INTERPARFUMS INC (IPAR)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We operate in the fragrance business, and manufacture, market and distribute a wide array of prestige fragrances and fragrance related products. We manage our business in two segments, European based operations and United States based operations. Certain prestige fragrance products are produced and marketed by our European based operations through our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 28% of Interparfums SA shares trade on the Euronext.

We produce and distribute fragrance products through our European based operations primarily under license agreements with brand owners, and European based fragrance product sales represented approximately 65%, 65% and 68% of net sales for 2024, 2023 and 2022, respectively. We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade, Lacoste, Lanvin, Moncler, Montblanc, Rochas and Van Cleef & Arpels, whose products are distributed in over 120 countries around the world. Our exclusive and worldwide license for the production and distribution of Lacoste brand perfumes and cosmetics became effective in January 2024.

Through our United States based operations, we also produce and distribute fragrances and fragrance related products. United States based operations represented 35%, 35% and 32% of net sales in 2024, 2023 and 2022, respectively. These fragrance products are sold primarily pursuant to license or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, Donna Karan/DKNY, Emanual Ungaro, Ferragamo, Graff, GUESS, Hollister, MCM, Oscar de la Renta, and Roberto Cavalli brands.

Substantially all of our prestige fragrance brands are licensed from unaffiliated third parties, and our business is dependent upon the continuation and renewal of such licenses. With respect to the Company’s largest brands, we license the Jimmy Choo, Montblanc, Coach, GUESS, Donna Karan/DKNY, Lacoste and Ferragamo brand names. This diversified portfolio of top brands represented 76%, 73% and 71% of total sales in 2024, 2023, and 2022, respectively.

As a percentage of net sales, product sales for the Company’s largest brands were as follows:

Quarterly sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season. In certain markets where we sell directly to retailers, seasonality is more evident. We primarily sell directly to retailers in France, the United States, and Italy.

We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, through new licenses, or other arrangements or outright acquisitions of brands. Second, we grow through the introduction of new products and by supporting new and established products through advertising, merchandising and sampling, as well as 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 received and stored directly at our third party fillers or received at one of our distribution centers. For those components received at one of our distribution centers, based upon production needs, the components are subsequently sent to one of several third party fillers, which manufacture the finished product for us and then deliver them to one of our distribution centers.

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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 as greater than 50% of net sales of our European based operations are denominated in U.S. dollars, while almost all costs of our European based operations are incurred in euro. We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments and primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates.

Recent Important Events

Please see our discussion of Recent Important Events, which is incorporated by reference to Note 2 to the Consolidated Financial Statements contained in this 2024 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) for the year ended December 31, 2024.

Discussion of Critical Accounting Policies

We make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations. These accounting policies generally require our management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management of the Company has discussed the selection of significant accounting policies and the effect of estimates with the Audit Committee of the Board of Directors.

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 9.47%. The cash flow projections are based upon a number of assumptions, including future sales levels and future cost of goods and operating expense levels, as well as economic conditions, changes to our business model or changes in consumer acceptance of our products which are more subjective in nature. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment charge is recorded.

We believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable. However, if future actual results do not meet our expectations, we may be required to record an impairment charge, the amount of which could be material to our results of operations.

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At December 31, 2024 indefinite-lived intangible assets aggregated $116.2 million. The following table presents the impact a change in the following significant assumptions would have had on the calculated fair value in 2024 assuming all other assumptions remained constant:

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 lived 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.

Quantitative Analysis

During the three-year period ended December 31, 2024, we have not made any material changes in our assumptions underlying these critical accounting policies or to the related significant estimates. The results of our business underlying these assumptions have not differed significantly from our expectations.

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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 2024, had these estimates been changed simultaneously by 5% in either direction, our reported gross profit would have increased or decreased by approximately $0.2 million and selling, general and administrative expenses would have changed by approximately $0.1 million. The collective impact of these changes on 2024 operating income, net income attributable to Interparfums, Inc., and net income attributable to Interparfums, Inc. per diluted share would be an increase or decrease of approximately $0.2 million, $0.2 million and $0.1, respectively.

Results of Operations

na - not applicable

Net sales in 2024 increased 10% compared to 2023. At comparable foreign currency exchange rates, net sales also increased 10% in 2024, as compared to 2023, of which 9% is related to new brands. The average dollar/euro exchange rate for 2024 was 1.08, in line with 2023.

For European based operations, sales grew by 10% for the full year 2024 driven by the strong performance of Jimmy Choo, the addition of Lacoste, and solid execution of some of our smaller brands. Our largest brand, Jimmy Choo, increased 2024 sales by 7% as compared to 2023, attributable to the ongoing success of the I Want Choo franchise, while our second and third largest brands, Montblanc and Coach, were broadly flat against a high base period in 2023 where sales grew by 15% and 25%, respectively. Lacoste, our newest brand for European based operations, exceeded the Company's expectations in its first year, achieving $85 million in net sales in 2024 thanks to the solid performance of the L.12.12 lines and the successful launch of the Lacoste Original line. There were also gains made by our mid-sized brands, including Karl Lagerfeld, Moncler, Van Cleef & Arpels and Rochas.

For United States based operations, sales grew by 12% in 2024, due to the continued robust performance of legacy scents. GUESS, our largest United States based brand, increased 2024 sales by 13%, due to the initial success of our new pillar, GUESS Iconic (women), extensions for Uomo Intenso (men), as well as a variety of multi-scent collections including Amore, Elements, and Sexy Skin Metallique. For Donna Karan/DKNY, net sales increased by 9% in 2024 compared to 2023 driven by the success of Donna Karan's four-scent Cashmere Collection, and the blockbuster launch of DKNY 24/7. Additionally, the brand exceeded $100 million in sales for the year. Sales of Ferragamo were flat against a high base period in 2023 where sales grew by 21%. Roberto Cavalli, our newest brand for United States based operations, achieved net sales of $31 million in its first year under the Company's management.

We are confident in our future as 2025 has many exciting developments for the Company, including expansion of e-commerce channels and a strong pipeline of new launches across our prestige portfolio. Lacoste Original and Jimmy Choo I Want Choo Le Parfum will continue their expansion in 2025. New launches are also planned for a new men's blockbuster for GUESS, Iconic, a new Ferragamo blockbuster, Fiamma, an MCM collection in the first quarter and a new Roberto Cavalli blockbuster in the second quarter. Additionally, we have a slate of brand extensions and flankers for Montblanc Explorer, Jimmy Choo Man, Coach Woman and Man, Lacoste L.12.12 and Original, MCM Diamond, Ferragamo Men, and two new scents for the Donna Karan Cashmere Collection.  The upcoming year will also stand out for the creation of the proprietary brand Solférino, a collection of 10 niche fragrances developed by star perfumers and intended for the collector's fragrance market. While the pace of growth in the market is starting to normalize closer to historical levels following massive growth seen over the past few years, the power of our diverse brand portfolio, in combination with our agile operating model, should help us gain market share.

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.

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Net Sales to Customers by Region

Our largest market, North America, achieved sales growth of 6% in 2024 compared to 2023, followed by Western Europe and Asia where sales grew by 21% and 3% in 2024, respectively, compared to 2023. Middle East and Africa, Eastern Europe, and Central and South America also achieved top line growth of 5%, 14% and 17% in 2024, respectively, compared to 2023. Additionally, our travel retail business is continuing to strengthen.

Gross Profit Margin

(a) Amounts do not reflect eliminations of intercompany sales of European based operations products sold to United States based operations.

The Company’s gross margin percentage was 63.9% in 2024 as compared to 63.7% in 2023 and 63.9% in 2022. The slight increase in gross margin percentage was driven by segment mix and the impact of certain one-time expenses related to inventory in 2023.

For European based operations, gross profit margin as a percentage of net sales was 67.0%, 67.2% and 68.2% in 2024, 2023 and 2022, respectively. European based operations were negatively impacted by brand and channel mix. These negative impacts were partially offset by the positive impact of certain one-time expenses related to inventory in 2023. For United States based operations, gross profit margin was 57.9%, 57.0% and 54.7% in 2024, 2023 and 2022, respectively. The year-over-year increase was driven by favorable brand and channel mix.

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Costs relating to purchase with purchase and gift with purchase promotions are reflected in cost of sales, and aggregated $61.5 million, $52.3 million and $43.1 million in 2024, 2023 and 2022, respectively, and represented 4.2%, 4.0% and 4.0% of net sales, respectively.

