reopening, we began the initial rollout of our newest Anna Sui fragrance, Sky by Anna Sui in China and Hong Kong. For 2021, we plan a broader distribution of Anna Sui Sky throughout Asia.
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 scent collection was launched under the Boucheron brand in 2017, and additional scents are added annually. In 2019, two new fragrances, Boucheron Fleurs and Boucheron Quatre en Rouge, were added to the Boucheron collection. For 2020, we added Rose D’Isparta and Serpent Boheme and for 2021, Quatre en Bleu and Cuir de Venise will be making their debuts.
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. 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. In 2020 we launched a new Coach women’s scent, Coach Dreams. We also have a new fragrance, Dreams Sunset, which is scheduled to debut in 2021. 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 at that time. Building upon the established success of the Icon fragrance family, we launched several product extensions in 2017 and 2018. In 2019, the Dunhill Signature Collection debuted exclusively at Harrod’s followed by a global rollout, and brand extensions dominated for Dunhill in 2020. For 2021, we have a completely new fragrance family for Dunhill called Driven.
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 craftsmen 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, a six-scent collection for women, Lesedi La Rona, debuted exclusively at Harrods beginning in March 2020. The exclusive was extended through 2020 as a result of the interruption from mandatory store closings at various times throughout 2020. In 2021, a select market rollout will begin in the Middle East, with selective luxury distribution limited to only the most exclusive, upmarket retail outlets. In 2021, we have two new scents in the works for the Lesedi La Rona collection.
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 quickly became the largest within our U.S. operations, with legacy fragrances dominating the sales mix. In 2019, we began shipments of 1981 Los Angeles and Seductive Noir, both flankers of established scents, which accelerated brand growth further.
Nearly three years in the making, our first new blockbuster scent, Bella Vita, will debut for the GUESS brand both domestically and internationally in 2021. In addition, a new men’s grooming and fragrance collection is now scheduled for a spring 2021 launch.
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. In 2019, we launched the Wave limited edition duo, plus our first Festival brand extension, Festival Nite. For 2020, we released Canyon Escape for men and women in select markets, with the global rollout planned for the first quarter of 2021.
The quintessential apparel brand of the global teen consumer, Hollister Co. celebrates the liberating spirit of the endless summer inside everyone. Inspired by California’s laidback attitude, Hollister’s clothes are designed to be lived in and made your own, for wherever life takes you.
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 shares a vision to create one of the world’s most treasured luxury brands. Jimmy Choo has a global store network encompassing more than 200 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 expanded our product line to include a lipstick and nail polish line, and our new women’s fragrance, I Want Choo is being launched in 2021. Lastly, we will also be adding four new lipsticks to our Jimmy Choo makeup line in 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. In 2021 Karl Cities, a new collection, is being prepared.
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. Our first original scent, Kate Spade, debuted in January 2021.
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. We debuted a new scent called A Girl in Capri in 2019, and also introduced a new flanker, Éclat d’Arpège Sheer in the second half of 2020. Mon Éclat, a new fragrance, is scheduled for a second half 2021 release.
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 our first new fragrance, MCM, targeted for a first quarter of 2021 launch. 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, international retail footprint through its network of more than 600 boutiques, 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 2014, we launched our second men’s line, Emblem. The Emblem line was expanded in 2015 to include Montblanc Emblem Intense, and 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, we introduced an eau de parfum version of Legend which debuted in the fall, and in 2021, we have a new flanker ready for market, Explorer Ultra Blue.
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 added Bella Essence to the family tree. Debuting in 2021 we have a completely new fragrance for Oscar de la Renta, Alibi.
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 Men, Paul Smith Women, Paul Smith London, Paul Smith Rose and Paul Smith Extrême, for men and women.
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, sandals, 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. Despite this brand’s success with footwear, handbags and high-end accessories, fragrance sales have been modest.
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 women’s line, Byzance, debuted in early 2020. For 2021, we have a new two new fragrances debuting, Rochas Girl in the first half of the year, and later in the year, a flanker for the L’Homme Rochas collections.
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 pour Femme, S.T. Dupont pour Homme, S.T. Dupont Essence Pure and S.T. Dupont Collection.
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, including Oud Blanc, in 2020. We have new additions to the Collection Extraordinaire, including Réve de Matiere unveiling in 2021.
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 30 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 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. During 2020, we signed a new license for the Moncler brand. In 2020, we also acquired a minority interest in Divabox, which owns the Origines-parfums online platform. As a website of reference for all selective fragrance brands, Origines-parfums is a key French player in the online beauty market recognized for its customer relationship expertise. This agreement should enhance the introduction of dedicated fragrance lines and products designed to address a specific consumer demand for this distribution channel and accelerate our digital development. As of December 31, 2020, we had cash, cash equivalents and short-term investments of approximately $296 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
● Fillers (Voyant, CPFPI, Omega Packaging, Societe de Diffusion de Produits de Parfumerie, TSM Brands)
● Bottle manufacturers (Pochet du Courval, Verescence, Verreries Brosse, Bormioli Luigi, Stoelzle Masnières, Heinz), caps (Qualipac, ALBEA, RPC, Codiplas, LF Beauty, Texen Group, S.A.R.L. J3P SBG Packaging Group), Pumps (Silgan Dispensing Systems Thomaston Corp, Rexam) or boxes (Autajon, MMPP, Nortier, Draeger)
● Production specialists who carry out packaging (CCI, Edipar, Jacomo, Societe de Diffusion de Produits de Parfumerie, 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. However, occasionally, we will utilize third party manufacturers in France, China and Turkey.
Environmental and Social Governance
Both our US operations and our European operations are good corporate citizens and take our responsibilities seriously. We comply with all applicable laws, rules and regulations in general, and in particular with regard to chemicals and hazardous materials. From procurement of components to distribution of finished products, we act as a good corporate citizen and monitor and comply with all legal requirements.
Interparfums SA, our European operations with their headquarters in Paris, was ranked number 11 in the Gaïa Index for 2020. This index assesses the Environmental and Social Governance (“ESG”) performance of the top 70 small and medium enterprises for French companies with revenue between €150-500 million.
Interparfums SA also applies a comprehensive approach addressing issues of corporate, environmental and social responsibility and transparency. Interparfums SA complies with IS 22716, International Standards for Good Manufacturing Practices, with all aspects of the manufacturing process, including receiving of raw materials and packaging materials, production and quality control. In this regulatory environment, regular audit campaigns are carried out for all packaging plants by the quality department based on the ISO 22716 standard in place. The ultimate purpose of these audits is to ensure that packaging service providers maintain a good level of traceability for their activities. All plant activities were reviewed: receiving process for raw materials and packaging materials, manufacturing, packaging and quality controls. These reports demonstrated that Interparfums SA’s subcontractors comply with ISO 22716 Good Manufacturing Practices and in particular traceability requirements for all perfume production operations. It is also in compliance with EU directive entitled Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”), which governs and regulates the safe use of chemicals. Although not a manufacturer, per se, Interparfums SA has taken the initiative and monitors its suppliers for compliance with REACH, and has commitments from each of them concerning “Substances of Very High Concern” as listed in appendix XIV of REACH. No supplier of Interparfums SA has advised it of any such hazardous materials in any of Interparfums products to date.
Interparfums SA monitors the outsourcing of the entire production process of its manufacturing partners with expertise and accountable leadership in their respective areas. These include producers of juice, glass, caps and cardboard boxes and packaging companies. We take environmental issues into account at each of these phases, and in particular regarding the choice of materials used for components, waste management and reducing the carbon footprint.
In the US we are also a good corporate citizen. Like our French subsidiary, we are not a true manufacturer, but we regularly monitor our subcontractors, suppliers and fillers for their compliance. In addition, our subcontractors and fillers are subject to inspection and audit from our various licensors for compliance with all aspects of law. One of our largest pump manufactures is the recipient of the 2020 Bronze Medal from EcoVadis for its corporate social responsibility rating, and a large glass bottle manufacturer was awarded gold metals from EcoVadis for its corporate social responsibility rating two years in a row.
In our US operations, we do not use any banned ingredients or components and use sustainable ingredients where practicable. Some componentry (glass/folding cartons) is also recyclable where practicable. For example, our new Abercrombie & Fitch Away fragrance uses glass and folding cartons that are 100% recyclable, and the carton liner is 100% recyclable and biodegradable. We are also licensed to use the “Green Dot” logo on our packaging, and that licensing fee goes towards packaging recycling efforts of consumer goods. Lastly, our product development team works with our fragrance houses - all very sustainable in their own right - to incorporate sustainably sourced ingredients in the fragrance oils used.
In addition to our production operations complying with applicable law, our managers, supervisors and traffic coordinators in our New Jersey distribution center undergo the following training in order for us to comply with Dangerous Goods Regulations. Compliance requires training and certification to deal in hazardous materials to prevent damage to the environment. The two main certifications are:
International Maritime Dangerous Goods (IMDG) Dangerous Goods Training - 3 year Certification for Ocean Shipment and International Air Transport Association (IATA) Dangerous Goods Training - 2 year Certification for Global Air Shipments.
Further, our distribution center in New Jersey has in-rack sprinklers to accommodate our hazardous material products. Our fragrances, Class 9 - Consumer Commodity ID8000, are registered with American Chemistry Council, Inc. (known in the chemicals industry as Chemtrec). Chemtrec has a 24/7 hazardous materials emergency communications center, which provides immediate assistance for incidents involving hazardous materials of any kind.
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 120 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 $24.5 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. In addition, various jurisdictions prohibit the use of certain ingredients in fragrances and cosmetics.
Our fragrance products that are manufactured or sold in Europe are subject to certain regulatory requirements of the European Union, such as 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 are 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
● Kate Spade New York
● Lily Aldridge
● Karl Lagerfeld
● MCM
● Moncler
● 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
Human Capital
As of January 1, 2021, we had 396 full-time employees worldwide. Of these, 289 are full-time employees of our European operations, with 107 employees engaged in sales activities and 182 in administrative, production and marketing activities. Our United States operations have 107 employees, and of these, 21 were engaged in sales activities and 86 in administrative, production and marketing activities. We do not have collective bargaining agreements relating to any of our employees, strive to maintain an inclusive environment free from discrimination of any kind, including sexual or other discriminatory harassment and, believe that our relationship with our employees is good.
Our employees are one of our most valuable assets, and fostering long-term relationships are beneficial to the continuity of our business. After experience and expertise in the respective fields of employment, we look for dedication and loyalty among our employees, as we believe having long-term staff members benefits our company. All of our executive officers have been with us for more than twenty years, and we have several senior and upper level staff members, who have also been with us long term. These long-term executives and employees believe that our company and their co-workers are an extended family. Their efforts and dedication are what allow our company to prosper.
The safety of our employees is of paramount importance to us. In the early stages of the COVID-19 pandemic we experienced brief closures at all of our locations, and adapted to working remotely. Upon reopening, we implemented prevention protocols to minimize the spread of COVID-19 in our workplaces. These protocols, which remain in place, are in compliance with the Centers for Disease Control guidelines and state requirements.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
You should carefully consider these material 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.
● Fragrance Business, Brand Names and Intellectual Property
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.
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.
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 are 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.
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.
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.
● COVID-19 Pandemic and Economic Downturn
The COVID-19 pandemic has had, and we expect will continue to have a material adverse effect on our business, results of operations, financial condition and cash flows.
The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, businesses, including us, our suppliers, our distributors, retailers and the public, to limit COVID-19’s spread, have had and we expect will continue to have, certain negative impacts on our business including, but not limited to, the following:
● We have experienced an overall decrease in sales of our products in markets around the world that have been affected by the COVID-19 pandemic. In particular, sales of our products have been significantly negatively affected by shelter-in-place regulations and closings of retailers around the world. We believe the most significant impact occurred in the second quarter of 2020. Although we experienced sales increases in the third and fourth quarter as compared to the second quarter of 2020, estimates of future sales, even in the short term are difficult to determine. In addition, there have been recent increases in COVID-19 cases in the United States and Europe, which have resulted in certain governments once again tightening restrictions. If the COVID-19 pandemic further intensifies, its negative impacts on our sales could be more prolonged and may become more severe.
● Deteriorating economic and political conditions in many of our major markets affected by the COVID-19 pandemic, such as increased unemployment, decreases in disposable income, declines in consumer confidence, or economic slowdowns could cause a further decrease in demand for our products.
● We may be required to record significant impairment charges with respect to noncurrent assets, including trademarks, licenses and other intangible assets whose fair values may be negatively affected by the effects of the COVID-19 pandemic on our operations.
● As a result of the COVID-19 pandemic, in all jurisdictions in which we operate we are following guidance as well as requirements from authorities and health officials in allowing our teams to gradually return to our offices, including, requiring personnel to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitization routines at our offices and distribution centers. However, we may experience reductions in productivity and disruptions to our business routines while such guidance and restrictions remain in place.
● Actions we have taken or may take, or decisions on potential actions that we did not take, as a consequence of the COVID-19 pandemic may result in claims or litigation against us.
● The resumption of normal business operations after the disruptions caused by the COVID-19 pandemic may be delayed or constrained by its lingering effects on consumers, suppliers or third-party distributors.
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 further 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 further general economic downturn may result in further reduced traffic in our customers’ stores which may, in turn, result in reduced net sales to our retail store customers. Any further material reduction in our sales could have a material adverse effect on our business, financial condition and operating results.
An outbreak of any other disease, epidemic or pandemic, or similar public health threat on the scope of COVID-19, 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 on the scope of COVID-19, or fear of such an event, that negatively impacts consumer spending on 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.
● Global Operations
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.
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.
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 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.
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”), despite its recent trade agreement with the European Union, 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.
● Operational Risks
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.
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. In addition, various jurisdictions prohibit the use of certain ingredients in fragrances and cosmetics.
Our fragrance products that are manufactured or sold in Europe are subject to certain regulatory requirements of the European Union, such as 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 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.
● Fragrance Markets
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.
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.
● General Risk Factors
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.
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.
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 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 business could be negatively impacted by corporate citizenship and sustainability matters.
There is an increased focus from certain investors, customers, consumers, employees, and other stakeholders concerning corporate citizenship and sustainability matters. The standards by which citizenship and sustainability efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions. These standards or assumptions could change over time. In addition, we could be criticized for the scope of initiatives or goals or perceived as not acting responsibly in connection with these matters. Any such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business.
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 diluted earnings per share. Accordingly, we provide guidance as to our expected annual net sales, and diluted 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.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2. Properties
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 2023. In August 2019 we opened a small distribution center in Shanghai, China that expires in July 2022.
