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 andUnited States based operations. Certain prestige fragrance products are produced and marketed by our European operations through our 72% owned subsidiary inParis ,Interparfums SA , which is also a publicly traded company as 28% ofInterparfums 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 68%, 75% and 78% of net sales for 2022, 2021 and 2020, respectively. We have built a portfolio of prestige brands, which includeBoucheron , Coach,Jimmy Choo ,Karl Lagerfeld ,Kate Spade , Lanvin, Moncler, Montblanc, Rochas, S.T. Dupont andVan Cleef & Arpels , whose products are distributed in over 120 countries around the world. Through ourUnited States operations, we also market fragrance and fragrance related products.United States operations represented 32%, 25% and 22% of net sales in 2022, 2021 and 2020, respectively. These fragrance products are sold primarily pursuant to license or other agreements with the owners of theAbercrombie & Fitch,Anna Sui ,Donna Karan ,DKNY , Ferragamo, Graff, GUESS, Hollister, MCM,Oscar de la Renta and Ungaro brands. Substantially all of our prestige fragrance brands are licensed from unaffiliated third parties, and our business is dependent upon the continuation and renewal of such licenses. With respect to the Company's largest brands, we license the Montblanc,Jimmy Choo , Coach 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,
2022 2021 2020
Montblanc 18 % 19 % 21 %
Jimmy Choo 18 % 18 % 16 %
Coach 15 % 16 % 17 %
GUESS 12 % 12 % 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
primarily sell directly to retailers in
We grow our business and expand our shares in two distinct ways. First, 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. The
introduction of new products may have some cannibalizing effect on sales of
existing products, which we take into account in our business planning.
Our business is not capital intensive, and it is important to note that we do
not own manufacturing facilities. We act as a general contractor and source our
needed components from our suppliers. These components are either received and
stored directly at our third-party fillers or 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.
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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 strongU.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 inU.S. dollars, while almost all costs of our European operations are incurred in euro. Conversely, a weakU.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 inMarch 2020 , theWorld Health Organization declared COVID-19 a pandemic. In response, various national, state, and local governments issued decrees prohibiting certain businesses from operating and certain classes of workers from reporting to work. 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 throughout 2021 and 2022, 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 to prevent further spread of the virus. In addition, international air travel remains curtailed in several jurisdictions due to both governmental restrictions and consumer health concerns. While COVID-19 had significantly restricted international travel, the travel retail business has picked up. We remain confident that travel retail will once again be a source of growth over the long-term. 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 come 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 2021, by ordering well in advance of need and in larger quantities. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold. We do not expect the supply chain bottlenecks to begin lifting until the second half of 2023. Therefore, despite recent business improvement, the impact of the COVID-19 pandemic might continue to have adverse effects on our results of our operations, financial position and cash flows through at least the first half of 2023. Recent Important EventsLacoste InDecember 2022 , we closed a transaction agreement withLacoste , whereby an exclusive and worldwide license was granted for the production and distribution of Lacoste brand perfumes and cosmetics. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. The license becomes effective inJanuary 2024 and will last for 15 years. Dunhill
InApril 2022 , we announced that the Dunhill fragrance license will expire onSeptember 30, 2023 and will not be renewed. The Company will continue to produce and sell Dunhill fragrances until the license expires and will maintain the right to sell-off remaining Dunhill fragrance inventory for a limited time as is customary in the fragrance industry. 42 Salvatore Ferragamo InOctober 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 became effective inOctober 2021 and will last for 10 years with a 5-year optional term, subject to certain conditions.
With respect to the management and coordination of activities related to the
license agreement, the Company operates through a wholly-owned Italian
subsidiary based in
accounted for as an asset acquisition.
Emanuel Ungaro
InOctober 2021 , we also entered into a 10-year exclusive global licensing agreement a with a 5-year optional term subject to certain conditions, withEmanuel Ungaro Italia S.r .l, for the creation, development and distribution of fragrances and fragrance-related products, under the Emanuel Ungaro brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry.Donna Karan andDKNY InSeptember 2021 , we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under theDonna 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 notablyDonna 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 ofInter Parfums, Inc. common stock valued at$5.0 million to the licensor. The exclusive license became effective onJuly 1, 2022 , and we are planning to launch new fragrances under these brands in 2024. Rochas Fashion EffectiveJanuary 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. In the fourth quarter of 2022, we again took a$6.8 million impairment charge on the Rochas fashion trademark after an independent expert concluded that the valuation of the trademark was$11.3 million . The new license also contains an option for the licensee to buy-out the Rochas fashion trademarks inJune 2025 at its then
fair market value.
