Forward Looking Information
Statements in this report which are not historical in nature are forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance that such plans, intentions or expectations will be achieved. In some
cases, you can identify forward-looking statements by forward-looking words such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"should," "will" and "would" or similar words. You should not rely on
forward-looking statements because actual events or results may differ
materially from those indicated by these forward-looking statements as a result
of a number of important factors. These factors include, but are not limited to,
the risks and uncertainties discussed under the headings "Forward Looking
Statements" and "Risk Factors" in Inter Parfums' annual report on Form 10-K for
the fiscal year ended December 31, 2020, and the reports Inter Parfums files
from time to time with the Securities and Exchange Commission. Inter Parfums
does not intend to and undertakes no duty to update the information contained in
this report.
Overview
We operate in the fragrance business, and manufacture, market and distribute a
wide array of fragrances and fragrance related products. We manage our business
in two segments, European based operations and United States based operations.
Certain prestige fragrance products are produced and marketed by our European
operations through our 73% owned subsidiary in Paris, IPSA, which is also a
publicly traded company as 27% of IPSA 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 79% and 80% of net sales for the nine months ended
September 30, 2021 and 2020, respectively. We have built a portfolio of prestige
brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade,
Lanvin, Moncler, Montblanc, Paul Smith, S.T. Dupont, Repetto, Rochas 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 21% and 20% of net sales
for the nine months ended September 30, 2021 and 2020, respectively. These
fragrance products are sold or to be sold primarily pursuant to license or other
agreements with the owners of the Abercrombie & Fitch, Anna Sui, bebe, Dunhill,
Ferragamo, Graff, GUESS, Hollister, MCM and Oscar de la Renta brands.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Substantially all of our prestige fragrance brands are licensed from
unaffiliated third parties, and our business is dependent upon the continuation
and renewal of such licenses. With respect to the Company's largest brands, we
license the Montblanc, Coach, Jimmy Choo and GUESS brand names. As a percentage
of net sales, product sales for the Company's largest brands were as follows:
Nine Months Ended September 30,
2021 2020
Montblanc 20 % 22 %
Jimmy Choo 19 % 16 %
Coach 17 % 18 %
GUESS 10 % 11 %
Quarterly sales fluctuations are influenced by the timing of new product
launches as well as the third and fourth quarter holiday season. In certain
markets where we sell directly to retailers, seasonality is more evident. We
sell directly to retailers in France as well as through our own distribution
subsidiaries in Spain and the United States.
We grow our business in two distinct ways. First, we grow by adding new brands
to our portfolio, either through new licenses or other arrangements or out-right
acquisitions of brands. Second, we grow through the introduction of new products
and by supporting new and established products through advertising,
merchandising and sampling as well as phasing out underperforming products so we
can devote greater resources to those products with greater potential. The
economics of developing, producing, launching and supporting products influence
our sales and operating performance each year. Our introduction of new products
may have some cannibalizing effect on sales of existing products, which we take
into account in our business planning.
Our business is not capital intensive, and it is important to note that we do
not own manufacturing facilities. We act as a general contractor and source our
needed components from our suppliers. These components are received at one of
our distribution centers and then, based upon production needs, the components
are sent to one of several third party fillers, which manufacture the finished
product for us and then deliver them to one of our distribution centers.
As with any global business, many aspects of our operations are subject to
influences outside our control. We believe we have a strong brand portfolio with
global reach and potential. As part of our strategy, we plan to continue to make
investments behind fast-growing markets and channels to grow market share.
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 50% 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.
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INTER PARFUMS, INC. AND SUBSIDIARIES
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.
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. In all jurisdictions in which we
operate we have been following guidance from authorities and health officials.
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 and caused a significant
unfavorable impact on our results of operations in 2020.
Business significantly improved in the second half of 2020 and continued to
improve in 2021, as retail stores reopened, and consumers increased online
purchasing. While we expect this trend to continue, the introduction of variants
of COVID-19 in various parts of the world has caused the temporary
re-implementation of governmental restrictions in 2021, to prevent further
spread of the virus. In addition, international air travel has remained
curtailed in many jurisdictions due to both governmental restrictions and
consumer health concerns. Lastly, the improved economy has put significant
strains on our supply chain causing disruptions affecting the procurement of
components, the ability to transport goods, and related cost increases. These
disruptions have continued into the fourth quarter of 2021, at a time when
demand for our product lines has never been stronger or more sustained. We have
been addressing this issue since the beginning of the year, by ordering well in
advance of need and in larger quantities. Going forward, we aim to carry more
inventory overall, source the same components from multiple suppliers and when
possible, manufacture products closer to where they are sold. We currently
expect supply chain bottlenecks to begin lifting early in the new year.