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. 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.
In January 2021, Interparfums SA signed a purchase contract, subject to certain conditions, to acquire an office building complex for its exclusive use as its future headquarters, located in the heart of Paris. This transaction is expected to be completed in the spring of this year with the move planned for the end of 2021 or the beginning of 2022. Our European operations also maintains a studio and operations departments at a second location in Paris with a lease that expires in May 2024. We are presently negotiating a potential early termination in view of the agreement for the new Paris headquarters.
European operations maintain an approximately 333,700 square foot distribution center 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 several agreements for warehousing and distribution services which are renewed on an annual basis. Fees payable are partially calculated based upon a percentage of sales, which is customary in the industry.
We believe our office and warehouse facilities are satisfactory for our present needs and those for the foreseeable future.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
We are not a party to any material lawsuits.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Market for Our Common Stock
Our Company’s common stock, $.001 par value per share, is traded on The Nasdaq Global Select Market under the symbol “IPAR”. The following table sets forth in dollars, the range of high and low closing prices for the past two fiscal years for our common stock.
Fiscal 2020 High Closing Price Low Closing Price
Fourth Quarter 61.08 36.63
Third Quarter 49.40 36.46
Second Quarter 51.68 37.63
First Quarter 75.00 34.20
Fiscal 2019 High Closing Price Low Closing Price
Fourth Quarter 81.40 66.65
Third Quarter 71.58 62.38
Second Quarter 77.34 63.53
First Quarter 80.99 58.50
As of February 10, 2021, the number of record holders, which include brokers and broker nominees, etc., of our common stock was 34. We believe there are approximately 10,600 beneficial owners of our common stock.
Corporate Performance Graph
The following graph compares the performance for the periods indicated in the graph of our common stock with the performance of the Nasdaq Market Index and the average performance of a group of the Company’s peer corporations consisting of: Avon Products Inc., CCA Industries, Inc., Colgate-Palmolive Co., Estée Lauder Companies, Inc., Inter Parfums, Inc., Kimberly Clark Corp., Natural Health Trends Corp., Procter & Gamble Co., Revlon, Inc., Spectrum Brands Holdings, Inc., Stephan Co., Summer Infant, Inc. and United Guardian, Inc. The graph assumes that the value of the investment in our common stock and each index was $100 at the beginning of the period indicated in the graph, and that all dividends were reinvested.
Below is the list of the data points for each year that corresponds to the lines on the above graph.
12/15 12/16 12/17 12/18 12/19 12/20
Inter Parfums, Inc. 100.00 140.26 189.45 290.48 327.44 274.22
NASDAQ Composite 100.00 108.87 141.13 137.12 187.44 271.64
Peer Group 100.00 104.30 120.74 119.69 162.97 188.69
Dividends
In October 2019, our Board of Directors authorized a 20% increase in the annual dividend to $1.32 per share on an annual basis. In April 2020, as a result of the uncertainties raised by the COVID-19 pandemic, the Board of Directors authorized a temporary suspension of the annual cash dividend. In February 2021, our Board of Directors authorized a reinstatement of an annual dividend of $1.00, payable quarterly. The next quarterly cash dividend of $0.25 per share is payable on March 31, 2021 to shareholders of record on March 15, 2021.
Sales of Unregistered Securities
In December 2020, our non-employee directors exercised stock options to purchase an aggregate of 1,500 shares of restricted common stock. These transactions were exempt from the registration requirements of Section 5 of the Securities Act under Sections 4(2) and 4(6) of the Securities Act. Each option holder agreed that, if the option is exercised, the option holder would purchase his or her common stock for investment and not for resale to the public. Also, we provide all option holders with all reports we file with the SEC and press releases issued by us.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
The following selected financial data have been derived from our financial statements and should be read in conjunction with those financial statements, including the related footnotes.
Years Ended December 31,
(In thousands except per share data) 2017
Income statement data:
Net sales	 $ 539,009 $ 713,514 $ 675,574 $ 591,251 $ 521,072
Cost of sales	 208,278 267,578 248,012 214,965 194,601
Selling, general and administrative expenses	 260,648 341,209 332,831 295,540 258,787
Operating income	 70,083 104,727 94,731 78,623 66,678
Income before taxes	 69,349 105,146 95,859 78,065 67,074
Net income attributable to the noncontrolling interest	 11,749 15,821 15,922 13,659 9,917
Net income attributable to Inter Parfums, Inc.	 38,219 60,249 53,793 41,594 33,331
Net income attributable to Inter Parfums, Inc. common shareholders per share:
Basic $ 1.21 $ 1.92 $ 1.72 $ 1.33 $ 1.07
Diluted	 $ 1.21 $ 1.90 $ 1.71 $ 1.33 $ 1.07
Weighted average common shares outstanding:
Basic	 31,537 31,451 31,308 31,172 31,072
Diluted 31,655 31,689 31,522 31,305 31,176
Depreciation and amortization	 $ 9,067 $ 8,729 $ 11,031 $ 11,914 $ 15,341
As at December 31,
(In thousands except per share data) 2017
Balance sheet and other data:
Cash and cash equivalents	 $ 169,681 $ 138,417 $ 193,136 $ 208,343 $ 161,828
Short-term investments	 126,627 119,714 67,870 69,899 94,202
Working capital	 444,515 388,831 382,425 382,171 337,977
Total assets	 890,145 828,832 797,829 777,772 682,409
Short-term bank debt	 -0- -0-
Long-term debt (including current portion)	 24,706 23,060 46,061 60,579 74,562
Lease liabilities (including current portion)	 26,487 29,991 -0-
Inter Parfums, Inc. shareholders’ equity	 535,836 468,006 447,607 433,298 370,391
Dividends declared per share	 $ 0.33 $ 1.155 $ 0.905 $ 0.72 $ 0.62

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 78%, 76% and 80% of net sales for 2020, 2019 and 2018, respectively. We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade New York, Lanvin, Moncler, 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 22%, 24% and 20% of net sales in 2020, 2019 and 2018, respectively. These fragrance products are 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.
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 own the Lanvin brand name for our class of trade and we license the Montblanc, Coach, Jimmy Choo 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,
Montblanc 21 % 22 % 19 %
Coach 17 % 14 % 15 %
Jimmy Choo 16 % 16 % 17 %
GUESS (license commenced April 1, 2018) 11 % 10 % n/a
Lanvin 7 % 8 % 10 %
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.
Impact of COVID-19 Pandemic
A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and has spread around the world, including to the United States and France. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has disrupted our business operations and caused a significant unfavorable impact on our results of operations.
In response to the COVID-19 pandemic various national, state, and local governments where we, our suppliers, and our customers operate initially issued decrees prohibiting certain businesses from continuing to operate and certain classes of workers from reporting to work. More recently, those governments have set guidelines in allowing businesses to reopen and employees to return to offices. Beginning in March 2020, we implemented travel restrictions and we have been following social distancing practices. Our teams were set up to work from home and carry on business as efficiently as possible. In all jurisdictions in which we operate we have been following guidance from authorities and health officials in allowing our teams to gradually return to our offices, including, requiring personnel to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitization routines at our offices and distribution centers as the health and safety of our employees are paramount.
The effects of the COVID-19 pandemic on the beauty industry began in early March 2020. Retail store closings, event cancellations and a shutdown of international air travel brought our sales to a virtual standstill. The duration and intensity of this global health emergency and its related disruptions are uncertain. Beginning in June 2020, retail stores in many jurisdictions around the world began reopening and business has improved considerably. However, international travel has remained largely curtailed globally due to both government restrictions and consumer health concerns that continue to adversely impact consumer traffic in most travel retail locations. We anticipate that limited traffic in reopened stores and the virtual shutdown of international air traffic will continue to have an unfavorable impact our business.
We faced significant challenges in 2020 and we anticipate that these challenges will continue in 2021 due to uncertain market conditions. Business significantly improved during the second half of 2020, as retail stores began reopening and consumers have increased their on-line purchasing. We expect this trend to continue, however, we do not see a resurgence anytime soon in travel retail as air traffic continues to suffer due in part to governmental restrictions on international air travel. In addition, the recent resurgence and introduction of variants of COVID-19 cases in various parts of the world, including the United States, the United Kingdom and other countries in Europe, South America and Africa, has caused temporary re-implementation of government restrictions to prevent further spread of the virus. These include the temporary closure of businesses deemed non-essential, travel bans and restrictions, social distancing and quarantines. Lastly, the COVID-19 pandemic has led to high levels of unemployment and deteriorating economic conditions in many countries where our products are sold, forcing many consumers to limit discretionary purchases. We believe that the impact of the COVID-19 pandemic will continue to have a material adverse effect on our results of our operations, financial position and cash flows through at least the end of 2021.
Operationally, we are prepared for increased demand in the post-COVID-19 environment, with business in Asia, Eastern Europe and North America showing signs of a comeback. We have geared up to rapidly fill the distribution channels as the crisis subsides. In that regard, we have maintained reasonable inventory levels of components and finished goods, and we are gaining local market intelligence from our distributors and production capacity data from our suppliers. We do not anticipate any material impairment of trademarks, licenses and other intangible assets.
Our conservative financial tradition has enabled us to amass and maintain hefty cash balances and nominal long-term debt levels when this pandemic began. Nonetheless, we took several actions to minimize expenses and protect cash flow. Our operating cost structure, of which variable costs typically accounts for over two-thirds, has enabled us to minimize the impact of reduced net sales on our bottom line. In that regard, we postponed the launch of several programs originally scheduled for 2020 until 2021 and moved related advertising and promotion expenses to 2021 as well. That includes our planned launches for the Kate Spade New York, Jimmy Choo, Anna Sui and GUESS brands. We also took several actions with an eye toward minimizing fixed expenses. While we did not terminate or furlough any employees, we did institute a hiring freeze and significantly cut bonuses for 2020. We also temporarily suspended our quarterly cash dividend. These actions have had a favorable impact on the Company’s fixed expenditures and cash flow. Furthermore, our cash and credit management teams, together with our executive management teams, paid particular attention to the management of working capital. As a result of the above, we did not experience any short-term liquidity problem or incur any significant credit losses.
Recent Important Events
Anna Sui Corp.
In January 2021, we renewed our license agreement with Anna Sui Corp. for the creation, development and distribution of fragrance products through December 31, 2026, without any material changes in terms and conditions. Our initial 10-year license agreement with Anna Sui Corp. was signed in 2011. The renewal agreement also allows for an additional 5-year term through 2031 at the option of the Company.
Building Acquisition - Future Headquarters in Paris
In December 2020, our majority owned Paris-based subsidiary, Interparfums SA, signed a purchase contract, subject to certain conditions, to acquire an office building complex for its exclusive use as its future headquarters located in the heart of Paris. In order to maintain our current cash position, it is expected that approximately 90% of the €125 million ($153 million) purchase price, excluding taxes and related expenses, will be financed by a bank loan. The transaction is expected to be completed in the spring of this year with the move planned for the end of 2021 or the beginning of 2022.
This acquisition is a unique opportunity with benefits to be realized over the long-term. Owning our corporate headquarters in a very prestigious part of Paris, and customizing the complex for our European operations, will enhance our reputation, provide an exceptional work environment, as well as a welcoming and productive atmosphere for our suppliers, distributors and licensors.
Origines-Parfums
In June 2020, the Company through its 73% owned subsidiary, Interparfums SA, and Divabox SAS (“Divabox”), owner of the Origines-parfums e-commerce platform for beauty products, signed a strategic agreement and equity investment pursuant to which we acquired 25% of Divabox capital for $14.0 million, through a capital increase. In connection with the acquisition, the Company entered into a $13.4 million term loan, which has been amended such that the loan was repaid in full in February 2021. As a website of reference for all selective fragrance brands, Origines-parfums is a key French player in the online beauty market recognized for its customer relationship expertise. This agreement should enhance the introduction of dedicated fragrance lines and products designed to address a specific consumer demand for this distribution channel and accelerate our digital development.
Moncler
In June 2020, the Company entered into an exclusive, 5-year worldwide license agreement with a potential 5-year extension with Moncler for the creation, development and distribution of fragrances under the Moncler brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. Moncler was founded at Monestier-de-Clermont, Grenoble, France, in 1952 and is currently headquartered in Italy. Over the years, the brand has combined style with constant technological research assisted by experts in activities linked to the world of the mountain. The Moncler outerwear collections marry the extreme demands of nature with those of city life. Our first fragrance launch for the Moncler brand is scheduled for the first quarter of 2022.
S.T. Dupont
In January 2021, we renewed our license agreement with S.T. Dupont for the creation, development and distribution of fragrance products through December 31, 2022, without any material changes in terms and conditions. Our initial 11-year license agreement with S.T. Dupont was signed in June 1997 and had previously been extended through December 31, 2020.
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 6.99%. 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, 2020 indefinite-lived intangible assets aggregated $132.0 million. The following table presents the impact a change in the following significant assumptions would have had on the calculated fair value in 2020 assuming all other assumptions remained constant:
$ in millions Change Increase (decrease)
to fair value
Weighted average cost of capital +10 % $ (11.3 )
Weighted average cost of capital -10 % $ 12.5
Future sales levels +10 % $ 15.0
Future sales levels -10 % $ (15.0 )
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, 2020, 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 2020, 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 $0.2 million. The collective impact of these changes on 2020 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 $0.7 million, $0.4 million and $0.01, respectively.
Results of Operations
Net Sales Years ended December 31,
(in millions) % Change % Change
European based product sales	 $ 422.9 (22 )% $ 542.1 1 % $ 537.6
United States based product sales	 116.1 (32 )% 171.4 24 % 138.0
Total net sales	 $ 539.0 (24 )% $ 713.5 6 % $ 675.6
Net sales decreased 24% in 2020 to $539.0 million, as compared to $713.5 million in 2019. At comparable foreign currency exchange rates, net sales decreased 26%. 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%. The average U.S. dollar/euro exchange rates were 1.15 in 2020 and 1.12 in 2019 and 1.18 in 2018.
European based product sales decreased 22% in 2020 to $422.9 million, as compared to $542.1 million in 2019. At comparable foreign currency exchange rates, European based product sales decreased 23% in 2020. 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.
United States based product sales decreased 32% in 2020 to $116.1 million, as compared to $171.4 million in 2019. United States based product sales increased 24% in 2019 to $171.4 million, as compared to $138.0 million in 2018.
