another - Interparfums€¦ · Presentation of 2007 first-half earnings September 11, 2007 –...

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contentsletter to our shareholders 03

operating highlights and key figures 07

the stockmarket and investor relations 09

2006 milestones and 2007 outlook 13

activity and philosophy 15

the products 17

the distribution network 37

sustainable development 41

corporate governance 49

consolidated financial statements according to IFRS 61

shareholder information 81

auditors and certificates 93

disclaimerThis document is a free translation of an abridged version of the

French language registration document (document de référence) produced solely for theconvenience of English speaking readers. However, only the French text has any legal value.

Consequently, the translation may not be relied upon to sustain any legal claim,nor should it be used as the basis of any legal opinion.

anothermajorstep

forward

01_40_institutionnel_uk 20/04/07 8:30 Page 1

Fiscal 2006 was an excellentyear for Inter Parfums,representing another benchmark in its development.

We met targets with another yearof double-digit growth (+11%) to achieve sales of €216.2 million.All our major brands contributed tothis performance. As a result,operating income totaled €29.2 million and net income€18.7 million accompanied by a net margin of 8.6%.

Burberry fragrances pursued theirexpansion with the launch of a fifthmajor line, Burberry London. Salesrose in consequence 10% over2005 to €144.8 million (+20%excluding the discontinued BurberryBrit Red line).

Lanvin fragrances, the portfolio’ssecond top-selling brand, exceededtargets with sales of €35 million(+19%) fueled by strong gains ofthe Eclat d’Arpège line and asuccessful launch of the Rumeur line.

Paul Smith also surpassedexpectations with sales of €17.7 million (+22%) boosted byrenewed growth of the Paul Smithand Paul Smith Extrême lines andthe international launch of the PaulSmith Story line.

Finally, the Nickel cosmetics divisionpursued its development in Franceand expanded its distribution basein other markets.

In conjunction with the launch of asignificant number of new lines, wecontinued to focus on developingadditional growth drivers. This year

2006

“

2006 annual report inter parfumsletter to our shareholders


03

these included the signature of twomajor license agreements with:

■ the Quiksilver Group, the world'sleading outdoor sports lifestylecompany, for the Roxy andQuiksilver brands;

■ the Van Cleef & Arpels finejewelry brand.

With a portfolio of premium brandsand a diverse range of targetcustomer segments, prospectsshould be just as promising for2007. Several initiatives that shouldto contribute to maintaining thesepositive trends include:

■ the creation of four Europeandistribution companies (Germany,Spain, Italy, United Kingdom);

■ the launch of the first women'sline under the Roxy Brand;

■ the repositioning of the Van Cleef& Arpels brand to be focusedaround the three major existinglines and the preparation of a newwomen's line.

Our expansion has also benefitedfrom the quality recruitmentscarried out in the last two years

that have strengthened and expanded the expertise of our teams.

Our corporate culture, with itsemphasis on the value of people,brands and products, provides thebasis for a highly efficientorganization. This alchemy basedon achieving just the right balancebetween commitment, motivation,a convivial team spirit and thepleasures of working towardscommon objectives is undoubtedlyone of the key factors of oursuccesses today and in the future.

We are confident in consequenceabout both prospects for 2007 andachieving sales of €300 million by2009. We will also continue toexplore opportunities for furthergrowth that may be offered byadditional strategic acquisitions.

philippe benacinjean madar

”

letter toour

shareholders


20062005

20042003

2002

93.4

124.6

157.4

194.4

€ 216.2 m

CONSOLIDATED

SALES

CONSOLIDATED INCOME

FROM OPERATIONS

Fiscal 2004, 2005 and 2006 are presented under IFRS

2006

€ 29.2 m

2005

25.9

2004

24.2

2003

19.0

2002

13.7.

CONSOLIDATED

NET INCOME

Fiscal 2004, 2005 and 2006 are presented under IFRS

2006

€ 18.7 m

2005

16.3

2004

15.5

2003

12.7

2002

8.8

CONSOLIDATED

NET CASH

2006

€ 44.1 m

2005

34.4

2004

15.9

2003

32.4

2002

24.5

KEY CONSOLIDATED FIGURES FRENCH GAAP IFRS

In € thousands 2002 2003 2004 2005 2006

Sales 93,378 124,555 157,426 194,442 216,235% international 91% 92 % 91% 92% 92%

Income from operations 13,733 19,055 24,207 25,913 29,182Operating margin 14.7% 15.3 % 15.4% 13.3% 13.5 %

Net income 8,837 12,679 15,518 16,295 18,694Net margin 9.5% 10.2 % 9.9% 8.4% 8.6%

Shareholders’ equity 55,742 68,433 82,665 98,049 115,795

Net cash 24,551 32,391 15,857 34,390 44,072

Total assets 86,143 120,646 143,398 172,078 223,401

Workforce (at 31 December) 62 72 90 112 128

2006 annual report inter parfumsoperating highlights and key figures

“


operatinghighlightsand

keyfigures

07

A combination of sustainedmarketing and advertisingefforts and limited growth in administrative and non-sellingexpenses contributed to a 13%increase in operating incomeover 2005. The operating marginadvanced in consequence to 13.5%.

With lower financial expensesresulting from the improved cashposition, net income totaled €18.7 million, up 15% over theprior year. This increase resulted in an expansion of the net marginto 8.6%.

With cash net of long term debt of€18 million and shareholders’ equityof €116 million as of December 31,2006 the company has a strongbalance sheet and debt capacityenabling it to pursue potentialacquisition opportunities.

CONSOLIDATED BALANCE

SHEET HIGHLIGHTS

SHAREHOLDERS' EQUITY & LIABILITIESASSETS

51.7non-

currentassets

127.5current assets

44.2net

cash

115.8shareholders' equity

26.1non current liabilities

81.5current liabilities

TOTAL DIVIDENDS

2006

€ 4.1 m

2005

3.6

2004

3.2

2003

2.6

2002

1.6

”


After particularly strong gains in 2005(+41%), the Inter Parfums share pursued an upward trend in 2006 following the announcement of the license agreementwith Quiksilver that was accompanied by significant trading volume. The shareprice was subsequently adversely affectedby the downturn in financial markets in themonth of May, particularly in the segment of MidCaps, falling back to the levels of the beginning of the year.

The publication in September of first-half salesthat surpassed market expectations followed bythe announcement of the license agreement inOctober with the Van Cleef & Arpels jewelryhouse reversed this trend. As a result, the shareended the year at €35.4 with a marketcapitalization of €380 million.

Trading volume in 2006 averaged 8,000 sharesper day, confirming the strong interest in thestock, especially among investors specialized in MidCaps.

DIVIDENDS

In euros 2002 2003 2004 2005 2006

Dividend per share 0.42 0.60 0.37 0.37 0.38Annual increase (1) +25% +61% +26% +10% +15%Average number of shares outstanding (2) 3,642,789 4,022,210 5,174,465 8,974,298 10,421,965(1) in light of bonus shares excluding treasury shares

“100%

72%inter parfums inc

28%public

OWNERSHIP

AS OF DECEMBER 31, 2006

Inter Parfums has more than7,500 individual shareholders and nearly 200 institutional shareholders (1/4 of which are not French).

SECURITIES MARKET INFORMATION

Market: Euronext ParisMarket segment: Eurolist compartment BIPO date: November 1995ISIN code: FR0004024222 ITPIndexes: MidCac, CAC Small90,NextPrime, Next 150, SBF250Market maker: Oddo Midcap

2006 annual report inter parfumsthe stockmarket and investor relations

SHARE PRICE AND TRADING VOLUME DATA

Trading volume data in thousands Share price in euros

042001

042002

042003

042004

042005

042006

042007

100

40150

35125

30100

2575

2050

1525


thestockmarketandinvestor

relations09”

upcoming publications and events

2007 second-quarter sales July 24, 20072007 first-half sales and earnings September 10, 20072007 third-quarter sales Mid-October 20072007 letter to shareholders Mid-November 20072007 annual sales Mid-January 20082007 sales and earnings Mid-March 2008

Presentation of 2007 first-half earnings September 11, 2007 – pavillon GabrielMidCaps Events trade show, Paris September 17 & 18, 2006Actionaria trade show, Paris November 16 & 17, 2006

Since it was listed on the EuroNext ParisSecond Market in November 1995, Inter Parfums regularly provides investorsand the financial community with informationon its situation in compliance with the principles of transparency and the bestpractices in financial communications.

This information is provided through a variety documents and media including:

■ an annual report, filed with the Frenchfinancial market authorities (Autorité desMarchés Financiers or AMF) as an annualregistration document (document deréférence). An abridged English version is alsoproduced,■ a semi-annual report, in French and English,■ A letter to shareholders, published everyNovember,■ press releases and financial notices, in French and English,■ a web site, in French and English,■ Individual and group meetings in Franceand Europe with financial analysts, fundmanagers, journalists from the economic andfinancial press and individual shareholder.

Institutions providing financial research on Inter Parfums are Arkéon, Aurel Leven,Berenberg, CM-CIC Securities, CAI IndosuezCheuvreux, Exane Bnp Paribas, FideuramWargny, Fortis Bank, Gilbert Dupont, HSBC,Ing, Jefferies, Ixis Securities, NatexisBleichroeder, Oddo Midcap, Portzamparc et Société Générale.


2 0 0 6 M I L E S T O N E S

anothermajorstepforward

“

march

Quiksilver license agreement An exclusive worldwide licenseagreement for the creation,development and distribution offragrance, suncare, skincare andrelated products under the Roxyand Quiksilver brands.

Extension of the S.T.Dupontlicense agreement The exclusive 11-year agreementconcluded in 1997 was extendedan additional three years, i.e. untilJune 30, 2011.

february

Launch of the Burberry Londonwomen's fragrance line A major launch to mark the 150thanniversary of the brand. A newwomen's line exemplifying thepure British style and the creationBurberry around a floral fragrance.This was followed by the launchof the men's version of BurberryLondon in the fall.

april

Launch of S.T.Dupont NoirA new men's line was launchedproviding a fit with existing linesand strengthening the brand'sidentity.

2006 annual report inter parfums2006 milestones and 2007 outlook


13”

october

Launch of the Paul Smith Story lineThe brand's fourth line, Paul Smith Story inspired by a passion for books.

License agreement with Van Cleef & ArpelsSignature of a worldwide licenseagreement to manufacture and distribute perfumes and anciliary products under the Van Cleef & Arpels brandeffect of January 2007.

2007outlook2007: ambitious growth targets■ the creation of four Europeandistribution companies (Germany,Spain, Italy, United Kingdom)operational starting January 1, 2007,■ several launches, notably underthe Roxy and Paul Smith brands,■ the integration of Van Cleef &Arpels fragrances and preparationof a new line for launch in 2008.

Inter Parfums remains confident inits ability to pursue sustained andprofitable growth.

On this basis, it confirms guidancefor 2007 net sales of €245 millionand 2007 net income in the €20 million to €21 million range.

Fiscal 2006 represented anothermajor benchmark in the Group'sdevelopment with the signatureof two new license agreements.

Initial guidance was achieved withconsolidated sales of €216.2million (+11.2% at currentexchange rates and +11.5% at constant exchange rates over2005) and gains by all major brands.

september

Launch of the Rumeur women'sline of LanvinRumeur is the first women'sfragrance created by InterParfums under the Lanvin branddrawing on its strong identity.


A C T I V I T Y A N D P H I L O S O

luxuryandcreativity

recognizedexpertise

Inter Parfums' success is basedon expertise:

■ creating products perfectlyadapted to the image andpositioning of the brandsrepresented,■ developing a wide range of POS(point-of-sale) advertising andmarketing materials traditionallyused in the selective perfumesmarket (store windows, posters,stands, promotional gifts, etc.), ■ selecting the appropriate mediafor each country.

long-termpartnerships

Through brand licenseagreements, Inter Parfums assuresthe design, production, anddistribution of perfume lines createdfor the brand for the duration of thelicense. The licensor retains a rightof inspection to ensure that theproducts properly fit with the brandimage while the licensee exercisescomplete control over the productfor the duration of the agreement.

The company creates,manufactures and distributesprestige perfumes throughlicense agreements with leadingbrands in the high-end ready-to-wear, high fashion,jewelry and accessories sectors, in exchange for the payment of royalties.

“

2006 annual report inter parfumsactivity and philosophy


15

P H Y

A portfolio of prestigious international brandsBurberry (with a license agreement first concluded in 1993 and renewed in 2004), S.T. Dupont (1997, extended for 3 years in 2006 until 2011),

Paul Smith (1998), Christian Lacroix (1999), Céline (2000), Lanvin (2004), Quiksilver (2006), Van Cleef & Arpels (2006 effective at the beginning of 2007).

a streamlinedorganization

Since its inception, the companyhas adopted an efficient strategythat enables it to focus its effortson creation, marketing, distributionand management whileoutsourcing packaging andlogistics.

expertise inproductionprocesses

The design, development andproduction process which lastsbetween 12 and 18 monthsinvolving a certain number of phasesin which the company as projectmanager has a solid track record of success:■ simultaneous briefings withperfume designers and creators;■ product concept choice;■ receive bids from componentssuppliers (glass makers, plastics

processors, printers, etc.);■ receive bids from the company’svarious packaging partners;■ drawing up supply and packaging schedules;■ issuance of componentpurchase orders;■ quality control of incomingcomponents;■ packaging and inventorymanagement.