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

Selling, General and Administrative Expenses

The Company’s selling, general and administrative expenses as a percentage of nets sales were 44.7%, 44.6% and 45.3% in 2024, 2023 and 2022, respectively. The percentage of net sales remained flat from the prior year as increased amortization cost from the addition of the Lacoste license, which represented $6 million for the year, were offset due to promotional and advertising activities by our European based operations growing slower than sales growth in 2024.

For European based operations, selling, general and administrative expenses increased 9% and 13% in 2024 and 2023, respectively, as compared to the corresponding prior year period, and represented 46.3%, 47.1% and 48.2% of net sales in 2024, 2023 and 2022, respectively. The increases in expenses are in line with fluctuations in sales for European operations, primarily from increases in employee related costs due to a one-time severance payment of $2.2 million, and higher royalty costs offset by promotion and advertising expenditures growing slower than sales. Furthermore, promotion and advertising activities originally planned for the third and fourth quarter were phased into 2025 resulting in a decrease in selling, general and administrative expenses as a percentage of net sales in 2024 as compared to 2023.

For United States based operations, selling, general and administrative expenses increased 14% and 35% in 2024 and 2023, respectively, as compared to the corresponding prior year period, and represented 40.5%, 39.7% and 39.1% of net sales in 2024, 2023 and 2022, respectively. The increases in selling, general and administrative expenses as a percentage of net sales were largely driven by continued investment in infrastructure and employee headcount to support the growth of the business as well as increased promotional and advertising spending.

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Promotion and advertising included in selling, general and administrative expenses aggregated $280.5 million, $261.3 million and $212.4 million in 2024, 2023 and 2022, respectively. Promotion and advertising represented 19.3%, 19.8% and 19.5% of net sales in 2024, 2023 and 2022, respectively. Promotion and advertising are integral parts of our industry, and we continue to invest heavily to support new product launches and to build brand awareness. We believe that our promotion and advertising efforts have had a beneficial effect on sales. Additionally, as 2024 saw a lighter innovation program than in prior years, the Company focused on increasing promotional and advertising spending to support the continued success of our existing brands and to support the initial launches of our new brands, Lacoste and Roberto Cavalli. We also continue to develop and implement omnichannel concepts and compelling content to deliver an integrated consumer experience. As noted above, some promotion and advertising expenses were phased into 2025 for European based operations in order to further strengthen our first half of 2025. Long-term, we continue to anticipate that on a full year basis, promotion and advertising expenditures should aggregate approximately 21% of net sales.

Royalty expense included in selling, general and administrative expenses aggregated $117.8 million, $103.8 million and $87.0 million in 2024, 2023 and 2022, respectively. Royalty expense represented 8.1%, 7.9% and 8.0% of net sales in 2024, 2023 and 2022, respectively, due to changes in brand mix.

Impairment Loss

The Company reviews intangible assets with indefinite lives for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There was an impairment charge for trademarks with indefinite useful lives of $4.0 million and $6.8 million in 2024 and 2022, respectively, relating to our Rochas fashion business and an impairment charge for trademarks with indefinite useful lives of $0.9 million in 2022 relating to our Intimate trademark. There was no impairment charge for trademarks with indefinite useful lives in 2023.

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 18.9%, 19.1% and 17.9% for the years ended December 31, 2024, 2023 and 2022, respectively.

Other Income and Expenses

Overall, other income and expense was a loss of $6.4 million, $1.8 million, and $0.1 million in 2024, 2023, and 2022, respectively. The main drivers of the change between 2024 and 2023 are discussed in more detail below. These include an increase in interest expense on borrowings of $0.4 million, a gain on foreign currency of $0.5 million, a gain on interest income related to cash and cash equivalents and short-term investments of $0.5 million, and losses on marketable securities of $2.1 million of which $1.5 million is unrealized. Additionally, there was a one-time gain of $3.1 million recognized in 2023 related to the sale of marketable securities.

Interest expense is primarily related to the financing of brand and licensing acquisitions and the financing of the headquarters of Interparfums SA. The increase in interest expense in 2024 is related to increased borrowings during the year. In December 2022, to finance the acquisition of the Lacoste trademark, the Company entered into a $51.9 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, in April 2021, we completed the acquisition of the headquarters of Interparfums SA. The acquisition was financed by a 10-year approximately $124.7 million (€120 million) bank loan which bears interest at one-month Euribor plus 0.75%. Approximately $83.1 million (€80 million) of the variable rate debt was swapped for fixed interest rate debt with a maximum interest rate of 2% per annum. The swap effectively exchanges the variable interest rate to a fixed rate of approximately 1.1%. Additionally in July 2024, the Company entered into a $41.6 million (€40 million) three-year loan agreement that bears a fixed interest rate of 4.03%. The loan was used to improve our short-term cash position. Long-term debt including current maturities aggregated $157.3 million, $157.5 million and $180.0 million as of December 31, 2024, 2023 and 2022, 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. Greater than 50% of net sales of our European based operations are denominated in U.S. dollars. Gains and losses in derivatives designated as hedges are accumulated in other comprehensive income and gains and losses in derivatives not designated as hedges are included in (gain) loss on foreign currency on the accompanying consolidated income statements. Such gains and losses were immaterial in each 2024, 2023, and 2022.

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Interest and investment income represents interest earned on cash and cash equivalents and short-term investments and realized and unrealized gains and losses on marketable securities. Interest income was $4.4 million in 2024 compared to $3.9 million in 2023. As of December 31, 2024, short-term investments also include approximately $7.7 million of marketable equity securities of other companies in the luxury goods sector. In the first quarter of 2023, the Company sold marketable securities which generated a gain of $3.1 million. The Company purchased additional marketable securities throughout 2023 and 2024, resulting in an losses of $2.1 million during 2024, of which $1.5 million was unrealized.

Income Taxes

Our consolidated effective tax rate was 24.2%, 24.8% and 22.2% in 2024, 2023 and 2022, respectively.

The effective tax rate for European based operations was 25.8%, 27.3% and 25.2% in 2024, 2023 and 2022, respectively. Our effective tax rate in 2023 differs from the 25% statutory rate due to a one-time tax assessment of € 2.8 million ($3.1 million) included in tax expense as the result of a tax audit conducted for the 2020 and 2021 tax years.

The effective tax rate for United States based operations was 20.4%, 19.3% and 13.8% in 2024, 2023 and 2022, respectively. Our effective tax rate differs from the 21% statutory rate in the United States as it is a blended rate across multiple jurisdictions, and takes into account benefits received from the exercise of stock options as well as deductions we are allowed for a portion of our foreign derived intangible income, slightly offset by state and local taxes. Additionally, in the third quarter of 2022, our United States based 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 a deferred tax benefit as there were uncertainties concerning its potential recoverability; however, as of September 30, 2022, recoverability was deemed likely. Other than as discussed above, we did not experience any significant changes in tax rates, and none were expected in the jurisdictions where we operate.

The Company estimated the effect of its foreign derived intangible income (“FDII”) and recorded a tax benefit of $2.4 million, $2.4 million and $1.5 million as of December 31, 2024, 2023 and 2022, respectively. Share-based compensation resulted in a discrete tax benefit of $0.7 million, $1.2 million and $0.8 million in 2024, 2023 and 2022, respectively.

Net Income

Net income attributable to Interparfums, Inc. was $164.4 million, $152.7 million and $120.9 million in 2024, 2023 and 2022, respectively.

Net income attributable to European based operations was $140.1 million, $124.0 million and $107.3 million in 2024, 2023 and 2022, respectively, while net income attributable to United States based operations was $68.9 million, $63.8 million and $43.7 million in 2024, 2023 and 2022, respectively. The significant fluctuations in net income for both European and United States based operations are directly related to the previous discussions relating to changes in sales, gross profit margins, selling, general and administrative expenses.

The noncontrolling interest arises from our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 28% of Interparfums SA shares trade on the Euronext. Net income attributable to the noncontrolling interest is directly related to the profitability of our European based operations and aggregated 27.7%, 28.1% and 27.9% of European based operations net income in 2024, 2023 and 2022, respectively. Net profit margins attributable to Interparfums, Inc. aggregated 11.3%, 11.6% and 11.1% in 2024, 2023 and 2022, respectively.