As previously mentioned, the effects of the COVID-19 pandemic on the beauty industry began in early March 2020. Retail store closings, event cancellations and a shutdown of international air travel brought our sales to a virtual standstill. However, business began rebounding better than anticipated. Since the early days of the pandemic, our sales have increased sequentially, thanks to store re-openings and a robust e-commerce business being conducted by our retail customers. However, international travel has remained largely curtailed globally due to both government restrictions and consumer health concerns that continue to adversely impact consumer traffic in most travel retail locations.
For our European operations, fourth quarter 2020 sales increased 8% over fourth quarter 2019, a significant improvement compared to the third quarter decline of 10% and the second quarter decline of 69%. Although we postponed our planned new product launches for Jimmy Choo and Kate Spade New York from 2020 to 2021, sales benefitted from the favorable turnaround in several of our markets, notably Asia, Middle East and North America. Among our largest brands, comparable full year Montblanc and Jimmy Choo brand sales both declined 27%, which is also understood in the context of the high bars set in 2019 with the rollout of Montblanc’s Explorer and Jimmy Choo’s Urban Hero. Coach brand sales were just 4% below 2019’s as Coach brand sales benefitted from the debut of Coach Dreams earlier in 2020.
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, Jimmy Choo brand sales 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.
Our United States based operations also saw a significant improvement in sales as 2020 progressed. After the 75% decline in comparable second quarter 2020 product sales, the decline narrowed to 35% in the third quarter of 2020 and 9% in the fourth quarter of 2020. Although there has been dramatic improvement in our U.S. operations, sales have been hampered by the lack of new product launches this year. Notably, our largest U.S. brand, GUESS, saw its sales decline 18% as its Bella Vita blockbuster launch was rescheduled until 2021. We also postponed the launch of Anna Sui Sky, which together with the virtual shutdown of travel retail in Asia, resulted in a 47% decline in 2020 Anna Sui brand sales.
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.
We maintain confidence in our future as we plan to strengthen advertising and promotional investments supporting all portfolio brands, accelerate brand development and build upon the strength of our worldwide distribution network. Our 2021 new product pipeline is abundant, with new entrants for our European operations that include women’s scents for the Jimmy Choo, Kate Spade, and Rochas brands. For U.S. operations, we have fragrance duos unveiling for the Abercrombie & Fitch and Hollister brands, and women’s scents debuting for the Anna Sui, GUESS, MCM, and Oscar de la Renta brands, plus broader distribution of Anna Sui Sky throughout Asia is also planned.
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
Years ended December 31,
(in millions)
North America $ 193.5 $ 235.5 $ 210.5
Western Europe 147.1 185.5 180.9
Asia 79.7 110.9 113.4
Middle East 46.8 72.6 59.3
Eastern Europe 33.1 55.2 52.8
Central and South America 32.5 46.2 51.7
Other 6.3 7.6 7.0
$ 539.0 $ 713.5 $ 675.6
The impact of the COVID-19 pandemic broadly impacted all regions in 2020, with the steepest declines in the Middle East and Eastern Europe. Travel retail accounted for much of the decline in the Asian market. This is in contrast to 2019, where virtually all regions registered growth for the year with only Central and South America declining. 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%, 12% and 5%, respectively.
Gross Margins
Years ended December 31,
(in millions)
Net sales $ 539.0 $ 713.5 $ 675.6
Cost of sales 208.3 267.6 248.0
Gross margin $ 330.7 $ 445.9 $ 427.6
Gross margin, as a percent of net sales 61.4 % 62.5 % 63.3 %
As a percentage of net sales, gross profit margin was 61.4%, 62.5%, and 63.3% in 2020, 2019 and 2018, respectively. For European based operations, gross profit margin as a percentage of net sales was 64.0%, 65.7% and 66.3% in 2020, 2019 and 2018, 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 1.15 in 2020, as compared to 1.12 in 2019, and the weaker dollar in 2020 resulted in a small decline in our gross margin in 2020. Gross margin in 2020 also includes a charge of approximately $2.0 million relating to the assumption of a return liability for products sold by the former licensee of a brand license entered into in 2019.
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.
For United States operations, gross profit margin was 51.8%, 52.5% and 51.4% in 2020, 2019 and 2018, respectively. With a decline in sales in 2020, certain expenses such as depreciation of tools and molds together with the distribution of point of sale materials exaggerated the decline in gross margin for the year as a percentage of sales. In 2019, sales growth for our United States operations primarily came 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 $26.4 million, $38.9 million and $36.4 million in 2020, 2019 and 2018, respectively, and represented 4.9%, 5.5% and 5.4% of net sales, respectively.
Generally, we do not bill customers for shipping and handling costs and such costs, which aggregated $5.0 million, $7.7 million and $7.1 million in 2020, 2019 and 2018, 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
Years ended December 31,
(in millions)
Selling, general & administrative expenses	 $ 260.6 $ 341.2 $ 332.8
Selling, general & administrative expenses as a percent of net sales 48.4 % 47.8 % 49.3 %
Selling, general and administrative expenses decreased 23.6% in 2020 as compared to 2019, and increased 2.5% in 2019 as compared to 2018. As a percentage of sales, selling, general and administrative expenses were 48.4%, 47.8% and 49.3% in 2020, 2019 and 2018, respectively. For European operations, selling, general and administrative expenses declined 23.5% in 2020 and 1.0% in 2019, as compared to the corresponding prior year period and represented 49.8%, 50.8% and 51.7% of sales in 2020, 2019 and 2018, 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.
Our operating cost structure, of which variable costs typically account for over two-thirds, has enabled us to minimize the impact of reduced net sales on our bottom line. Due to the effects of the COVID-19 pandemic, a substantial portion of the reduction in selling, general and administrative expenses in 2020 were attributable to the postponement of advertising and promotional expenses to 2021, as substantially all major new product launches were postponed until 2021. In addition, we also undertook several actions with an eye toward minimizing fixed expenses. While we have maintained a full staff, we had instituted a hiring freeze and significantly cut bonuses for 2020.
For United States operations, selling, general and administrative expenses decreased 24.1% in 2020 and increased 20.2 % in 2019, as compared to the corresponding prior year period and represented 43.1%, 38.5% and 39.8% of sales in 2020, 2019 and 2018, respectively. Our U.S. operations are significantly smaller than those of our European operations and carry higher fixed costs that could not be leveraged as efficiently as those of our European operations with the decline in net sales. The 2019 increase, which is in line with the increase in sales, and 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 $91.7 million, $144.6 million and $139.7 million in 2020, 2019 and 2018, respectively. Promotion and advertising as a percentage of sales represented 17.0%, 20.3% and 20.7% of net sales in 2020, 2019 and 2018, respectively. Although promotion and advertising programs were cut in 2020 in response to market conditions, we plan to 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 will aggregate approximately 21% of 2021 net sales, which is in line with historical averages.
Royalty expense included in selling, general and administrative expenses aggregated $41.1 million, $53.0 million and $48.9 million in 2020, 2019 and 2018, respectively. Royalty expense as a percentage of sales represented 7.6%, 7.4% and 7.2% of net sales in 2020, 2019 and 2018, respectively. The increase in 2020 and 2019, as a percentage of sales, is directly related to new licenses and increased royalty based product sales. As a result of the COVID-19 pandemic we reached agreements with most of our licensors to waive or significantly reduce minimum guaranteed royalties for 2020.
Service fees, which are fees paid within our European operations to third parties relating to the activities of our distribution subsidiaries, aggregated $6.8 million, $7.5 million and $9.7 million in 2020, 2019 and 2018, respectively. The 2020 decline is the result of lower sales volume and the 2019 decrease is the result of the discontinuation of certain European distribution subsidiaries, and a return to a third party distribution model in those territories.
Income from Operations
As a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, income from operations decreased 33.1% to $70.1 million in 2020 as compared to $104.7 million in 2019, which was an increase of 10.6% from $94.7 million in 2018. Operating margins aggregated 13.0%, 14.7% and 14.0% for the years ended December 31, 2020, 2019 and 2018, respectively. Strong cost controls in 2020 enabled us to minimize the impact of the sudden drop in sales resulting from the COVID-19 pandemic. In 2019, small fluctuations in gross margin were mitigated by small fluctuations in selling, general and administrative expenses.
Other Income and Expenses
Interest expense aggregated $2.0 million, $2.1 million and $2.6 million in 2020, 2019 and 2018, 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 $24.7 million, $23.1 million and $46.1 million as of December 31, 2020, 2019 and 2018, respectively.
Foreign currency losses aggregated $2.2 million, $1.1 million and $0.3 million in 2020, 2019 and 2018, 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 2020 net sales of our European operations were denominated in U.S. dollars. The weaker U.S. dollar in the fourth quarter of 2020 accounted for the loss on foreign currency as receivables denominated in dollars were revalued to year end rates.
Interest income aggregated $2.9 million, $3.7 million and $4.0 million in 2020, 2019 and 2018, respectively. Cash and cash equivalents and short-term investments are primarily invested in certificates of deposit with varying maturities.
Other income, which aggregated $0.5 million, represents our share of the income of Divabox for the year ended December 31, 2020.
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 Company estimated of the effect of GILTI and has determined that it has no tax liability related to GILTI as of December 31, 2020, 2019 and 2018. The Company also estimated the effect of FDII and recorded a tax benefit of $0.3 million, $0.9 million and $0.6 million as of December 31, 2020, 2019 and 2018, respectively.
Our effective income tax rate was 28.0%, 27.7% and 27.3% in 2020, 2019 and 2018, respectively.
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 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 recovery taxes already paid to the Swiss authorities, and excluding interest.
In addition, 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. Due to economic and political conditions, tax rates in the U.S. and various foreign jurisdictions have been and may be subject to significant change. 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
Year ended December 31,
(In thousands except share and per share data)
Net income attributable to European operations $ 41,814 $ 56,343 $ 56,469
Net income attributable to United States operations 8,154 19,727 13,246
Net income 49,968 76,070 69,715
Less: Net income attributable to the noncontrolling interest 11,749 15,821 15,922
Net income attributable to Inter Parfums, Inc. $ 38,219 $ 60,249 $ 53,793
Net income attributable to Inter Parfums, Inc. common shareholders:
Basic $ 1.21 $ 1.92 $ 1.72
Diluted 1.21 1.90 1.71
Weighted average number of shares outstanding:
Basic 31,536,659 31,451,093 31,307,991
Diluted 31,654,544 31,688,700 31,522,371
Net income aggregated $50.0 million, $76.1 million and $69.7 million in 2020, 2019 and 2018, respectively. Net income attributable to European operations was $41.8 million, $56.3 million and $56.5 million in 2020, 2019 and 2018, respectively, while net income attributable to United States operations was $8.2 million, $19.7 million and $13.2 million in 2020, 2019 and 2018, respectively. The 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 profit margins, selling, general and administrative expenses, most of which, in 2020, was caused by the effects of the COVID-19 pandemic.
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% of European operations net income in 2020 and 2019 and 28.2% and 2018. Net income attributable to Inter Parfums, Inc. aggregated $38.2 million, $60.2 million and $53.8 million in 2020, 2019 and 2018, respectively. Net margins attributable to Inter Parfums, Inc. aggregated 7.1%, 8.4% and 8.0% in 2020, 2019 and 2018, respectively.
Liquidity and Capital Resources
Our conservative financial tradition has enabled us to amass significant cash balances and nominal long-term debt. As of December 31, 2020, we had $296 million in cash, cash equivalents and short-term investments, most of which is held in euro by our European operations and is readily convertible into U.S. dollars. We have not had any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments. As of December 31, 2020, long-term debt aggregated only $10.1 million and we also have $51 million available in untapped credit facilities. Nonetheless, in response to the COVID-19 pandemic, we have taken several actions to minimize expenses and protect cash flow. As discussed above, our operating cost structure, of which variable costs in a typical year account for over two-thirds, has enabled us to minimize the impact of reduced net sales on our bottom line. In that regard, we have postponed the launch of several programs originally scheduled for this year until 2021 and moved related advertising and promotion programs to 2021 as well. We have also taken several actions with an eye toward minimizing fixed expenses. While we did not terminate or furlough any employees, we did institute a hiring freeze and significantly cut bonuses for 2020. In 2020, we also temporarily suspended our quarterly cash dividend. These actions have had a favorable impact on the Company’s fixed expenditures and cash flow. Furthermore, our cash and credit management teams together with our executive management teams paid particular attention to the management of working capital. As a result of the above, we have not experienced any short-term liquidity problems.
At December 31, 2020, working capital aggregated $445 million, and we had a working capital ratio of over 3.8 to 1. Approximately 86% of the Company’s total assets are held by European operations including approximately $190 million of trademarks, licenses and other intangible assets.
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. 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 $65.0 million, $76.5 million, and $63.0 million in 2020, 2019 and 2018, respectively. In 2020, working capital items used $1.9 million in cash from operating activities, as compared to $11.7 million in 2019 and $20.9 million in 2018. We anticipated significant challenges in 2020 due to uncertain market conditions promulgated by the COVID-19 pandemic. Since March 2020, retail stores in several jurisdictions around the world began reopening and business is rebounding better than expected. Although, from a cash flow perspective, accounts receivable is down approximately 10% from that of the prior year, day’s sales outstanding increased to 86 days in 2020, as compared to 69 days and 71 days in 2019 and 2018, respectively. In addition to a decline in net sales, the COVID-19 pandemic put tremendous pressure on many of our customers throughout 2020. We worked closely with our customers and extended payment terms as necessary. However, we did not incur any material losses in connection with the collection of accounts receivable. Although inventories also declined approximately 12% from that of the prior year, the decline in sales and the postponement of certain new product launches had a significant effect on inventory days on hand, which grew to 277 days in 2020, as compared to 224 days in 2019 and 223 days in 2018, respectively. With the upturn in sales in the second half of 2020 expected to continue into 2021 and our aggressive product launch schedule for 2021, we believe our inventory levels are needed to support net sales expectations.
Cash flows used in investing activities reflect the purchase and sales of short-term investments. These investments are primarily certificates of deposit and other contracts with maturities greater than three months. At December 31, 2020, approximately $60 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 $3.8 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.
In December 2020, our majority owned Paris-based subsidiary, Interparfums SA, signed a purchase contract, subject to certain conditions, to acquire an office building complex for its exclusive use as its future headquarters located in the heart of Paris. In order to maintain our current cash position, it is expected that approximately 90% of the €125 million ($153 million) purchase price, excluding taxes and related expenses, will be financed by a bank loan. The transaction is expected to be completed in the spring of this year with the move planned for the end of 2021 or the beginning of 2022. A €6.25 million ($7.7 million) deposit was paid upon signing the purchase contract.