”


T H E P R O D U C T S

reflectingtheuniverseofitsbrands


The creation and marketing of each product line are intimately linked to the brand,

its history, positioning, clientele and, more generally, its universe.

The product launch process is the cornerstone of the company's successful record of growth and expansion. For this reason, the decision to launch a new line is made very early on in the process with the licensor

and the cycle of market research up to the product launch may range between 6 and 18 months.

The success of the product is based on the combination of a “good dose” of creativity and achieving and optimal fit between the key components: the brand’s overall positioning, the “juice”, the packaging and marketing strategy.


19

In July 1993, Inter Parfumsentered into an exclusive 10-year license agreement withBurberry Ltd. to create and produce perfumes under theBurberry name and distribute them worldwide.

In October 2004, Inter Parfumssigned a new agreement for 12.5 years effective July 1, 2004with an option for an additional five years subject to mutualagreement of the parties.

Five lines are distributed: Burberry(1995), Burberry Week end (1997),Burberry Touch (2000), BurberryBrit (2003/2004) and BurberryLondon (2006).

In 2006, Burberry fragrancesgenerated revenue of €144.8million (67% of total sales)reflecting good performances fromthe Burberry London line andlimited declines by the brand'shistorical lines.

Burberry London for Women2006

2006 oscar of the best women perfumeSommet de la Beauté de Megève

€144.8million of sales67.0% of total sales


2006 annual report inter parfumsburberry’s products

Burberry London for Men2006

Burberry Brit Cristal2006


21

Burberry Brit for Men2004

Burberry Brit for Women2003

Burberry London2006

Burberry Brit2003/2004

Burberry Touch2000

Burberry Week end1997

Burberry1995


2006 annual report inter parfumslanvin’s products


23

In July 2004 Inter Parfumsentered into an exclusiveagreement with the companyLanvin to create, develop and distribute fragrances under the Lanvin name.

Five lines are distributed: Arpège(1927), Lanvin L’Homme (1997),Eclat d’Arpège (2002), Arpègepour Homme (2005) and Rumeur(2006).

Rumeur2006

€35.1million of sales

16.2% of total sales


2006 annual report inter parfumslanvin’s products

Lanvin L’Homme1997

Arpège pour Homme2005

Éclat d’Arpège2002


25

Éclat d’Arpège2002

Arpège1927

Rumeur2006

Lanvin fragrances exceededtargets with sales of €35 million(+19%) in response to stronggains by the Eclat d’Arpège line(+17%) and the successful falllaunch of the Rumeur line.


2006 annual report inter parfumspaul smith’s products

In December 1998, Inter Parfums entered into an exclusive 12-year agreement with Paul Smith to create and produce perfumes and cosmetics

under the Paul Smith name and distribute them worldwide.

Four lines are distributed: Paul Smith (2000), Paul Smith Extrême (2002), Paul Smith London (2004) and Paul Smith Story (2006).


8.2% of total sales


27

Paul Smith Extreme2002

Paul Smith Story2006

Paul Smith London2004

Paul Smith Floral2005

Paul Smith2000


2006 annual report inter parfumss.t. dupont’s products

L’eau de S.T. Dupont2004

S.T. Dupont Essence Pure2002

S.T. Dupont Noir2006


29


In July 1997, Inter Parfums entered into anexclusive 11-year agreement with S.T. Dupont.

In April 2006, this agreement was extended for an additional three years,

i.e. until June 30, 2011.

Four lines are distributed:S.T. Dupont (1998),

S.T. Dupont Essence Pure (2002),L'eau de S.T. Dupont (2004), and S.T. Dupont Noir (2006).

S.T. Dupont fragrances had revenue of €10.1 million in 2006 (4.7% of total sales)

with contributions from the launch of S.T. Dupont Noir and a return to growth

for the S.T. Dupont Essence Pure line.

S.T. Dupont Paris1998


2006 annual report inter parfumschristian lacroix’s products

In March 1999, Inter Parfumsentered into an exclusive 12-yearagreement with Christian Lacroix.

Three lines are distributed:Eau florale (2000),Christian Lacroix Bazar (2002)and Tumulte (2005).

Tumulte2005

Prize awarded by the Victoires de la Beauté 2006 for the bestselective distribution magazineadvertising campaign with thevisual for Tumulte women'sfragrance of Christian Lacroix.


1.9% of total sales


31

Christian Lacroix Bazar2002

Tumulte pour Homme2006

Eau Florale2000


2006 annual report inter parfumsnickel’s products

In April 2004, Inter Parfums acquired a majority stake in Nickel, a company specialized in skincare products for men.

Nickel products generated sales of €4.2 million in 2006 (1.9% of total sales) accompanied by the opening

of new export markets and the launch of Eau Maximum.

Eau Maximum2006

Lendemain de Fête1996

Spa Nickel, Londres2006


33


Silicon Valley2005

Amuse-gueule1999

Coup de Gueule2005


2006 was a banner year forBurberry fragrances with the launch of a fifth major line,Burberry London fuelling salesof €144.8 million, advancing10% over 2005 (+20% excludingthe discontinued Burberry Brit Red line).

Lanvin fragrances exceededtargets with sales of €35 million(+19%) in response to stronggains by the Eclat d’Arpège line(+17%) and the successful falllaunch of the Rumeur line.

Paul Smith also surpassedexpectations with sales of €17.7 million boosted by renewed growth of the Paul Smith and Paul SmithExtrême lines and theinternational launch of the Paul Smith Story line.

S.T. Dupont sales were overbudget, with the launch of theS.T. Dupont Noir men's line and a return for growth by theS.T. Dupont Essence Pure line.

Christian Lacroix fragranceswere under budget with no launches during the period.

Finally the Nickel cosmeticsdivision pursued itsdevelopment by expanding its distribution base.


SALES BY BRAND

In € millions 2002 2003 2004 2005 2006As a % of total sales

Burberry 55.8 91.4 118.8 131.3 144.859.7% 73.3% 75.5% 67.5% 67.0%

Lanvin - - 7.6 29.5 35.1- - 4.8% 15.1% 16.2%

Paul Smith 8.9 11.7 14.3 14.5 17.79.5% 9.4% 9.1% 7.5% 8.2%

S.T. Dupont 9.4 8.9 8.9 8.8 10.110.0% 7.1% 5.7% 4.5% 4.7%

Christian Lacroix 7.5 6.0 3.7 4.9 4.18.0% 4.8% 2.3% 2.5% 1.9%

Nickel - - 1.7 3.1 4.2- - 1.1% 1.6% 1.9%

Other 11.8 6.6 2.4 2.3 0.212.8% 5.4% 1.5% 1.3% 0.1%


international marketsaccounting for 90% of sales

america

ArgentinaGreta

BrazilMextra

CanadaClarins Canada

ColombiaGrupo Wisa

United StatesProcter & Gamble

MexicoClarins Mexico

30%of saleswhich of 24 %in United States

asia

ChinaEternal Optical

South KoreaIPC Tong Sang

JapanBluebell

Singapore, TaiwanLuxasia

14%of sales

europe

GermanyInter ParfumsDeutschland Gmbh,Selective Beauty

SpainInter Espana Parfumset Cosmétiques S.L.,Hevige

ItalyInter Parfums srl

PolandSelective Beauty

PortugalLuso Helvetica

United KingdomInter Parfums Ltd,Kenneth Green

RussiaIFD

TurkeyTe Ha Guzellik

47%of saleswhich of 30%in Western Europe

Sales in North America postedstrong growth (+15%) drivennotably by the success ofBurberry and the United States.

Eastern Europe registered thestrongest growth (+24% over2005) to represent 9.2% of total sales.

Market positions developed in Asia in previous years werestrengthened by successfulperformances of the main brands (+16%).

Western Europe with €65.4million sales remains the largestmarket for Group products,representing 30% of total sales.

Despite an environment thatremains highly competitivecharacterized a proliferation of new products, successfullaunches fueled growth in sales of 10% in France.

middleeastSaudi ArabiaRadwa,National Marketing

DubaïCréation Alexandre,Ghadeer Trading

KoweïtHabchi Chalhoub,Wahran Trading

8%of sales

2006 annual report inter parfumsthe network

“


37”

network ofmultipledistributionchannelsInternational distribution isassured through independentcompanies, subsidiaries of majorluxury goods corporations, duty-free operators (airports, airlines,etc.). They have exclusive rights to distribute one or more of the company’s brands in a specific territory.

a directdistributionnetwork inFranceThe French sales team handlesFrench distribution directly. Thenetwork of sales outlets breaksdown as follows: integratedchains (Sephora, Marionnaud,Nocibé, etc.), franchise stores(Beauty Success, Passion Beauté,etc.), department stores (GaleriesLafayette, Printemps, Samaritaine,BHV, etc.), traditional perfumeries

The French sales team alsohandles merchandising (shelfmanagement, product placementin stores, sales promotion and event planning) which are keycontributors to the company’sgrowth.

solid Europeanpartnerships Inter Parfums has created four majority-held Europeandistribution subsidiaries with local partners: ■ Germany, in partnership with Nobilis,■ United Kingdom, in partnershipwith Fragrance Factory,■ Italy, in partnership withSelective Beauty,■ Spain, in partnership with Colomer.

T H E D I S T R I B U T I O N N E T W O R K

astrong global

presence


T H E M A R K E T

newgrowthinthesectorThe French perfume and cosmetics industry that accounts for approximately one third of the global market again registered record sales in 2006 as industry sales based on net producer pricesgrew 4.3% (versus 3.3% in 2005) to €15.23 billion.

selectedindustry figures■ 170,000 bottles of perfumeare sold in France every day;■ The French spend on averagemore than €200 per person onhealth, beauty and perfumeproducts per year.■ France exports cosmeticproducts to more than 200 countries worldwide.■ France’s perfume and cosmeticsindustry earns €20 millionin foreign exchange every day.

Sources: Fédération des Industries de la Parfumerie

“2006 annual report inter parfumsthe market


export sales, thelargest market forthe French industry(57% of sales)

2006 was a very good year for the internationalperfume and cosmetics industry, consolidating itsposition in France as the country's fourth largestnet exporter behind aerospace, automobiles and beverages.

With €8.69 billion in combined sales from alldistribution channels, exports grew 7.4% in value, the strongest increase in the last fiveyears despite the persistence of unfavorableeuro/US dollar exchange rate trends.

Europe remains the largest market for Frenchexports (67%):■ Sales in the European Union, wherecompetition remains fierce, registered year-to-year gains of 5.4%. Germany that grew 6%remains the largest market for export salesfollowed by the United Kingdom (+4%) and Italy (+7%). Very strong export sales were also registered in the Czech Republic(+41%, versus +9% in 2005), Poland (+23%),and Slovenia (+21%);■ European countries outside the EU continuedto post the strongest growth (+20%), driven byRussia (+43.5%, +10% in 2005), the Ukraine(+35%, +28% in 2005) and Romania (+29.5%).In contrast, the pace of growth in Turkeyregistered a slowdown (+1,3%);

The second largest export market, Far East(10.5% du total), following a marginal slowdown in2005, resumed its expansion with growth of5.4%. Expansion was particularly strong in China(+39.5%), India (+11.3%) and Singapore (+7.7%).In contrast, Japan (+0.1%) and Taiwan (+1%)experienced a slowdown.

Sales to North America (9,5% of exports)remained buoyant advancing 6.8% overall(+7.8% for the United States and +1% for Canada).

Latin America posted its third consecutive yearof growth, expanding 12%.

The Near and Middle East (5.8% of exports)registered solid growth of 7.3%.

Sales to Africa to continued to expand andnow accounting for 3% of total exports.

Finally, sales to Australia/Oceania continued to retreat (-2% compared with -8% in 2005).

Sources: Fédération des Industries de la Parfumerie

market shareand competitionIn France, Inter Parfums attained roughly a 2% share of the selectivedistribution market of prestige perfumes. In certain countries such as the United States, the United Kingdom, Russia, China or Italy, the company estimates its market share of total French perfume imports at between 1% and 4%.

In an industry highly concentrated around major players with billions of euros in sales, Inter Parfums pursues a unique strategy of steadily and methodically developing a portfolio of perfumes for selective distributionbased on internationally renowned brands. Although Inter Parfums’ closestcompetitors do not develop mass market or cosmetics products, severallarge corporations have perfume divisions with comparable strategies.

France: sustained growthtrends despite amature market

In 2006, following two consecutive years of declines, (-1,2% in 2005 and -0,3% in 2004),the French market resumed its expansion,advancing 3.5% to €6.5 billion.

This positive trend reflected an increase in producer prices of 2.6% combined withgrowth in volumes of 0.9%.

In 2006, selective distribution registered the strongest performance of all channelscombined, expanding 6.5% while priceincreases remain contained (+1.7% over 2005).

Sales in the segment of pharmacies continuedto expand, though at a slower pace (+1% versus average growth of 6% over the last10 years).

Mass retail, after two years of declines,rebounded sharply (+3.4%) in response to increases in producer prices (+3.6%, -0.8%in 2005 and -0.1% in 2004).

Finally, the direct sales segment posted a marginal retreat (-1.5%) for the secondconsecutive year, adversely affected by thesignificant slowdown in the growth of producerprices (+1.5% versus +6.6% in 2005).

39

”


sustainabledevelopmentsocial responsibility 41

environment responsibility 46

risk factors 46


41

1.social responsibility

Over the years, Inter Parfums has developed a corporateculture built around creativity, teamwork and the developmentof privileged relationships with clients and suppliers based on trust and respect for commitments.

