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, 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 79% of net sales for both the six months ended June 30, 2021 and 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.

Through our United States operations, we also market fragrance and fragrance related products. United States operations represented 21% of net sales for both the six months ended June 30, 2021 and 2020. These fragrance products are sold primarily pursuant to license or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, Dunhill, 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:





               Six Months Ended
                   June 30,
               2021         2020
Montblanc           21 %       21 %
Jimmy Choo          18 %       15 %
Coach               16 %       19 %
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.





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.







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                      INTER PARFUMS, INC. AND SUBSIDIARIES


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 has continued to improve in the first six months of 2021, as retail stores reopened and consumers increased online purchasing. While we expect this trend to continue, the introduction of variants of COVID-19 cases in various parts of the world has caused the temporary re-implementation of governmental restrictions 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. 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 July 2021, we signed a transaction agreement with Salvatore Ferragamo S.p.A., whereby an exclusive and worldwide license will be granted for the production and distribution of Ferragamo brand perfumes. The license is expected to be effective from October 2021 and will last for 10 years with a 5-year optional term, subject to certain conditions.

With reference to the management and coordination of activities related to the license agreement, the Company will operate through a wholly-owned Italian subsidiary to be based in Florence, and all products will be produced in Italy.





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. The French Tax Authority had notified the Company that IP Suisse will be the subject of a tax audit covering the period January 1, 2010 through December 31, 2018. The Company's exposure in connection with this matter was approximately $5.8 million, net of recovery taxes already paid to the Swiss authorities.

In June 2021, a global settlement agreement was reached with the French Tax Authorities, whereby IPSA agreed to pay €2.5 million (approximately $3.0 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.







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                      INTER PARFUMS, INC. AND SUBSIDIARIES


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 €125 million (approximately $149 million) purchase price is in line with market value and includes the complete renovation of the site. As of June 30, 2021, €104.1 million of the purchase price, including approximately €2.5 million of acquisition costs is included in building, equipment and leasehold improvements on the accompanying balance sheet as of June 30, 2021. Approximately €21.6 million of cash held in escrow is included in other assets on the accompanying balance sheet as of June 30, 2021. In addition, approximately €14.2 million in VAT credit associated with the purchase is included in other receivables on the accompanying balance sheet as of June 30, 2021. As of June 30, 2021, the Company borrowed an additional €14.2 million pursuant to a short-term loan equal to the VAT credit, and in July 2021, the €14.2 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 $143 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.

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.





Origines-Parfums


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 a 25% of Divabox capital for €12.5 million ($14 million), through a reserved capital increase. In connection with the acquisition, the Company entered into a €12 million ($13.4 million), three-year term loan payable in three equal annual installments plus interest. 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.







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                      INTER PARFUMS, INC. AND SUBSIDIARIES



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.

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 Six Months Ended June 30, 2021 as Compared to the Three and Six Months Ended June 30, 2020 and June 30, 2019

Net Sales:



                                           Three months ended June 30,
(In millions)                            2021     2020      2019     21 vs 19%

European based product sales $ 161.2 $ 39.4 $ 125.6 28.3 % United States based product sales 46.4 10.1 40.6 14.2 %

$   207.6   $ 49.5   $ 166.2          24.9 %




Net Sales:



                                            Six months ended June 30,
(In millions)                          2021      2020      2019     21 vs 19%

European based product sales $ 320.9 $ 153.5 $ 269.3 19.1 % United States based product sales 85.2 40.8 75.2 13.4 %

$ 406.1   $ 194.3   $ 344.5          17.9 %



Net sales for the three months ended June 30, 2021 rose to $207.6 million, a significant increase in relation to the second quarter of 2020, but more importantly up 24.9% from the second quarter of 2019. At comparable foreign currency exchange rates, net sales increased 22.7% compared to the second quarter of 2019. For the three months ended June 30, 2021, 2020 and 2019, the average dollar/euro exchange rate was 1.20, 1.10 and 1.12, respectively. Net sales for the six months ended June 30, 2021 increased to $406.1 million, from $194.3 million in 2020 and $344.5 million in 2019.