Land and
InApril 2021 ,Interparfums SA , our 73% owned French subsidiary, completed the acquisition of its future headquarters at 10 rue de Solférino in the 7th arrondissement ofParis 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 purchase price includes the complete renovation of the site. As ofDecember 31, 2022 ,$148.1 million of the purchase price, including approximately$4.4 million of acquisition costs, is included in property, equipment and leasehold improvements on the accompanying balance sheet as ofDecember 31, 2022 . The purchase price has been allocated approximately$61.1 million to land and$87.0 million to the building. The building, which was delivered onFebruary 28, 2022 , includes the building structure, development of the property, façade waterproofing, general and technical installations and interior fittings that will be depreciated over a range of 7 to 50 years. The Company has elected to depreciate the building cost based on the useful lives of its components. Approximately$3.4 million of cash held in escrow is also included in property, equipment and leasehold improvements on the accompanying balance sheet as ofDecember 31, 2022 . The acquisition was financed by a 10-year €120 million (approximately$128.0 million ) bank loan which bears interest at one-month Euribor plus 0.75%. Approximately €80 million of the variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum.
Discussion of Critical Accounting Policies
We make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted inthe 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. 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 9.80%. 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. 43 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
million
significant assumptions would have had on the calculated fair value in 2022
assuming all other assumptions remained constant:
$ in millions Change Increase (decrease) to fair value
Weighted average cost of capital +10% $ (7.2 ) Weighted average cost of capital -10% $
8.1 Future sales levels +10% $ 9.7 Future sales levels -10% $ (9.7 ) 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 originally in 2025 and amended to 2027, 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.
44
Quantitative Analysis
During the three-year period ended
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 2022, had these estimates been changed simultaneously by 5% in either direction, our reported gross profit would have increased or decreased by approximately$0.8 million and selling, general and administrative expenses would have changed by approximately$0.1 million . The collective impact of these changes on 2022 operating income, net income attributable toInter Parfums, Inc. , and net income attributable toInter Parfums, Inc. per diluted share would be an increase or decrease of approximately$0.8 million ,$0.5 million and$0.02 , respectively. Results of Operations Net Sales Years ended December 31, (in millions) 2022 % Change 2021 % Change 2020 European based product sales$ 744.0 12%$ 663.2 57%$ 422.9 United States based product sales 342.7 58% 216.4 86% 116.1 Total net sales$ 1,086.7 24%$ 879.6 63%$ 539.0 Net sales rebounded significantly in 2021, as compared to 2020 for both European andUnited States based operations and continued to increase in 2022. At comparable foreign currency exchange rates, net sales increased 30% in 2022, as compared to 2021. Net sales in 2020 reflected the negative impacts of the COVID-19 pandemic on the beauty industry. Retail store closings, event cancellations and a shutdown of international air travel brought our sales to a virtual standstill in early 2020. In the second half of 2020, business began rebounding thanks to retail stores reopening and a robust e-commerce business conducted by our retail customers. For European based operations, our largest brands, Montblanc,Jimmy Choo and Coach grew 2022 sales by 15%, 23% and 18%, respectively, as compared to 2021. There were also significant gains made by our mid-sized brands, includingVan Cleef & Arpels andKarl Lagerfeld . The year-over-year gains, in both euro and dollars, are all the more impressive considering our new product pipeline was dominated by flankers and extensions. However, we did bring to market several entirely new lines, including our first ever Moncler duo,Kate Spade Sparkle , Singulier byBoucheron andOpen Road and Wild Rose by Coach. In 2021, GUESS became our fourth brand with sales exceeding$100 million . Strong momentum on GUESS continued in 2022 with brand sales increasing another 24% as compared to 2021. There were also significant gains made by our mid-sized brands, especiallyAbercrombie & Fitch, Hollister andOscar de la Renta . Additionally, 2022 saw the first full year of sales of Ferragamo products and in the second half of 2022, we also welcomed first time sales of our newest brands,Donna Karan /DKNY . Together, these new brands contributed to 38% growth of our US operations. 45 We are confident in our future as 2023 has many exciting developments for the Company. We have transitioned to a new modern enterprise resource planning system (ERP) for our US operations which will enable us to operate more efficiently and offer more scale to absorb our newer brands We have a solid line-up of new product launches in the pipeline for many of our brands. This includes the roll out of the Moncler Collection in the first quarter and a Duo flanker in the third quarter, a launch of GUESS Uomo Acqua in the second quarter, as well asBella Vita Paradiso in the fourth quarter. Extensions of the Montblanc Legend, Jimmy Choo Manand Jimmy Choo's I Want Choo, debut in the first, second and third quarters, respectively. Also, in the third quarter, we will unveil new men's lines for Coach andBoucheron . Brand extensions and flankers are in the works for MCM,Abercrombie & Fitch, Hollister,Anna Sui , andOscar de la Renta . In sum, 2023 has all the earmarks of another superb year as the growth catalysts currently far outweigh the headwinds, most notably inflation and supply chain disruptions. Lastly, we have recently announced the license agreement withLacoste which will offer us another sizable building block of growth in 2024.