This culture is now firmly implanted in a team of women andmen with diverse range of experience and backgrounds.

2004 2005 2006Total workforce 90 112 128Officers and managers 42 59 68Average age (years) 35 36 36Average seniority (years) 5 5 6

Two major fragrance licenses were signed in 2006 withQuiksilver in March and Van Cleef & Arpels in Septembereffective in January 2007. To strengthen human resources,and notably marketing and the sales force, the companyrecruited 16 new employees. These recruitments were madeat every level of the company and concerned all departments.As a result, in 2006, the number personnel increased by nearly 14%.

Employee representation

As required by law, elections are held every two years toselect a works’ committee and employee representatives.The last elections, held in early 2007, did not elect either a workers’ committee or employee representatives.

The 35-hour workweek in France

An agreement on the implementation of the 35-hourworkweek in France was reached in 2000. Under the termsof this agreement, employees generally work on the basis of a 35-hour workweek with a 217-day work year. Membersof the personnel are entitled to 10 days of reduced workinghours benefits (RTT) per year.

The company's absenteeism rate was 4.4% in 2006 (3.5% in 2005) principally due to maternity leaves.

Compensation and profit-sharing policy

Inter Parfums has a compensation policy, a system of jobclassifications and performance evaluations uniformly appliedto all employees. These procedures guarantee equaltreatment of men and women employees and ensure the general cohesion of personnel.

Stock option plans

Employees of Inter Parfums and its subsidiaries are offered a direct stake in company earnings through individual,performance-based compensation plans and thedevelopment of employee stock ownership through annualstock option plans. Such plans, implemented each year, are open to all employees.

More than 753,500 options have been granted through these plans since 1994 and 615,000 options (in light ofbonus issues carried out since 1999) were outstanding (5.6% of the capital stock) as of December 31, 2006.

2006 annual report inter parfumssustainable development

Statutory employee profit-sharing

In accordance with applicable legislation, an employee profit-sharing agreement was implemented on December20, 2001. The amount paid for 2006 was €990,000 (compared with €860,000 in 2005).

A proven development approach

An activity characterized by its complexity and multiple detailscalls for a proven development process that meets strictstandards of quality and deadlines to produce several millionunits a year. A team of 18 under Axel Marot handles sourcing,supply relations, quality assurance and cost control.

Dedicated marketing and international distributionresources to support the Burberry brand:the Burberry Fragrances division

To provide optimal support to the growing volume of thebrand's sales and in accordance with the terms of the newlicense agreement, on March 1, 2005 Inter Parfums formed a new division for product development, marketing andinternational distribution fully dedicated to the brand. Today this division has 24 employees and is headed by Hugues de la Chevasnerie who joined Inter Parfums in early January 2007.

Dedicated marketing and international distributionfor the other brands: the Luxe & Fashion division

Frédéric Garcia-Pelayo leads a dedicated team of 19 professionals responsible for product development, marketing and international distribution for the Paul Smith,S.T. Dupont, Christian Lacroix, Celine and Lanvin brands.

OPERATING ORGANIZATIONAT MARCH 1, 2006

CHAIRMAN AND CHIEF EXECUTIVE OFFICERPh. Benacin

PRODUCTION& LOGISTICS

A. Marot18 employees

BURBERRYFRAGRANCES

H. de La Chevasnerie24 employees

LUXE& FASHION

F. Garcia-Pelayo19 employees

FRENCHDISTRIBUTION

J. Ayer34 employees

FINANCE &

CORPORATE AFFAIRS

Ph. Santi23 employees

NICKEL

Ph. Dumont12 employees

43

An extensive French distribution network

Jack Ayer’s staff of 34 handles the company’s distributionstrategy and management, contract negotiations andmonitors profit margins and advertising expenditures in France.

Effective financial management

After its initial public offering on the Second Marché, Inter Parfums developed an efficient reporting system to regularly analyze financial performances and cashmanagement that allows the company to update its operatingand net income projections for the year in progress.

This system provides excellent visibility for company financialsand assures a high degree of responsiveness. Philippe Santiheads a staff of 23 responsible for financial strategy andcommunications, investor relations, accounting, budgets,cost accounting, labor relations, tax and legal services, cash management and collection.

Nickel

A team of 12 employees headed by Philippe Dumont is devoted to meeting specific needs of this brand in theproduct development, marketing and spa management. The French Distribution division manages the distribution of products in France while the Luxe & Fashion handlesinternational distribution.

Inter Parfums and its subsidiaries

The consolidated Group is structured around two salescompanies — Inter Parfums for perfumes and Nickel (68%-held) for skincare and Inter Parfums Trademark, a brand management company.

Inter Parfums and its parent company

Founded in 1985, the U.S. company Inter Parfums Inc. is listed on NASDAQ (see company organization chart) and has business activities in two areas:

■ mass market perfumes aimed mainly at the U.S. consumermarket and developed by its wholly owned U.S. subsidiary,Jean-Philippe Fragrances LLC,

■ prestige perfumes aimed at the global selective perfumesmarket and developed by its French subsidiary, Inter Parfums(72%-owned at December 31, 2006 via Inter Parfums Holding).

In the summer of 2005, the US company signed an exclusivelicense agreement with Gap Inc to develop perfume and cosmetics products under the Gap and Banana Republic brands.

Philippe Benacin and Jean Madar Public

THE OWNERSHIP STRUCTURE OF INTER PARFUMS INC. BROKE DOWN AS FOLLOWS AT DECEMBER 31, 2006:

INTER PARFUMS INC CONSOLIDATED FINANCIAL HIGHLIGHTS

In $ millions (1) 2002 2003 2004 2005 2006

Sales 130.3 185.6 236.0 273.5 321.1

Net income 9.4 13.8 15.7 15.3 17.7

Shareholders’ equity 80.9 104.9 126.5 127.8 155.3

Net cash 38.3 59.0 41.0 59.5 71.0

(1) 1 Euro = 1.3 USD at December 31, 2006

INTER PARFUMS INCNasdaq - New York

INTER PARFUMS S.A.Eurolist - EuroNext Paris

INTER PARFUMS TRADEMARK INTER PARFUMS GRAND PUBLICNICKEL S.A.

56%

72%

68% 100%100%

28%

44%

team spirit,motivationand commitmentin the serviceof commonobjectives: keystrengths of ourcorporate culture

2006 annual report inter parfumssustainable development

2.environment responsibilityInter Parfums’ business focuses on the creative aspect andthe distribution of products. For this reason, the entireproduction process is outsourced to manufacturing partners.These include producers of juice, glass, caps and cardboardboxes and packaging companies. With no productionactivities of its own, Inter Parfums does not own laboratoriesor manufacturing sites.

Although it operates in a sector less polluting than otherindustries, Inter Parfums is committed to preserving theenvironment and quality of life. For this reason, it remainsinvolved in the production process and coordinates with allsubcontractors and suppliers who manufacture its productsand are directly responsible for their impact on the environment.

Low energy requirements

Inter Parfums’ consumption of water and energy is limited tonormal office usage in the administrative premises that house100 of its 128 employees and in commercial premises wherenine employees work.

Recycling

The company constantly strives to reduce the already lowimpact of its business on the environment by investing in thetreatment and recycling of the packages, cardboard boxesand glass left once its customers have finished using itsproducts. With this objective, through its participation in the“Eco Emballage” packaging recycling program, Inter Parfumscontributes to waste management and recycling.

The minimization of environmental impact

To balance product quality and esthetism with environmentalconsiderations, Inter Parfums takes care to reduce packagingvolumes at the source and select the appropriate materials at each stage of production to ensure optimal conditions fortheir recycling or disposal. Accordingly, Inter Parfums selectspartners using cutting-edge design techniques with a commitment to reduce the impact of manufacturing processes on the environment.

The bottles of its products are made of recyclable glass andthe production process provides for a system of recuperation,grinding and recasting of certain bottle components, whichgenerates savings in volume of materials used of 20%. A biodegradable water-soluble solution that does not harmthe environment is used in the coloring of some of its bottles.The process of coating used for certain products is compliantwith the law of 2005 destined to reduce emissions of volatileorganic compounds (VOC) in the air by the use of "hydrocoating". This commitment to environmental responsibility is also a criteria in selecting subcontractors.

A commitment to well-being

Even though Inter Parfums does not manufacture itsproducts itself, it nevertheless ensures their introduction on the market and is consequently responsible for ensuringtheir inoffensiveness to the skin and eyes. Within thisframework, it ensures that its products are not subject to any tests on animals and maintains a scientific watch for the development of "alternative” tests and cell culturetests. It also ensures compliance with national and Europeanregulations and notably the Cosmetics Directive" which

prohibits the use of certain animal derivatives such as lanolin.

Inter Parfums’ actions in this area exceed that of a simplecoordinator by increasing its partners’ awareness ofenvironmental issues and staying informed of the businesspractices of its subcontractors and suppliers. All this formspart of Inter Parfums’ commitment to preserving theenvironment, which is, after all, everyone’s responsibility.

3.risk factorsOperating risks

License agreements

The licensing system which is typical in the perfume andcosmetics industry consists of a brand name company(Christian Lacroix, Celine, etc.) granting the licensee (Inter Parfums) the right to use the brand name in exchangefor a royalty payment typically indexed to sales. The risk pertains to the potential non-renewal of agreementsupon expiration.

In the case of Inter Parfums, several factors tend to limit or eliminate this risk:

■ length of contracts (10 years or more),■ possibility of early renewal,■ diversified portfolio of licensed brands,■ factors specific to the company (sophisticated marketing,distribution network, corporate organization, etc),■ limited number of potential licensees with a similar profile.

Market conditions

The creation and distribution of prestige perfumes is a highlycompetitive sector. The positioning of companies in themarket depends on several factors including notably historicalexpertise, the quality of the products created and thedistribution network.

Insurance

Inter Parfums has always carried adequate insurance for itsactivities worldwide under conditions that comply withindustry standards, providing global coverage for importantrisks and activities.

This coverage includes:

■ property damage and business interruption,■ civil liability,■ directors’ and officers’ liability,■ product liability,■ transport.

Inter Parfums purchases supplemental insurance whenrequired, either in compliance with the law or morespecifically to cover business risks or risks arising fromspecific circumstances.

Insurance coverage is overseen by a specialized broker and spread among four major European insurers.

International business risks

Currency risks

Since 1995, Inter Parfums has applied a conservativeapproach in managing exchange rate risk, seeking only

47

to hedge its exposure from operations and maintain its grossmargins. Forward sales are routinely carried out mainly on theU.S. dollar and the pound sterling. In 2006 they accounted for34% and 9% of total billings respectively. In addition, the impactof sharp fluctuations in the U.S. dollar on the gross margin canbe partially offset by adjusting the products’ sales prices.

Country risks

With sales in more than 100 markets, Inter Parfums regularlyreassesses country risks.

For the past few years, the company has incurred no significantdefault on payments in countries considered at risk.

Given our collections policies, receivables monitoring and the quality of our distributors’ financial health, no country riskreserve allocations were made in the financial statements for the year ended December 31, 2006.

Employee-related risks

In light of the company's organizational structure, the role of personnel is decisive. To foster personnel retention andincrease the level of expertise and service provided tocustomers, the company has developed a strong corporateculture and implemented a system of employee managementand motivation based on a combination of tools includingvariable compensation, employee profit-sharing, stockoptions available to all personnel, annual review meetings,continuing education, etc.

The company's rate of employee turnover and absenteeismis very low (refer to the chapter "social responsibility" of this document).

Trade and financial risks

Customer risks

Trade receivable collection risks are managed from theinception of the receivable by maintaining a good knowledgeof the company's market and customer base and limiting the volume of orders for new customers. In addition, this riskis further attenuated by being spread among 100 customersaccounting for 80% of sales. The evolution of outstandingtrade receivables is monitored daily, and collection proceduresare immediately implemented. The rate of default of tradereceivables is 0%.

Risks of default

The risk of not meeting its financial commitments for thecompany is extremely low given the ratio of non-current debtto equity of less than 4% and significant net cash resourcesrepresenting 20% of total balance sheet.

Interest-rate risks on the Lanvin loan are covered by aninterest-rate swap implemented in October 2004.

Valuation risks

A significant share of the company's assets consists ofintangible assets and goodwill whose value depends in largepart on future operating performances. The valuation of intangible assets and goodwill also implies recourse to subjective judgments and complex estimates concerningitems uncertain by nature. If a change occurs in theunderlying assumptions on which this valuation is based, a reduction in the value of shareholders' equity will berecorded. The impact of such adjustment would however be extremely limited.

Risk associated with in adequate internal controls

Effective procedures applied by all Group companies and inall areas of financial risks identified are reassessed annually in compliance with the Financial Security Act (Loi de SécuritéFinancière).

These internal controls are reinforced in France by theSarbannes Oxley law within the framework of the regulatoryobligations of Inter Parfums Inc (parent company of Inter Parfums SA) and its listing on NASDAQ (refer to the section of this document on internal control).

Information technology risks

Inter Parfums and its subsidiaries have an ERP applicationproviding integrated sales, production and accountingmanagement capabilities. This system makes it possible to monitor information in real-time and reduce the risk of dataloss and errors from multiple entries.