Therefore, despite recent business improvement, the impact of the COVID-19
pandemic may have a material adverse effect on our results of our operations,
financial position and cash flows through at least the end of 2021.
Recent Important Events
Salvatore Ferragamo
In October 2021, we closed on a transaction agreement with Salvatore Ferragamo
S.p.A., whereby an exclusive and worldwide license was granted for the
production and distribution of Ferragamo brand perfumes. Our rights under this
license are subject to certain minimum advertising expenditures and royalty
payments as are customary in our industry. The license is effective from October
2021 and will last for 10 years with a 5-year optional term, subject to certain
conditions.
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INTER PARFUMS, INC. AND SUBSIDIARIES
With respect to the management and coordination of activities related to the
license agreement, the Company will operate through a wholly-owned Italian
subsidiary based in Florence, and all products will be produced in Italy.
Donna Karan and DKNY
In September 2021, we entered into a long-term global licensing agreement for
the creation, development and distribution of fragrances and fragrance-related
products under the Donna Karan and DKNY brands. Our rights under this license
are subject to certain minimum advertising expenditures and royalty payments as
are customary in our industry. With this agreement, we are gaining several
well-established and valuable fragrance franchises, most notably Donna Karan
Cashmere Mist and DKNY Be Delicious, as well as a significant loyal consumer
base around the world. In connection with the grant of license, we issued 65,342
shares of Inter Parfums, Inc. common stock valued at $5.0 million to the
licensor. The exclusive license is effective July 1, 2022, and we are planning
to launch new fragrances under these brands in 2023.
French Tax Settlement
The French authorities had considered that the existence of IP Suisse, a
wholly-owned subsidiary of IPSA, does not, in and of itself, constitute a
permanent establishment and therefore IPSA should pay French taxes on all or
part of the profits of that entity.
In June 2021, a global settlement agreement was reached with the French Tax
Authorities, whereby IPSA agreed to pay €2.5 million (approximately $2.9
million) effectively lowering the Lanvin brand royalty rate charged by IP Suisse
for the periods from 2017 through 2020. IPSA also agreed to apply the lower rate
in 2021 through 2025 and to transfer the Lanvin brand from IP Suisse to IPSA by
December 31, 2025.
Building Acquisition - Future Headquarters in Paris
In April 2021, our majority owned Paris-based subsidiary, IPSA, completed the
acquisition of its future headquarters at 10 rue de Solférino in the 7th
arrondissement of Paris from the property developer. This is an office complex
combining three buildings connected by two inner courtyards, and consists of
approximately 40,000 total sq. ft.
The $145 million purchase price is in line with market value and includes the
complete renovation of the site. As of September 30, 2021, $131.2 million of the
purchase price, including approximately $2.9 million of acquisition costs, is
included in building, equipment and leasehold improvements on the accompanying
balance sheet as of September 30, 2021. Approximately $14.2 million of cash held
in escrow is included in other assets on the accompanying balance sheet as of
September 30, 2021. In addition, the Company borrowed $17.0 million pursuant to
a short-term loan equal to the VAT credit, and in July 2021, the $17.0 million
VAT credit was reimbursed by the French Tax Authorities and the loan was repaid.
The acquisition was financed by a 10-year €120 million (approximately $139
million) bank loan which bears interest at one-month Euribor plus 0.75%.
Approximately €80 million of the variable rate debt was swapped for fixed
interest rate debt.
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INTER PARFUMS, INC. AND SUBSIDIARIES
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.
Discussion of Critical Accounting Policies
Information regarding our critical accounting policies can be found in our 2020
Annual Report on Form 10-K filed with the SEC.
