INTERPARFUMS INC (IPAR) FY 2021 MD&A

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.