The company's computer system is subject to risks ofbreakdown, electrical power outages, computer viruses anddata theft. To reduce these risks, the company has recourseto powerful systems such as power converters, firewalls,antivirus programs, etc.

corporategovernancethe board of directors 49

the management committee 51

chairman’s report on the work of the board and internal control 51

1.corporate governance

Inter Parfums adopted the form of a société anonyme, the French equivalent of a joint stock company, when it wascreated in 1989. It is governed by a Board of Directors and a Management Committee.

The Board of Directors

In spring 2004, the company strengthened the Board ofDirectors, up until then with four members, by appointingnew board members for renewable six year terms to benefitfrom their additional expertise and experience. On December31, 2006 the Board of Directors had 10 members.

In line with recommendations applicable in France oncorporate governance of the AFEP-MEDEF report, the boardensures the presence of independent directors subject to thefollowing conditions:

■ the director is not an employee or corporate officer(mandataire social) of the company, nor an employee or director of its parent company or of one of its consolidatedsubsidiaries, and has not been one during the previous ive years,

■ the director is not a corporate officer of a company in which the company holds, either directly or indirectly, a directorship, or in which a directorship is held by anemployee of the company designated as such or by

a current or former (going back five years) corporate officerof the company,

■ the director is not a supplier, investment or commercialbanker of the company or any company included in thescope of consolidation,

■ the director does not have any close family ties with a corporate officer of the company,

■ the director has not been an auditor of the company over the past five years,

■ the director has not been a director of the company for more than 12 years, and

■ the director does not have any legal ties with a shareholderowning directly or indirectly more than 10% of the sharecapital or voting rights.

On the basis of these criteria, the board includes twoindependent directors, Maurice Alhadève and Michel Dyens.

Composition of the board and profiles

As of December 31, 2006 the composition of the Board of Directors was as follows:

Philippe Benacin, Chairman and Chief Executive Officer of Inter Parfums (appointment renewed April 23, 2004, expiringat the close of the 2010 annual shareholders' meeting).

Philippe Benacin, 48, a graduate of the ESSEC businessschool and cofounder of the company with his partner Jean Madar, has served as Chairman and Chief ExecutiveOfficer of Inter Parfums S.A. since its creation in 1989.

49

Other appointments: Chairman of the Board of Directors ofInter Parfums Holding, Chairman of the Board of Directors of Inter Parfums Trademark, Chairman and Chief ExecutiveOfficer of Inter Parfums Grand Public, Director of Nickel,President and Vice Chairman of the Board of Inter ParfumsInc (United States).

Jean Madar, Director, (appointed 23 April 2004, expiring at the close of the 2010 annual shareholders' meeting).

Jean Madar, 46, a graduate of the ESSEC business school,is the cofounder of the company with his partner PhilippeBenacin.

Other appointments: Chief Executive Officer of Inter ParfumsHolding, Director and Chief Executive Officer of Inter ParfumsTrademark, Director of Nickel, Chief Executive Officer andChairman of the Board of Inter Parfums Inc (United States).

Marianne Benacin, Director, (appointment renewed April 23, 2004, expiring at the close of the 2010 annual shareholders’ meeting).

Other appointments: Director of Inter Parfums Grand Public,Director of Inter Parfums Trademark.

Raoul Madar, Director, (appointment renewed April 23, 2004, expiring at the close of the 2010 annual shareholders’ meeting).

Other appointment: Director of Inter Parfums Holding.

Maurice Alhadève, Independent Director, (appointed by theshareholders’ meeting of April 23, 2004, expiring at the closeof the 2010 annual shareholders’ meeting).

Other appointments: none.

Michel Dyens, Independent Director, (appointed by theshareholders’ meeting of April 23, 2004, expiring at the closeof the 2010 annual shareholders’ meeting)

Other appointments: none.

Jean Levy, Director, (appointed by the shareholders’ meetingof April 23, 2004, expiring at the close of the 2010 annualshareholders’ meeting).

Other appointments: Director of Inter Parfums Inc (UnitedStates), Director of Rallye S.A., Director of Price Minister S.A.,Director of Axcess Groupe S.A.

Patrick Choël, Director, (appointed by the shareholders’meeting of December 1, 2004, expiring at the close of the 2010 annual shareholders’ meeting).

Other appointments: Director of Inter Parfums Inc (UnitedStates, Director of Parfums Christian Dior, Director ofGuerlain, Director of Parfums Loewe, Director of Benefit(United States), Director of Modelabs.

Catherine Bénard-Lotz, Director, (holder of an employmentcontract preceding the appointment by the shareholders'meeting of April 23, 2004, expiring at the close of the 2010annual shareholders’ meeting).

Other appointments: Director of Nickel.

Philippe Santi, Director and Executive Vice President,(holder of an employment contract preceding theappointment by the shareholders’ meeting of April 23, 2004,expiring at the close of the 2010 annual shareholders’ meeting).

Philippe Santi, 44, a graduate of the Ecole Supérieur deCommerce of Reims and a public accountant has served

as the Chief Financial Officer of Inter Parfums S.A. since 1995and Executive Vice President since 2004.

Other appointments: Director and Executive Vice President of Inter Parfums Trademark, Director and Executive VicePresident of Inter Parfums Grand Public, Director of Nickel.

Absence of condamnations

To the best of the Company's knowledge, in the last fiveyears none of the members of the Board of Directors have been:

■ convicted for fraud or penalties for infractions rendered by statutory or regulatory authorities,

■ involved in a bankruptcy, receivership or liquidationproceeding as a director or officer,

■ disqualified from serving as a director or officer or participating in the management of the operations of an issuer.

Absence of potential conflicts of interest

To the best of the Company's knowledge, there exist nopotential conflicts of interest between the duties towards the company and the personal interests and/or other dutiesof one of the members of the board.

Absence of service contracts with board members

To the best of the Company's knowledge, none of the boardmembers is bound by service agreements with the companyor one of its subsidiaries providing for the grant of benefitsunder its terms.

2006 annual report inter parfumscorporate governance

2.management committee

Mission

The purpose of the Management Committee,led by the Chairman and Chief Executive Officer, is to address operational issues related to the development of the company.

Composition as of December 31, 2006

Philippe Benacin, Chairman and Chief Executive Officer

Philippe Santi, Executive Vice President, Chief Financial Officer

Frédéric Garcia-Pelayo, Executive Vice President, Chief International Officer

Jack Ayer, Vice President, French Distribution

Axel Marot, Vice President, Production & Logistics

The Management Committee met six times in 2006 (versus seven times in 2005 and discussed the followingitems of business:

January: 2005 earnings, new licenses, marketing, logisticsand coding,

March: first-quarter sales, marketing, creation of Europeansubsidiaries,

April: first-half sales, three-year strategic plan, recrutement,Roxy/Quiksilver, new licenses,

June: first-half sales and forecasted earnings, Van Cleef & Arpels, launches, Roxy/Quiksilver, internal organization,new licenses,

September: Van Cleef & Arpels, marketing, 2006 sales,commercial organization for France, joint ventures, final 2005first-half results, IT projects,

November: 2006 earnings, 2007 budgets, marketing plan,commercial organization for France, joint ventures, Biarritzdistributor seminar.

3.chairman's report on the work of the boardand internal control

Pursuant to the provisions of paragraph 6, article L.225-37,of the French commercial code the Chairman of the Board of Directors hereby reports on the:

■ terms and conditions governing the preparation andorganization of the Board's work for the period endedDecember 31, 2006,

■ internal control procedures implemented by the company,

■ the powers of the Chairman and Chief Executive Officer.

Terms governing the preparation and organization of the Board's work

Terms governing the work of the Board of Directors

Under the company's bylaws, the Board of Directors mayhave three to eighteen members.

At December 31, 2006, corporate governance of thecompany was overseen by a Board that included 10 directors two of which qualified as independent directors.Detailed information on the composition of the Board ofDirectors is disclosed in the registration document (annualreport) in the section on directors and officers.

Directors are appointed for six year periods that expire at theend of the ordinary general meeting called to rule on thefinancial statements for the period ended held in the year inwhich their appointment expires.

Pursuant to the decision of the Board of Directors onDecember 29, 2002, Philippe Benacin, who exercises thefunctions of Chairman of the Board of Directors, also servesas the Chief Executive Officer of the company. In relationswith third parties he is vested with all powers to act in thename of the company within the limit of the powers expresslygranted by shareholders' meetings to the Board of Directors.

In compliance with article 15 of the bylaws, the Board ofDirectors determines the strategic objectives of the companyand ensures their implementation, within the scope of thecorporate charter and subject to those powers expresslygranted by law to shareholders' meetings. It performs all controls and verifications it considers appropriate. Each director receives all information necessary to theperformance of his or her duties and may request anydocuments considered necessary.

The Board of Directors met eight times in 2006 with an averageattendance rate of 64%.

The auditors attend all Board meetings that review the annual financial statements and receive notification by mail to this effect.

In 2006, in addition to recurrent issues such as the operatingmanagement of the company's business, the closing of thefinancial statements, the analysis of financial and cashpositions, the Board of Directors rendered decisionsconcerning major strategic, economic, financial orientationsof the company and ensured their implementation by generalmanagement. In accordance with the procedures applied

51

within the Group, even though vested with all powersconferred upon him by the law to represent the company, the Chairman and Chief Executive Officer must obtain theauthorization of the Board to pursue growth strategies thatcould have a material impact on the accounts and modify the scope of the company's activity, strategy and financialstructure. In consequence, the Board was consulted onseveral occasions in connection with the signature of newlicense agreements and the Board confirmed the Chairman'spowers to conduct these negotiations.

Information concerning directors

Article 15 of the bylaws stipulates that the Chief ExecutiveOfficer shall provide each director with all documentsnecessary to perform their duties. Before each Boardmeeting, Directors consequently receive all documents and information necessary to this purpose. In addition inconnection with Board meetings, Directors may be regularlyprovided with all material information concerning thecompany.

Internal control procedures

Internal control refers to a set of processes, methods and measures defined by general management to ensure a coherent and effective system of corporate governance and management of company operations.

Internal control procedures implemented by Inter Parfumsmanagement that apply to all Group companies are destinedto provide a reasonable assurance that the followingobjectives are met:

■ safeguarding corporate assets,

■ identifying, limiting and avoiding risks of errors and otherirregularities in the management of operations to ensure thatthey remain consistent with the objectives defined bycorporate bodies in relation to the businesses of thecompany and remain in line with the annual budget targets,

■ ensuring the accuracy and thoroughness of accountingrecords and the publication of reliable and timely informationfairly presenting the activity of the company for the period inquestion,

■ ensuring compliance with laws and regulations.

One of the objectives of internal control is to manage andprevent risks resulting from the activity of the company andrisks of material errors or fraud, particularly in accounting andfinancial areas. An in-depth review of the risk factors affectingInter Parfums is presented in the management discussionand analysis.

However, no system of internal control can provide anabsolute guarantee concerning the elimination of risks andthe effective implementation of procedures.

1.General overview of internal control procedures

The organization of the Inter Parfums Group is centralized atthe level of the Inter Parfums company that assures the mainactivity of the Group. To this purpose, it possesses asignificant administrative and commercial organization that itmakes available to other Group companies. Relations withInter Parfums are governed by assistance agreements,service agreements, the provision of personnel andequipment. Fees are invoiced for the latter in proportion to the level of services rendered.

Members of the Finance Department team actively participatein overseeing internal control procedures, intervening both on a top-down and a transversal basis. In consequence theyplay a decisive role in the way internal controls are exercisedby management.

The key internal control procedures of Inter Parfums arebased on the following priorities, defined in terms of theirimpact on assets and/or results:

■ key operating processes in the management of production,sales to distributors and the management of the companyimage,■ processes and managing resources, and notably cash andcurrency hedges, human resources, committed fixed costsand overhead, monitoring capital expenditures and taxobligations, monitoring the settlement of trade receivables,■ the processing and communication of accounting andfinancial information.

These processes generate information concerning salesobjectives, risks and internal control strategies. An interfacefor information generated by the different units responsible for managing internal control procedures in their respectiveareas to general management contributes to an effectivedecision-making process.

To increase awareness of the importance of internal controlprocedures among management staff, the company hasestablished and distributed to all operating and financialdepartments a manual of internal procedures providing a detailed description of the principal company processesincluding sales/customers, purchasing/suppliers, inventories,management information systems and personnel/payroll. This manual also provides detailed information about theprocedure for expense requests and signature authorizationsfor bank accounts. In addition, the company has developedan information technology charter for all personnel to ensurethat information technology resources are operated in anenvironment that ensures the security of the company'scomputer network.

The Chairman and Chief Executive Officer who decides the strategic objectives of the company in terms of sales,accounting and finance, is responsible, in coordination withthe Finance Department, for developing internal controlprocedures and resources to be deployed for this purposeand verify their application by each department. The FinanceDepartment monitors their implementation and effectiveness.

In general, the organization of the company is assuredthrough five main departments (Production & Logistics,Burberry Fragrances, Luxe & Fashion, French Distribution and Finance & Corporate Affairs) reporting on their activity to Executive Management on a monthly basis whichconstitutes the preferred system of oversight and control.


The system of monthly reporting implemented by Inter Parfums facilitates the analysis of financial performancesand cash flows in addition to operating and net incomeforecasts for the period in progress. This reporting systemprovides the basis for tracking income statement aggregatesfor each operating entity in relation to budget and actual ofprior year.

The reporting system in place and the existence of shortdecision-making channels involving reporting lines for thedifferent operating entities directly to the Chairman and ChiefExecutive Officer, assures the company a high degree of responsiveness and good visibility for financials.