Results of Operations
Three and Nine Months Ended September 30, 2021 as Compared to the Three and Nine
Months Ended September 30, 2020
Net Sales:
Three months ended September 30,
(in millions) 2021 2020 2019 21 vs 19%
European based product sales $ 206.1 $ 129.7 $ 143.6 43.5 %
United States based product sales 56.6 30.9 47.6 18.9 %
$ 262.7 $ 160.6 $ 191.2 37.4 %
Net Sales:
Nine months ended September 30,
(in millions) 2021 2020 2019 21 vs 19%
European based product sales $ 527.0 $ 283.3 $ 412.9 27.6 %
United States based product sales 141.8 71.7 122.8 15.5 %
$ 668.8 $ 355.0 $ 535.7 24.8 %
Net sales for the three months ended September 30, 2021, rose to 262.7 million,
a 64% increase from the third quarter of 2020, and 37% ahead of third quarter
2019. At comparable foreign currency exchange rates, net sales increased 63%
from the third quarter of 2020 and 32% compared to third quarter 2019. The
average dollar/euro exchange rate for the current third quarter was 1.18
compared to 1.17 and 1.11 in the third quarter of 2020 and 2019, respectively.
Net sales for the nine months ended September 31, 2021, increased to $668.8
million from $355.0 million in 2020 and $535.7 million in 2019.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Our third quarter, historically our strongest, set a record with European based
product sales and U.S. based product sales up 43.5% and 18.9%, respectively, as
compared to the third quarter of 2019. Our largest brands outperformed our best
expectations. Montblanc, Jimmy Choo, Coach, GUESS and Lanvin sales were ahead
of 2019's third quarter by 26%, 40%, 98%, 27%, and 37%, respectively. The
increases came from established fragrance pillars, brand extensions and the
rollout of newer scents, including I Want Choo for Jimmy Choo and Bella Vita for
GUESS. Also contributing to the top line growth were sales by two of our newer
brands, namely Kate Spade and MCM, both of which debuted new fragrances this
year. We are similarly gratified by the meaningful upturn in sales by most of
our mid-sized brands, as compared to the third quarters of the preceding two
years.
We achieved record sales in the third quarter despite the near absence of travel
retail business and major supply chain disruptions affecting the procurement of
components, the ability to transport goods, and related cost increases. These
disruptions have continued into the fourth quarter of 2021, at a time when
demand for our product lines has never been stronger or more sustained. We have
been addressing this issue since the beginning of the year, by ordering well in
advance of need and in larger quantities. Going forward, we aim to carry more
inventory overall, source the same components from multiple suppliers and when
possible, manufacture products closer to where they are sold. We currently
expect supply chain bottlenecks to begin lifting early in the new year. In
addition, with the recent addition of Ferragamo fragrances and the forthcoming
addition of Donna Karan and DKNY fragrances next summer, we look forward to
accelerating our sales growth.
Net Sales to Customers by Region Nine months ended September 30,
(In millions) 2021 2020
North America $ 273.4 $ 114.0
Western Europe 146.8 106.4
Asia 97.8 57.0
Eastern Europe 54.0 19.4
Middle East 46.8 30.4
Central and South America 43.8 23.4
Other 6.2 4.4
$ 668.8 $ 355.0
Our business has been especially strong in regions where lockdowns have been
lifted, stores have reopened and life has returned to near pre-pandemic
standards, most notably Eastern Europe, North America, Central and South America
and Asia, where our sales rose 179%, 140%, 87% and 72%, respectively. On the
other hand, Western Europe and the Middle East, where sales increased 38% and
54%, respectively, have not fully recovered due to restrictions and closures
earlier in the year as well as a reduction in tourist traffic in the regions.
Three months ended Nine months ended
Gross margin September 30, September 30,
(In millions) 2021 2020 2021 2020
Net sales $ 262.7 $ 160.6 $ 668.8 $ 355.0
Cost of sales 95.3 63.4 243.8 141.9
Gross margin $ 167.4 $ 97.2 $ 425.0 $ 213.1
Gross margin as a percent of net sales 63.7 % 60.5 % 63.6 % 60.0 %
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INTER PARFUMS, INC. AND SUBSIDIARIES
Gross profit margin was 63.7% and 63.6% for the three and nine months ended
September 30, 2021, respectively, as compared to 60.5% and 60.0% as for the
three and nine months ended September 30, 2020, respectively. For European
operations, gross profit margin was 66.6% and 66.3% for the three and nine
months ended September 30, 2021, respectively, as compared to 62.4% and 62.3%
for the corresponding periods of the prior year.
We carefully monitor movements in foreign currency exchange rates as almost 50%
of our European based operations net sales are denominated in U.S. dollars,
while most of our costs are incurred in euro. From a margin standpoint, a strong
U.S. dollar has a positive effect on our gross profit margin while a weak U.S.
dollar has a negative effect. For the three and nine months ended September 30,
2021, the weaker dollar, as compared to the corresponding periods of the prior
year had small negative effect on gross margin. However, significantly reduced
lower margin giftset sales in 2021 and new product launches with better margins
drove the increase in gross margin in 2021.