As in the past, 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 have no certainty that any new license or acquisition
agreements will be consummated.
Years ended December 31,
2022 2021 2020
(in millions)
North America $ 431.9 $ 354.1 $ 193.5
Western Europe 259.2 202.0 147.1
Asia 152.7 128.0 79.7
Middle East 87.8 61.0 46.8
Eastern Europe 74.2 69.7 33.1
Central and South America 69.9 56.4 32.5
Other 11.0 8.4 6.3
$ 1,086.7 $ 879.6 $ 539.0
Our largest market, North America achieved sales growth of 22% in 2022 compared
to 2021, while Western Europe and Asia grew sales by 28% and 19% in 2022,
respectively, compared to 2021. Latin America and the Middle East also achieved
top line growth of 24% and 44% in 2022, respectively compared to 2021. Eastern
Europe saw only moderate top line growth of 6% as compared to 2021 largely
related to the war in Ukraine .
Gross Margins
Years ended December 31,
2022 2021 2020
(in millions)
European operations:
Net sales $ 744.0 $ 663.2 $ 422.9
Cost of sales 236.9 221.2 152.3
Gross margin $ 507.1 $ 442.0 $ 270.6
Gross margin, as a percent of net sales 68.2 % 66.6 % 64.0 %
United States operations:
Net sales $ 342.7 $ 216.4 $ 116.1
Cost of sales 155.4 101.5 56.0
Gross margin $ 187.3 $ 114.9 $ 60.1
Gross margin, as a percent of net sales 54.7 % 53.1 % 51.8 %
46
For European based operations, gross profit margin as a percentage of net sales
was 68.2%, 66.6% and 64.0% in 2022, 2021 and 2020, respectively. Distribution in
the United States for European based operations is handled by a 100% owned
subsidiary of Interparfums SA based in the United States . Therefore, sales are
made at a wholesale price rather than at an ex-factory price, resulting in
higher gross margins. Net sales of our U.S. based distribution subsidiary
increased 16% in 2022, as compared to 2021, leading to favorable mix and giving
rise to the increase in gross margin in 2022 over both 2021 and 2020. We
carefully monitor movements in foreign currency exchange rates as over 50% 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 1.05 in 2022, 1.18 in
2021, and 1.15 in 2020. Pricing action also enabled us to offset inflationary
pressures.
For United States operations, gross profit margin was 54.7%, 53.1% and 51.8% in
2022, 2021 and 2020, 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. The scale benefits coming from our significant growth
in 2021 and 2022, combined with pricing actions and favorable channel/brand mix,
have enabled us to more than offset the impacts of inflation and thus expand
gross margin by 130 bps in 2021 and another 160 bps in 2022.
Costs relating to purchase with purchase and gift with purchase promotions are
reflected in cost of sales, and aggregated $43.1 million , $36.9 million and
$26.4 million in 2022, 2021 and 2020, respectively, and represented 4.0%, 4.2%
and 4.9% of net sales, respectively.