1.1Key operating processes: product design anddevelopment, the management of production, sales to distributors

Based on the strategic goals set by the Chairman and ChiefExecutive Officer, managers of each operating entity concernedproduce an annual budget presented to the latter for approval.This budget will then be implemented according to a processuniformly applied to all departments.

Accordingly, as soon as the Chairman and Chief ExecutiveOfficer has decided to develop a new product, Marketing & Creation, establishes a budget for the creation and launchof the new products or promotional products subject to the agreement of the Chairman that will provide the basisfor determining the amounts and allocations.

Once the process of launching the new products has beenput into motion, Production & Logistics begins the productionphase by developing a budget for the purchase of thecomponents necessary for the production of the finishedproduct according to the brief defined by Marketing & Creation.The budget process implemented is fundamental andprovides a means to ensure the optimal management of production costs for products.

Before the products are introduced on the market, the strategic business units (Burberry Fragrances, Luxe & Fashion and French Distribution) produce monthlysales budgets that will serve as the basis for comparison withthe subsequent monthly reporting of actual sales. A rigorousplanning process for sales, regular periodic budget revisionsand meetings to monitor performances by the FinanceDepartment and Executive Management provide the basis for a reliable reporting system.

1.2Resource management process of the FinanceDepartment

The Finance Department is responsible for the resourcemanagement process which covers financial communications,accounting, consolidation, legal affairs, management control,cash management and information systems.

The Finance Department, is possible for centralizing Groupcash management and the production of coherent Groupfinancials ensures that all internal control procedures havebeen implemented to guarantee the reliability of theorganization of accounting, reporting and financial statementsnecessary to safeguard the corporate assets, comply withthe dates for recognizing transactions ensuring the reality of the transactions and the exhaustive nature of information.

In this respect, the Finance Department determines notablythe framework for the management of foreign exchange,cash pooling, trade receivable risks, human resources,committed fixed costs and overhead, monitoring capitalexpenditures and compliance with tax obligations.

This department establishes the consolidated financialstatements of all Group companies under IFRS and USGAAP and, within this framework, develops methods,standards and accounting guidelines to ensure theexhaustive nature, fair presentation and accuracy ofaccounting and financial information within a timetable thatcomplies with reporting requirements imposed by financialmarket and legal obligations.

Accordingly, in connection with procedures for closingaccounts and consolidation, the Finance Department definesfor each operating and financial process, the framework forspecial treatment, useful information, the parties concernedand the deadlines for reporting to the accounting department.

1.3Relations with statutory auditors

In connection with the certification of accounting and financialinformation two statutory auditors:

■ perform a limited review of the interim financial statements,

■ conduct a full audit of the annual financial statementspreceding which a pre-closing review is performed to anticipate the principal issues associated with the annual closing.

After completing their missions, meetings are held at which they present their eventual comments on the financial statements.

They also perform reviews of procedures which completesthe internal process of evaluation by notably verifying theconditions according to which internal control procedures are managed and the effectiveness of these internal controlsin respect to the accuracy of financial information.

53

2.Implementation of internal controls

2.1Operational processes

The internal controls specific to each department are notablyas follows:

■ marketing & Création: comparing the budget with actual in relation to expenses associated with design and creationcosts and advertising campaigns (Burberry Fragrances, Luxe & Fashion and French Distribution),

■ production & Logistics: effectively managing productioncost and ensuring that the quantities of components orderedare in line with production needs,

■ Burberry Fragrances, Luxe & Fashion and FrenchDistribution: monitoring sales activity, the contribution to the company for advertising expenses by distributors and the corresponding margins.

Management control also assists management of operatingentities develop, monitor and approve budgets, and proposenecessary adjustments in response to variances inperformance, to guarantee the reliability of the overall processand the resulting financial data produced. This undertakingmakes it possible to respond early on in the process tofluctuations in trends and rapidly take the actions madenecessary in consequence.

2.2The resource management process

Internal controls at this level are destined to ensure that:

■ financial statements are prepared in compliance withapplicable accounting rules and principles, disclosurerequirements imposed by financial markets and legalobligations. Since 2004, the company has prepared itsfinancial statements under IFRS,

■ in connection with cash management, bank reconciliationsare performed monthly and reviewed and foreign exchangehedges regularly monitored,

■ the budget monitoring process ensures the reliability of the resulting financial information,

■ the monitoring of tax obligations contributes to optimalmanagement of tax of related payments in light of theirimpact on the tax income and the provision for corporateincome tax. Similarly, internal controls focus on determiningthe impact of international tax regulations in respect to thenationality of the licensors to which the company paysroyalties and for which it establishes statements forwithholding tax,

■ property, plant and equipment and intangible assets are regularly monitored to be remeasured in the balancesheet at fair value,

■ information systems are also regularly updated. Themanagement of information systems risks is based notably on an effective system of the regular data backup and a processinvolving the regular verification of the security of the informationtechnology organization and the different systems in place.

2.3The processing and disclosure of financial andaccounting information

Internal controls consist of:

■ conducting quarterly reconciliations of the amount of the purchase of components produced by the salesmanagement with amounts included in the financialaccounting, in order to assess the comprehensive nature of flows concerning purchasing, credit receivable andpurchases prepaid before fiscal year-end (the cut-offpurchasing procedure),

■ assessing the reliability of procedures for permanent and rotating inventories by performing a reconciliation of InterParfums' permanent inventory with the inventory available for packaging products and analyzing eventual variances,

■ determining within the framework of sales managementthat information on sales flows, accrued credit notes and deferred revenue d before fiscal year-end is complete (the "sales cut-off" procedure). Controls are performed by crosschecking consolidated sales with sales figuresgenerated by the commercial management and theconsolidated gross margin with the gross margin producedby the commercial management,

■ identifying at the level of the management of customerorders, sales involving credits and/or the return ofmerchandise, analyzing the accounting treatment at the levelof incoming inventory and ensuring the effectiveness of themeans implemented to determine the amount of year-enddiscounts,

■ ensuring a rigorous management of trade receivable risksby daily monitoring the authorized level of outstanding creditgranted to customers in connection with the monitoring of the settlement of invoices,

■ ensuring strict management of advertising expenses andcommitments by identifying potential budget adjustments(cancellation or postponement of campaigns, additionalpromotional initiatives) that may have an impact on the year-end cut-off by verifying the methodology applied to monitoradvertising commitments and royalties resulting from thecompany's contractual obligations.

3Evaluation of internal control procedures

Since 2004, the company implemented measures for theself-assessment of internal controls to strengthen proceduresimplemented throughout the Group. It retained the consultingfirm Ernst & Young to assist in an internal audit for the purposeof independently assessing the quality of the internal controlprocedures implemented by the Group. In line with thiscontinuing process of self-assessment, this mission wasrenewed in 2005 and 2006.

The purpose of this mission, performed in accordance withstandards applicable within the framework of the USSarbanes Oxley Act (article 404) is to determine the existenceand reliability of the operating processes the accuracy ofreporting or information systems and identifying the key risksand associated controls for the principal operating andadministrative entities.

Within the framework of this mission, the audit consists ofconducting a general overview of the organization of internal


control to obtain a description of the internal control systemby sending managers a sample of entities selected accordingto the degree of risk they generate for the company whenthey have an impact on the company's financial statements,a self-assessment questionnaire to measure the applicationof internal controls on the basis of voluntary statements. If processes and the associated controls are not formalized orare considered insufficient a remediation plan is implementedby the manager concerned to complete the existing systemof internal controls.

This concerns entities involved in the following processes:

■ the management of orders and their settlement,■ the management of trade payables,■ inventory management,■ marketing budget management,■ the management of royalties,■ monitoring currency hedges,■ monetary compliance with social security,and tax obligations,■ account cut-offs,■ information system management.

On the basis of these questionnaires, the company analysesthe description provided and conducts a review of risk areasnot yet identified.

These risk areas are identified when internal controlprocedures for processes are implemented and for which keycontrols are developed to provide an accurate map of risks.This undertaking is part of an ongoing proactive andpreventive approach both at the level of Inter Parfums S.A. and the Group. This work has led to the creation of a strategyfor conducting tests in the principal areas concerned.

Every year, after updating all company procedures andidentifying, when applicable, new risk areas, the companyimplements a program of tests and analysis for the year in progress and repeats all tests again. In addition to theassistance by the consulting firm Ernst and Young, the company has implemented an organization destined to ensure the independence and objectivity of companypersonnel when conducting these tests. After the differentphases of analysis and tests have been completed, Ernst & Young issues a report summarizing control issuesand highlighting eventual dysfunctions or potentialdysfunctions that could result from inadequate controls. This report contributes to increased accountability by allparties involved in internal control procedures. It may beaccompanied by a remediation plan to complete and refineexisting internal controls and when necessary an action planto formalize, harmonize and improve internal controlprocedures for greater effectiveness.

Assessments of these different tests are transmitted to the Finance Department that issues an opinion concerningweaknesses that may have been identified and moregenerally on the quality of internal control.

4.Tests of internal control procedures conducted in 2006

In November 2006, based on information available to it andafter consultation with the different concerned management,the company updated and finalized all its manuals of internalprocedures.

It then identified potential risk areas and adapted inconsequence the control procedures. Similarly, it reviewedexisting key controls to ensure that they adequatelyaddressed the map of risks that was produced.

It was able to validate all internal control procedures.Particular attention was focused on the volume and quality of the sampling according to the following breakdown.

The 92 controls performed based on 77 risks areasconcerned the following operating entities:

■ sales, 9 controls,■ purchasing, 12 controls,■ stocks, 9 controls,■ royalties, 2 controls,■ marketing / Advertising, 4 controls,■ payroll, 15 controls,■ taxes and equivalent, 5 controls,■ fixed assets, 6 controls,■ cash management, 11 controls,■ information systems, 6 controls,■ account cut-offs processes, 13 controls.

The result of these tests did not indicate any significantcontrol deficiencies.

5.Forecasted trends for 2007

The company assures permanent oversight of organizationalchanges to anticipate, adapt and optimize internal controlprocedures in real time. Its internal control procedures arealso designed to respond to both regulatory requirementsand future issues facing the company.

In 2006, a supply-chain planning system was implemented to optimize inventory management and production processesand sourcing from suppliers. This tool will be operational in 2007.

In addition, starting in 2007 internal control procedures will be extended to new European subsidiaries included in the Group organization.

In line with this focus on ongoing improvements in internalcontrols, the company will continue to set new priorities with the following objectives:

■ pursue the formalization of procedures,

■ strengthen controls over operating and administrativeentities within the framework of remediation plans,

■ extend testing to new internal control processes,

■ quality financial information and effective management of the principal risks and monitoring regulatory requirements.

55

4.compensation of executive management

The Board of Directors sets the compensation policy for officers both in reference to market practice in comparable sectors and the size of the company in notably in respect to sales and the number personnel.

Cash compensation and benefits of any nature paid by both by the company and entities related thereto in accordance with the provisions of article L.233-16 of the French Commercial Code are disclosed below.

Compensation of officers

Compensation of officers consists of both fixed and variable components. Fixed compensation takes into account the level of responsibilities, experience and performance. Variable compensation is determined in relation to the company’s achievement of overall performance objectives and events related to each fiscal year.

On this basis, compensation paid to executives as officers or salaried employees in connection with employment contractsconcluded prior to becoming officers is disclosed below.

Total compensation Total compensation paid for 2006 paid for 2005

Philippe BenacinChairman and Chief Executive OfficerNet fixed compensation €144,000 €134,400Net variable compensation €117,600 €59,000Benefits in-kind €65,440 €62,000Supplemental executive retirement plans €7,500 €7,500

Philippe Santi (1)

Director - Executive Vice President Net fixed compensation €144,000 €134,400Net variable compensation €125,600 €104,000Supplemental executive retirement plans €7,500 €7,500

Frédéric Garcia-Pelayo (2)

Executive Vice President Net fixed compensation €144,000 €134,400Net variable compensation €125,600 €104,000Supplemental executive retirement plans €7,500 €7,500

Catherine Bénard-Lotz (3)

Director Net fixed compensation €61,400 €57,600Net variable compensation €31,700 €27,400Supplemental executive retirement plans €6,500 -

Jean Madar (4)

Director Gross fixed compensation $400,000 $400,000

(1) Compensation paid to Philippe Santi as a salaried employee with the position of Director of Finance and Corporate Affairs under the terms of an employment

contract predating his appointment as Executive Vice President (Directeur Général Délégué) and Director of the Company that remained in force. Philippe Santi

receives no compensation of any nature in connection with his appointment as an officer of the company.

(2) Compensation paid to Frédéric Garcia Pelayo as a salaried employee with the position of Chief International Officer under the terms of an employment contract

predating his appointment as Executive Vice President (Directeur Général Délégué) and Director of the Company that remained in force. Frédéric Garcia Pelayo

receives no compensation of any nature in connection with his appointment as an officer of the company

(3) Compensation paid to Catherine Bénard-Lotz as a salaried employee with the position of Chief Legal Officer under the terms of an employment contract

predating her appointment as Director of the Company that remained in force. Catherine Bénard-Lotz receives no compensation of any nature in connection with

her appointment as a company director.

(4) Compensation paid to Jean Madar by the parent company of the Group, Inter Parfums Inc (United States) as the Chief Executive Officer of this company.

Jean Madar receives no compensation of any nature from Inter Parfums S.A..