For U.S. operations, gross profit margin was 53.1% and 53.2% for the three and
nine months ended September 30, 2021, respectively, as compared to 52.5% and
51.2% for the corresponding periods of the prior year. Increased sales of higher
margin product lines account for most of the increase in gross margin within our
U.S operations. The increase in sales also allows us to better absorb certain
fixed expenses, such as depreciation of tools and molds.
As mentioned above, major supply chain disruptions affecting the procurement of
components, the ability to transport goods, and related cost increases have and
are expected to continue to have a negative impact on sales and gross margin.
While we have been addressing these issues and have implemented processes to
mitigate the impact, prolonged disruption could have a material negative effect
on our sales and gross margin.
Generally, we do not bill customers for shipping and handling costs, and such
costs, which aggregated $3.4 million and $7.1 million for the three and nine
months ended September 30, 2021, respectively, as compared to $1.6 million and
$3.8 million for the corresponding periods of the prior year, are included in
selling, general and administrative expenses in the consolidated statements of
income. As such, our Company's gross profit may not be comparable to other
companies, which may include these expenses as a component of cost of goods
sold.
Selling, general and Three months ended Nine months ended
administrative expenses September 30, September 30,
(In millions) 2021 2020 2021 2020
Selling, general and
administrative expenses $ 99.8 $ 65.8 $ 262.4 $ 169.5
Selling, general and
administrative expenses
as a percent of net sales 38.0 % 41.0 % 39.2 % 47.7 %
Selling, general and administrative expenses increased 51.6% and 54.8% for the
three and nine months ended September 30, 2021, respectively, as compared to the
corresponding periods of the prior year. However, as a percentage of sales,
selling, general and administrative expenses were 38.0% and 39.2% for the three
and nine months ended September 30, 2021, respectively, as compared to 41.0% and
47.7% for the three and nine months ended September 30, 2020, respectively.
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INTER PARFUMS, INC. AND SUBSIDIARIES
For European operations net sales increased 58.8% and 86.0% for the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding periods of the prior year, while selling, general and
administrative expenses for our European operations increased 49.1% and 56.9%
for the same periods, respectively. In addition, selling, general and
administrative expenses of our European operations represented 38.8% and 39.9%
of net sales for the three and nine months ended September 30, 2021,
respectively, as compared to 41.3% and 47.3% for the three and nine months ended
September 30, 2020, respectively.
For U.S. operations net sales increased 83.2% and 97.8% for the three and nine
months ended September 30, 2021, respectively, as compared to the corresponding
periods of the prior year, while selling, general and administrative expenses of
our U.S. operations increased 62.2% and 47.1% for the three and nine months
ended September 30, 2021, as compared to the corresponding periods of the prior
year, and represented 35.1% and 36.8% of net sales for the three and nine months
ended September 30, 2021, respectively, as compared to 39.7% and 49.5% for the
corresponding periods of the prior year.
Throughout the first three quarters of 2021, as sales continued to rebound more
quickly than anticipated, we have not kept pace with our historic levels of
investment in promotion and advertising. Accordingly, as a percentage of sales,
promotion and advertising included in selling, general and administrative
expenses aggregated 14.2%, 14.6% and 17.3% for the nine months ended September
30, 2021, 2020 and 2019, respectively. However, many of our 2021 promotional
programs are set for the final quarter of 2021 to support our recent product
launches and build brand awareness. Based on those promotional programs, we
expect promotion and advertising expense included in selling general and
administrative expense to aggregate approximately 21% of net sales for the full
year ended December 31, 2021.
Royalty expense included in selling, general and administrative expenses
aggregated $20.5 million and $52.0 million for the three and nine months ended
September 30, 2021, respectively, as compared to $11.7 million and $26.3 million
for the corresponding periods of the prior year. Royalty expense represented
7.8% of net sales for both the three and nine months ended September 30, 2021,
as compared to 7.3% and 7.4% of net sales for the corresponding periods of the
prior year. As a result of the COVID-19 pandemic we reached agreements with many
of our licensors to waive or significantly reduce minimum guaranteed royalties
for 2020.