In June 2020, the Company and Divabox, owner of the Origines-parfums e-commerce platform for beauty products, signed a strategic agreement and equity investment pursuant to which we acquired 25% of Divabox capital for $14 million through a capital increase. In connection with the acquisition, the Company entered into a $13.4 million term loan, which has been amended such that the loan was repaid in full in February 2021.
Payments for licenses, trademarks and other intangible assets primarily represent upfront entry fees incurred in connection with new license agreements.
Our short-term financing requirements are expected to be met by available cash on hand at December 31, 2020, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2021 consist of a $20.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $30.7 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, 2020 and 2019.
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 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. In April 2020, as a result of the uncertainties raised by the COVID-19 pandemic, the Board of Directors authorized a temporary suspension of the quarterly cash dividend. In February 2021, our Board of Directors authorized a reinstatement of an annual dividend of $1.00, payable quarterly. The next quarterly cash dividend of $0.25 per share is payable on March 31, 2021 to shareholders of record on March 15, 2021. Dividends paid, including dividends paid once per year to noncontrolling stockholders of Interparfums SA, aggregated $21.1 million, $44.2 million and $35.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. The cash dividends to be paid in 2021 are not expected to have any significant impact on our financial position.
We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.
Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the year ended December 31, 2020.
Contractual Obligations
The following table summarizes our contractual obligations over the periods indicated, as well as our total contractual obligations ($ in thousands):
Payments due by period
Contractual Obligations Total Less than 1 year Years 2-3 Years 4-5 More than 5 years
Long-Term Debt $ 24,706 $ 14,569 $ 2,142 $ 2,142 $ 5,853
Lease Liabilities $ 26,487 $ 5,568 $ 9,186 $ 6,856 $ 4,877
Purchase Obligations(1) $ 1,398,964 $ 165,506 $ 330,849 $ 316,267 $ 586,342
Total $ 1,450,157 $ 185,643 $ 342,177 $ 325,265 $ 597,072
(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, 2020, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
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.
As of December 31, 2020, we had foreign currency contracts in the form of forward exchange contracts with notional amounts of approximately U.S. $22.4 million and GB £1.9 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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The required financial statements commence on page.
Supplementary Data 	
Quarterly Data (Unaudited)
For the Year Ended December 31, 2020
(In Thousands Except Per Share Data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year
Net sales $ 144,824 $ 49,506 $ 160,637 $ 184,042 $ 539,009
Gross margin 89,041 26,844 97,198 117,648 330,731
Net income (loss) 13,299 (2,983 ) 21,852 17,800 49,968
Net income attributable to Inter Parfums, Inc. 10,059 (3,118 ) 16,538 14,740 38,219
Net income attributable to Inter Parfums, Inc. per share:
Basic $ 0.32 $ (0.10 ) $ 0.52 $ 0.47 $ 1.21
Diluted $ 0.32 $ (0.10 ) $ 0.52 $ 0.47 $ 1.21
Weighted average common shares outstanding:
Basic 31,530 31,532 31,533 31,552 31,537
Diluted 31,708 31,532 31,619 31,666 31,655
Quarterly Data (Unaudited)
For the Year Ended December 31, 2019
(In Thousands Except Per Share Data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year
Net sales $ 178,242 $ 166,242 $ 191,227 $ 177,803 $ 713,514
Gross margin 109,841 106,974 114,437 114,684 445,936
Net income 24,978 15,600 26,658 8,834 76,070
Net income attributable to Inter Parfums, Inc. 18,894 12,318 20,848 8,189 60,249
Net income attributable to Inter Parfums, Inc. per share:
Basic $ 0.60 $ 0.39 $ 0.66 $ 0.26 $ 1.92
Diluted $ 0.60 $ 0.39 $ 0.66 $ 0.26 $ 1.90
Weighted average common shares outstanding:
Basic 31,431 31,449 31,452 31,473 31,451
Diluted 31,679 31,687 31,676 31,713 31,689

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
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.
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 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers and Directors
As of the date of this report, our executive officers and directors were as follows:
Name
Position
Jean Madar
Chairman of the Board, Chief Executive Officer of Inter Parfums, Inc. and Director General of Interparfums SA
Philippe Benacin
Vice Chairman of the Board, President of Inter Parfums, Inc. and Chief Executive Officer of Interparfums SA
Russell Greenberg
Director, Executive Vice President and Chief Financial Officer
Philippe Santi
Director, Executive Vice President and Chief Financial Officer, Interparfums SA
François Heilbronn
Director
Robert Bensoussan
Director
Patrick Choël
Director
Michel Dyens
Director
Veronique Gabai-Pinsky
Director
Gilbert Harrison
Director
Frederic Garcia-Pelayo
Executive Vice President and Chief Operating Officer of Interparfums SA
Our directors will serve until the next annual meeting of stockholders and thereafter until their successors shall have been elected and qualified. Messrs. Jean Madar and Philippe Benacin have a verbal agreement or understanding to vote their shares and the shares of their respective holding companies in a like manner.
With the exception of Mr. Benacin, the officers are elected annually by the directors and serve at the discretion of the board of directors. There are no family relationships between executive officers or directors of our Company.
Board of Directors
Our board of directors has the responsibility for establishing broad corporate policies and for the overall performance of our Company. Although certain directors are not involved in day-to-day operating details, members of the board of directors are kept informed of our business by various reports and documents made available to them. Our board of directors held 20 meetings (or executed consents in lieu thereof), including meetings of committees of the full board of directors during 2020, and all of the directors attended at least 75% of the meetings (or executed consents in lieu thereof) of the full board of directors and committees of which they were a member. Our board of directors presently consists of ten (10) directors.
We have adopted a Code of Business Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, as well as other persons performing similar functions, and we agree to provide to any person without charge, upon request, a copy of our Code of Business Conduct. Any person who requests a copy of our Code of Business Conduct should provide their name and address in writing to: Inter Parfums, Inc., 551 Fifth Avenue, New York, NY 10176, Att.: Shareholder Relations. In addition, our Code of Conduct is also maintained on our website, at www.interparfumsinc.com.
During 2020, our board of directors had the following standing committees:
● Audit Committee - The Audit Committee has the sole authority and is directly responsible for, the appointment, compensation and oversight of the work of the independent accountants employed by our company which prepare or issue audit reports for our company. During 2020, this committee consisted of Messrs. Heilbronn and Choël, and Ms. Gabai-Pinsky. The charter of the Audit Committee is posted on our company’s website.
The Company does not have an “audit committee financial expert” within the definition of the applicable Securities and Exchange Commission rules. Finding qualified nominees to serve as a director of a public company without substantial financial resources has been challenging. In addition, despite the applicable Securities and Exchange Commission rule which states that being named as the audit committee financial expert does not impose any greater duty, obligation or liability, our company has been met with resistance from both present and former directors to being named as such, primarily due to potential additional personal liability. However, as the result of the background, education and experience of the members of the Audit Committee, our board of directors believes that such committee members are fully qualified to fulfill their obligations as members of the Audit Committee.
● Executive Compensation and Stock Option Committee - The Executive Compensation and Stock Option Committee oversees the compensation of our company’s executives and administers our company’s stock option plans. During 2020, this committee consisted of Messrs. Heilbronn and Choël, and Ms. Gabai-Pinsky. The charter of the Executive Compensation and Stock Option Committee is posted on our company’s website.
● Nominating Committee - During 2020, this committee consisted of Messrs. Heilbronn and Choël, and Ms. Gabai-Pinsky. The purpose of the Nominating Committee is to determine and recommend qualified persons to the Board of Directors who will be put forth as management’s slate of directors for vote of the Corporation’s stockholders, as well as to fill vacancies in the Board of Directors. The charter of the Nominating Committee is posted on our company’s website.
In January 2018 our board of directors adopted a board diversity policy, which provides that the selection of candidates for appointment to our board will be based on an overriding emphasis on merit, but the Nominating Committee will seek to fill board vacancies by considering candidates that bring a diversity of background and industry or related expertise to our board. The Nominating Committee is to consider an appropriate level of diversity having regard for factors such as skills, business and other experience, education, gender, age, ethnicity and geographic location. A copy of the board diversity policy is posted on our company’s website.
Business Experience
The following sets forth biographical information as to the business experience of each executive officer and director of our company for at least the past five years.
Jean Madar
Jean Madar, age 60, a Director, has been the Chairman of the Board since our company’s inception, and is a co-founder of our company with Mr. Philippe Benacin. From inception until December 1993 he was the President of our company; in January 1994, he became Director General of Interparfums SA, our company’s subsidiary; and in January 1997, he became Chief Executive Officer of our company. Mr. Madar was previously the managing director of Interparfums SA, from September 1983 until June 1985. At such subsidiary, he had the responsibility of overseeing the marketing operations of its foreign distribution, including market research analysis and actual marketing campaigns. Mr. Madar graduated from The French University for Economic and Commercial Sciences (ESSEC) in 1983. We believe that Mr. Madar’s skills in guiding, leading and determining the strategic direction of our company since its inception together with Mr. Benacin, in addition to his contacts in the fragrance and cosmetic industry, render him qualified to serve as a member of our board of directors.
Philippe Benacin
Mr. Benacin, age 62, a Director, is President of our Company and the Chief Executive Officer of Interparfums SA, has been the Vice Chairman of the Board since September 1991, and is a co-founder of our company with Mr. Madar. He was elected the Executive Vice President in September 1991, Senior Vice President in April 1993, and President of the Company in January 1994. In addition, he has been the Chief Executive Officer of Interparfums SA for more than the past five years. Mr. Benacin graduated from The French University for Economic and Commercial Sciences (ESSEC) in 1983. In June 2014 Mr. Benacin was elected as a member of the Supervisory Board of Vivendi, and Chairman of its Corporate Governance, Nominations and Remuneration Committee. We believe that Mr. Benacin’s skills in guiding, leading and determining the strategic direction of our company since its inception together with Mr. Madar, in addition to his contacts in the fragrance and cosmetic industry, render him qualified to serve as a member of our board of directors.
Russell Greenberg
Mr. Greenberg, age 64, the Chief Financial Officer, was Vice-President, Finance when he joined the Company in June 1992; became Executive Vice President in April 1993; and was appointed to our board of directors in February 1995. He is a certified public accountant licensed in the State of New York, and is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. After graduating from The Ohio State University in 1980, he was employed in public accounting until he joined our company in June 1992. We believe that Mr. Greenberg’s skills in accounting and tax, as well as his knowledge of the fragrance industry and our Company’s operations, render him qualified to serve as a member of our board of directors.
Philippe Santi
Philippe Santi, age 59 and a Director since December 1999, is the Executive Vice President and Chief Financial Officer of Interparfums SA. Mr. Santi, who is a Certified Accountant and Statutory Auditor in France, has been the Chief Financial Officer of Interparfums SA since February 1995. Prior to February 1995, Mr. Santi was the Chief Financial Officer for Stryker France and an Audit Manager for Ernst and Young. We believe that Mr. Santi’s skills in accounting and tax, as well as his knowledge of the fragrance industry and our Company’s European operations, render him qualified to serve as a member of our board of directors.
Francois Heilbronn
Mr. Heilbronn, age 60 a Director since 1988, an independent director and a member of the Audit Committee, Nominating Committee and the Executive Compensation and Stock Option Committee, is a graduate of Harvard Business School with a Master of Business Administration degree and is currently the managing partner of the consulting firm of M.M. Friedrich, Heilbronn & Fiszer. He was formerly employed by The Boston Consulting Group, Inc. from 1988 through 1992 as a manager. Mr. Heilbronn graduated from Institut d’ Etudes Politiques de Paris in June 1983. From 1984 to 1986, he worked as a financial analyst for Lazard Freres & Co. In addition, during 2009, Mr. Heilbronn became an Associate Professor in Business Strategy at Sciences Po, Paris, France. As the result of his business and financial acumen, as well as his experience as managing partner of a business consulting firm in the area of mergers and acquisitions of large international companies in retail, consumer goods and consumer services throughout the world, we believe Mr. Heilbronn is qualified to serve as a member of our board of directors.
Robert Bensoussan
Robert Bensoussan, age 63, has been a Director since March 1997, and is also an independent director. Mr. Bensoussan is the founder of Sirius Equity Consultants, a retail and branded luxury goods Investment Company. To date, Mr. Bensoussan remains as an investor in feelunique.com, Europe’s largest online beauty retailer. C.A.R.O.L, the AI driven fitness equipment, Hapy Sweet Bee Ltd, natural health food products, Eaglemoss Ltd, UK part-works publisher and Patchwork, a Parisian co-working company.
He was previously Chairman of Camaïeu, the French retail conglomerate, a board member of Celio International, the French retail conglomerate and Vivarte representing the GLG hedge fund. In the latter part of 2019, Mr. Bensoussan resigned after 6 years as the only non-North American board member of lululemon athletica Inc.
He continues to remain a Director of feelunique.com since his appointment in December 2012. He is also a member of the Advisory Board of Pictet Bank Premium Brands Fund and sits on the board of Pronovias, the worldwide leader of wedding dresses owned by BC Partners.
Previously Mr. Bensoussan was as director of, and had an indirect ownership interest J. Choo Limited until July 2011, and CEO from 2001 to 2007, and was a member of the Board of Jimmy Choo Ltd, a privately held luxury shoe wholesaler and retailer, from 2001 to 2011.
We believe Mr. Bensoussan is qualified to serve as a member of our board of directors due to his business and financial acumen, as well as his experience in the retail and branded luxury goods market.
Patrick Choël
Mr. Choël, age 77, was appointed to the board of directors in June 2006 as an independent director, and is a member of the Audit Committee, Nominating Committee and the Executive Compensation and Stock Option Committee. Mr. Choël is a director of our majority-owned subsidiary, Interparfums SA, a publicly held company, and Christian Dior and Guerlain, both privately held companies. He is also the manager of Université 82, a business consultant and advisor. For approximately 10 years, through March 2004, Mr. Choël was the President and CEO of two divisions of LVMH Moet Hennessy Louis Vuitton S.A., first Parfums Christian Dior, a leading world-wide prestige beauty/fragrances business, and later, the LVMH Perfumes and Cosmetics Division, which included such well-known brands as Parfums Christian Dior, Guerlain, and Parfums Givenchy, among others. Prior to such time, for approximately 30 years, he held various executive positions at Unilever, including President and CEO of Elida Fabergé France and President and CEO of Chesebrough Pond’s USA. Because of this experience, especially in the prestige beauty business, we believe that Mr. Choël is qualified to serve as a member of our board of directors.