Directors’ fees

Directors fees are allocated to the Board of Directors by the shareholders' meeting for fiscal 2006 for a set amountper meeting attended of €2,000. The fifth resolution of theordinary shareholders' meeting of April 28, 2006 set the totalamount for directors’ fees at €30,000.

On this basis, for fiscal 2006 a total of €30,000 was paid to four outside directors for their attendance at meetings. The other directors expressly waived their rights to receivedirectors' fees.Directors Directors’ fees

M. Philippe Benacin (Chairman) NAM. Philippe Santi- (Exec. V.P.) NAM. Maurice Alhadève €8,000Mme Marianne Benacin NAMme Catherine Bénard-Lotz NAM. Patrick Choël €8,000M. Michel Dyens €6,000M. Jean Levy €8,000M. Raoul Madar NAM. Jean Madar NANA : not applicable

Stock options and other compensation

Stock-optionsRules for the grant of stock options to officers are based on the level of responsibilities and the performance of thecompany's share. The quantity of stock options granted to officers may vary from one year to another according to the performance of the company over this period.

Benefits in-kindPhilippe Benacin received benefits in-kind for the costs of a company car and housing benefits representing a totalamount of €65,440.

Executive retirement plans Executive officers benefit from a supplemental retirement planin the form of a defined contribution annuity fund. The benefitsof this plan were subsequently extended to senior executivesof the company. This contribution which is paid to a privatedefined contribution pension fund is paid in part by thebeneficiaries and in part by the employee for an amountequal four times French Social Security ceiling. The annualcontribution per beneficiary is approximately €7,500. The supplemental retirement plan is part of the overallcompensation policy adopted by the company for seniorexecutives and managers.

Other types of benefits No executives benefit from forms of remuneration,indemnities or benefits owed or which could be owedresulting from the assumption, termination or change offunctions of corporate officer of the company or subsequentto these events.

57

5.special report of the board of directors on stock options In compliance with article L. 225-184 of the French Commercial Code, this report is produced by the Board of Directors toinform the combined shareholders' meeting of April 20, 2007 of transactions carried out in fiscal 2006 by virtue of the provisionsunder articles L.225-177 to L. 225-186 of said code.

1.Options granted and exercised by each corporate officer of the company in 2006

Number of shares Subscription price Expiration dategranted/exercised (1)

IPSA options granted during the period to officers (plan of June 1, 2006)

Philippe BenacinChief Executive Officer - Director 11,000 €31.80 06/01/2012Jean MadarDirector 11,000 €31.80 06/01/2012Frédéric Garcia-Pelayo (2)

Executive Vice President 11,000 €31.80 06/01/2012Philippe Santi (3)

Executive Vice President - Director 6,600 €31.80 06/01/2012Catherine Bénard-Lotz (4)

Director 2,200 €31.80 06/01/2012

IP Inc options granted during the period to officers (plan of December 15, 2006)

Philippe Benacin 40,000 $19.66 12/14/2012Jean Madar 40,000 $19.66 12/14/2012Frédéric Garcia-Pelayo (2) 5,000 $19.66 12/14/2012Philippe Santi (3) 5,000 $19.66 12/14/2012

IPSA options exercised in the period by officers

Philippe BenacinPlan of August 26, 2002 12,290 €11.10 08/26/2009Jean MadarPlan of March 24, 2000 17,577 €13.80 03/24/2007Plan of April 27, 2001 19,110 €19.30 04/26/2008Plan of August 26, 2002 17,303 €11.10 08/26/2009Frédéric Garcia-PelayoPlan of March 24, 2000 763 €13.80 03/24/2007Plan of 27 April 2001 5,000 €19.30 04/26/2008Philippe SantiPlan of April 27, 2001 9,226 €19.30 04/26/2008Catherine Bénard-LotzPlan of March 24, 2000 2,636 €13.80 03/24/2007Plan of August 26, 2002 2,396 €11.10 08/26/2009

Options IP Inc exercised in the period by officers

Philippe Benacin 50,000 $8.03 12/19/2007Jean Madar 50,000 $8.03 12/19/2007

(1) number adjusted for the grant of bonus shares (1 for 10) of June 15, 2006.

(2) options granted in connection with his position as Chief International Officer.

(3) options granted in connection with his position as Director of Finance and Corporate affairs.

(4) options granted in connection with her position as Chief Legal Officer.


2.Information on options granted to the ten employees of the company who are not officers having beengranted or exercised the greatest number in 2006

Number of shares granted/exercised (1) Subscription price Expiration date

Options granted in the period to the 10 employees receiving the greatest number

Plan of June 1, 2006 26,400 €31.80 06/01/2012

Options exercised by the 10 employees exercising the greatest number

Plan of June 18, 1999 16,421 €6.60 06/18/2006Plan of March 24, 2000 7,501 €13.80 03/24/2007Plan of April 27, 2001 6,307 €19.30 04/26/2008Plan of August 26, 2002 15,440 €11.10 08/26/2009Total 45,669 -

(1) adjusted for the grant of new bonus shares (1 for 10) of June 15, 2006.

59

consolidatedfinancial statementsaccordingtoIFRSconsolidated income statement 61

consolidated balance sheet 62

statement of changes in shareholders’ equity 64

statement of cash flows 65

CONSOLIDATED INCOME STATEMENT

In € thousands,Except per share data which is in units Notes 2005 2006

Sales 4.1 194,442 216,235

Cost of sales 4.2 (82,703) (92,334)Gross margin 111,739 123,901

% of sales 57.5% 57.3%

Selling expenses 4.3 (79,208) (88,194)Administrative expenses 4.4 (6,618) (6,525)Income from operations 25,913 29,182

% of sales 13.3% 13.5%

Interest income 384 995Interest and similar expenses (892) (1,223)Net finance costs (508) (228)

Other financial income and expenses (346) 159Net financial expense 4.5 (854) (69)

Income before income tax 25,059 29,113

% of sales 12.9% 13.4%

Income tax 4.6 (8,923) (10,608)Effective tax rate 35.6% 36.4%Net income before minority interests 16,136 18,505

% of sales 8.3% 8.6%

Minority interests 159 189Net income 16,295 18,694

% of sales 8.4% 8.6%

Basic earnings per share (1) 4.7 1.82 1.79Fully diluted earnings per share (1) 4.7 1.77 1.76

(1) Not restated for bonuses issues.

61

CONSOLIDATED BALANCE SHEET

AssetsIn € thousands Notes 2005 2006

Non-current assetsTrademarks and other intangible assets 3.1 32,285 51,207Impairment and amortization (10,018) (10,303)Net trademarks and other intangible assets 22,267 40,904

Goodwill 3.2 5,018 5,202

Property, plant, equipment 3.3 7,024 8,615Depreciation (3,862) (4,927)Net property, plant, equipment 3,162 3,688

Investments and other non-current assets 331 303

Other fixed financial securities 3.7 210 311

Deferred tax assets 3.12 2,040 1,287

Total non-current assets 33,028 51,695

Current assetsInventories and work in progress 3.4 32,118 39,335Trade receivables and related accounts 3.5 66,436 82,137Current income tax assets 17 11Other receivables 3.6 5,222 5,998Marketable securities 3.7 34,885 43,667Cash and cash equivalents 3.8 372 558Total current assets 139,050 171,706

Total assets 172,078 223,401

2006 annual report inter parfumsconsolidated financial statements according to IFRS

Shareholders’ equity and liabilitiesIn € thousands Notes 2005 2006

Shareholders’ equityCommon stock 3.9 29,204 32,643Additional paid-in capital 1,246 1,545Retained earnings 51,304 62,913Net income for the year 16,295 18,694Total shareholders’ equity 98,049 115,795

Non-current liabilitiesProvisions for non-current commitments 3.10 343 474Non-current borrowings 3.11 8,061 4,953Other non-current debt 3,406 3,519Deferred tax liabilities 3.12 1,630 1,493Total non-current liabilities 13,440 10,439

Current liabilitiesTrade payables and related accounts 37,025 47,184Current borrowings 3.11 3,200 3,200Commitments and contingencies 3.10 2,812 1,551Current income tax liabilities 3.13 1,051 947Short-term bank loans 867 153Other liabilities 3.13 15,634 44,132Total current liabilities 60,589 97,167

Total shareholders’ equity and liabilities 172,078 223,401

63

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Number Capital Paid-in Retained TotalIn € thousands of shares stock capital earnings equity

& net income

As of December 31, 2004 (1) 8,708,085 26,181 0 56,484 82,665

Bonus issue 875,888 2,628 (229) (2 399) -Shares issued on exercise of stock options 131,685 395 1,475 - 1,8702005 net income - - - 16 295 16,2952004 dividend paid in 2005 - - - (3 222) (3,222)Treasury shares 11,457 - - 327 327Stock based compensation - - - 241 241Remeasurement of financial instruments at fair value - - - (127) (127)As of December 31, 2005 (1) 9,727,115 29,204 1,246 67,599 98,049

Bonus issue 976,942 2,931 (1,456) (1,475) -Shares issued on exercise of stock options 169,479 508 1,755 - 2,2632006 net income - - - 18,694 18,6942005 dividend paid in 2006 - - - (3,606) (3,606)Treasury shares (956) - - (51) (51)Stock based compensation - - - 380 380Remeasurement of financial instruments at fair value - - - 66 66As of December 31, 2006 (1) 10,872,580 32,643 1,545 81,607 115,795

(1) Excluding treasury shares.

2006 annual report inter parfumsconsolidated financial statements according to IFRS

65

STATEMENT OF CASH FLOWS

In € thousands 2005 2006

Cash flows from operating activitiesNet income 16,136 18,505Depreciation, amortization and other 5,423 3,618Changes in deferred taxes (820) 616Capital (gains) losses on fixed asset disposals (97) (12)Net finance costs 497 (211)Tax charge of the period 9,816 10,241

Operating cash flows 30,955 32,757

Interest expense (462) (1,057)Tax payments (10,220) (10,510)

Cash flow after interest expense and tax 20,273 21,190

Change in inventories and work in progress 5,802 (8,212)Change in trade receivables and related accounts (13,813) (15,564)Change in other receivables (1,808) (776)Change in trade payables and related accounts 11,413 10,159Change in other current liabilities 2,757 11,931Change in working capital needs 4,351 (2,462)

Net cash provided by (used in) operating activities 24,624 18,728

Cash flows from investing activitiesAcquisition of intangible assets (470) (3,999)Acquisition of property, plants and equipment (1,666) (1,398)Changes in the scope of consolidation - -Changes in investments and other non-current assets 219 63Sales of fixed assets - 900Net cash flows provided by (used in) investing activities (1,917) (4,434)

Cash flows from financing activitiesIssuance of borrowings and new financial debt - -Debt repayments (3,200) (3,200)Dividends paid (3,222) (3,606)Capital increases 1,870 2,265Treasury shares 378 (71)Net cash flows from financing activities (4,174) (4,612)

Change in net cash 18,533 9,682

Cash and cash equivalents - beginning of year 15,857 34,390Cash and cash equivalents - end of year 34,390 44,072

The reconciliation of net cash breaks down as follows:In € thousands 12/31/05 12/31/06

Marketable securities 34,885 43,667Cash and cash equivalents 372 558Short-term bank loans (867) (153)Net cash at the end of the period 34,390 44,072

notestotheconsolidatedfinancial statementsaccounting principles 67

principles of presentation 70

notes to the balance sheet 71

notes to the income statement 76

other information 78

67

1.accounting principles1.1 General

In accordance with EC regulations 1606/2002 of July 19, 2002 on international accounting standards, the 2006 and 2005 consolidated financial statements of the Inter Parfums Group are established in compliance with IAS/IFRS (International Accounting Standards/InternationalFinancial Reporting Standards) applicable as of December 31, 2005 as endorsed by the European Union.

Financial information presented herein has been based on:

■ IFRS standards and interpretations whose application wasmandatory starting in 2005,

■ options retained and exemptions used by the Group for thepreparation of IFRS consolidated financial statements.

The consolidated financial statements of December 31, 2006were approved by the Board of Directors on March 8, 2007.

1.2Changes in accounting standards

The following standards, amendments and interpretationsentered into force on January 1, 2006:

■ amendment to IAS 19 Employee Benefits: Actuarial Gainsand Losses, Group Plans and Disclosures,

■ amendments to IAS 39 and IFRS 4 Financial Guarantee Contracts,

■ amendment to IAS 39 The Fair Value Option.

Their application did not have a material impact on theconsolidated financial statements.

The following standards, amendments and interpretations will only be applied to the consolidated financial statementsstarting in 2007:

■ IFRS 7 Financial Instruments: Disclosures,

■ amendment to IAS 1 Presentation of Financial StatementsCapital Disclosures,

■ IFRIC 11 Group and Treasury Share Transactions.

The Group plans to adopt these texts when they becomeapplicable. The quantitative impacts of these changes on the financial statements is currently being assessed.

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1.3Basis of consolidation

Inter Parfums Trademark and Inter Parfums Grand Public arewholly controlled by Inter Parfums, and as such have beenfully consolidated since July 1994 as has Nickel since April2005. All consolidated companies close their accounts onDecember 31. No company has been excluded from theconsolidation scope.

1.4Harmonization of accounting methods

The financial statements of subsidiaries according to thesame fiscal year as the parent company.

1.5Translation method

The companies operating currency and currency for thepresentation of financial statements is the euro.