As a result of the above analysis regarding net sales, gross profit margins and
selling, general and administrative expenses, income from operations aggregated
$67.6 million for the three months ended September 30, 2021, as compared to
$31.4 million for the corresponding period of the prior year. Income from
operations increased to $160.3 million for the nine months ended September 30,
2021, as compared to $43.6 million for the corresponding period of the prior
year. For the nine months ended September 30, 2021, our operating margin was
24.0%, as compared to 12.3% for the corresponding period of the prior year.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Other Income and Expense
Interest expense aggregated $1.7 million and $3.3 million for the three and nine
months ended September 30, 2021, respectively, as compared to $0.1 million and
$1.5 million for the corresponding periods of the prior year. Historically,
interest expense was minimal and primarily related to the financing of brand
acquisitions. In 2021, interest expense includes the debt incurred in connection
with the acquisition of our new European corporate headquarters in France. We
also use the credit lines available to us, as needed, to finance our working
capital needs as well as our financing needs for acquisitions.
Foreign currency gains aggregated $0.6 million and $2.2 million for the three
and nine months ended September 30, 2021, respectively, as compared to $0.1
million and a loss of $0.9 million for the corresponding periods of the prior
year. 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 50% of net
sales of our European operations are denominated in U.S. dollars.
Interest income aggregated $0.2 million and $1.4 million for the three and nine
months ended September 30, 2021, respectively, as compared to $0.4 million and
$2.2 million for the corresponding periods of the prior year. Cash and cash
equivalents and short-term investments are primarily invested in certificates of
deposit with varying maturities.
Income Taxes
Our effective tax rate was 25.4% and 28.1% for the three and nine months ended
September 30, 2021, as compared to 28.9% and 27.4% for the corresponding periods
of the prior year.
The French authorities had considered that the existence of IP Suisse, a
wholly-owned subsidiary of IPSA, does not, in and of itself, constitute a
permanent establishment and therefore IPSA should pay French taxes on all or
part of the profits of that entity. In June 2021, a global settlement agreement
was reached with the French Tax Authorities, whereby IPSA agreed to pay €2.5
million (approximately $2.9 million) effectively lowering the Lanvin brand
royalty rate charged by IP Suisse for the periods from 2017 through 2020. IPSA
also agreed to apply the lower rate in 2021 through 2025 and to transfer the
Lanvin brand from IP Suisse to IPSA by December 31, 2025.
Pursuant to an action plan released by the French Prime Minister, the French
corporate income tax rate is to be cut from 33% to 25% over a three-year period
ending 2023. Excluding the global settlement referred to above, our effective
tax rate for European operations was 28% for both the nine months ended
September 30, 2021, and 2020.
Our effective tax rate for U.S. operations was 17% for the nine months ended
September 30, 2021, as compared to a nominal benefit for the corresponding
period of the prior year. Our effective tax rate in 2021 differs from the 21%
statutory rate due to benefits received from the exercise of stock options as
well as deductions we are allowed for a portion of our foreign derived
intangible income, slightly offset by state and local taxes.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Other than as discussed above, we did not experience any significant changes in
tax rates, and none were expected in jurisdictions where we operate.
Net Income and Earnings per Share
(In thousands except per share Three Months Ended Nine Months Ended
data) September 30, September 30,
2021 2020 2021 2020
Net income European operations $ 41,455 $ 18,943 $ 96,822 $ 31,175
Net income U.S. operations
8,372 2,909 18,667 993
Net income 49,827 21,852 115,489 32,168
Less: Net income attributable to
the noncontrolling interest 11,511 5,314 26,854 8,688
Net income attributable to Inter
Parfums, Inc. $ 38,316 $ 16,538 $ 88,635 $ 23,480Earnings per share:
Net income attributable to Inter
Parfums, Inc. common shareholders:
Basic $ 1.21 $ 0.52 $ 2.80 $ 0.74
Diluted $ 1.20 $ 0.52 $ 2.79 $ 0.74
Weighted average number of shares
outstanding:
Basic 31,659 31,533 31,648 31,531
Diluted 31,807 31,619 31,735 31,651
Net income increased to $49.8 million and $115.5 million for the three and nine
months ended September 30, 2021, as compared to $21.9 million and $32.2 million
for the corresponding periods of the prior year. The reasons for significant
fluctuations in net income for both European operations and United States
operations are directly related to the previous discussions relating to changes
in sales, gross margin, and selling, general and administrative expenses, most
of which was caused by the negative effects of the COVID-19 pandemic in 2020 and
the recovery experienced in 2021.