Michel Dyens
Michel Dyens, age 81 and an independent director, is the Founder, Chairman and Chief Executive Officer of Michel Dyens & Co., which he founded over 25 years ago. With headquarters in New York and Paris, Michel Dyens & Co. is a leading independent investment banking firm focused on mergers and acquisitions. Michel Dyens & Co. has vast experience in luxury goods, beauty, spirits and other premium branded consumer goods in which it has concluded numerous landmark deals. Michel Dyens & Co. has advised in such deals as the sale of the Grey Goose ultra-premium vodka brand to Bacardi, the acquisition of the luxury Swiss watchmaker Hublot by LVMH, the sale of the Harry Winston to Aber Diamond Corporation and Boucheron to Kering. Michel Dyens & Co. represented the owners of Liaigre, the luxury furniture brand, in the sale to Symphony International and Navis Capital, and Casa Dragones, the ultra-premium tequila, in the sale to BDT Partners (Byron Trott).
Michel Dyens & Co. was the exclusive advisor to Creed in the sale of the ultra-luxury fragrance company Creed BlackRock Long Term Private Capital, and represented Mr. ChinWook Lee, the founder and CEO of Dr. Jart+, in the sale of Have & Be Co. Ltd. to The Estée Lauder Companies. Michel Dyens & Co. also advised the owner of the ultra-luxury fragrance brand By Kilian, in the sale to Estée Lauder. Michel Dyens & Co. advised the shareholders of the largest independent hair color and hair care company in Brazil, Niely Cosmeticos in the sale of the company to L’Oréal, as well as the owner of the super-premium liqueur St-Germain in the sale of the brand to Bacardi, the Colomer Group (American Crew and CND/Shellac brands) in its sale to Revlon, and Sidney Frank Importing Company in the sale of the company to Jaegermeister. Other transactions include the sale of the Essie cosmetics business to L’Oréal, the sale of TIGI (BedHead and Catwalk brands) to Unilever, the luxury hair care brand Christophe Robin to The Hut Group, the thinning hair brand NIOXIN Research Laboratories to Procter & Gamble, John Frieda Professional Hair Care and Molton Brown to the Kao Corporation, the Svedka vodka brand to Constellation Brands and Chambord liqueur to Brown-Forman.
From April 2004 to September 2014, Mr. Dyens was an independent director of Interparfums SA. We believe Mr. Dyens is qualified to serve as a member of our board of directors thanks to his knowledge of our company’s luxury business, his business and financial acumen, as well as his experience in the luxury goods market.
Veronique Gabai-Pinsky
Ms. Gabai-Pinsky, age 55, was elected for the first time to our board in September 2017. She became a director of Interparfums SA in April 2017. She is currently operating a startup specialty fragrance business. She was President of Vera Wang Group from January 2016 through June 2018, after a year of consulting with the company and she oversaw all product categories and markets. Prior to joining Vera Wang, from 2006 to December 2014 Ms. Gabai-Pinsky was the Global President for Aramis and Designers Fragrances as well as Beauty Bank and Idea Bank at the Estée Lauder Companies, reporting to the Chief Executive Officer of such company. During her tenure, Ms. Gabai-Pinsky developed and ensured the growth of several beauty and skin care brands, including Lab Series for Men. She was highly instrumental in the evolution of the fragrance category for such company, as she improved its overall business model, globally grew brands such as Donna Karan and Michael Kors, evolved and harmonized the portfolio, divested dilutive brands and brought in Tory Burch, Zegna and Marni under licenses. She ultimately actively participated in the acquisitions of Le Labo, Frederic Malle, and By Kilian and assisted in the transformation of the long-term strategic direction of such company.
In the earlier years of her career, Ms. Gabai-Pinsky served as Vice President of Marketing and Communication for Guerlain, a division of LVMH Moet Hennessy Louis Vuitton S.A., where she led the successful re-launch of Shalimar, the introduction of Aqua Allegoria, and contributed to the re-focus of the beauty category around its pillars, Terracotta, Meteorites and Issima, while redesigning all communication strategies and content. She started her career at L’Oréal, and was also Vice President of Marketing for Giorgio Armani, where she was instrumental in the overall development of its fragrance business by developing the successful Acqua di Gio for men and introducing the Emporio Armani franchise. A graduate from ESSEC Business School in Paris, France, she has received several awards, including Marketer of the Year by Women’s Wear Daily in December 2013.
Ms. Gabai-Pinksy is an independent director, and is a member of the Audit Committee, Executive Compensation and Stock Option Committee and the Nominating Committee of our company. We believe Ms. Gabi-Pinsky is qualified to serve as a member of our board of directors due to her more than 25 years of experience in the luxury, fashion, beauty and fragrance fields, success as a brand builder, creative thinker, business acumen, and a broad understanding of consumers, brands and business models.
Gilbert Harrison
Mr. Harrison, age 80, an independent director, was appointed to our board in April 2018. Mr. Harrison has more than 50 years of experience in corporate finance and strategic transactions, specializing in the consumer products space. He began his career in 1965 practicing corporate and securities law in New York and Philadelphia. In 1971 he founded Financo, which he grew to become one of the leading independent middle market transaction firms in the country. In 1985, Financo was acquired by Lehman Brothers, where the firm’s primary efforts were focused on increasing its expertise in retail, apparel and other merchandising transactions of all types. At Lehman, Mr. Harrison was Chairman of the Merchandising Group and on the firm’s Investment Banking Operating Committee while continuing as Chairman of Financo, which was renamed the Middle Market Group of Lehman. In 1989, he re-acquired Financo from Lehman, re-establishing Financo as one of the leading investment banking firms handling transactions and providing strategic advice in connection with merchandising companies. Mr. Harrison retired as Chairman of Financo in December of 2017, after which he formed the Harrison Group, a firm that provides consulting and financial advisory services to merchandising and products companies.
Mr. Harrison’s other activities include his membership on the Advisory Council of the World Retail Congress, Shoptalk and the Financial Times Business of Luxury Summit. Additionally, he has created a course on mergers and acquisitions at The Wharton School and has published various articles and academic studies on the state of retailing and mergers and acquisitions, including a chapter in the book entitled, “The Mergers and Acquisitions Handbook.” Mr. Harrison lectures throughout the country, including chairing seminars for Retail Week as well as for the International Council of Shopping Centers, the National Retail Federation, Young President’s Center, The Wharton Aresty Institute of Executive Education and The President’s Association of the American Management Association. He also appears frequently on Bloomberg TV and CNBC as an expert on retail and apparel.
Mr. Harrison received a Bachelor of Science in Economics from The Wharton School of The University of Pennsylvania in 1962 and his Juris Doctor from The University of Pennsylvania Law School in 1965. He is also Chairman of the Fashion Division of UJA, Treasurer and a Board member of the Southampton Hospital, Director of the Peggy Guggenheim Collection, and former Board member of the Wharton School of the University of Pennsylvania. We believe Mr. Harrison is qualified to serve as a member of our board of directors due to his tremendous depth and breadth of knowledge about the merchandising and consumer industry, and he has a long track record of facilitating value creating transactions for companies in this sector.
Frederic Garcia-Pelayo
Frederic Garcia-Pelayo, age 60, has been with Interparfums SA for more than the past 20 years. He is currently the Executive Vice President and Chief Operating Officer of Interparfums SA, and was previously the Director of its Luxury and Fashion division beginning in March 2005. He was also previously the Director of Marketing and Distribution for Perfume and Cosmetics and was first named Executive Vice President in 2004.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 and any amendments to such forms furnished to us, and written representations from various reporting persons furnished to us, we are not aware of any reporting person who has failed to file the reports required to be filed under Section 16(a) of the Securities Exchange Act of 1934 on a timely basis.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Compensation Discussion and Analysis
General
The executive compensation and stock option committee of our board of directors is comprised entirely of independent directors and oversees all elements of compensation (base salary, annual bonus, long-term incentives and perquisites) of our company’s executive officers and administers our company’s stock option plans, other than the non-employee directors stock option plan, which is self-executing.
The objectives of our compensation program are designed to strike a balance between offering sufficient compensation to either retain existing or attract new executives on the one hand, and maintaining compensation at reasonable levels on the other hand. We do not have the resources comparable to the cosmetic giants in our industry, and, accordingly, cannot afford to pay excessive executive compensation. In furtherance of these objectives, our executive compensation packages generally include a base salary, as well as annual incentives tied to individual performance and long-term incentives tied to our operating performance.
Mr. Madar, the Chairman and Chief Executive Officer, takes the initiative after discussions with Mr. Russell Greenberg, Executive Vice President, Chief Financial Officer and a Director, and recommends executive compensation levels for executives for United States operations. Mr. Benacin, the Chief Executive Officer of Interparfums SA, takes the initiative after discussions with Philippe Santi, the Chief Financial Officer of Interparfums SA, and recommends executive compensation levels for executives for European operations. The recommendations are presented to the compensation committee for its consideration, and the compensation committee makes a final determination regarding salary adjustments and annual award amounts to executives, including Jean Madar and Philippe Benacin. Messrs. Madar and Benacin are not present during deliberations or determination of their executive compensation by the compensation committee. Further, Messrs. Madar and Benacin, in addition to being executive officers and directors, are our largest beneficial shareholders, and therefore, their interests are aligned with our shareholder base in keeping executive compensation at a reasonable level.
The compensation committee was pleased that the most recent shareholder advisory vote on executive compensation held at our last annual meeting of shareholders in October 2020 overwhelmingly approved the compensation policies and decisions of the compensation committee. The compensation committee has determined to continue its present compensation policies in order to determine similar future decisions.
Our compensation committee believes that individual executive compensation is at a level comparable with executives in other companies of similar size and stage of development that operate in the fragrance industry, and takes into account our company’s performance as well as our own strategic goals. Further, the compensation committee believes that its present policies to date, with its emphasis on rewarding performance, has served to focus the efforts of our executives, which in turn has permitted our company to weather economic and political turmoil in certain parts of the world and keep our company on track for continued profitability, which management believes will result in enhanced shareholder value.
During 2020, the members of such committee consisted of Messrs. Heilbronn and Choël, and Ms. Gabai-Pinsky.
Elements of Compensation
General
The compensation of our executive officers is generally comprised of base salaries, including a fee paid to the holding companies of each of Messrs. Madar and Benacin, annual cash bonuses and long-term equity incentive awards. In determining specific components of compensation, the compensation committee considers individual performance, level of responsibility, skills and experience, other compensation awards or arrangements and overall company performance. The compensation committee reviews and approves all elements of compensation for all of our executive officers taking into consideration recommendations from the Chief Executive Officer of our company and the Chief Executive Officer of Interparfums SA, as well as information regarding compensation levels at competitors in our industry.
Our named executive officers have all been with the company for more than the past ten (10) years, with Messrs. Madar and Benacin being founders of the company in 1985. As Messrs. Madar and Greenberg for United States operations, and Benacin and Santi for European operations, are most familiar with the individual performance, level of responsibility, skills and experience of each executive officer in their respective operating segments, the compensation committee relies upon the information provided by such executive officers in determining individual performance, level of responsibility, skills and experience of each executive officer.
The compensation committee views the competitive marketplace very broadly, which would include executive officers from both public and privately held companies in general, including fashion and beauty companies, but not limited to the peer companies contained in the corporate performance graph contained in our annual report. Generally, rather than tie the compensation committee’s determination of compensation proposals to any specific peer companies, the members of our committee have used their business experience, judgment and knowledge to review the executive compensation proposals recommended to them by Mr. Madar for United States operations and Mr. Benacin for European operations. As such, as a general rule the compensation committee did not determine the need to “benchmark” of any material item of compensation or overall compensation. However, in connection with the salary increase to Mr. Madar that occurred in February 2020 surveys of both peer companies and companies with comparable market capitalizations were used by the compensation committee as one of the factors in reaching such determination.
The members of the compensation committee have extensive experience and business acumen and are well qualified in determining the appropriateness of executive compensation levels. Mr. Heilbronn is a managing partner of a business consulting firm in the area of mergers and acquisitions of large international companies in retail, consumer goods and consumer services throughout the world. Mr. Choël is presently a business consultant and advisor, who previously worked as President and Chief Executive Officer of two divisions of LVMH Moet Hennessy Louis Vuitton S.A., which included such well-known brands as Parfums Christian Dior, Guerlain, and Parfums Givenchy. Mr. Choël has also been President and CEO of both Elida Fabergé France and Chesebrough Pond’s USA. Ms. Gabai-Pinsky, the final committee member, has executive experience as the former President of Vera Wang Group, as well as the Global President for Aramis and Designers Fragrances in addition to Beauty Bank and Idea Bank at the Estée Lauder Companies.
Base Salary
Base salaries for executive officers are initially determined by evaluating the responsibilities of the position held and the experience of the individual, and by reference to the competitive marketplace for executive talent. Base salaries for executive officers are reviewed on an annual basis, and adjustments are determined by evaluating our operating performance, the performance of each executive officer, as well as whether the nature of the responsibilities of the executive has changed.
As stated above, as Messrs. Madar and Greenberg for United States operations, and Benacin and Santi for European operations, are most familiar with the individual performance, level of responsibility, skills and experience of each executive officer in their respective segments, the committee relies upon the information provided by such executive officers in determining individual performance, level of responsibility, skills and experience of each executive officer.
For executive officers of United States operations, the bulk of their annual compensation is in base salary including a fee paid to the holding company for Mr. Madar for services rendered outside the United States. However, for executive officers of European operations base salary comprises a smaller percentage of overall compensation. We have paid a lower percentage of overall compensation in the form of base salary to executive officers of European operations for several years, principally because European operations historically have had higher profitability than United States operations, and European operations are run differently from United States operations by the Chief Executive Officer of European operations, Mr. Benacin. As the result of this historically higher profitability, European operations have had the ability to pay higher bonus compensation in addition to base salary. As bonus compensation is and has historically been discretionary, no targets were set in order to maintain flexibility. Further, if results of operations for European operations were not satisfactory (again, no target amounts were set to maintain flexibility), then bonus compensation, as well as overall compensation could be lowered without otherwise affecting base salary. Finally, by keeping annual bonus compensation at a higher percentage of overall compensation and base salary at a lower percentage, our company benefits because the base amount for annual salary adjustments would be smaller.