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Liquidity and Capital Resources

Our conservative financial tradition has enabled us to amass significant cash balances. As of December 31, 2024, we had $234.7 million in cash and cash equivalents and short-term investments, most of which are held in euro by our European based operations and is readily convertible into U.S. dollars. We have not had any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments.

As of December 31, 2024, working capital aggregated $582 million. Approximately 76% of the Company’s total assets are held by European based operations, and approximately $246 million of trademarks, licenses and other intangible assets are also held by European based operations.

The Company is party to a number of licenses and other agreements for the use of trademarks and rights in connection with the manufacture and sale of its products expiring at various dates through 2038. In connection with most of these license agreements, the Company is subject to minimum annual advertising commitments, minimum annual royalties and other commitments. See Item 8. Financial Statements and Supplementary Data – Note 11– Commitments in 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 at December 31, 2024, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.

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

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

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 gained 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. The exclusive license became effective on July 1, 2022.

Cash provided by operating activities aggregated $187.6 million, $105.8 million, and $73.0 million in 2024, 2023 and 2022, respectively. In 2024, working capital items used $49.7 million in cash from operating activities, as compared to $102.0 million in 2023 and $107.7 million in 2022. Although, from a cash flow perspective, accounts receivable is up 17% from year-end 2023, the balance is reasonable based upon 2024 record sales levels. While days sales outstanding was 66 days, up from 62 days and 60 days in 2023 and 2022, respectively, driven by changes in our channel mix, we are still seeing strong collection activity and do not anticipate any issues with collections of accounts receivable. From a cash flow perspective, inventory levels are up 5% in support of our overall sales growth. Inventory days on hand increased slightly to 259 days in 2024, as compared to 252 days in 2023, and 227 days in 2022, as we have built up inventory related to the inclusion of the Lacoste and Roberto Cavalli licenses, which require large inventory needs to support the launches of these brands. Additionally, as we are working to manage down our inventory levels, we have seen increased conversion of raw materials into finished goods resulting in finished goods making up 63% of our inventory levels at December 31, 2024 as compared to 57% and 49% at December 31, 2023 and 2022, respectively. Due to past supply constraints, we had strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold. These constraints have largely abated and we are gradually reversing some of these previous interventions. We are beginning to see the impacts of these recent inventory management efforts and will continue to work to optimize inventory levels.

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Cash flows used in investing activities in 2024 reflect the purchases 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. At December 31, 2024, approximately $2.1 million of certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal.

Further, in December 2024, the Company paid approximately $16 million for the purchase of the Off-White Trademark, with an additional $2 million payable over two years.

Our business is not capital intensive as we do not own any manufacturing facilities. On a full year basis, we typically spend approximately $5 million on tools and molds, depending on our new product development calendar. Capital expenditures also include amounts for office fixtures, computer equipment and industrial equipment needed at our distribution centers.

Cash flows used in financing activities in 2024 reflect issuances and repayment of debt and payment of dividends to stockholders.

In July 2024, the Company entered into a $41.6 million (€40 million) three-year loan agreement that bears a fixed interest rate of 4.03%. Additionally, in December 2022, to finance Interparfums SA’s acquisition of the Lacoste trademark, Interparfums SA entered into an approximately $51.9 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.

Our short-term financing requirements are expected to be met by available cash on hand at December 31, 2024, and by short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2024 consist of a $70 million unsecured revolving lines of credit provided by a consortium of domestic commercial banks and approximately $8.3 million in credit lines provided by a consortium of international financial institutions. Balances due from short-term borrowings totaled $8.3 million and $4.4 million as of December 31, 2024 and 2023, respectively.

In February 2022, our Board of Directors authorized an annual dividend of $2.00 per share, payable quarterly. In February 2023, our Board of Directors authorized an increase in the annual dividend to $2.50 per share and in February 2024, our Board of Directors increased the annual dividend to $3.00 per share. In February 2025, our Board of Directors further increased the annual dividend to $3.20 per share. The next quarterly cash dividend of $0.80 per share is payable on March 28, 2025 to shareholders of record on March 14, 2025.

We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.

Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the year ended December 31, 2024 .

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Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We operate in the fragrance business, and manufacture, market and distribute a wide array of prestige
fragrances and fragrance related products. We manage our business in two segments, European based operations and United States
based operations. Certain prestige fragrance products are produced and marketed by our European based operations through our 72%
owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 28% of Interparfums SA shares trade on the
Euronext.

We
produce and distribute our European based fragrance products primarily under license agreements with brand owners, and European
based fragrance product sales represented approximately 65%, 68% and 75% of net sales for 2023, 2022 and 2021, respectively. We
have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade, Lanvin,
Moncler, Montblanc, Rochas, S.T. Dupont and Van Cleef & Arpels, whose products are distributed in over 120 countries
around the world. In addition, our exclusive and worldwide license for the production and distribution of Lacoste brand
perfumes and cosmetics became effective in January 2024.

Through
our United States based operations, we also market fragrances and fragrance related products. United States based operations represented
35%, 32% and 25% of net sales in 2023, 2022 and 2021, respectively. These fragrance products are sold primarily pursuant to license
or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, Donna Karan, DKNY, Emanual Ungaro, Ferragamo,
Graff, GUESS, Hollister, MCM, Oscar de la Renta, and Roberto Cavalli brands.

Substantially all of our prestige fragrance brands are licensed from unaffiliated third parties, and
our business is dependent upon the continuation and renewal of such licenses. With respect to the Company’s largest brands,
we license the Jimmy Choo, Montblanc, Coach, GUESS, Donna Karan/DKNY and Ferragamo brand names. This diversified
portfolio of top brands represented 73%, 71% and 66% of total sales in 2023, 2022, and 2021, respectively.

As
a percentage of net sales, product sales for the Company’s largest brands were as follows:

Quarterly
sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season.
In certain markets where we sell directly to retailers, seasonality is more evident. We primarily sell directly to retailers in
France, the United States, and Italy.

We
grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, through new licenses, or other arrangements
or outright acquisitions of brands. Second, we grow through the introduction of new products and by supporting new and established
products through advertising, merchandising and sampling, as well as 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 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.

49

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 based operations are denominated in U.S. dollars, while almost all costs of our European based 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

Please
see our discussion of the Impact of the COVID-19 Pandemic, which is incorporated by reference to Note 2 to the Consolidated Financial
Statements contained in this 2023 Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2023.

Recent
Important Events

Please
see our discussion of Recent Important Events, which is incorporated by reference to Note 3 to the Consolidated Financial Statements
contained in this 2023 Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2023.

Discussion
of Critical Accounting Policies

We
make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally
accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions
and conditions. We believe the following discussion addresses our most critical accounting policies, which are those that are
most important to the portrayal of our financial condition and results of operations. These accounting policies generally require
our management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain. Management of the Company has discussed the selection of significant accounting policies
and the effect of estimates with the Audit Committee of the Board of Directors.

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 10.39%. The cash flow projections are based upon a number of assumptions, including, future sales levels and
future cost of goods and operating expense levels, as well as economic conditions, changes to our business model or changes in
consumer acceptance of our products which are more subjective in nature. If the carrying value of an indefinite-lived intangible
asset exceeds its fair value, an impairment charge is recorded.

We
believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable.
However, if future actual results do not meet our expectations, we may be required to record an impairment charge, the amount
of which could be material to our results of operations.

50

At
December 31, 2023 indefinite-lived intangible assets aggregated $108.8 million. The following table presents the impact a change
in the following significant assumptions would have had on the calculated fair value in 2023 assuming all other assumptions remained
constant:

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
lived 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.

Quantitative
Analysis

During
the three-year period ended December 31, 2023, we have not made any material changes in our assumptions underlying these critical
accounting policies or to the related significant estimates. The results of our business underlying these assumptions have not
differed significantly from our expectations.

51

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 2023, had these estimates been changed simultaneously by 5% in
either direction, our reported gross profit would have increased or decreased by approximately $0.7 million and selling, general
and administrative expenses would have changed by approximately $0.1 million. The collective impact of these changes on 2023 operating
income, net income attributable to Inter Parfums, Inc., and net income attributable to Inter Parfums, Inc. per diluted share would
be an increase or decrease of approximately $0.6 million, $0.3 million and $0.01, respectively.