Generally, we do not bill customers for shipping and handling costs and such
costs, which aggregated $15.8 million , $10.0 million and $5.0 million in 2022,
2021 and 2020, 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,
2022 2021 2020
(in millions)
European Operations
Selling, general & administrative expenses $ 358.3 $ 327.5 $ 210.6
Selling, general & administrative expenses as a
percent of net sales 48.2 % 49.4 % 49.8 %
United States Operations
Selling, general & administrative expenses $ 134.0 $ 79.0 $ 50.1
Selling, general & administrative expenses as a
percent of net sales 39.1 % 36.5 % 43.1 %
For European operations, selling, general and administrative expenses increased
9% and 55% in 2022 and 2021, respectively, as compared to the corresponding
prior year period, and represented 48.2%, 49.4% and 49.8% of sales in 2022, 2021
and 2020, respectively as we were able to leverage our scale. As discussed in
more detail below, these fluctuations, which are in line with the fluctuations
in sales for European operations, are primarily from variations in promotion and
advertising expenditures. For United States operations, selling, general and
administrative expenses increased 70% and 58% in 2022 and 2021, respectively, as
compared to the corresponding prior year period and represented 39.1%, 36.5% and
43.1% of sales in 2022, 2021 and 2020, respectively. As discussed in more detail
below, the increased selling, general and administrative expenses as a
percentage of net sales are primarily the result of increases in promotion and
advertising expenditures. Additionally, the US based operations increased
expenses related to salaries and benefits as we build the organization and
infrastructure to support our new brands and future growth.
47
Promotion and advertising included in selling, general and administrative
expenses aggregated $212.4 million , $171.1 million and $91.7 million in 2022,
2021 and 2020, respectively. Promotion and advertising as a percentage of sales
represented 19.5%, 19.5% and 17.0% of net sales in 2022, 2021 and 2020,
respectively. Promotion and advertising programs were cut significantly in 2020
in response to market conditions. Promotion and advertising are integral parts
of our industry, and we continue to invest heavily in promotional spending to
support new product launches and to build brand awareness. We believe that our
promotion and advertising efforts have had a beneficial effect on online net
sales, causing then to continue to grow strongly on a global basis. All of our
brands have benefitted from newly launched and enhanced e-commerce sites in
existing markets in collaboration with our retail customers on their e-commerce
sites. We also continue to develop and implement omnichannel concepts, the way
brick-and-mortar stores and a business' online operations work in tandem, and
compelling content to deliver an integrated consumer experience. We anticipated
that on a full year basis, future promotion and advertising expenditures will
aggregate approximately 21% of net sales, which is in line with pre-COVID
historical averages.
Royalty expense included in selling, general and administrative expenses
aggregated $87.0 million , $68.9 million and $41.1 million in 2022, 2021 and
2020, respectively. Royalty expense as a percentage of sales represented 8.0%,
7.8% and 7.6% of net sales in 2022, 2021 and 2020, respectively. The increases
in 2022 and 2021, as a percentage of sales, are 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
$7.9 million , $9.4 million and $6.8 million in 2022, 2021 and 2020,
respectively. The 2022 and 2021 amounts are in line with and directly related to
fluctuations in sales within our U.S. distribution subsidiary.
Income from Operations
As a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, our operating margins aggregated 17.9%, 16.8% and 13.1% for the years endedDecember 31, 2022 , 2021 and 2020, respectively.
Other Income and Expenses
InDecember 2022 , to finance the acquisition of theLacoste trademark, the Company entered into a$53.3 million (€50 million) four-year loan agreement. The loan agreement bears interest at EURIBOR-1 month rates plus a margin of 0.825%. This variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. Additionally, inApril 2021 , we completed the acquisition of the future headquarters ofInterparfums SA . The acquisition was financed by a 10-year €120 million (approximately$128 million ) bank loan which bears interest at one-month Euribor plus 0.75%. Also in 2021, approximately €80 million of the variable rate debt was swapped for fixed interest rate debt. Long-term debt including current maturities aggregated$186.8 million ,$148.8 million and$24.7 million as ofDecember 31, 2022 , 2021 and 2020, respectively. We enter into foreign currency forward exchange contracts to manage exposure related to receivables from unaffiliated third parties denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Due to the sizable swings in currency rates during 2022, we went from recognizing a gain of$2.3 million in 2021 to a loss of$1.9 million in 2022. This accounts for most of our fluctuation within Other income and expenses.
Interest and investment income represents interest earned on cash and cash equivalents and short-term investments. In 2022, short-term investments include approximately$19.9 million of marketable equity securities of other companies in the luxury goods sector. Interest and investment income includes approximately$3.1 million of unrealized gains on marketable equity securities. Given our strong balance sheet and cash position, the increase in interest rates had a favorable impact on interest and investment income. Income Taxes
Our effective income tax rate was 22.2%, 27.1% and 27.9% in 2022, 2021 and 2020,
respectively.