Transactions in foreign currencies are translated at theexchange rate in effect on the date of the transaction. Foreigncurrency denominated payables and receivables are translatedat the exchange rate in effect as of December 31, 2006.Translation losses and gains arising from the conversion ofaccounts denominated in foreign currencies on December 31,2006 are recorded in the income statement. Hedgedtransactions are translated at the negotiated exchange rate.

1.6 Use of estimates

The preparation of consolidated financial statements requiresthe use of estimates and assumptions. Although theseestimates are based on management’s best knowledge ofcurrent events and actions, actual results may ultimately differfrom these estimates.

1.7 Revenue recognition

Revenue is recognized upon transfer of title. Amounthinvoiced at year-end when actual transfer of title occurs in the following year are not recognized under revenue of the year in progress.

1.8Trademarks and other intangible assets

Trademarks and other intangible fixed assets, includingtrademarks under licensing contracts and acquiredtrademarks are recorded at cost.

Trademarks that have widely recognized internationalnotoriety and are legally protected are classified as indefinitelife intangible assets and are not amortized.

Finite life intangible assets such as upfront license fees areamortized on a straight-line basis over the duration of thelicense. Rights on glass molds are classified as finite lifeintangible assets.

Trademarks and upfront license fees are remeasured at leastonce a year or whenever there is an indication of impairmenton the basis of value in use defined as the present value ofestimated future cash flows expected to arise from thecontinuing use of these assets. Data used originates from theannual and multiyear budgets drawn up by Management.The discount rate before tax applied for remeasurement isthe10 year annual percentage rate (APR). A provision forimpairment is recorded under income if this value declines.

Under IAS 38.27b revised in 2004, costs generated onacquisition analyzed as directly attributable costs are included

in the cost of the acquired assets.

Other intangible assets are amortized over their useful livesand subject to impairment testing when an indication of impairment exists. No impairment was recorded at December 31, 2006.

1.9Goodwill

Goodwill is defined as the difference between the purchaseprice of shares of consolidated companies and the Group'sshare in their net assets at the date of acquisition. When firstconsolidated, this difference is allocated to the appropriateconsolidated balance sheet accounts. The excess amount isrecognized under assets in the balance sheet as "goodwill".

Minority shareholders of Nickel and Inter Parfums benefitedfrom a bilateral promise to purchase or sell the minorityinterests that may be exercised by either of the parties fromJanuary 1, 2007 to June 30, 2007.

Pending clarification on the interpretation of IAS 32, Inter Parfums has recognized these commitments as follows:

■ the amount of the commitment on the closing date is recorded under liabilities,■ the corresponding minority interests are reclassified in the above amount,■ the difference between the commitment and thereclassified amount of minority interests is recorded under goodwill.

This method of recognition has no impact on the presentationof minority interests in the income statement.

According to certain interpretations of the standards, the entire amount of goodwill should be deducted fromshareholders' equity whereas under other interpretationsgoodwill is maintained under assets at a fixed amount on the acquisition date with subsequent changes recorded in the income statement.

This goodwill is subject to annual reviews. Valuation methodsused are the sales multiple method based on Nickel’sprojected sales and the projected discounted cash flowmethod. The average valuation resulting from the twomethods is used to determine the value in use of thegoodwill. As of December 31, 2006, the value in useexceeded the carrying amount.

1.10Property, plants and equipment

Tangible fixed assets are valued at cost (purchase price plusrelated costs, excluding acquisition cost) and depreciatedover their estimated useful lives on a straight-line basis (2 to 5 years). Tangible fixed assets include molds for caps.

1.11Inventories and work in progress

Inventories are valued at the lower of cost or probable resalevalue. A provision for impairment is recorded when theirprobable resale value is lower than the carrying value.

Inventories of raw materials and supplies are valued using thelatest effective purchase price.

The cost of finished products includes the cost of materialsused, production expenses and a share of indirect costsvalued at a standard rate.

2006 annual report inter parfumsnotes to the consolidated financial statements

At the end of every year, these standard rates are comparedwith the effective rate actually obtained based on actual dataat year-end.

1.12Financial instruments

The Group opted to apply IAS 32 and IAS 39 startingJanuary 1, 2004.

Marketable securities on initial recognition are recorded at cost and subsequently remeasured at fair valuecorresponding to the market value at the end of each period.

All Group marketable securities have been classified as "available-for-sale financial assets".

In accordance with IAS 39.55, gains and losses on “available-for-sale financial assets” are recorded at year-end in equity.

1.13Accounts receivable

Accounts receivable are recorded at face value. A provisionfor impairment is recorded when the probable recovery valueis deemed to be less than the carrying value.

1.14Deferred tax

Timing differences between tax base and consolidated assetsand liabilities and tax on restatements on consolidation give rise to the recognition of deferred taxes under the liabilitymethod, taking the known year-end tax conditions into account.

Potential tax credits resulting from loss carry forwards areonly recorded when their use in the short term is deemedlikely, and subject to depreciation when appropriate, are maintained in the balance sheet.

At December 31, 2006, an impairment of deferred tax assetswas recorded for Nickel for the portion recoverable after a period of five years.

1.15Treasury shares

Inter Parfums shares held by the Group are recorded as a deduction from equity at cost. If sold, the proceeds are recorded directly under equity net of tax.

1.16Marketable securities, cash and cash equivalents

Cash comprises marketable securities, cash and cashequivalents that consist of highly liquid investments andreadily convert to cash within three months.

1.17Commitments and contingencies

Pension benefits

This reserve is maintained to honor the company’s employeepension benefits commitments and corresponds to the presentvalue of the payments to which employees are entitled, under the collective bargaining agreement, once they retire. It is calculated on the basis of the projected unit creditmethod that takes into account seniority, life expectancy and the rate of employee turnover, and makes assumptionsabout revaluation and discounting to present value tomeasure the present value of its defined benefit obligationsand current service costs.

Other commitments and contingencies

Allocations are made to reserves for all clearly defined risksand expenses when past or current events render theiroccurrence likely. These reserves are revalued at the end ofevery fiscal year to reflect changes in their impact or likelihoodof occurrence.

1.18Financial instruments

The company has recourse to forward exchange contractsand cash flow hedges. These contracts destined to hedgeexposure of trade receivables in foreign currencies (primarilythe US dollar and Sterling pound) have maturities of three to six months. In compliance with IAS 39, the unrealizedcurrency gain or loss from the effective portion of the gain or loss of the hedging instrument is recognized directlyin equity. Effectiveness testing is performed on the basis of the fair value of the hedge.

A swap to cover interest-rate risks in connection with theLanvin loan of €16 million linked to 3 month Euribor wasimplemented in October 2004. In compliance with IAS 39,the difference in the market value of this instrument and thenotional amount is recorded in the income statement. Thissame principle is applied for the associated caps and floors.

Under IAS 32 minority interests are considered to berepresented by equity securities and consequently as financialinstruments. On this basis a liability is recorded forcommitments to buy out minority interests of Nickel evenwhen the exercise of this commitment is optional. After reclassifying minority interests under liabilities thecompany also recognized under liabilities the present value of the future commitment.

1.19Stocks options

IFRS 2 requires that a charge be recorded in the incomestatement with a corresponding increase to reservescorresponding to services rendered by beneficiaries of stocksoptions. This expense, calculated on the date of grant by theBoard of Directors is determined by applying the Black & Scholes model and spread over the vesting period of the plans (4 years).

1.20Registration of trademarks

Under IAS 38, expenses incurred in connection with theregistration of each "worldwide” trademark are not capitalizedand are expensed under "research and consulting costs".

1.21Earnings per share

Basic earnings per share are calculated using the weightedaverage number of shares outstanding during the year andexcluding treasury shares.

Fully-diluted earnings per share are calculated based on theaverage number of shares outstanding, after excluding onlytreasury shares destined to be held on a long-term basis andadjusted for the effects of all diluted potential ordinary shares.

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1.22Disclosures about related parties

The accounts of Inter Parfums and its subsidiaries InterParfums Trademark, Inter Parfums Grand Public and Nickel,through Inter Parfums Holding, are all fully consolidated intothe accounts of Inter Parfums Inc., whose registered office is located at 551 Fifth Avenue, New York, NY 10176 USA,United-States.

No material commercial transactions exist between InterParfums S.A. and Inter Parfums Inc.

2.principles of presentation

2.1Presentation of the income statement

The consolidated financial statements of the company arepresented according to function. Under this presentation,expenses and income are broken down by function (cost of sales, selling expenses, administrative expenses) ratherthan the nature of the origin of expenses and income.

2.2Presentation of the balance sheet

The balance sheet of 31 December is presented based on a classification between current and non-current liabilities.


3.notes to the balance sheet

3.1Trademarks and other intangible assets.

In € thousands 12/31/05 + - 12/31/06

CostMolyneux trademark 2,591 - (2,591) -Molyneux non-compete agreements 486 - (486) -Nickel trademark 2,133 - - 2,133S.T. Dupont upfront license fee 869 350 - 1,219Lanvin upfront license fee 16,450 - - 16,450Burberry upfront license fee 3,000 2,000 - 5,000Van Cleef & Arpels upfront license fee - 18,250 - 18,250Quiksilver acquisition cost - 300 - 300Rights on molds for bottles 6,460 1,062 (77) 7,445Other 296 114 - 410Total cost 32,285 22,076 (3,154) 51,207

Amortization and depreciationMolyneux trademark (1,668) - 1,668 -Molyneux non-compete agreements (373) (16) 389 -S.T. Dupont upfront license fee (672) (143) - (815)Lanvin upfront license fee (1,634) (1,097) - (2,731)Burberry upfront license fee (376) (300) - (676)Rights on molds for bottles (5,079) (790) 77 (5,792)Quiksilver acquisition cost - (19) - (19)Other (216) (54) - (270)Total amortization and depreciation (10,018) (2,419) 2,134 (10,303)

Total net 22,267 19,657 (1,020) 40,904

Molyneux trademark

The Molyneux trademark was sold in June 2006 to Parfums Berdoues. This sale did not have a material impact on the financialstatements.

Nickel trademark

The Nickel trademark, acquired on April 1, 2004, was revalued on December 31, 2006 using the discounted cash flow method.No impairment was recorded.

S.T. Dupont upfront license fee

The upfront license fee of €869,000 is amortized over 11 years as of July 1, 1997. In March 2006, an additional license fee of €350,000 was paid to be amortized over the remaining term of the license agreement.

Lanvin upfront license fee

The upfront license fee of €16 million is amortized over 15 years from the date of acquisition on July 1, 2004.

Burberry upfront license fee

The upfront license fee of €3 million is amortized over 12 years as of July 1, 2004. In September 2006, an additional license fee of €2 million was paid to be amortized over the remaining term of the license agreement.

Van Cleef & Arpels license fee agreement

In 2006, the Van Cleef & Arpels and Inter Parfums groups signed a worldwide license agreement to manufacture and distributeperfumes and anciliary products under the Van Cleef & Arpels brand name with a 12-year term as of January 2007. And upfront license fee of €18 million is amortized over the term of the agreement.

Rights on molds for bottles

Rights on molds for bottles are amortized over 5 years. Design costs are amortized over 3 years.

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3.2Goodwill

The acquisition of 67.57% of Nickel SA was finalized on April 1, 2004 for a total price of €6.9 million, including a cash infusionof €2.3 million in June 2004.

At December 31, 2006, the allocation of the cost price including agreements with minority interests (cf. 1.9) broke down as follows (In € thousands):

Acquisition cost 6,910

Current assets (5,755)Property, plant, equipment (187)Trademarks and other intangible assets (2,194)Other fixed assets (116)Trade payables 2,468Fair value of acquired assets and liabilities (5,784)

Minority interests 1,876Goodwill 3,002

Present value of future commitments to buyout minority interests 2,200Total goodwill 5,202

3.3Property, plant and equipment

In € thousands 12/31/05 + - 12/31/06

Fixtures, improvements, fittings 1,947 670 (42) 2,575Office and computer equipment and furniture 1,374 70 (111) 1,333Molds for caps 3,668 673 - 4,341Other 35 331 - 366Total cost 7,024 1,744 (153) 8,615

Accumulated depreciation (1) (3,862) (1,218) 153 (4,927)Total net 3,162 526 - 3,688

(1) including fixed assets held under finance leases (vehicles) for a gross amount of €193,000 and depreciation expenses of €20,000.

3.4 Inventories and work in progress

In € thousands 12/31/05 12/31/06

Raw materials and components 15,713 16,769Finished goods 20,331 27,487Total cost 36,044 44,256

Allowance for raw materials (1,199) (2,064)Allowance for finished goods (2,727) (2,857)Total provisions (3,926) (4,921)

Total net 32,118 39,335

3.5Trade receivables and related accounts

In € thousands 12/31/05 12/31/06

Total cost 67,940 83,510Provisions (1,504) (1,373)Total net 66,436 82,137

3.6Other receivables

In € thousands 12/31/05 12/31/06

Accruals 3,209 3,831Company current accounts 28 64Value-added tax 1,281 1,246Other 704 857Total 5,222 5,998


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3.7Marketable securities and fixed securities

In € thousands 12/31/05 12/31/06

Equities 210 311Total fixed securities (marked to market) 210 311

Certificates of deposit 16,300 22,100Money-market mutual funds 18,585 21,567Gross value of marketable securities (marked to market) 34,885 43,667

Gross value of securities portfolio (marked to market) 35,095 43,978

Allowances - -Net value of securities portfolio (marked to market) 35,095 43,978

Listed securities 210 311Unlisted securities 34,885 43,667

3.8Net cash

Highlights of the consolidated statement:

■ cash flows from operating activities reflecting an optimal management of trade receivables and payables and changes in inventories reflecting launches and sales growth of the period,

■ cash flows from investing activities that included the purchase of molds and tooling for product launches of the year as wellas an additional license fee paid to Burberry,

■ cash flows from financing activities including an annual repayment of a medium term loan to finance the upfront license fee in connection with the Lanvin acquisition and the payment of the dividend for fiscal 2005.