Covid-19 Impact
It is important to note that 2020 salary increases and 2019 bonus compensation awards were determined prior to the full impact the global Covid-19 pandemic, the imposition of worldwide governmental lockdowns, and the resultant negative impact on the Company’s operations. During the balance of the pandemic and related impacts through December 31, 2020, no employees were terminated or furloughed from United States operations. Interparfums SA did avail itself of a small French government plan for unemployment insurance for its employees. For 2020, there were no reductions or deferrals in salaries of any executive officers or employees.
For 2020, Mr. Benacin received a modest increase in base salary of $14,000 to $789,000, which is comparable to the modest increase in base salary of $13,000 in 2019, but less than an increase in base salary of $28,000 in 2018. Mr. Benacin’s base salary includes $250,000 paid by the Company’s United States operations to Mr. Benacin’s holding company for each of the past three years, in accordance with the consulting agreement with Mr. Benacin’s holding company, which provides for review on an annual basis of the amount of compensation payable to such company.
The compensation committee considered the following salient factors in authorizing payment to Mr. Benacin’s holding company- services rendered to United States operations for several years by Mr. Benacin in connection with licensing and distribution of international brands, as well as future services to be performed by Mr. Benacin internationally relating to licensing and distribution of international brands for United States operations.
As Mr. Benacin values the services of two named executive officers of Interparfums SA, Mr. Philippe Santi, Executive Vice President and the Chief Financial Officer, and Mr. Frederic Garcia-Pelayo, Executive Vice President and Chief Operating Officer, equally, their base salaries, as well as their bonus compensation discussed below, have been in lockstep. For 2020, each of Messrs. Santi and Garcia-Pelayo received an increase in base salary of $14,000 to $470,000. Each of Messrs. Santi and Garcia-Pelayo had received an increase of $13,000, $28,000 in 2019 and 2018, respectively. These increases were awarded primarily to reward these two executive officers for their contributions in European Operations achieving increases in both the sales and earnings. The compensation committee considered the recommendations of Mr. Benacin, results of operations for the year, as well as the services performed for European operations by Messrs. Santi and Garcia-Pelayo in authorizing these salary levels.
A different approach is taken for United States operations as that segment is smaller and less profitable. A more significant base salary is paid in order to attract and retain employees with the skills and talents needed to run the operation with a lesser emphasis placed on bonuses. Neither of the executive officers for United States operations have employment agreements (although Mr. Madar’s personal holding company has a consulting agreement that provides for review on an annual basis of the amount of compensation payable to such company), as we believe that having flexibility in structuring annual base salary is a benefit, which permits us to act quickly to meet a changing economic environment.
For each of 2019 and 2018, Mr. Madar’s base salary, including cash compensation paid to his personal holding company, remained steady and aggregated $630,000. Cash compensation paid to Mr. Madar’s personal holding company in each year was in exchange for services rendered outside of the United States by Mr. Madar in his capacity as Chief Executive Officer. For 2018, as the result of Mr. Madar spending more time outside of the United States, we changed the allocation of cash compensation paid to Mr. Madar personally and to his personal holding company, but not the aggregate amount. The amount of salary paid to Mr. Madar for his services in the United States in 2018 was reduced $380,000 to $160,000, while payments to his holding company were increased by the like amount from $250,000 to $470,000. Therefore, through 2019 total cash compensation for Mr. Madar to be paid to him and his personal holding company remained unchanged at $630,000.
As previously reported, from 2013 until 2019 the annual aggregate base salary paid to Mr. Madar individually and fees paid to his holding company remained unchanged at $630,000, which was substantially below the amounts indicated by two surveys of chief executive officer salaries for 2019 (collectively the “CEO Salary Surveys”). The CEO Salary Surveys indicated that the annual and median average CEO salaries for peer companies (excluding the Madar salary) were $2,854,656 and $1,540,000, respectively, and $2,604,346 and $1,750,000 for comparable market capitalization companies, respectively. In recognition of the efforts of Mr. Madar and his holding company as one of the prime causes for our substantial increase in net sales and net income, as well as market capitalization from 2014 through 2019, thus substantially increasing shareholder value, on February 4, 2020 the Committees jointly authorized the aggregate annual increase in Mr. Madar’s base salary by $600,000 to $1.23 million effective as of January 1, 2020. The allocation was made as requested so that the annual base salary for Jean Madar individually was $285,000, and the fees to Jean Madar Holding SAS were $945,000, effective as of January 1, 2020.
Russell Greenberg, the Executive Vice President and Chief Financial Officer, has received the same $30,000 increase in base salary for 2020, 2019 and 2018, and for 2020 his base salary was $720,000. In connection with these increases in salary, the Compensation Committee considered the following material factors in granting Mr. Greenberg his salary increases: his individual performance, level of responsibility, skill and experience, as well as the recommendation of the Chief Executive Officer.
Bonus Compensation/Annual Incentives
As discussed above, we have paid a higher percentage of overall compensation in the form of bonus compensation to executive officers of European operations for several years, principally because European operations historically have had higher profitability than United States operations. As the result of this historically higher profitability, European operations have had the ability to pay higher bonus compensation in addition to base salary. As bonus compensation is discretionary, no targets were set in order to maintain flexibility. Further, if results of operations for European operations were not satisfactory (again, no target amounts were set to maintain flexibility), then bonus compensation, as well as overall compensation could be lowered without otherwise affecting base salary. Individual performance, level of responsibility, skill and experience, were the salient factors considered by the Compensation Committee in awarding bonus compensation described below.
For 2020 Mr. Benacin, the chief decision maker for European operations, proposed and the compensation committee concurred in the payment of discretionary bonus compensation of $131,000. For his performance in 2019 and 2018, Mr. Benacin was paid discretionary bonus compensation of $110,000 and $112,000, respectively. The discretionary bonus compensation for Mr. Benacin has been approximately 17%, of his base salary in 2020 and approximately 14% in both 2019 and 2018. In addition, bonus compensation for Messrs. Santi and Garcia-Pelayo have remained in lockstep, and each was awarded a discretionary bonus of $296,000, $324,000 and $331,000 in 2020, 2019 and 2018, or approximately 63%, 73% and 73%, of their base salaries for services performed in 2020, 2019 and 2018, respectively.
A different approach is taken for United States operations as that segment is smaller and less profitable. As discussed above, a more significant base salary is paid in order to attract and retain employees with the skills and talents needed to run United States operations with a lesser emphasis placed on bonuses. Based upon the recommendation of the Chief Executive Officer, Mr. Greenberg was paid a discretionary bonus of $35,000 in 2020 and $50,000 in 2019 and 2018. The Compensation Committee considered the following material factors in granting Mr. Greenberg his bonuses: his individual performance, level of responsibility, skill and experience, as well as the recommendation of the Chief Executive Officer.
Mr. Madar, the Chief Executive Officer has not received any cash bonus in the past three years.
As required by French law, Interparfums SA maintains its own profit sharing plan for all French employees who have completed three months of service, including executive officers of our European operations other than Mr. Benacin, the Chief Executive Officer of Interparfums SA. Benefits are calculated based upon a percentage of taxable income of Interparfums SA and allocated to employees based upon salary. The maximum amount payable per year per employee is approximately $38,000.
Calculation of the total annual benefits contribution is made according to the following formula:
67% of (Interparfums SA net income, less 2.5% of shareholders equity without net income for the year) times a fraction, the numerator of which is wages, and the denominator of which is net income before tax + wages + taxes (other than income tax) + valuation allowances + amortization expenses + interest expenses.
Contribution to individual employees is then made pro rata based upon their individual salaries for the year.
Long-Term Incentives
Stock Options. We link long-term incentives with corporate performance through the grant of stock options. All options are granted with an exercise price equal to the fair market value of the underlying shares of our common stock on the date of grant, and terminate on or shortly after severance of the executive’s relationship with us. Unless the market price of our common stock increases, corporate executives will have no tangible benefit. Thus, they are provided with the additional incentive to increase individual performance with the ultimate goal of increasing our overall performance. We believe that enhanced executive incentives which result in increased corporate performance tend to build company loyalty. As a general rule, the number of options granted is determined by several factors including individual performance, company operating results and past option grants to such executives.
For executive officers of United States operations and European operations, we typically grant nonqualified stock options in December each year with a term of 6 years that vest ratably over a 5-year period on a cumulative basis, so that the option will become fully exercisable at the beginning of the sixth year from the date of grant. However, due to the global pandemic and its impact on operations, no options were granted in 2020 to either employees of United States operations or European operations.
Interparfums SA Stock Compensation Plans
2019 Plan - In December 2018, Interparfums SA approved a plan to grant an aggregate of 26,600 shares of its stock to employees with no performance condition requirement, and an aggregate of 133,000 shares to officers and managers, subject to certain corporate performance conditions. The shares, subject to adjustment for stock splits, will be distributed in June 2022. Under this plan in June 2022, Mr. Benacin, Madar, Garcia Pelayo and Santi are estimated to receive 4,000 shares each, with Mr. Greenberg estimated to receive the equivalent of 1,000 of such shares, all subject to adjustment for stock splits.
In March 2020, due to the potential impact on future net sales and operating results resulting from the COVID-19 pandemic, the estimated number of shares to be distributed, after forfeited shares, was reduced from 142,571 to 82,162. As the Company had already purchased shares in contemplation of the higher anticipated distribution, shares purchased in excess of the reduced anticipated distribution were transferred to treasury shares at the Interparfums SA level.
The fair value of the grant had been determined based on the quoted stock price of Interparfums SA shares as reported by the NYSE Euronext on the date of grant. The original cost of the grant was approximately $4.4 million, and the March 2020 revaluation resulted in a reduction of the cost, to approximately $2.5 million. As a result, a $0.3 million reduction of cost, net, was recorded for the three months ended March 31, 2020.
In June 2020, the performance conditions were modified effecting 96 employees. As of December 31, 2020, the number of shares to be distributed, after forfeited shares, increased to 132,032. The increase in shares anticipated to be distributed were transferred from treasury shares at the Interparfums SA level. The modification resulted in a revised cost of the grant to approximately $3.8 million. Messrs. Benacin, Madar, Garcia Pelayo and Santi are estimated to receive 4,000 shares each,
An incentive plan was established by Interparfums SA for certain employees of Interparfums Luxury Brands, Inc. (“IPLB”), Interparfums Singapore (“IP Singapore”) and Inter Parfums, Inc. The proposed incentive plan would not provide shares but rather, would give a cash payment or bonus (“incentive” or “award”) that mirrors the shares that Interparfums SA employees will receive. An aggregate of 42,140 “phantom” shares have been awarded with Mr. Greenberg being awarded 1,000 of such “phantom” shares, all subject to adjustment for stock splits.
Stock Appreciation Rights
Our stock option plans authorize us to grant stock appreciation rights, or SARs. A SAR represents a right to receive the appreciation in value, if any, of our common stock over the base value of the SAR. To date, we have not granted any SARs under our plans. While the compensation committee currently does not plan to grant any SARs under our plans, it may choose to do so in the future as part of a review of the executive compensation strategy.
Restricted Stock
We have not in the past, and we do not have any future plans to grant restricted stock to our executive officers. However, while the compensation committee currently does not plan to authorize any restricted stock plans, the compensation committee may choose to do so in the future as part of a review of the executive compensation strategy. Our French operating subsidiary, Interparfums, SA, however, has instituted its 2019 Stock Compensation Plans as discussed above.
Other Compensation
For 2020, Mr. Benacin received an automobile allowance of $12,500, which is the same amount paid in since 2010. For 2019 Mr. Garcia-Pelayo, Executive Vice President and Chief Operating Officer of Interparfums SA, received an automobile allowance of $9,000.
No Stock Ownership Guidelines
We do not require any minimum level of stock ownership by any of our executive officers. As stated above, Messrs. Madar and Benacin, are our largest beneficial shareholders, which aligns their interests with our shareholder base in keeping executive compensation at a reasonable level.
Retirement and Pension Plans
We maintain a 401(k) plan for United States operations. However, we do not match any contributions to such plan, as we have determined that base compensation together with annual bonuses and stock option awards, are sufficient incentives to retain talented employees. Our European operations maintain a pension plan for its employees as required by French law. For each of 2020. 2019 and 2018, each of Messrs. Benacin, Santi and Garcia-Pelayo received an increase of $17,500, $16,789 and $20,646, respectively, in their value of deferred compensation earnings.
Compensation Committee Report
We have reviewed and discussed with management the Compensation Discussion and Analysis provisions to be included in this Annual Report on Form 10-K for fiscal year ended December 31, 2020 and the proxy statement for the upcoming annual meeting of shareholders. Based on this review and discussion, we recommend to the board of directors that the Compensation Discussion and Analysis referred to above be included in this Annual Report on Form 10-K as well as the proxy statement for the upcoming annual meeting of shareholders.
Francois Heilbronn
Patrick Choël and
Veronique Gabai-Pinsky
The following table sets forth a summary of all compensation awarded to, earned by or paid to our “named executive officers,” who are our principal executive officer, our principal financial officer, and each of the three most highly compensated executive officers of our company. This table covers all such compensation during fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018. For all compensation related matters disclosed in the summary compensation table, and elsewhere where applicable, all amounts paid in euro have been converted to U.S. dollars at the average rate of exchange in each year.
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary
($) Bonus
($) Stock Awards
($) Option Awards
($)(1) Non-Equity Incentive Plan Compensation
($)(2) Change in Pension Value and Nonqualified Deferred Compensation Earnings
($) All Other Compensation
($)(3) Total
($)
Jean Madar, 1,230,000 -0- -0- -0- 1,230,000
Chairman and 630,000 138,320 353,092 -0- 1,121,412
Chief Executive Officer 630,000 -0- 364,638 -0- 994,638
Russell Greenberg, 720,000 35,000 -0- -0- 755,000
Chief Financial Officer and 690,000 50,000 34,580 353,092 -0- 1,127,672
Executive Vice President 660,000 50,000 364,638 -0- 1,074,638
Philippe Benacin, President Inter 788,808 130,673 -0- 17,500 12,434 949,415
Parfums, Inc., Chief Executive 760,583 109,731 138,320 353,092 16,789 12,093 1,390,608
Officer of Interparfums SA 774,408 112,205 364,638 20,646 12,756 1,284,653
Philippe Santi, Executive Vice 469,730 295,596 -0- 17,500 782,826
President and Chief Financial 443,401 323,593 138,320 141,237 34,028 16,789 1,097,368
Officer, Interparfums SA 453,542 330,708 189,082 33,130 20,646 1,027,108
Frédéric Garcia-Pelayo, 469,730 295,596 -0- 17,500 8,980 791,806
Executive Vice President and 443,401 323,593 138,320 141,237 34,028 16,789 8,734 1,106,102
Chief Operating Officer Interparfums SA 453,542 330,708 189,082 33,130 20,646 9,213 1,036,321
1 Amounts reflected under Option Awards represent the grant date fair values in 2020, 2019 and 2018 based on the fair value of stock option awards using a Black-Scholes option pricing model. The assumptions used in this model are detailed in Footnote 13 to the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 and filed with the SEC.