48
Income tax expense representsU.S. federal, foreign, state and local income taxes. The effective rate differs from the federal statutory rate primarily due to the effect of state and local income taxes, the tax impact of share-based compensation and the taxation of foreign income including tax settlements. Our effective tax rate will change from year-to-year based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes, the tax impact of share-based compensation, the interaction of various global tax strategies and the impact from certain acquisitions.
Our effective income tax rate for European operations was 25.2%, 30.6% and 29.7% in 2022, 2021 and 2020, respectively, as the French Prime Minister reduced the French corporate income tax rate from approximately 33% to 25% over a three-year period.
Our effective income tax rate for
2022, 2021 and 2020, respectively.
Our effective tax rate differs from the 21% statutory rate due to state, local and foreign taxes, offset by benefits received from the exercise of stock options as well as deductions we are allowed for a portion of our foreign derived intangible income. Additionally, in the third quarter of 2022, ourU.S. operations recognized a one-time tax benefit of$2.5 million associated with the 2021 Salvatore Ferragamo acquisition. At the time of the acquisition, we had not recognized deferred tax benefits as there were uncertainties concerning its potential recoverability; however, as ofSeptember 30, 2022 , the recoverability was deemed likely. The Company has determined that it has no tax liability related global intangible low-taxed income ("GILTI") as ofDecember 31, 2022 , 2021 and 2020. The Company also estimated the effect of its foreign derived intangible income ("FDII") and recorded a tax benefit of$1.5 million ,$0.6 million and$0.3 million as ofDecember 31, 2022 , 2021 and 2020, respectively. Share-based compensation resulted in a discrete tax benefit of$0.8 million ,$1.3 million and$0.4 million in 2022, 2021 and 2020, respectively. Net Income Year ended December 31, 2022 2021 2020 (In thousands)
Net income attributable to European operations
$ 41,990 Net income attributable toUnited States operations 43,745 29,357
7,978
Net income 151,037 110,027
49,968
Less: Net income attributable to the noncontrolling interest 30,099 22,616
11,749
Net income attributable to
Net income attributable to European operations was$107.3 million ,$80.7 million and$42.0 million in 2022, 2021 and 2020, respectively, while net income attributable toUnited States operations was$43.7 million ,$29.4 million and$8.0 million in 2022, 2021 and 2020, respectively. The fluctuations in net income for both European operations andUnited States operations are directly related to the previous discussions concerning changes in sales, gross profit margins, selling, general and administrative expenses, most of which were caused by the effects of the COVID-19 pandemic beginning in 2020 and the recovery
in 2021 and 2022.
The noncontrolling interest arises primarily from our 72% owned subsidiary inParis ,Interparfums SA , which is also a publicly traded company as 28% ofInterparfums SA shares trade on the Euronext. Net income attributable to the noncontrolling interest is directly related to the profitability of our European operations and aggregated 27.9%, 28.0% and 28.1% of European operations net income in 2022, 2021 and 2020, respectively. Net margins attributable toInter Parfums, Inc. aggregated 11.1%, 9.9% and 7.1% in 2022, 2022 and 2020, respectively.
Liquidity and Capital Resources
Our conservative financial tradition has enabled us to amass significant cash balances. As ofDecember 31, 2022 , we had$256 million in cash, cash equivalents and short-term investments, most of which are held in euro by our European operations and are readily convertible intoU.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 ofDecember 31, 2022 , short-term investments include approximately$19.9 million of marketable equity securities. 49 As ofDecember 31, 2022 , working capital aggregated$443 million , and we had a working capital ratio of 2.3 to 1. Approximately 80% of the Company's total assets are held by European operations including approximately$249 million of trademarks, licenses and other intangible assets. The Company is party to a number of license and other agreements for the use of trademarks and rights in connection with the manufacture and sale of its products expiring at various dates through 2039. In connection with certain of these license agreements, the Company is subject to minimum annual advertising commitments, minimum annual royalties and other commitments. See Item 8. Financial Statements and Supplementary Data - Note 12 - Commitments in this annual report on Form 10-K. Future advertising commitments are estimated based on planned future sales for the license terms that were in effect atDecember 31, 2022 , without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations. The Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a proprietary basis or as a licensee. InDecember 2022 , we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under the Lacoste brand. This new license takes effectJanuary 2024 . InSeptember 2021 , we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under theDonna 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 notablyDonna Karan Cashmere Mist and DKNY Be Delicious, as well as a significant loyal consumer base around the world. The exclusive license became effective onJuly 1, 2022 , and we are planning to launch new fragrances under these brands in 2024. InOctober 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. The license became effective inOctober 2021 and will last for 10 years with a 5-year optional term, subject to certain conditions. With respect to the management and coordination of activities related to the license agreement, the Company is operating through a wholly-owned Italian subsidiary based inFlorence , that was acquired from Salvatore Ferragamo onOctober 1, 2021 . The acquisition together with the license agreement was accounted for as an asset acquisition. The total cost of the assets acquired net of liabilities assumed aggregated approximately$35.8 million . In connection with this acquisition, we agreed to pay$17.0 million in equal annual installments of$1.7 million including interest imputed at 2.0%.