Results
of Operations

Net
sales in 2023 increased 21% compared to 2022. At comparable foreign currency exchange rates, net sales increased 20% in 2023,
as compared to 2022, of which 5% is related to new brands. The average dollar/euro exchange rate for 2023 was 1.08 compared to
1.05 in 2022.

For
European based operations, our largest brands, Jimmy Choo, Montblanc, and Coach grew 2023 sales by 19%, 15% and 25%, respectively,
as compared to 2022. There were also significant gains made by our mid-sized brands, including Van Cleef & Arpels, Rochas,
and Karl 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. The increase was also driven by the continued success of our established lines
including Jimmy Choo I Want Choo, Montblanc Legend, Coach Woman, and Coach Man.

Sales
by our United States based operations grew substantially in 2023, up 33%, as compared to 2022, largely from the continued success
of GUESS fragrances, which performed exceedingly well during the quarters across all geographies, and was up 23% in 2023 as compared
to 2022. This was driven by the continued growth in sales of the Seductive line within GUESS. The increase was also driven
by the addition and extension of Donna Karan and DKNY to our portfolio. These two sister fragrance groups have climbed to become
our second largest United States based brand in just one year under our expertise. We also had strong sales of Ferragamo fragrances,
which we have enriched with sister scents for the Signorina and Storie di Seta collections. There were also gains
made by our mid-sized brands, Oscar de la Renta Abercrombie & Fitch, and Hollister. In the second half of the year, we successfully
completed Phase 1 of the Abercrombie & Fitch Fierce distribution roll-out.

We are confident
in our future as 2024 has many exciting developments for the Company. We transitioned to a new modern enterprise resource planning
system (“ERP”) for our United States based operations, which has enabled us to operate more efficiently and offer
more scale to absorb our newer brands. Distribution of Roberto Cavalli and Lacoste products, our newly acquired licenses, have
begun in the first quarter. A new blockbuster fragrance line for Lacoste, and a new flanker for Roberto Cavalli Signature are
planned to launch in the second half of 2024. We also have a solid line-up of new product launches in the pipeline for many of
our existing brands. This includes the Phase 2 distribution roll-out of Abercrombie & Fitch Fierce in the first quarter,
a roll out of the Donna Karan Cashmere Collection in the first quarter, a new DKNY blockbuster in the third quarter,
a launch of a new GUESS fragrance in the second quarter, as well as an Uomo flanker in the third quarter. Extensions of
Jimmy Choo I Want Choo, Montblanc Legend, and Coach Dreams, are set to debut throughout the year. Brand extensions
and flankers are also in the works for Ferragamo, MCM, Abercrombie & Fitch, Hollister, Anna Sui, Emanuel Ungaro, and Oscar
de la Renta. In sum, 2024 has all the earmarks of another strong year as the growth catalysts, such as the rebound of the travel
retail business in Asia, currently far outweigh the headwinds, most notably supply chain disruptions that have largely abated.

52

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.

Net
Sales to Customers by Region

Our largest market, North America, achieved sales growth of 22% in 2023 compared to 2022, followed
by Western Europe and Asia where sales grew by 16% and 17% in 2023, respectively, compared to 2022. Middle East, Eastern Europe,
and Central and South America also achieved top line growth of 22%, 39% and 33% in 2023, respectively, compared to 2022. Additionally,
our travel retail business is continuing to show signs of renewed life.

Gross
Profit Margin

The
Company’s gross margin percentage was 63.7% in 2023 as compared to 63.9% in 2022. The slight decrease in gross margin percentage
was driven by unfavorable segment mix as well as certain one-time expenses related to inventory as discussed further below. Overall,
the Company’s pricing actions have broadly compensated for cost inflation impacts.

For
European based operations, gross profit margin as a percentage of net sales was 67.2%, 68.2% and 66.6% in 2023, 2022 and 2021,
respectively. 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 1.08 in 2023, 1.05 in 2022, and 1.18 in 2021. The weaker dollar in 2023 resulted in a decline in our gross margin. This decline
was partially offset as 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 United States based distribution subsidiary increased 14% in 2023, as compared
to 2022, leading to favorable mix and helping to further offset the gross margin decline. The decline was also driven by an increase
in inventory reserves made during 2023 related to certain underperforming brands. As the Company experienced long lead times in
obtaining and building inventory during the COVID-19 Pandemic, high levels of inventory investments were required to protect service
levels. Excluding these one-time adjustments, gross margin as a percentage of sales for European based operations would be in
line with the prior period, driven by increases in pricing and product mix, offset by cost inflation.

53

For
United States based operations, gross profit margin was 57.0%, 54.7% and 53.1% in 2023, 2022 and 2021, respectively. The significant
margin expansion stems from a number of factors. Firstly, for the most part, the price increases we took in early 2023 weren’t
fully offset by a higher cost of goods given our cost containment efforts. Secondly, we are seeing favorable brand and channel
mix, as a larger portion of our higher priced fragrances are being sold directly to retailers as opposed to third-party distributors.
Lastly, the significant increase in sales in 2023 allowed us to better absorb fixed expenses such as depreciation and point of
sale expenses, as compared to the prior year.

Costs
relating to purchase with purchase and gift with purchase promotions are reflected in cost of sales, and aggregated $52.3 million,
$43.1 million and $36.9 million in 2023, 2022 and 2021, respectively, and represented 4.0%, 4.0% and 4.2% of net sales, respectively.

Generally,
we do not bill customers for shipping and handling costs and such costs, which aggregated $14.2 million, $15.8 million and $10.0
million in 2023, 2022 and 2021, 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 sales.

Selling,
General & Administrative Expenses

The
Company’s selling, general and administrative expenses as a percentage of nets sales were 44.6%, 45.3% and 46.2% in 2023,
2022 and 2021, respectively. This decrease was largely driven by sales growth during 2023 and 2022 allowing for better absorption
of fixed operating costs, and favorable segment mix.

For European based operations, selling, general and administrative expenses increased 13% and 9% in
2023 and 2022, respectively, as compared to the corresponding prior year period, and represented 47.2%, 48.2% and 49.4% of net
sales in 2023, 2022 and 2021, respectively. 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 based
operations, selling, general and administrative expenses increased 35% and 70% in 2023 and 2022, respectively, as compared to the
corresponding prior year period and represented 39.7%, 39.1% and 36.5% of net sales in 2023, 2022 and 2021, respectively. As discussed
in more detail below, these fluctuations, which are in line with the fluctuations in sales for United States based operations,
are primarily from variations in promotion and advertising expenditures. Additionally, the United States based operations increased
expenses related to salaries and benefits as we build the organization and infrastructure to support our new brands and future
growth. The increase related to these structural and personnel investments began throughout 2022 and had full year impact in 2023
of $7.8 million.

54

Promotion
and advertising included in selling, general and administrative expenses aggregated $259.9 million, $212.4 million and $171.1
million in 2023, 2022 and 2021, respectively. Promotion and advertising represented 19.7%, 19.5% and 19.5% of net sales in 2023,
2022 and 2021, respectively. Promotion and advertising are integral parts of our industry, and we continue to invest heavily to
support new product launches and to build brand awareness. We believe that our promotion and advertising efforts have had a beneficial
effect on sales. 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 and compelling
content to deliver an integrated consumer experience. Long term, we anticipate that on a full year basis, promotion and advertising
expenditures should 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 $103.8 million, $87.0 million and $68.9 million in
2023, 2022 and 2021, respectively. Royalty expense represented 7.9%, 8.0% and 7.8% of net sales in 2023, 2022 and 2021, respectively,
due to changes in brand mix.

Service
fees, which are fees paid within our European based operations to third parties relating to the activities of our distribution
subsidiaries, aggregated $11.0 million, $7.9 million and $9.4 million in 2023, 2022 and 2021, respectively. The 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 19.1%, 17.9% and 16.8% for the years ended December 31, 2023, 2022 and 2021, respectively.