The noncontrolling interest arises from our 73% owned subsidiary in Paris, IPSA,
which is also a publicly traded company as 27% of Interparfums SA shares trade
on the NYSE Euronext. The noncontrolling interest is also affected by the
profitability of Interparfums SA's 51% owned subsidiary in Spain. Net income
attributable to the noncontrolling interest aggregated 28% of European
operations net income for all periods presented.
Liquidity and Capital Resources
Our conservative financial tradition has enabled us to amass hefty cash balances
and nominal long-term debt. As of September 30, 2021, we had $324 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 held by
our European operations.
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INTER PARFUMS, INC. AND SUBSIDIARIES
As of September 30, 2021, we had a working capital ratio of 3.3 to 1.
Approximately 85% of the Company's total assets are held by European operations,
and approximately $176 million of trademarks, licenses and other intangible
assets are also held by European operations.
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. As we recently reported, in September 2021, we entered into a
long-term global licensing agreement for the creation, development and
distribution of fragrances and fragrance-related products under the Donna Karan
and DKNY brands. In October 2021, we closed on a transaction agreement with
Salvatore Ferragamo S.p.A., whereby an exclusive and worldwide license was
granted for the production and distribution of Ferragamo brand perfumes.
Opportunities for external growth are regularly 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 $101.3 million for the nine
months ended September 30, 2021, as compared to cash used in operating
activities of $20.2 million for the corresponding period of the prior year. For
the nine months ended September 30, 2021, working capital items used $36.8
million in cash from operating activities, as compared to $66.7 million in the
2020 period. Although accounts receivable is up 64% from year end, the balance
is reasonable based on third quarter 2021 record sales levels and reflects
strong collection activity as day's sales outstanding is down to 70 days, as
compared to 78 and 84 days for the corresponding period in 2020 and 2019,
respectively. Inventory levels as of September 30, 2021, are down 2% from year
end and down 13% from September 30, 2020. Although inventories include product
needed to support new product launches, the overall balance is lower than
historic levels due primarily to the aforementioned supply chain disruptions.
Cash flows used in investing activities in 2021 reflect purchases and sales of
short-term investments. These investments include certificates of deposit with
maturities greater than three months. Approximately $46 million of such
certificates of deposit contain penalties where we would forfeit a portion of
the interest earned in the event of early withdrawal.
Our business is not capital intensive as we do not own any manufacturing
facilities. On a full year basis, we typically spend approximately $4.0 million
on tools and molds, depending on our new product development calendar. Capital
expenditures also include amounts for office fixtures, computer equipment and
industrial equipment needed at our distribution centers.
In April 2021, IPSA, completed the acquisition of its future headquarters at 10
rue de Solférino in the 7th arrondissement of Paris from the property developer.
This is an office complex combining three buildings connected by two inner
courtyards and consists of approximately 40,000 total sq. ft.
The $145 million purchase price is in line with market value and includes the
complete renovation of the site. As of September 30, 2021, $131.2 million of the
purchase price, including approximately $2.9 million of acquisition costs is
included in building, equipment and leasehold improvements on the accompanying
balance sheet as of September 30, 2021. Approximately $14.2 million of cash held
in escrow is included in other assets on the accompanying balance sheet as of
September 30, 2021. In addition, the Company borrowed an additional $17.0
million pursuant to a short-term loan equal to the VAT credit, and in July 2021,
the $17.0 million VAT credit was reimbursed by the French Tax Authorities and
the loan was repaid.
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INTER PARFUMS, INC. AND SUBSIDIARIES
The acquisition was financed by a 10-year €120 million (approximately $139
million) bank loan which bears interest at one-month Euribor plus 0.75%.
Approximately €80 million of the variable rate debt was swapped for fixed
interest rate debt.
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 was repaid in full in February 2021.
Effective January 1, 2021, we entered into a new license agreement modifying our
Rochas fashion business model. The new agreement calls for a reduction in
royalties to be received. As a result, in the first quarter of 2021, we took a
$2.4 million impairment charge on our Rochas fashion trademark. The new license
also contains an option for the licensee to buy-out the Rochas fashion
trademarks in June 2025, at its then fair market value.
Our short-term financing requirements are expected to be met by available cash
on hand at September 30, 2021, 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 $29 million in credit lines provided by a consortium of
international financial institutions. There were no short-term borrowings
outstanding pursuant to these facilities as of both September 30, 2021 and
September 30, 2020.
In October 2019, the Board of Directors authorized a 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
December 31, 2021, to shareholders of record on December 15, 2021.
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 nine months ended
September 30, 2021.
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INTER PARFUMS, INC. 