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$115.2 million ,$119.6 million , and$65.0 million in 2022, 2021 and 2020, respectively. In 2022, working capital items used$65.6 million in cash from operating activities, as compared to$13.7 million in 2021 and$7.3 million in 2020. Although, from a cash flow perspective, accounts receivable is up approximately 37% from year-end 2021, the balance is reasonable based upon fourth quarter 2022 record sales levels and reflects strong collection activity as day's sales outstanding increased slightly to 64 days in 2022, as compared to 61 days in 2022 and decreased significantly as compared to 86 days in 2020. From a cash flow perspective, inventory levels are up 49% from year-end 2021. Inventory days on hand increased to 231 days in 2022, as compared to 208 days in 2021, and 277 days in 2020 as we chose to protect service level in light of the COVID driven supply chain disruptions. Cash flows used in investing activities reflect the purchase and sales of short-term investments. These investments consist of certificates of deposit with maturities greater than three months marketable equity securities and other contracts. AtDecember 31, 2022 , approximately$39 million of certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal. 50 Our business is not capital intensive as we do not own any manufacturing facilities. On a full year basis, we generally spend less than$5.0 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. InDecember 2022 , to financeInterparfums SA's acquisition of theLacoste trademark, the Company entered into a$53.3 million (€50 million) four-year loan agreement. The loan agreement bears interest at EURIBOR-1 month rates plus a margin of 0.825%. This variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. InApril 2021 ,Interparfums SA completed the acquisition of its future headquarters at 10 rue de Solférino in the 7th arrondissement ofParis 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$142 million purchase price is in line with market value and includes the complete renovation of the site. As ofDecember 31, 2021 ,$136.1 million of the purchase price, including approximately$3.1 million of acquisition costs, is included in building, equipment and leasehold improvements on the accompanying balance sheet as ofDecember 31, 2021 . Approximately$8.8 million of cash held in escrow is included in other assets on the accompanying balance sheet as ofDecember 31, 2021 . In 2022 this cash was released from escrow and there is no longer any balance of cash outside of cash and cash equivalents on the accompanying balance sheet as ofDecember 31, 2022 . In addition, the Company borrowed$17.0 million pursuant to a short-term loan equal to the VAT credit, and inJuly 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$136 million ) bank loan which bears interest at one-month Euribor plus 0.75%. Approximately €80 million of the variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. InJune 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 inFebruary 2021 . Our short-term financing requirements are expected to be met by available cash on hand atDecember 31, 2022 , cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2022 consist of a$20.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately$20 million in credit lines provided by a consortium of international financial institutions. There were no balances due from short-term borrowings as ofDecember 31, 2022 and 2021. InApril 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. InFebruary 2021 , our Board of Directors authorized a reinstatement of an annual dividend of$1.00 , payable quarterly and inFebruary 2022 , our Board authorized a 100% increase in the annual dividend to$2.00 per share. InFebruary 2023 the Board of Directors further increased the annual dividend to$2.50 per share. The next quarterly cash dividend of$0.625 per share is payable onMarch 31, 2023 , to shareholders of record onMarch 15, 2023 . Dividends paid, including dividends paid once per year to noncontrolling stockholders ofInterparfums SA , aggregated$79.8 million ,$41.5 million and$21.1 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively. The cash dividends to be paid in 2023 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.
51
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,
2022 as they were either offset by price increases we passed onto our respective
customers or operating efficiencies.
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