Other
Income and Expenses

Interest
expense is primarily related to the financing of brand and licensing acquisitions. The increase in interest expense in 2023 is
related to prior year acquisitions. In December 2022, to finance the acquisition of the Lacoste trademark, the Company entered
into a $55.3 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,
in April 2021, we completed the acquisition of the headquarters of Interparfums SA. The acquisition was financed by a 10-year
approximately $132.6 million (€120 million) bank loan which bears interest at one-month Euribor plus 0.75%. Approximately
$88.4 million (€80 million) of the variable rate debt was swapped for fixed interest rate debt with a maximum interest rate
of 2% per annum. The swap effectively exchanges the variable interest rate to a fixed rate of approximately 1.1%. Long-term debt
including current maturities aggregated $157.5 million, $180.0 million and $148.8 million as of December 31, 2023, 2022 and 2021,
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. Over 50% of net sales of our European based operations are denominated in U.S. dollars. Gains and losses in derivatives
designated as hedges are accumulated in other comprehensive income and gains and losses in derivatives not designated as hedges
are included in (gain) loss on foreign currency on the accompanying consolidated income statements. Such gains and losses were
immaterial in each 2023, 2022, and 2021.

Interest
and investment income represents interest earned on cash and cash equivalents and short-term investments. As of December 31, 2023,
short-term investments include approximately $9.4 million of marketable equity securities of other companies in the luxury goods
sector. In the first quarter of 2023, the Company sold marketable securities which generated a gain of $3.1 million. The Company
purchased additional marketable securities in the second and third quarter of 2023, which generated unrealized losses of $0.3
million during 2023. Overall the increases in interest rates led to higher net interest expenses. These increases in interest
expense combined with losses on foreign currency were partially offset by the gains on marketable securities.

55

Income
Taxes

Our
consolidated effective tax rate was 24.8%, 22.2% and 27.1% in 2023, 2022 and 2021, respectively.

The
effective tax rate for European based operations was 27.3%, 25.2% and 30.6% in 2023, 2022 and 2021, respectively. The French Government
voted the reduction of the French corporate income tax rate from approximately 33% to 25% over a three-year period resulting in
the decrease in rate from 2021 to 2022. Our effective tax rate in 2023 differs from the 25% statutory rate due to a one-time tax
assessment of € 2.8 million ($3.1 million) included in tax expense as the result of a tax audit conducted for the 2020 and
2021 tax years.

The
effective tax rate for United States based operations was 19.3%, 13.8% and 15.6% in 2023, 2022 and 2021, respectively. Our effective
tax rate 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. Additionally,
in the third quarter of 2022, our United States based 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 of September 30, 2022, recoverability was deemed
likely. Other than as discussed above, we did not experience any significant changes in tax rates, and none were expected in the
jurisdictions where we operate.

The
Company has determined that it has no tax liability related to global intangible low-taxed income (“GILTI”) as of
December 31, 2023, 2022 and 2021. The Company also estimated the effect of its foreign derived intangible income (“FDII”)
and recorded a tax benefit of $2.4 million, $1.5 million and $0.6 million as of December 31, 2023, 2022 and 2021, respectively.
Share-based compensation resulted in a discrete tax benefit of $1.2 million, $0.8 million and $1.3 million in 2023, 2022 and 2021,
respectively.

Net
Income

Net
income attributable to Inter Parfums, Inc. was $152.7 million, $120.9 million and $87.4 million in 2023, 2022 and 2021, respectively.

Net
income attributable to European based operations was $124.0 million, $107.3 million and $80.7 million in 2023, 2022 and 2021,
respectively, while net income attributable to United States based operations was $63.8 million, $43.7 million and $29.4 million
in 2023, 2022 and 2021, respectively. The significant fluctuations in net income for both European and United States based operations
are directly related to the previous discussions relating to changes in sales, gross profit margins, selling, general and administrative
expenses.

The
noncontrolling interest arises from our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company
as 28% of Interparfums SA shares trade on the Euronext. Net income attributable to the noncontrolling interest is directly related
to the profitability of our European based operations and aggregated 28.1%, 27.9% and 28.0% of European based operations net income
in 2023, 2022 and 2021, respectively. Net profit margins attributable to Inter Parfums, Inc. aggregated 11.6%, 11.1% and 9.9%
in 2023, 2022 and 2021, respectively.

56

Liquidity
and Capital Resources

Our
conservative financial tradition has enabled us to amass significant cash balances. As of December 31, 2023, we had $182.8 million
in cash and cash equivalents and short-term investments, most of which are held in euro by our European based operations and is
readily convertible into U.S. dollars. We have not had any liquidity issues to date, and do not expect any liquidity issues relating
to such cash and cash equivalents and short-term investments. As of December 31, 2023, short-term investments include approximately
$12.9 million of marketable equity securities.

As
of December 31, 2023, working capital aggregated $514 million, and we had a working capital ratio of 2.6 to 1. Approximately 78%
of the Company’s total assets are held by European based operations, and approximately $255 million of trademarks, licenses
and other intangible assets are also held by European based operations.

The
Company is party to a number of licenses and other agreements for the use of trademarks and rights in connection with the manufacture
and sale of its products expiring at various dates through 2039. In connection with most of these license agreements, the Company
is subject to minimum annual advertising commitments, minimum annual royalties and other commitments. See Item 8. Financial
Statements and Supplementary Data – Note 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 at December 31, 2023, without consideration
for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.

The
Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a
proprietary basis or as a licensee. In July 2023, we entered into a global licensing agreement for the creation, development and
distribution of fragrances and fragrance-related products under the Roberto Cavalli brand. Our rights under this license are subject
to certain minimum advertising expenditures and royalty payments as are customary in our industry. This license took effect in
July 2023, and began shipping products in February 2024.

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

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 gained 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. The exclusive license became effective on July 1, 2022, and we are planning to launch new
fragrances under these brands in 2024.

In
October 2021, we closed 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 in October 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 in Florence,
that was acquired from Salvatore Ferragamo on October 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%.

Cash
provided by operating activities aggregated $105.8 million, $73.0 million, and $119.6 million in 2023, 2022 and 2021, respectively.
In 2023, working capital items used $102.0 million in cash from operating activities, as compared to $107.7 million in 2022 and
$13.7 million in 2021. Although, from a cash flow perspective, accounts receivable is up 19% from year-end 2022, the balance is
reasonable based 2023 record sales levels and reflects a strong collection activity as day’s sales outstanding decreased
slightly to 60 days in 2023, as compared to 64 days and 61 days in 2022 and 2021, respectively. From a cash flow perspective,
inventory levels are up 25% from year-end 2022. Inventory days on hand increased to 249 days in 2023, as compared to 231 days
in 2022, and 208 days in 2021 as we have built up inventory related to the newly acquired licenses for Lacoste and Roberto Cavalli
which began shipping to customers in 2024.

57

Cash
flows provided by investing activities in 2023 reflect the purchases 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. At December
31, 2023, approximately $2.2 million of certificates of deposit contain penalties where we would forfeit a portion of the interest
earned in the event of early withdrawal.

Furthermore, in December 2023, the second installment payment to Lacoste related to the acquisition
of the Lacoste trademark in 2022 for $43.3 million (€40 million) was made.

Our
business is not capital intensive as we do not own any manufacturing facilities. On a full year basis, we typically spend approximately
$5.0 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.

Cash
flows used in financing activities in 2023 reflect issuances and repayment of debt, purchases of treasury shares, and payment
of dividends to stockholders.

In
December 2022, to finance Interparfums SA’s acquisition of the Lacoste trademark, Interparfums SA entered into an approximately
$55.3 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.

In
April 2021, Interparfums SA completed the acquisition of its 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 $142 million purchase price is in line with market value and includes the complete
renovation of the site. As of December 31, 2023, $154 million of the purchase price, including approximately $3.1 million of acquisition
costs, is included in building, equipment and leasehold improvements on the accompanying consolidated balance sheet. As of December
31, 2023, there was no cash held in escrow included in property, equipment and leasehold improvements on the accompanying consolidated
balance sheet. In addition, Interparfums SA 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 $132.6 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. The swap effectively exchanges the variable interest rate to a fixed rate of approximately 1.1%.

Our
short-term financing requirements are expected to be met by available cash on hand at December 31, 2023, and by short-term credit
lines provided by domestic and foreign banks. The principal credit facilities for 2023 consist of a $25.0 million unsecured revolving
line of credit provided by a domestic commercial bank and approximately $8 million in credit lines provided by a consortium of
international financial institutions. Balances due from short-term borrowings totaled $4.4 million and $0 million as of December
31, 2023 and 2022, respectively.

In
December 2022, our Board of Directors authorized a share repurchase program for our outstanding common stock. During 2023, the
Company repurchased 116,860 shares at a cost of $15.4 million. These shares are classified as treasury shares on the accompanying
consolidated balance sheet. In February 2024, our Board of Directors authorized the Company to continue repurchasing up to 130,000
shares throughout 2024.