2 As required by French law, Interparfums SA maintains its own profit sharing plan for all French employees who have completed three months of service, including executive officers of our European operations other than Mr. Benacin, the Chief Executive Officer of Interparfums SA Benefits are calculated based upon a percentage of taxable income of Interparfums SA and are allocated to employees based upon salary. The maximum amount payable per year is approximately $38,000.
Calculation of total annual benefits contribution is made according to the following formula:
67% of (Interparfums SA net income, less 2.5% of shareholders equity without net income for the year) times a fraction, the numerator of which is wages, and the denominator of which is net income before tax + wages + taxes (other than income tax) + valuation allowances + amortization expenses + interest expenses.
Contribution to individual employees is then made pro rata based upon their individual salaries for the year.
3 The following table identifies (i) perquisites and other personal benefits provided to our named executive officers in fiscal 2020, and quantifies those required by SEC rules to be quantified and (ii) all other compensation that is required by SEC rules to be separately identified and quantified.
Name and Principal Position Perquisites and other Personal Benefits
($) Personal Automobile Expense
($) Lodging Expense
($) Total
($)
Jean Madar, Chairman
Chief Executive Officer -0- -0-
Russell Greenberg, Chief Financial
Officer and Executive Vice
President -0- -0-
Philippe Benacin, President of Inter
Parfums, Inc. and Chief Executive
Officer of Interparfums SA 12,434 12,434
Philippe Santi,
Executive Vice President and Chief
Financial Officer, Interparfums SA -0- -0-
Frédéric Garcia-Pelayo,
Executive Vice President and
Chief Operating Officer,
Interparfums SA 8,980 8,980
Plan Based Awards
No stock options were granted to the executive officers of our company listed in the Summary Compensation Table during the past fiscal year.
Interparfums SA Stock Compensation Plan.
No options were granted by Interparfums SA to the executive officers of our company listed in the Summary Compensation Table during the past fiscal year.
Interparfums SA Profit Sharing Plan
Also as discussed above and required by French law, Inter Parfums, SA maintains its own profit sharing plan for all French employees who have completed three months of service, including executive officers of our European operations other than Mr. Benacin, the Chief Executive Officer of Inter Parfums, SA. Benefits are calculated based upon a percentage of taxable income of Interparfums SA and allocated to employees based upon salary. The maximum amount payable per year per employee is approximately $38,000.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information relating to outstanding equity awards of our Company held by the executive officers listed in the Summary Compensation Table as of December 31, 2020.
Option Awards
Name Number of Securities Underlying Unexercised Options (#) Exercisable(1)
Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price ($) Option Expiration Date
Jean Madar 19,000 -0- 23.605 12/30/21
15,200 3,800 32.825 12/30/22
15,000 (2) 10,000 (2) 43.80 12/29/23
10,000 (2) 15,000 (2) 65.25 12/30/24
5,000 (2) 20,000 (2) 73.09 12/30/25
Russell Greenberg 25,000 -0- 23.605 12/30/21
20,000 5,000 32.825 12/30/22
15,000 10,000 43.80 12/29/23
10,000 15,000 65.25 12/30/24
5,000 20,000 73.09 12/30/25
Philippe Benacin 19,000 -0- 23.605 12/30/21
15,200 3,800 32.825 12/30/22
15,000 (2) 10,000 (2) 43.80 12/29/23
10,000 (2) 15,000 (2) 65.25 12/30/24
5,000 (2) 20,000 (2) 73.09 12/30/25
Philippe Santi -0- 25.821 1/27/2021
2,400 -0- 23.605 12/30/21
2,400 1,200 32.825 12/30/22
2,400 2,400 43.80 12/29/23
1,600 2,400 46.903 1/18/24
4,000 6,000 65.25 12/30/24
2,000 8,000 73.09 12/30/25
Frédéric Garcia-Pelayo -0- 25.821 1/27/2021
2,400 -0- 23.605 12/30/21
2,400 1,200 32.825 12/30/22
2,400 2,400 43.80 12/29/23
1,600 2,400 46.903 1/18/24
4,000 6,000 65.25 12/30/24
2,000 8,000 73.09 12/30/25
[Footnotes from table above]
All options expire 6 years from the date of grant, and vest 20% each year commencing one year after the date of grant.
Options are held in the name of personal holding company.
The following table sets certain information relating to outstanding equity awards granted by Interparfums SA, our majority-owned French subsidiary which has its shares traded on the NYSE Euronext, held by the executive officers of our company listed in the Summary Compensation Table as of the end of the past fiscal year.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OF INTERPARFUMS SA
Option Awards Stock Awards
Name Number of Securities Underlying Unexercised Options (#) Exercisable) Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock that Have Not Vested (#)(1) Market Value of Shares or Units of Stock that Have Not Vested ($) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested($)
Jean Madar -0- -0- N/A -0- NA
Russell Greenberg -0- -0- N/A -0- NA
Philippe Benacin -0- -0- N/A 4,840 255,087 NA
Philippe Santi -0- -0- N/A 4,840 255,087 NA
Frédéric Garcia-Pelayo -0- -0- N/A 4,840 255,087 NA
Option Exercises and Stock Vested
The following table sets forth certain information relating to each option exercise affected during the past fiscal year, and each vesting of stock, including restricted stock, restricted stock units and similar instruments of our company during the past fiscal year, for the executive officers of our company listed in the Summary Compensation Table.
OPTION EXERCISES AND STOCK VESTED
Option Awards Stock Awards
Name Number of Shares Acquired on Exercise (#) Value Realized on Exercise ($)1
Number of Shares Acquired on Vesting (#) Value Realized On Vesting ($)
Jean Madar 19,000 575,246
Russell Greenberg 25,000 712,333
Philippe Benacin 19,000 545,251
Philippe Santi 1,000 31,308
Frédéric Garcia-Pelayo 1,000 30,858
[Footnotes from table above]
Total value realized on exercise of options in dollars is based upon the difference between the fair market value of the common stock on the date of exercise, and the exercise price of the option.
Regarding Interparfums SA, our majority-owned French subsidiary which has its shares traded on the Euronext, no options were exercised during the past fiscal year, and there was no vesting of stock, including restricted stock, restricted stock units and similar instruments during the past fiscal year, for the executive officers of our company listed in the Summary Compensation Table.
Pension Benefits
The following table sets forth certain information relating to payment of benefits in connection with retirement plans during the past fiscal year, for the executive officers of our company listed in the Summary Compensation Table.
PENSION BENEFITS
Name Plan Name Number of Years Credited Service
(#) Present
Value of
Accumulated Benefit*
($) Payments During Last Fiscal Year
($)
Jean Madar NA NA -0-
Russell Greenberg NA NA -0-
Philippe Benacin Inter Parfums SA Pension Plan NA 297,500 17,500
Philippe Santi Inter Parfums SA Pension Plan NA 287,500 17,500
Frédéric Garcia-Pelayo Inter Parfums SA Pension Plan NA 287,500 17,500
* Does not include any contributions made by prior employers, or individually by the recipients as such information is confidential under French law.
Interparfums SA maintains a pension plan for all of its employees, including all executive officers. The calculation of commitments for severance benefits involves estimating the probable present value of projected benefit obligations. This projected benefit obligations are then prorated to take into account seniority of the employees of Interparfums SA on the calculation date.
In calculating benefits, the following assumptions were applied:
- voluntary retirement at age 65;
- a rate of 45% for employer payroll contributions for all employees;
- a 4% average annual salary increase;
- an annual rate of turnover for all employees under 55 years of age and nil above;
- the TH 00-02 mortality table for men and the TF 00-02 mortality table for women;
- a discount rate of 2.0%.
The normal retirement age is 65 years, but employees, including Messrs. Benacin, Santi and Garcia-Pelayo, can collect reduced benefits if they retire at age 62.
Nonqualified Deferred Compensation
We do not maintain any nonqualified deferred compensation plans.
CEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our mean employee and the annual total compensation of Mr. Jean Madar, Chief Executive Officer (the “CEO”):
For 2020, our last completed fiscal year:
● Our median employee’s compensation was $69,078
● Our Chief Executive Officer’s total 2020 compensation was $1,806,246
● Accordingly, our 2020 CEO to Median Employee Pay Ratio was 26.13 to 1
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records. We identified our median employee using our total employee population as of December 31, 2020 by applying a consistently applied compensation measure across our global employee population. For our consistently applied compensation measure, we used all compensation, including actual base salary, bonuses, commissions, and any overtime paid during the 12-month period ending December 31, 2020. We did not use any material estimates, assumptions, adjustments or statistical sampling to determine the worldwide median employee.
The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
Employment and Consulting Agreements
As part of our acquisition in 1991 of the controlling interest in Interparfums SA, now a subsidiary, we entered into an employment agreement with Philippe Benacin. The agreement provides that Mr. Benacin will be employed as Vice Chairman of the Board and President and Chief Executive Officer of Inter Parfums Holdings and its subsidiary, Interparfums SA. The initial term expired on September 2, 1992, and has subsequently been automatically renewed for additional annual periods. The agreement provides for automatic annual renewal terms, unless either party terminates the agreement upon 120 days’ notice. For 2020, Mr. Benacin received an annual salary of approximately $539,000, and automobile expenses of approximately $12,500 which are subject to increase in the discretion of the board of directors. The agreement also provides for indemnification and a covenant not to compete for one year after termination of employment.
In 2014, we entered into a consulting agreement with Mr. Benacin’s holding company, Philippe Benacin Holding SAS, which provides for review on an annual basis of the amount of compensation payable to such company. The agreement also provides for indemnification for Mr. Benacin and his holding company and a covenant not to compete for one year after termination of the agreement. The agreement was for one year, with automatic one year renewals unless either party terminates on 120 days’ notice or Mr. Benacin ceases to be the President of our company. For 2015 through 2020 Mr. Benacin’s personal holding company received $250,000 each year for services rendered outside of the United States by Mr. Benacin in his capacity as President. In addition, in December 2018 and December 2019, we granted options to purchase 25,000 shares for the benefit of Mr. Benacin, and were granted to his personal holding company instead of Mr. Benacin directly.
In 2013, we enter into a consulting agreement with Mr. Madar’s holding company, Jean Madar Holding SAS, which provides for review on an annual basis of the amount of compensation payable to such company. The agreement also provides for indemnification for Mr. Madar and his holding company and a covenant not to compete for one year after termination of the agreement. The agreement was for one year, with automatic one year renewals unless either party terminates on 120 days’ notice or Mr. Madar ceases to be the Chief Executive Officer of our company. From 2013 through 2017, Mr. Madar’s personal holding company received $250,000 each year for services rendered outside of the United States by Mr. Madar in his capacity as Chief Executive Officer. For 2018, as the result of Mr. Madar spending more time outside of the United States, we changed the allocation of cash compensation paid to Mr. Madar personally and to his holding company, but not the aggregate amount. The amount of salary paid to Mr. Madar in 2018 was reduced from $380,000 to $160,000, while payments to his holding company were increased by the like amount from $250,000 to $470,000. Therefore, for 2018 total cash compensation for Mr. Madar paid to him and his personal holding company remained unchanged at $630,000. This consulting agreement was renewed at $470,000 for 2019. As discussed above, in view of receiving substantially less than the annual and median average CEO salaries for peer companies and companies with comparable market capitalization, in early February 2020 the Mr. Madar’s base salary was increased by $600,000 to $1.23 million effective as of January 1, 2020, and allocated so that the annual base salary for Jean Madar individually was $285,000, and the fees to Jean Madar Holding SAS were $945,000, effective as of January 1, 2020. In addition, in December 2018 and December 2019, we granted options to purchase 25,000 shares for the benefit of Mr. Madar, which were granted to his personal holding company instead of Mr. Madar directly.
Compensation of Directors
The following table sets forth certain information relating to the compensation for each of our directors who is not an executive officer of our Company named in the Summary Compensation Table for the past fiscal year.
DIRECTOR COMPENSATION
Name Fees Earned or Paid in Cash
($)
Stock Awards
($)
Option Awards
($)
Non-Equity Incentive Plan Compensation
($) Change in Pension Value and Nonqualified Deferred Compensation Earnings All Other Compensation
($)1 Total
($)
Francois Heilbronn2 29,000 18,237 -0- 33,732 80,969
Robert Bensoussan3 21,000 18,237 -0- 39,237
Patrick Choël4 29,000 18,237 -0- 5,244 52,481
Michel Dyens5 21,000 18,237 -0- 39,237
Veronique Gabai-Pinsky6 29,000 18,237 -0- 47,237
Gilbert Harrison7 71,000 18,237 -0- 89,237
[Footnotes from table above]
1. Represents gain from exercise of stock options.
2. As of the end of the last fiscal year, Mr. Heilbronn held options to purchase an aggregate of 4,500 shares of our common stock.
3. As of the end of the last fiscal year, Mr. Bensoussan held options to purchase an aggregate of 5,500 shares of our common stock.
4. As of the end of the last fiscal year, Mr. Choël held options to purchase an aggregate of 3,750 shares of our common stock.
5. As of the end of the last fiscal year, Mr. Dyens held options to purchase an aggregate of 5,500 shares of our common stock.
6. As of the end of the last fiscal year, Ms. Gabai-Pinsky held options to purchase an aggregate of 4,500 shares of our common stock.
7. As of the end of the last fiscal year, Mr. Harrison held options to purchase an aggregate of 4,500 shares of our common stock.
In July 2019 and compensation to all nonemployee directors was increased to $6,000 for each board meeting at which they participate in person, and $3,000 for each meeting held by conference telephone. In addition, effective January 1, 2020 the annual fee for each member of the audit committee was raised to $8,000.
We maintain stock option plans for our nonemployee directors. The purpose of these plans is to assist us in attracting and retaining key directors who are responsible for continuing the growth and success of our company. Under such plans, options to purchase 1,500 shares are granted on each February 1st to all nonemployee directors for as long as each is a nonemployee director on such date. However, if a nonemployee director does not attend certain of the board meetings, then such option grants are reduced according to a schedule. In addition, options to purchase 2,000 shares are granted to each nonemployee director upon his or her initial election or appointment to our board, but if such option is granted within six months of the next February 1 automatic grant, then such nonemployee director would not be eligible to receive that February 1 grant.