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                      INTER PARFUMS, INC. AND SUBSIDIARIES


The second quarter, like the first, far exceeded expectations. Once again, quarterly comparisons with 2019 are far more meaningful than with 2020, due to the impact in 2020 of the COVID-19 pandemic. Among our largest brands within European based operations, Montblanc, Jimmy Choo and Coach brand sales increased 27.3%, 64.9% and 22.4%, respectively, compared to the 2019 second quarter. Year-to-date, Montblanc fragrances have returned to a level comparable to the first half of 2019, the year of the launch of the Montblanc Explorer line, which was enlarged with the rollout of the brand's Explorer Ultra Blue line in April 2021. Similarly, robust sales of Jimmy Choo's established lines combined with the highly successful launch of I Want Choo, produced a 38.7% increase in first half brand sales compared to the same period in 2019. Coach fragrance sales rose 33.9% compared to the first half of 2019 due to the continued strength of established women's and men's collections and the rollout of Coach Dreams Sunset in the second quarter. In addition, initial sales of our Kate Spade signature collection, which debuted in the first quarter, contributed to the sales growth

Net sales for our U.S. based operations increased 14.2% in the second quarter of 2021, compared to the same period in 2019. The increase was in great part attributable to the GUESS brand, with legacy scents along with the new Bella Vita line driving growth. Contributing to an increase in Abercrombie & Fitch brand sales were shipments of a new pillar, the Away duo, along with continued strong sales of recent additions including the Authentic Night duo. In addition, the launch of Oscar de la Renta's Alibi contributed to the top line growth

With respect to our recent MCM fragrance launch, sell-through and pending orders are far ahead of our initial projections. Thus far, distribution has been focused in continental Europe exclusively at the 1,900 store Douglas specialty store chain, in the U.S. at MCM stores and high end department stores and in better stores throughout South Korea. The rollout continues; in July 2021, China's Sephora stores launched the product and in August, sales began in the U.K. We have high expectations for the MCM brand and have developed a robust innovation plan to accelerate and optimize its potential.





Net Sales to Customers by Region      Six months ended June 30,
(In millions)                          2021               2020
North America                      $      154.5       $       59.2
Western Europe                             88.7               57.8
Asia                                       62.8               28.6
Middle East                                34.3               19.0
Eastern Europe                             33.0                9.4
Central and South America                  28.6               14.2
Other                                       4.2                6.1
                                   $      406.1       $      194.3

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 and Asia, where our sales rose 251%, 161% and 119%, respectively. On the other hand, Western Europe, where sales increased 53%, has not fully regained its footing and restrictions and closures have again been imposed in connection with the third wave of COVID-19 infections. We've also seen business bounce back in Central and South America and the Middle East, growing 102% and 80%, respectively.





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                      INTER PARFUMS, INC. AND SUBSIDIARIES



                                           Three months ended          Six months ended
Gross profit margin                             June 30,                   June 30,
(In millions)                               2021           2020        2021         2020
Net sales                                $    207.6       $ 49.5     $   406.1     $ 194.3
Cost of sales                                  75.2         22.7         148.5        78.4

Gross margin                             $    132.4       $ 26.8     $   257.6     $ 115.9
Gross margin as a percent of net sales           64 %         54 %          63 %        60 %




Gross profit margin was 64% and 63% for the three and six months ended June 30, 2021, respectively, as compared to 54% and 60% for the three and six months ended June 30, 2020, respectively. For European operations, gross profit margin was 67% and 66% for the three and six months ended June 30, 2021, respectively, as compared to 57% and 62% 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 six months ended June 30, 2021, the weaker dollar, as compared to the corresponding periods of the prior year had a negative effect on gross margin. However, significantly reduced lower margin giftset sales in 2021 and new product launches with better margins mitigated the negative effect from currency exchange rates in the period.

For U.S. operations, gross profit margin was 53% for both the three and six months ended June 30, 2021, as compared to 43% and 50% for the corresponding periods of the prior year. With the significant increase in sales in the first half of 2021, we were better able to absorb expenses such as depreciation of tools and molds and the cost of point-of-sale materials, as compared to the corresponding period of the prior year.





Generally, we do not bill customers for shipping and handling costs, and such
costs, which aggregated $2.0 million and $3.8 million for the three and six
months ended June 30, 2021, respectively, as compared to $0.6 million and $2.2
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                 Six months ended
administrative expenses                       June 30,                          June 30,
(In millions)                          2021              2020             2021             2020
Selling, general and
administrative expenses             $      87.7       $      32.4      $     162.6      $    103.6
Selling, general and
administrative expenses as a
percent
of net sales                                 42 %              65 %             40 %            53 %




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                      INTER PARFUMS, INC. AND SUBSIDIARIES



Selling, general and administrative expenses increased 171% and 57% for the three and six months ended June 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 42% and 40% for the three and six months ended June 30, 2021, respectively, as compared to 65% and 53% for the three and six months ended June 30, 2020, respectively. For European operations sales increased 309% and 109% for the three and six months ended June 30, 2021, respectively, as compared to the corresponding periods of the prior year, while selling, general and administrative expenses of our European operations increased 205% and 62% for the same periods, respectively. In addition, selling, general and administrative expenses of our European operations represented 44% and 41% of net sales for the three and six months ended June 30, 2021, respectively, as compared to 59% and 52% for the three and six months ended June 30, 2020, respectively.