In
February 2021, our Board of Directors authorized an annual dividend of $1.00 per share, payable quarterly. In February 2022, our
Board of Directors authorized a 100% increase in the annual dividend to $2.00 per share and in February 2023 the Board of Directors
increased the annual dividend to $2.50 per share. Just recently, in February 2024, the Board of Directors further increased the
annual dividend to $3.00 per share. The next quarterly cash dividend of $0.75 per share is payable on March 29, 2024, to shareholders
of record on March 15, 2024. Dividends paid, including dividends paid once per year to noncontrolling stockholders of Interparfums
SA, aggregated $100.3 million, $79.8 million and $41.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The cash dividends to be paid in 2024 are not expected to have any significant impact on our financial position.

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We
believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities,
so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.

Inflation
rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the year
ended December 31, 2023 as they were either offset by price increases we passed onto our respective customers or operating efficiencies.

Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations

Overview

We operate in the fragrance business, and
manufacture, market and distribute a wide array of fragrances and fragrance related products. We manage our business in two segments,
European based operations and United States based operations. Certain prestige fragrance products are produced and marketed by
our European operations through our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as
28% 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 68%, 75% and 78% of net sales for 2022, 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, 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 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 the Abercrombie & 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:

Quarterly sales fluctuations are influenced
by the timing of new product launches as well as the third and fourth quarter holiday season. In certain markets where we sell
directly to retailers, seasonality is more evident. We primarily sell directly to retailers in France and the United States.

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 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 in March 2020, the World 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 Events

Lacoste

In December 2022, we
closed a transaction agreement with Lacoste, 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 in January 2024 and will last for 15 years.

Dunhill

In April 2022, we announced
that the Dunhill fragrance license will expire on September 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.

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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 became effective in October 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 Florence, that was acquired from Salvatore Ferragamo on October 1, 2021. The acquisition together with the
license agreement was accounted for as an asset acquisition.

Emanuel Ungaro

In October 2021, we
also entered into a 10-year exclusive global licensing agreement a with a 5-year optional term subject to certain conditions, with
Emanuel 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 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 became effective on July 1, 2022, and we are planning to launch
new fragrances under these brands in 2024.

Rochas Fashion

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. 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 in June 2025 at its then fair market value.

Land
and Building Acquisition - Future Headquarters in Paris

In
April 2021, Interparfums SA, our 73% owned French subsidiary, 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
purchase price includes the complete renovation of the site. As of December 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 of December 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 on February 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 of December 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 in the United States of America.
Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the following
discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial
condition and results of operations. These accounting policies generally require our management’s most difficult and subjective
judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management
of the Company has discussed the selection of significant accounting policies and the effect of estimates with the Audit Committee
of the Board of Directors.

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.

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We believe that the assumptions we have
made in projecting future cash flows for the evaluations described above are reasonable. However, if future actual results do not
meet our expectations, we may be required to record an impairment charge, the amount of which could be material to our results
of operations.

At December 31, 2022 indefinite-lived intangible
assets aggregated $105.0 million. The following table presents the impact a change in the following significant assumptions would
have had on the calculated fair value in 2022 assuming all other assumptions remained constant:

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.

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Quantitative Analysis

During the three-year period ended December
31, 2022, we have not made any material changes in our assumptions underlying these critical accounting policies or to the related
significant estimates. The results of our business underlying these assumptions have not differed significantly from our expectations.

While
we believe the estimates we have made are proper and the related results of operations for the period are presented fairly in
all material respects, other assumptions could reasonably be justified that would change the amount of reported net sales, cost
of sales, and selling, general and administrative expenses as they relate to the provisions for anticipated sales returns, allowance
for doubtful accounts and inventory obsolescence reserves. For 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 to Inter Parfums, Inc., and net income attributable to Inter 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 rebounded significantly in 2021,
as compared to 2020 for both European and United 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, including Van Cleef & Arpels and Karl 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
by Boucheron and Open 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, especially Abercrombie & Fitch, Hollister and Oscar
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 as Bella Vita Paradiso in the fourth quarter. Extensions of the Montblanc Legend, Jimmy Choo Man
and 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 and Boucheron. Brand extensions and flankers are in the works for MCM, Abercrombie
& Fitch, Hollister, Anna Sui, and Oscar 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 with Lacoste 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.

Net Sales to
Customers by Region

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

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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

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 ended December 31, 2022, 2021 and 2020, respectively.

Other Income and Expenses

In December 2022, to
finance the acquisition of the Lacoste 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, in April 2021, we completed the acquisition of the future
headquarters of Interparfums 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 of December 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.

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Income tax expense represents U.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 U.S. operations
was 13.8%, 15.6% and 16.7% in 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,
our U.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 of September 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 of December 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 of December 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

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 to United
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 and United 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 in Paris, Interparfums SA, which is also a publicly traded company as 28% of Interparfums SA shares
trade on the Euronext. Net income attributable to the noncontrolling interest is directly related to the profitability of our European
operations and aggregated 27.9%, 28.0% and 28.1% of European operations net income in 2022, 2021 and 2020, respectively. Net margins
attributable to Inter 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 of December 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 into U.S. dollars. We have not
had any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term
investments. As of December 31, 2022, short-term investments include approximately $19.9 million of marketable equity securities.

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As of December 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 at December 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. In
December 2022, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances
and fragrance-related products under the Lacoste brand. This new license takes effect January 2024.

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. The exclusive license became effective on July 1, 2022, and we are planning to launch new fragrances under
these brands in 2024.

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. The license became effective in October 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 in Florence, that was acquired from Salvatore Ferragamo
on October 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. At December 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.

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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.

In December 2022, to finance Interparfums
SA’s acquisition of the Lacoste 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.

In April 2021, Interparfums SA 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 $142 million purchase price is in line
with market value and includes the complete renovation of the site. As of December 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 of December 31, 2021. Approximately $8.8 million of cash held in escrow is included in other assets
on the accompanying balance sheet as of December 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 of December 31, 2022. 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 $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.

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.

Our short-term financing requirements are
expected to be met by available cash on hand at December 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 of December 31, 2022 and 2021.

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 and in February 2022,
our Board authorized a 100% increase in the annual dividend to $2.00 per share. In February 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 on March 31,
2023, to shareholders of record on March 15, 2023. Dividends paid, including dividends paid once per year to noncontrolling stockholders
of Interparfums SA, aggregated $79.8 million, $41.5 million and $21.1 million for the years ended December 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.

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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.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We operate in the fragrance business, and manufacture, market and distribute a wide array of fragrances and fragrance related products. We manage our business in two segments, European based operations and United States based operations. Certain prestige fragrance products are produced and marketed by our European operations through our 73% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 27% of Interparfums SA shares trade on the NYSE Euronext.

We produce and distribute our European based fragrance products primarily under license agreements with brand owners, and European based fragrance product sales represented approximately 75%, 78% and 76% of net sales for 2021, 2020 and 2019, respectively. We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade, Lanvin, Moncler, Montblanc, 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 25%, 22% and 24% of net sales in 2021, 2020 and 2019, respectively. These fragrance products are sold primarily pursuant to license or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, Dunhill, 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.

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As a percentage of net sales, product sales for the Company’s largest brands were as follows:

Quarterly sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season. In certain markets where we sell directly to retailers, seasonality is more evident. We primarily sell directly to retailers in France and the United States.

We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses or other arrangements or out-right acquisitions of brands. Second, we grow through the introduction of new products and by supporting new and established products through advertising, merchandising and sampling, as well as by phasing out underperforming products, so we can devote greater resources to those products with greater potential. The economics of developing, producing, launching and supporting products influence our sales and operating performance each year. The introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.

Our business is not capital intensive, and it is important to note that we do not own manufacturing facilities. We act as a general contractor and source our needed components from our suppliers. These components are received 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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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 throughout 2021, as retail stores reopened, and consumers increased online purchasing. While we expect this trend to continue, as the luxury fragrance industry has shown continued resilience, 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 has remained curtailed in many jurisdictions due to both governmental restrictions and consumer health concerns. While COVID-19 has significantly restricted international travel in the near-term, we continue to believe that global travel retail will once again be a growth opportunity for 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. 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 do not expect the supply chain bottlenecks to begin lifting until later in 2022. 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 2022.