All of such options were granted at the fair market value and vest ratably over a 4 year period. At our annual meeting in September 2019 our shareholders approved a proposal to amend our 2016 Stock Option Plan to increase the number of shares issuable upon exercise of options to be granted starting February 1, 2020 from 1,000 shares to 1,500 shares solely to nonemployee directors annually on each February 1. On February 1, 2021, options to purchase 1,500 shares were granted to all of our nonemployee directors at the exercise price of $62.18 per share under our 2016 Stock Option Plan.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information with respect to the beneficial ownership of our common stock by (a) each person we know to be the beneficial owner of more than 5% of our outstanding common stock, (b) our executive officers and directors and (c) all of our directors and officers as a group. Each of Messrs. Madar and Benacin own 99.99% of their respective personal holding companies. As of February 26, 2021 we had 31,635,098 shares of common stock outstanding.
Name and Address of Beneficial Owner Amount of Beneficial Ownership1 Approximate Percent of Class
Jean Madar
c/o Interparfums SA
4, Rond Point des Champs Elysees
75008 Paris, France 7,113,053 2 22.4 %
Philippe Benacin
c/o Interparfums SA
4, Rond Point des Champs Elysees
75008 Paris, France 6,906,664 3 22.0 %
Russell Greenberg
c/o Inter Parfums, Inc.
551 Fifth Avenue
New York, NY 10176 75,200 4 Less than 1 %
Philippe Santi
Interparfums SA
4, Rond Point des Champs Elysees
75008, Paris France 10,800 5 Less than 1 %
Francois Heilbronn
60 Avenue de Breteuil
75007 Paris, France 36,688 6 Less than 1 %
Robert Bensoussan
c/o Sirius Equity LLP
52 Brook Street
W1K 5DS London 9,125 7 Less than 1 %
Patrick Choël
140 Rue de Grenelle
75007, Paris, France 5,125 8 Less than 1 %
Michel Dyens
Michel Dyens & Co.
17 Avenue Montaigne
75008 Paris, France 5,625 9 Less than 1 %
Veronique Gabai-Pinsky
Vera Wang
15 E. 26th Street
New York NY 10010 2,375 10 Less than 1 %
Gilbert Harrison
Harrison Group
745 Fifth Avenue, Suite 514
New York, NY 10151 1,875 11 Less than 1 %
Frederic Garcia-Pelayo
Interparfums SA
4, Rond Point des Champs Elysees
75008, Paris France 10,800 12 Less than 1 %
Blackrock, Inc.
55 East 52nd Street
New York, NY 10055 2,682,141 13 8.4 %
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355 1,919,970 14 6.1 %
Ameriprise Financial, Inc. 145
Ameriprise Financial Center
Minneapolis, MN 55474
1,891,241 15 6.0 %
All Directors and Officers
(As a Group 10 Persons) 14,151,650 16 44.7 %
All shares of common stock are directly held with sole voting power and sole power to dispose, unless otherwise stated. Options which are exercisable within 60 days are included in beneficial ownership calculations. Jean Madar, the Chairman of the Board and Chief Executive Officer of the Company and Philippe Benacin, the Vice Chairman of the Board and President of the Company, have a verbal agreement or understanding to vote the shares each beneficially owns in a like manner.
Consists of 20,112 shares held directly, 7,032,341 shares held indirectly through Jean Madar Holding SAS, a personal holding company, and options to purchase 60,600 shares.
Consists of 6,846,064 shares held indirectly through Philippe Benacin Holding SAS, a personal holding company, and options to purchase 60,600 shares.
Consists of shares 7,500 shares held directly and options to purchase 75,000 shares.
Consists of options to purchase shares.
Consists of 34,063 shares held directly and options to purchase 2,625 shares.
Consists of 6,500 shares held directly and options to purchase 2,625 shares.
Consists of 3,250 shares held directly and options to purchase 1,875 shares.
Consists of 3,000 shares held directly and options to purchase 2,625 shares.
Consists of shares of common stock underlying options.
Consists of shares of common stock underlying options.
Consists of shares of common stock underlying options.
Information based upon Schedule 13G Amendment 5 of Blackrock, Inc. dated January29, 2021 as filed with the Securities and Exchange Commission.
Information based upon Schedule 13G Amendment 4 of The Vanguard Group, an investment advisor, dated February 10, 2021 as filed with the Securities and Exchange Commission.
Information based upon Schedule 13G of Ameriprise Financial, Inc. (“AFI”) dated February 12, 2021 as filed with the Securities and Exchange Commission. AFI disclaims beneficial ownership of any shares reported on this Schedule 13G.
Consists of 13,952,830 shares held directly or indirectly, and options to purchase 235,400 shares.
The following table sets forth certain information as of the end of our last fiscal year regarding all equity compensation plans that provide for the award of equity securities or the grant of options, warrants or rights to purchase our equity securities.
Equity Compensation Plan Information
Plan category Number of
securities to
be issued
upon
exercise of
outstanding
options,
warrants and
rights
(a) Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b) Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)
Equity compensation plans approved by security holders 713,210 $ 52.74 580,715
Equity compensation plans not approved by security holders N/A
Total 713,210 $ 52.74 580,715

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
Transactions with European Subsidiaries
We have guaranteed the obligations of our majority-owned, French subsidiary, Interparfums SA under our Paul Smith license agreement. We also provide (or had provided on our behalf) certain financial, accounting and legal services for Interparfums SA, and during 2020, 2019 and 2018 fees for such services were $450,750, $483,675 and $214,513, respectively. In 2017, Inter Parfums USA, LLC, a United States subsidiary, renewed a license agreement for five years that was initially signed in 2012 on the same terms with Interparfums Suisse (SARL), a Swiss subsidiary of Interparfums SA, for the right to sell amenities under the Lanvin brand name to luxury hotels, cruise lines and airlines in return for royalty payments as are customary in our industry.
During 2018, Interparfums SA, an indirect majority-owned subsidiary of the Company, loaned the Company $10 million. This loan was repayable in ten (10) equal monthly payments of $1,000,000 of principal plus accrued interest at 2% per annum, with the first payment due on May 31, 2019. The last payment was made on February 28, 2020.
In March 2020, Interparfums Luxury Brands, Inc., an indirect majority-owned subsidiary of the Company, loaned the Company $10 million, which was repaid in full, with interest at 2% per annum, in December 2020.
Consulting Agreements
In 2014, we entered into a consulting agreement with Mr. Benacin’s holding company, Philippe Benacin Holding SAS, which provides for review on an annual basis of the amount of compensation payable to such company. The agreement also provides for indemnification for Mr. Benacin and his holding company and a covenant not to compete for one year after termination of the agreement. The agreement was for one year, with automatic one year renewals unless either party terminates on 120 days’ notice or Mr. Benacin ceases to be the President of our company. For 2015 through 2020, Mr. Benacin’s personal holding company received $250,000 each year for services rendered outside of the United States by Mr. Benacin in his capacity as President.. In addition, in December 2018 and December 2019, we granted options to purchase 25,000 shares for the benefit of Mr. Benacin, and were granted to his personal holding company instead of Mr. Benacin directly.
In 2013, we enter into a consulting agreement with Mr. Madar’s holding company, Jean Madar Holding SAS, which provides for review on an annual basis of the amount of compensation payable to such company. The agreement also provides for indemnification for Mr. Madar and his holding company and a covenant not to compete for one year after termination of the agreement. The agreement was for one year, with automatic one year renewals unless either party terminates on 120 days’ notice or Mr. Madar ceases to be the Chief Executive Officer of our company. From 2013 through 2017, Mr. Madar’s personal holding company received $250,000 each year for services rendered outside of the United States by Mr. Madar in his capacity as Chief Executive Officer. For 2018, as the result of Mr. Madar spending more time outside of the United States, we changed the allocation of cash compensation paid to Mr. Madar personally and to his holding company, but not the aggregate amount. The amount of salary paid to Mr. Madar in 2018 was reduced from $380,000 to $160,000, while payments to his holding company were increased by the like amount from $250,000 to $470,000. Therefore, for 2018 total cash compensation for Mr. Madar paid to him and his personal holding company remained unchanged at $630,000. This consulting agreement was renewed at $470,000 for 2019, again with no change in aggregate compensation. As discussed above, in view of receiving substantially less than the annual and median average CEO salaries for peer companies and companies with comparable market capitalization, in early February 2020 the Mr. Madar’s base salary was increased by $600,000 to $1.23 million effective January 1, 2020, and allocated so that the annual base salary for Jean Madar individually was $285,000, and the fees to Jean Madar Holding SAS were $945,000. In addition, in December 2018 and again in December 2019, we granted options to purchase 25,000 shares for the benefit of Mr. Madar, which were granted to his personal holding company rather than to Mr. Madar directly.
Investment in Private Company
As previously disclosed, during 2019 each of our company and Interparfums SA made a $100,000 investment in a privately held start-up fragrance company controlled by director, Veronique Gabai-Pinsky.
Procedures for Approval of Related Person Transactions
Transactions between related persons, such as between an executive officer or director and our company, or any company or person controlled by such officer or director, are required to be approved by our Audit Committee of our board of directors. Our Audit Committee Charter contains such explicit authority, as required by the applicable rules of The Nasdaq Stock Market.
Director Independence
The following are our directors who are independent directors within the applicable rules of The Nasdaq Stock Market:
Francois Heilbronn
Robert Bensoussan
Patrick Choël
Michel Dyens
Veronique Gabai-Pinsky
Gilbert Harrison
We follow and comply with the independent director definitions as provided by The Nasdaq Stock Market rules in determining the independence of our directors, which are posted on our company’s website. In addition, such rules are also available on The Nasdaq Stock Market’s website. In addition, The Nasdaq Stock Market maintains more stringent rules relating to director independence for the members of our Audit Committee, and the members of our Audit Committee, Messrs. Heilbronn and Choël, as well as Ms. Gabai-Pinsky, are independent within the meaning of those rules.
Board Leadership Structure and Risk Management
For more than the past ten (10) years, Jean Madar has held the positions of Chairman of the Board of Directors and Chief Executive Officer of our company. Almost since inception, Mr. Madar has been allocated the responsibility of overseeing our United States operations and the operation of Inter Parfums, Inc., as a public company. Philippe Benacin, as Chief Executive Officer of Interparfums SA, has been allocated the responsibility of overseeing our European operations and its operation as a public company in France. In addition, Mr. Benacin is also the Vice Chairman of the Board of Directors of our company. Our board of directors is comfortable with this approach, as the two largest beneficial stockholders of our company are also directly responsible for the operations of our company’s two operating segments. Accordingly, our board of directors does not have a “Lead Director,” a non-management director who controls the meetings of our board of directors.
Our board of directors manages risk by (i) review of periodic operating reports and discussions with management; (ii) approval of executive compensation incentive plans through its committee, the Executive Compensation and Stock Option Committee; (iii) approval of related party transactions through its committee, the Audit Committee; and (iv) approval of material transactions not in the ordinary course of business. Since our inception, we have never been the subject of any material product liability claims, and we have had no recent material property damage claims.
Further, we periodically enter into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and to manage risks related to future sales expected to be denominated in a foreign currency. We enter into these exchange contracts for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the receivables and cash flows of 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.
In addition, we mitigate interest rate risk by continually monitoring interest rates, and then determining whether fixed interest rates should be swapped for floating rate debt, or if floating rate debt should be swapped for fixed rate debt.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
Fees
The following sets forth the fees billed to us by Mazars USA LLP, as well as discusses the services provided for the past two fiscal years, fiscal years ended December 31, 2020 and December 31, 2019.
Audit Fees
Fees billed by Mazars USA LLP and its affiliate, Mazars S.A. for audit services and review of the financial statements contained in our Quarterly Reports on Form 10-Q were $1.1 and $1.2 million for 2020 and 2019, respectively.
Audit-Related Fees
Mazars USA LLP did not bill us for any audit-related services during 2020 and 2019.
Tax Fees
Mazars USA LLP billed us $34,500 and $41,500 for tax services during 2020 and 2019, respectively.
All Other Fees
Mazars S.A. billed us $3,500 and $9,000 for other services during 2020 and 2019, respectively.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee has the sole authority for the appointment, compensation and oversight of the work of our independent accountants, who prepare or issue an audit report for us.
During the second quarter of 2020, the audit committee authorized the following non-audit services to be performed by Mazars USA LLP.
● We authorized the engagement of Mazars USA LLP if deemed necessary to provide tax consultation in the ordinary course of business for fiscal year ended December 31, 2020.
● We authorized the engagement of Mazars USA LLP if deemed necessary to provide tax consultation as may be required on a project by project basis that would not be considered in the ordinary course of business, up to a $10,000 fee limit per project (or €10,000 in the case of Interparfums SA), subject to an aggregate fee limit of $50,000 for fiscal year ended December 31, 2020. If we require further tax services from Mazars USA LLP, then the approval of the audit committee must be obtained.
● We authorized the engagement of Mazars USA LLP if deemed necessary to provide attestation or other services as may be required on a project by project basis that would not be considered in the ordinary course of business, up to a $10,000 fee limit per project (or €10,000 in the case of Interparfums SA), subject to an aggregate fee limit of $50,000 for fiscal year ended December 31, 2020. If we require further tax services from Mazars USA LLP, then the approval of the audit committee must be obtained.
● If we require other services by Mazars USA LLP on an expedited basis such that obtaining pre-approval of the audit committee is not practicable, then the Chairman of the Committee has authority to grant the required pre-approvals for all such services.
● We imposed a cap of $100,000 on the fees that Mazars USA LLP can charge for services on an expedited basis that are approved by the Chairman without obtaining full audit committee approval.
● None of the non-audit services of either of the Company’s auditors had the pre-approval requirement waived in accordance with Rule 2-01(c)(7)(i)(C) of Regulation S-X.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
Page
(a)(1) Financial Statements annexed hereto
Report of Independent Registered Public Accounting Firm
Audited Financial Statements:
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2020
Consolidated Statements of Comprehensive Income (Loss) for each of the years in the three-year period ended December 31, 2020
Consolidated Statements of Changes in Shareholders’ Equity for each of the years in the three-year period ended December 31, 2020
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2020
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
(a)(3) Exhibits - The list of exhibits is contained in the Exhibit Index, which follows the signature page of this report.