For U.S. operations sales increased 360% and 109% for the three and six months ended June 30, 2021, respectively, as compared to the corresponding periods of the prior year. At the same time, selling, general and administrative expenses of our U.S. operations increased 84% and 39% for the three and six months ended June 30, 2021, as compared to the corresponding periods of the prior year, and represented 36% and 38% of net sales for the three and six months ended June 30, 2021, respectively, as compared to 91% and 57% for the corresponding periods of the prior year.

In March 2020, at the time of initial retail store closings, certain advertising and promotional programs were well underway and could not be halted. During the second quarter of 2020, we severely curtailed our promotional activities and postponed the launch of several programs originally scheduled for 2020 to 2021 along with their related advertising and promotion programs.

With sales rebounding more quickly than anticipated, we did not have the opportunity, in early 2021, to reinvest in additional promotion and advertising to match our historic levels. Therefore, the decline in selling, general and administrative expenses as a percentage of sales for the six months ended June 30, 2021, as compared to the corresponding period of the prior year was primarily due to lower promotional and advertising expenses as a percentage of sales for the six months ended June 30, 2021.

Promotion and advertising included in selling, general and administrative expenses aggregated $33.2 million and $55.0 million for the three and six months ended June 30, 2021, respectively, as compared to $5.8 million and $34.4 million for the corresponding periods of the prior year. Promotion and advertising represented 16.0% and 13.5% of net sales for the three and six months ended June 30, 2021, respectively, as compared to 11.8% and 17.7% for the corresponding periods of the prior year.

As the COVID-19 pandemic recedes, we plan to invest heavily in promotional spending to support new product launches and to build brand awareness. We have significant promotion and advertising programs planned for 2021 and 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 $16.2 million and $31.5 million for the three and six months ended June 30, 2021, respectively, as compared to $3.4 million and $14.6 million for the corresponding periods of the prior year. Royalty expense represented 7.8% of net sales for both the three and six months ended June 30, 2021, as compared to 6.8% and 7.5% of net sales for the corresponding periods of the prior year. 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.





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                      INTER PARFUMS, INC. AND SUBSIDIARIES


As a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, income from operations aggregated $44.7 million for the three months ended June 30, 2021, as compared an operating loss of $5.5 million for the corresponding period of the prior year. Income from operations increased to $92.6 million for the six months ended June 30, 2021, as compared to $12.3 million for the corresponding period of the prior year. For the six months ended June 30, 2021, our operating margin was 22.8%, as compared to 6.3% for the corresponding period of the prior year.





Other Income and Expense


Interest expense aggregated $1.3 million and $1.6 million for the three and six months ended June 30, 2021, respectively, as compared to $0.4 million and $1.4 million for the corresponding periods of the prior year. Interest expense is primarily related to the financing of brand acquisitions and for the three months ended June 30, 2021, includes approximately $0.6 million in interest expense relating to the debt incurred in connection with the acquisition of our new 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 (losses) aggregated ($0.3) million and $1.6 million for the three and six months ended June 30, 2021, respectively, as compared to gains of zero and $1.0 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 $0.8 million and $1.2 million for the three and six months ended June 30, 2021, respectively, as compared to $0.8 million and $1.8 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


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. The French Tax Authority had notified the Company that IP Suisse will be the subject of a tax audit covering the period January 1, 2010 through December 31, 2018. The Company's exposure in connection with this matter was approximately $5.8 million, net of recovery taxes already paid to the Swiss authorities.

In June 2021, a global settlement agreement was reached with the French Tax Authorities, whereby IPSA agreed to pay €2.5 million (approximately $3.0 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.





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                      INTER PARFUMS, INC. AND SUBSIDIARIES


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 the six months ended June 30, 2021, as compared to 26% for the corresponding period of the prior year. The lower effective rate in 2020 is the result of a higher percentage of income in favorable tax rate jurisdictions where our European operations conduct business such as Singapore, Switzerland and the United States.