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 became effective in October 2021 and will last for 10 years
with a 5-year optional term, subject to certain conditions.

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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 Florence, that was acquired from Salvatore Ferragamo on October 1, 2021. The acquisition together with the license agreement was accounted for as an asset acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on October 1, 2021. All amounts have been translated to U.S. dollars at the October 1, 2021 exchange rate.

Emanuel Ungaro

In October 2021, we
also entered into a 10-year exclusive global licensing agreement a with a 5-year optional term subject to certain conditions, with
Emanuel 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 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 Interparfums SA, does not, in and of itself, constitute a permanent establishment and therefore Interparfums SA should pay French taxes on all or part of the profits of that entity.

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In June 2021, a global settlement agreement
was reached with the French Tax Authorities, whereby Interparfums SA paid in December 2021, €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. Interparfums
SA also agreed to apply the lower rate in 2021 through 2025 and to transfer the Lanvin brand from IP Suisse to Interparfums SA
by December 31, 2025.

Land and Building Acquisition - Future Headquarters in Paris

In April 2021, Interparfums SA, 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 $142 million purchase price includes
the complete renovation of the site. As of December 31, 2021, $136.1 million of the purchase price, including approximately $3.1
million of acquisition costs, is included in property, equipment and leasehold improvements on the accompanying balance sheet as
of December 31, 2021. Approximately $8.8 million of cash held in escrow is included in other assets on the accompanying balance
sheet as of December 31, 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 $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.

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.

Rochas Fashion

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.

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S.T. Dupont

In January 2021, we renewed our license agreement with S.T. Dupont for the creation, development and distribution of fragrance products through December 31, 2022, without any material changes in terms and conditions. Our initial 11-year license agreement with S.T. Dupont was signed in June 1997 and had previously been extended through December 31, 2021.

Discussion of Critical Accounting Policies

We make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations. These accounting policies generally require our management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management of the Company has discussed the selection of significant accounting policies and the effect of estimates with the Audit Committee of the Board of Directors.

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 7.47%. 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.

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We believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable. However, if future actual results do not meet our expectations, we may be required to record an impairment charge, the amount of which could be material to our results of operations.

At December 31, 2021 indefinite-lived intangible
assets aggregated $119.7 million. The following table presents the impact a change in the following significant assumptions would
have had on the calculated fair value in 2021 assuming all other assumptions remained constant:

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.

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With respect to the application of ASC topic 350-30-35-8, the Lanvin brand names and trademarks would only have a finite life to our Company if the repurchase option were exercised, and in applying ASC topic 350-30-35-8, we assumed that the repurchase option is exercised. When exercised, Lanvin has an obligation to pay the exercise price and the Company would be required to convey the Lanvin brand names and trademarks back to Lanvin. The exercise price to be received (residual value) is well in excess of the carrying value of the Lanvin brand names and trademarks, therefore no amortization is required.

Quantitative Analysis

During the three-year period ended December 31, 2021, we have not made any material changes in our assumptions underlying these critical accounting policies or to the related significant estimates. The results of our business underlying these assumptions have not differed significantly from our expectations.

While we believe the estimates we have made are proper and the related results of operations for the period are presented fairly in all material respects, other assumptions could reasonably be justified that would change the amount of reported net sales, cost of sales, and selling, general and administrative expenses as they relate to the provisions for anticipated sales returns, allowance for doubtful accounts and inventory obsolescence reserves. For 2021, had these estimates been changed simultaneously by 5% in either direction, our reported gross profit would have increased or decreased by approximately $0.6 million and selling, general and administrative expenses would have changed by approximately $0.1 million. The collective impact of these changes on 2021 operating income, net income attributable to Inter Parfums, Inc., and net income attributable to Inter Parfums, Inc. per diluted share would be an increase or decrease of approximately $0.6 million, $0.3 million and $0.01, respectively.

Results of Operations

Net sales rebounded significantly in 2021,
as compared to 2020 for both European and United States based operations. Even more gratifying, 2021 net sales for European based
operations and United States based operations increased 22% and 26%, respectively, as compared to 2019. At comparable foreign currency
exchange rates, net sales increased 62% in 2021, as compared to 2020 and decreased 26 % in 2020, as compared to 2019. 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.
However, international travel has remained largely curtailed globally due to both government restrictions and consumer health concerns
that continue to adversely impact consumer traffic in most travel retail locations. As 2020 was an outlier for our sales due to
the COVID-19 pandemic and its effects as discussed above, below are sales comparisons for our largest brands in 2021 with 2019.

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For European based operations, our largest brands, Montblanc, Jimmy Choo and Coach grew 2021 sales by 7%, 34% and 41%, respectively, as compared to 2019. There were also significant gains made by our mid-sized brands, including Van Cleef & Arpels and Karl Lagerfeld. We also welcomed first time sales by our newest brands, notably Kate Spade and Moncler.

In 2021, GUESS became our fourth brand with sales exceeding $100 million. GUESS brand sales increased 41% in 2021, as compared to 2019, contributing to the overall increase in 2021 net sales within U.S. based operations. There were also significant gains made by our mid-sized brands, especially Abercrombie & Fitch, Hollister and Oscar de la Renta. We also welcomed first time sales by our newest brands, MCM and Ferragamo.

A more detailed discussion relating to our sales for 2020 as compared to 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 2020.

We are confident in our future as 2022 has begun on a strong note. We have completed the integration of the Ferragamo and Ungaro brands and our new Italian subsidiary is now staffed and fully operational. We have a solid line-up of new product launches in the pipeline for many of our other brands. This includes the roll out of the first Moncler fragrance line in a series of selective points of sale that faithfully respect the brand’s image. An entirely new men’s collection for GUESS is scheduled for introduction in the spring. Extensions of the Montblanc Legend, Jimmy Choo Man and 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 and Boucheron. Brand extensions and flankers are in the works for MCM, Abercrombie & Fitch, Hollister, Anna Sui, and Oscar de la Renta. In addition, we will be adding the Donna Karan and DKNY fragrance brands to our portfolio come this summer. In sum, 2022 has all the earmarks of another superb year as the growth catalysts currently far outweigh the headwinds, most notably limited travel retail business and supply chain disruptions.

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 cannot assure you that any new license or acquisition agreements will be consummated.

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Net Sales to Customers by Region

As we did with sales for our largest brands, we are discussing net sales to customers by region using comparisons in 2021 with 2019, as the result of the effects of the COVID-19 pandemic in 2020. Our largest market, North America achieved sales growth of 50% in 2021 compared to 2019, while Western Europe and Asia grew sales by 9% and 15% in 2021, respectively, compared to 2019. Latin America and Eastern Europe also achieved top line growth of 22% and 26% in 2021, respectively, and only the Middle East had a decline in sales compared to 2019. As of the date of this report, international travel has remained largely curtailed globally due to both government restrictions and consumer health concerns that continue to adversely impact consumer traffic in most travel retail locations.

The impact of the COVID-19 pandemic broadly impacted all regions in 2020, with the steepest declines in the Middle East and Eastern Europe. Travel retail accounted for much of the decline in the Middle East and Asian markets.

Gross Margins

For European based operations, gross profit margin as a percentage of net sales was 66.6%, 64.0% and 65.7% in 2021, 2020 and 2019, respectively. Distribution in the United States for European based operations is handled by a 100% owned subsidiary of Interparfums SA. 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. distribution subsidiary increased 86% in 2021, as compared to 2020, giving rise to the increase in gross margin in 2021 over both 2020 and 2019. 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 1.18 in 2021, 1.15 in 2020, and 1.12 in 2019. The weaker dollar in 2021 partially mitigated the increase in margin referred to above and resulted in a small decline in our gross margins in 2020. Gross margin in 2020 for European operations also included a charge of approximately $2.0 million relating to the assumption of a return liability for products sold by the former licensee of a brand license acquired in 2019.

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For United States operations, gross profit margin was 53.1%, 51.8% and 52.5% in 2021, 2020 and 2019, 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. With U.S. based operations net sales up 86% in 2021, as compared to 2020, no such effect was seen in 2021.

Costs relating to purchase with purchase and gift with purchase promotions are reflected in cost of sales, and aggregated $37.6 million, $26.4 million and $38.9 million in 2021, 2020 and 2019, respectively, and represented 4.3%, 4.9% and 5.5% of net sales, respectively.