Our effective tax rate for U.S. operations was 19% for the six months ended June 30, 2021, as compared to a benefit of 34% for the corresponding period of the prior year. Due to the loss incurred in the six months ended June 30, 2020, for federal tax purposes, we would carry back the loss to 2015 when the federal income tax rate was 35%. 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.

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





                                         Three Months Ended                Six Months Ended
                                              June 30,                         June 30,
(In thousands except per share         2021             2020             2021            2020

data)


Net income European operations      $    22,927      $       539      $   55,367      $   12,232
Net income (loss) U.S.
operations                                6,109           (3,522 )        10,295          (1,916 )

Net income (loss)                        29,036           (2,983 )        65,662          10,316

Less: Net income attributable to
the noncontrolling interest               6,379              135          15,343           3,375

Net income (loss) attributable
to Inter Parfums, Inc.              $    22,657      $    (3,118 )    $   50,319      $    6,941

Earnings (loss) per share:



Net income (loss) attributable
to Inter Parfums, Inc. common
shareholders:
Basic                               $      0.72      ($     0.10 )    $     1.59      $     0.22
Diluted                             $      0.71      ($     0.10 )    $     1.58      $     0.22

Weighted average number of
shares outstanding:
Basic                                    31,653           31,532          31,642          31,531
Diluted                                  31,799           31,533          31,786          31,667




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                      INTER PARFUMS, INC. AND SUBSIDIARIES


Net income increased to $29.0 million for the three months ended June 30, 2021, as compared to a net loss of $3.0 million for the corresponding period of the prior year. Net income increased to $65.7 million for the six months ended June 30, 2021, as compared to $10.3 million for the corresponding period of the prior year. The reasons for significant fluctuations in net income (loss) 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, Interparfums SA, which is also a publicly traded company as 27% of Interparfums SA shares trade on the NYSE Euronext. The noncontrolling interest is also affected by the profitability of Interparfums SA's 51% owned distribution subsidiary in Spain. Net income attributable to the noncontrolling interest aggregated 28% of European operations' net income for both the three and six months ended June 30, 2021, respectively, as compared to 25% and 27% for the corresponding periods of the prior year.

Liquidity and Capital Resources

Our conservative financial tradition has enabled us to amass hefty cash balances and nominal long-term debt. As of June 30, 2021 we had $298 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.

As of June 30, 2021, we had a working capital ratio of 3.1 to 1. Approximately 86% of the Company's total assets are held by European operations, and approximately $181 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 reported earlier, we entered into an agreement for a worldwide fragrance license with Salvatore Ferragamo S.p.A., which is expected to close in October 2021, when we will begin producing the suite of Ferragamo perfumes in Italy and distributing them worldwide through a new wholly-owned Italian company based in Florence Italy. 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 $38.1 million for the six months ended June 30, 2021, as compared to cash used in operating activities of $21.3 million for the corresponding period of the prior year. For the six months ended June 30, 2021, working capital items used $45.3 million in cash from operating activities, as compared to $39.6 million in the 2020 period. Although accounts receivable is up 46% from year end, the balance is reasonable based on second quarter 2021 record sales levels and reflects strong collection activity as day's sales outstanding is at 79 days, which is consistent with historic norms. Inventory levels are up 5% from year end and includes inventory needed to support 2021 new product launches.





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                      INTER PARFUMS, INC. AND SUBSIDIARIES


Cash flows used in investing activities in 2021 reflect purchases and sales of short-term investments. These investments are primarily certificates of deposit with maturities greater than three months. Approximately $53 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 €125 million (approximately $149 million) purchase price is in line with market value and includes the complete renovation of the site. As of June 30, 2021, €104.1 million of the purchase price, including approximately €2.5 million of acquisition costs is included in building, equipment and leasehold improvements on the accompanying balance sheet as of June 30, 2021. Approximately €21.6 million (approximately $25.7 million) of cash held in escrow is included in other assets on the accompanying balance sheet as of June 30, 2021. In addition, approximately €14.2 million in VAT credit associated with the purchase is included in other receivables on the accompanying balance sheet as of June 30, 2021. As of June 30, 2021, Company borrowed an additional €14.2 million pursuant to a short-term loan equal to the VAT credit, and in July 2021, the €14.2 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 $143 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, we have taken $2.4 million impairment charge on our Rochas fashion trademark. The remaining value of the Rochas fashion trademarks is €17.1 million (approximately $20.0 million). 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 June 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 $30 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 June 30, 2021 and June 30, 2020.





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                      INTER PARFUMS, INC. AND SUBSIDIARIES


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 September 30, 2021 to shareholders of record on September 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 six months ended June 30, 2021.

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