Generally, we do not bill customers for shipping and handling costs and such costs, which aggregated $10.1 million, $5.0 million and $7.7 million in 2021, 2020 and 2019, 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

For European operations, selling, general and administrative expenses increased 55.5% in 2021 and declined 23.6% in 2020, as compared to the corresponding prior year period, and represented 49.4%, 49.8% and 50.8% of sales in 2021, 2020 and 2019, respectively. As discussed in more detail below, the fluctuations which are in line with the fluctuations in sales for European operations, are primarily from variations in promotion and advertising expenditures.

Our operating cost structure, of which variable costs typically account for over two-thirds, had enabled us to minimize the impact of reduced net sales on our bottom line. Due to the effects of the COVID-19 pandemic, a substantial portion of the reduction in selling, general and administrative expenses in 2020 were attributable to the postponement of advertising and promotional expenses to 2021, as nearly all major new product launches were postponed until 2021. In addition, we also undertook several actions with an eye toward minimizing fixed expenses.

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For United States operations, selling, general and administrative expenses increased 57.8% in 2021 and decreased 24.1% in 2020, as compared to the corresponding prior year period and represented 36.5%, 43.1% and 38.5% of sales in 2021, 2020 and 2019, respectively. Our U.S. operations are significantly smaller than those of our European operations and carry higher fixed costs that could not be leveraged as efficiently as those of our European operations with the decline in 2020 net sales. However, with an 86% increase in 2021 net sales, the opposite effect was realized, and we were able to achieve significant leverage on fixed costs during the year.

Promotion and advertising included in selling, general and administrative expenses aggregated $171.8 million, $91.7 million and $144.6 million in 2021, 2020 and 2019, respectively. Promotion and advertising as a percentage of sales represented 19.5%, 17.0% and 20.3% of net sales in 2021, 2020 and 2019, respectively. Promotion and advertising programs were cut significantly in 2020 in response to market conditions. Throughout 2021, sales rebounded far more rapidly than anticipated causing us to play catchup with promotional and adverting programs and missing our target spend of 21% of annual sales. 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 historical averages.

Royalty expense included in selling, general and administrative expenses aggregated $69.0 million, $41.1 million and $53.0 million in 2021, 2020 and 2019, respectively. Royalty expense as a percentage of sales represented 7.8%, 7.6% and 7.4% of net sales in 2021, 2020 and 2019, respectively. The increases in 2021 and 2020, 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 $9.4 million, $6.8 million and $7.5 million in 2021, 2020 and 2019, respectively. The 2021 and 2020 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 16.8%, 13.1% and 14.7% for the years ended December 31, 2021, 2020 and 2019, respectively. Lower than expected promotion and adverting expense drove the increase in our operating margin in 2021, while strong cost controls in 2020 enabled us to minimize the impact of the sudden drop in sales resulting from the COVID-19 pandemic.

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Other Income and Expenses

Traditionally, interest expense was primarily related to the financing of brand and licensing acquisitions. However, in April 2021, we completed the acquisition of the future headquarters of Interparfums SA. 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%. 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 $148.8 million, $24.7 million and $23.1 million as of December 31, 2021, 2020 and 2019, 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. Gains and losses on foreign currency transactions have not been significant.

Interest and dividend income represents interest earned on cash and cash equivalents and short-term investments. In 2021, short-term investments include approximately $24.5 million of marketable equity securities of other companies in the luxury goods sector. Interest and dividend income includes approximately $1.8 million of unrealized gains on marketable equity securities.

Income Taxes

Our effective income tax rate was 27.1%, 27.9% and 27.7% in 2021, 2020 and 2019, respectively.

Income tax expense represents U.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 30.6%, 29.7% and 30.7% in 2021, 2020 and 2019, respectively.

The French authorities had considered
that the existence of IP Suisse, a wholly-owned subsidiary of Interparfums SA, does not, in and of itself, constitute a permanent
establishment and therefore Interparfums SA should pay French taxes on all or part of the profits of that entity. In June 2021,
a global settlement agreement was reached with the French Tax Authorities, whereby Interparfums SA 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. Interparfums SA also agreed to apply the lower rate in 2021 through 2025 and to transfer the Lanvin brand from IP
Suisse to Interparfums SA by December 31, 2025.

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In addition, pursuant to an action plan released by the French Prime Minister, beginning in 2020, the French corporate income tax rate is expected to be cut from approximately 33% to 25% over a three-year period.

Our effective income tax rate for U.S. operations was 15.6%, 16.7% and 17.0% in 2021, 2020 and 2019, respectively.

The Company has determined that it has no tax liability related global intangible low-taxed income (“GILTI”) as of December 31, 2021, 2020 and 2019. The Company also estimated the effect of its foreign derived intangible income (“FDII”) and recorded a tax benefit of $0.6 million, $0.3 million and $0.9 million as of December 31, 2021, 2020 and 2019, respectively. Share-based compensation resulted in a discrete tax benefit of $1.3 million, $0.4 million and $0.7 million in 2021, 2020 and 2019, respectively.

Net Income

Net income attributable to European operations was $80.7 million, $42.0 million and $56.7 million in 2021, 2020 and 2019, respectively, while net income attributable to United States operations was $29.4 million, $8.0 million and $19.4 million in 2021, 2020 and 2019, respectively. The fluctuations in net income for both European operations and United 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.

The noncontrolling interest arises primarily from our 73% owned
subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 27% of Interparfums SA shares trade on the NYSE
Euronext. Net income attributable to the noncontrolling interest is directly related to the profitability of our European operations
and aggregated 28.0% of European operations net income in 2021 and 28.1% in 2020 and 2019. Net margins attributable to Inter Parfums,
Inc. aggregated 9.9%, 7.1% and 8.4% in 2021, 2020 and 2019, respectively.

Liquidity and Capital Resources

Our conservative financial tradition has enabled us to amass significant cash balances. As of December 31, 2021, we had $320 million in cash, cash equivalents and short-term investments, most of which are held in euro by our European operations and are readily convertible into U.S. dollars. We have not had any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments. As of December 31, 2021, short-term investments include approximately $24.5 million of marketable equity securities.

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As of December 31, 2021, working capital aggregated $465 million, and we had a working capital ratio of 2.9 to 1. Approximately 82% of the Company’s total assets are held by European operations including approximately $171 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 2033. 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 at December 31, 2021, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.

The Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a proprietary basis or as a licensee. In 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. This new license takes effect July 1, 2022.

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. The license became effective in October 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 in Florence, that was acquired from Salvatore Ferragamo on October 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.

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Cash provided by operating activities aggregated $119.6 million, $65.0 million, and $76.5 million in 2021, 2020 and 2019, respectively. In 2021, working capital items used $13.7 million in cash from operating activities, as compared to $7.3 million in 2020 and $16.6 million in 2019. Although, from a cash flow perspective, accounts receivable is up approximately 37% from year-end 2020, the balance is reasonable based upon fourth quarter 2021 record sales levels and reflects strong collection activity as day’s sales outstanding decreased to 61 days in 2021, as compared to 86 days and 69 days in 2020 and 2019, respectively. From a cash flow perspective, inventory levels are up 31% from year-end 2020. However, inventory days on hand declined significantly to 208 days in 2021, as compared to 277 days in 2020, and 224 days in 2019. 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 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. At December 31, 2021, approximately $45 million of certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal.

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

In April 2021, Interparfums SA 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 $142 million purchase price is in line with market value and includes the complete renovation of the site. As of December 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 of December 31, 2021. Approximately $8.8 million of cash held in escrow is included in other assets on the accompanying balance sheet as of December 31, 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 $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.

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.

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Our short-term financing requirements are expected to be met by available cash on hand at December 31, 2021, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2021 consist of a $20.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $28 million in credit lines provided by a consortium of international financial institutions. There were no balances due from short-term borrowings as of December 31, 2021 and 2020.

In October 2019, our Board 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 and in February 2022, our Board authorized a 100% increase in the annual dividend to $2.00 per share. The next quarterly cash dividend of $0.50 per share is payable on March 31, 2022, to shareholders of record on March 15, 2022. Dividends paid, including dividends paid once per year to noncontrolling stockholders of Interparfums SA, aggregated $41.5 million, $21.1 million and $44.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. The cash dividends to be paid in 2022 are not expected to have any significant impact on our financial position.

We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.

Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the year ended December 31, 2021.