Pursuant to these items, the net cash position was €44 million at December 31, 2006.

3.9Shareholders’ equity

3.9.1 Common stock

As of December 31, 2006, Inter Parfums’ capital was composed of 10,881,080 shares with a par value of €3, 71.6%-held by Inter Parfums Holding.

For the period under review, capital increases result from the exercise of stock options and the capital increase in connectionwith the bonus issue of 15 June, 2006 on the basis of one new share for every 10 shares held.

3.9.2 Stock option plans

Since 1994, the managers and employees of Inter Parfums and its subsidiaries benefit regularly from stock option plans.

At the beginning of June 2006, a new stock option plan was set up for Inter Parfums employees providing for 98,800 stockoptions with an exercise price of €35. These options are subject to a vesting period of four years.

At 2006 year-end, outstanding stock options broke down as follows:

Plans Subscription Grant date Vesting Optionsprice (1) period outstanding as of

December 31, 2006

Plan 2000 13.80 03/24/00 5 years 33,028Plan 2001 19.30 04/27/01 4 years 64,455Plan 2002 11.10 08/26/02 4 years 80,203Plan 2003 18.30 08/26/03 4 years 83,248Plan 2004 26.70 03/25/04 4 years 112,100Plan 2005 25.00 05/26/05 4 years 134,673Plan 2006 31.81 06/01/06 4 years 107,800Potential number of new shares 615,507

(1) Subscription price adjusted for bonus issues

Benefits granted to employees in the form of stock options recognized as additional compensation, in accordance with IFRS2,were calculated using the Black & Scholes model. The impact of this calculation represented a pre-tax charge of €580,000 as of December 31, 2006 and €365,000 as of December 31, 2005.

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The estimated fair value of each stock option based on using the Black & Scholes model was calculated on the grant date on the basis of the following assumptions:

Plans Risk-free Dividend Volatility Vestinginterest rate yield rate period

Plan 2003 3.00% 1.00% 41% 4 ansPlan 2004 4.20% 1.00% 23% 4 ansPlan 2005 4.50% 1.00% 22% 4 ansPlan 2006 4.60% 0.94% 25% 4 ans

3.9.3 Treasury shares

Within the framework of the share repurchase program authorized by the shareholders meeting on April 28, 2006, 8,500 Inter Parfums shares were held by the company as of December 31, 2006.

3.9.4 Dividends

In 1998, Inter Parfums adopted a policy with an objective of distributing an equivalent to 10% of its consolidated earnings.

After sustained rises over the last three years, the dividend per share should be increased to €0.38 (+14.5%) representing a payout ratio of 22%.

3.10Commitments and contingencies

In € thousands 2005 Increases Utilizations Reversals 2006

Reserves for severance benefits 343 131 - - 474Non-current provisions 343 131 - - 474

Other commitments and contingencies 2,812 475 1,654 82 1,551Total 3,155 606 1,654 82 2,025

Contingencies concern primarily provisions for sales-related litigation with a supplier.

3.11Borrowings and other financial debt

The signature of the license agreement with Jeanne Lanvin S.A. for €16 million was financed by a €16 million five-year loan at 3-month Euribor +0.60%.

This loan maturing on June 30, 2009 is repaid on the basis of fixed installments of €0.8 million per quarter or €3.2 million per year. At the end of December 2006, the amount of principal outstanding on this loan was €8 million. This loan is not subjectto any special provisions.

At the same time, the company implemented a swap to cover its exposure to floating-rate risk in connection with this loan. This swap, at 12-month Euribor at year-end with a lower limit of 2.10% and an upper limit of 3.85% is accompanied in consequence by a cap and a floor.


3.12Deferred tax

Deferred taxes arise from timing differences between financial accounting and tax accounting. Deferred taxes from consolidationadjustments and loss carryforwards are recovered as follows:

In € thousands 12/31/05 Changes Changes 12/31/06through through

reserves income

Deferred tax liabilitiesTiming differences between financial and tax accounting 680 - (313) 367Acquisition cost 145 - 172 317Market value on securities 32 35 - 67Discounting of Nickel debt 39 (39) -Stocks options - 199 (199) -Gains (losses) on treasury shares - 3 (3) -Loan swap - - 8 8Remeasurement gains (losses) 734 - - 734Total deferred tax liabilities 1,630 237 (374) 1,493

Deferred tax assetsTiming differences between financial and tax accounting 530 - 103 633Loan swap 19 - (19) -Recognition of loss carryforwards 1,491 - (218) 1,273Other - - 14 14Total deferred tax assets before depreciation 2,040 - (120) 1,920Depreciation of deferred tax - - (633) (633)Net deferred tax 2,040 - (753) 1,287

3.13 Other short-term liabilities

In € thousands 12/31/05 12/31/06

Accrued credit notes 2,266 6,827Current account liabilities 6,362 8,965Minimum annual tax charge and corporate income tax advances 1,051 947Tax and employee-related liabilities 4,451 5,171Van Cleef & Arpels debt (1) - 18,000Other liabilities 2,555 5,169Total 16,685 45,079

(1) cf. note 3.1

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4.notes to the income statement

4.1Breakdown of consolidated sales

4.1.1 By geographic region

% 2005 2006

North America 23% 24%South America 7% 7%Asia 13% 14%Europe 40% 39%Middle East 8% 8%France 8% 8%Other 1% -Total 100% 100%

4.1.2 By brand

% 2005 2006

Burberry 67% 67%Lanvin 15% 16%Paul Smith 8% 8%S.T. Dupont 5% 5%Nickel 2% 2%Christian Lacroix 2% 2%Celine 1% -Total 100% 100%

4.2Cost of sales


Raw materials, trade goods and packaging (67,381) (88,404)Changes in inventory and allowances (7,731) 5,988POS advertising (4,860) (6,507)Transportation costs (472) (746)Other expenses related to the cost of sales (2,259) (2,665)Total cost of sales (82,703) (92,334)

4.3Selling expenses


Advertising (32,476) (36,907)Royalties (21,584) (25,336)Staff costs (7,938) (9,357)Subcontracting (3,213) (3,024)Transportation costs (2,731) (3,276)Commissions (1,955) (1,645)Allowances and reversals (4,272) (1,743)Other selling expenses (5,039) (6,906)Total selling expenses (79,208) (88,194)


4.4Administrative expenses


Purchases and external costs (2,568) (2,219)Staff costs (1,834) (2,370)Taxes and related expenses (893) (347)Other administrative expenses (1,323) (1,589)Total administrative expenses (6,618) (6,525)

4.5Net financial expense


Interest income 384 995Currency gains (losses) (357) 140Interest and similar expenses (892) (1,223)Other financial income and expense 11 19Net financial expense (854) (69)

4.6Income taxes

4.6.1 Analysis of income taxes


Current income tax (9,835) (10,231)Deferred tax arising from timing differences 507 272Deferred tax arising from consolidation adjustments 405 (649)Total income taxes (8,923) (10,608)

4.6.2 Reconciliation of the effective tax expense and theoretical tax expense

The difference between the effective tax recorded and the theoretical tax expense calculated by applying the tax rate of 35.4%applicable for fiscal 2005 and 2006 to pretax income reflects the following:


Tax base 25,059 29,113

Theoretical tax calculated at the standard rate 8,746 10,024Tax credit and income taxable at lower rates - -Effect of tax rate change on deferred taxes 11 (28)Depreciation of tax assets from loss carryforwards - 633Permanent non deductible differences 166 (21)Income taxes 8,923 10,608

4.7Earnings per share

In € thousands except number of shares and earnings per share in euros 2005 2006

Consolidated net income 16,136 18,694Average number of shares 8,974,298 10,421,965Basic earnings per share (1) 1.82 1.79

Dilution effect of stock options:Potential number of additional shares 210,823 212,100Potential effect on consolidated net income - -

Potential fully diluted consolidated net income 16,136 18,694

Potential fully diluted average number of shares outstanding 9,185,121 10,634,065Diluted earnings per share (1) 1.77 1.76

(1) not adjusted for bonus shares granted in 2005 and 2006.

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5.other information

5.1Off balance sheet commitmentsIn € thousands 2005 2006

Guaranteed minima on trademark royalties 267,454 279,901 Guarantees given 331 303Headquarter rental payments 7,338 6,384Other guaranteed minima for warehousing and logistics 15,850 13,250Firm component orders (inventories) 2,844 3,460Total commitments given 293,817 303,298

5.2Insurance

Inter Parfums is named as beneficiary under a €15 million life insurance policy for Philippe Benacin.

5.3Foreign exchange risk

Inter Parfums applies a conservative approach in managing exchange rate risk, seeking only to hedge its exposure fromoperations and maintain its gross margins.

Forward sales are carried out routinely for twelve moth periods, mainly on the U.S. dollar that in 2006 accounted for 34.1% of total billings compared with 31% in 2005. In addition, the impact of sharp U.S. dollar parity fluctuations on the gross margin can be partially offset through adjustments tothe products’ sales.

5.4Employee-related data

5.4.1 Employees by department

Number of employees 12/31/05 12/31/06

Executive management 2 2Production & Operations 17 18Burberry Fragrances 23 26Luxe & Fashion 18 19France 32 42Finance & Corporate Affairs 20 21Total 112 128

5.4.2 Wages and benefits


Total wages and benefits 10,965 13,091Of which Management Committee members - wages, bonuses & social charges 1,592 1,963Of which Management Committee members - share based payment expenses 120 191

In addition supplemental retirement benefits for executive management of €69 million was paid in 2006.

5.5 Post-closing events

None.


shareholderinformationstatutory Information on the company 81

capital stock 82

resolutions submitted to the combined shareholdersmeeting of April 28, 2006 84

1.statutory information1.The company

Corporate name: Inter Parfums

Registered office: 4, rond-point des Champs Elysées 75008 Paris, FranceDate of incorporation April 5, 1989Date of expirationApril 5, 2088

Legal form: Corporation (société anonyme) with a Board of Directors governed by the provisions of Livre II of theFrench Commercial Code and Companies Act No. 67-236 of March 23, 1967.

Corporate charter: The company’s business purpose in France and all other countries includes:

■ the purchase, sale, manufacture, import and export of all products related to perfumes and cosmetics,■ the use of license agreements,■ providing all services related to the above-mentionedactivities,■ the company’s participation by all means, directly or indirectly, in all transactions that may relate to its businesspurpose through the creation of new companies the contribution, subscription or purchase of company sharesor rights, mergers or other, through the creation, acquisition,rental or lease management of all rights to conduct businessor establishments, and through the acquisition, operation

or disposal of all procedures and patents related to theseactivities,■ and, generally, all commercial, industrial, financial, civil,securities and real estate transactions that relate directly orindirectly to the company’s business purpose or to any similarand related activities.

Fiscal year: January 1 - December 31Siret number: 350 219 382 00032Activity code: 514 L Wholesale perfume and beauty products

2.Share account registration

At the option of their owners, shares in France are registeredin a standard personal account (compte nominatif pur), an administered personal account (compte nominatifadiministré) or to the bearer identifiable at an authorizedintermediary. Euro Emetteurs Finances handles share services and management exclusively for personal accounts.Questions may be addressed to the registered office.

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2.capital stock1.Three-year history of capital stock transactions

Year Transaction type Number Shares Total Capitalof shares created shares stock (in €)

2004 Exercise of 1997 stock options 4,039 4,039 4,276,237 12,828,711Exercise of 1998 stock options 41,297 41,297 4,317,534 12,952,602Exercise of 1999 stock options 127,017 127,017 4,444,551 13,333,653Bonus issue 4,282,535 4 282,535 8,727,086 26,181,258

2005 Exercise of 1998 stock options 11,402 11,402 8,738,488 26,215,464Exercise of 1999 stock options 29,590 29,590 8,768,078 26,304,234Exercise of 2000 stock options 57,118 57,118 8,825,196 26,475,588Exercise of 2001 stock options 33,575 33,575 8,858,771 26,576,313Bonus issue 875,888 875,888 9,734,659 29,203,977

2006 Exercise of 1999 stock options 28,758 28,758 9,763,417 29,290,251Exercise of 2000 stock options 39,559 39,559 9,802,976 29,408,928Exercise of 2001 stock options 43,795 43,795 9,846,771 29,540,313Exercise of 2002 stock options 55,486 55,486 9,902,257 29,706,771Exercise of 2003 stock options 484 484 9,902,741 29,708,223Exercise of 2004 stock options 704 704 9,903,445 29,710,335Exercise of 2005 stock options 363 363 9,903,808 29,711,424Exercise of 2006 stock options 330 330 9,904,138 29,712,414Bonus issue 976,942 976,942 10,881,080 32,643,240

As of December 31, 2006, Inter Parfums’ capital was composed of 10,881,080 shares with a par value of €3.

2.Ownership of Inter Parfums capital stock and voting rights

2.1 Situation at February 28, 2007Shares % of Voting % of voting

held capital rights rights

Inter Parfums Holding S.A. 7,779,926 71.14% 15,559,852 83.21%French Investors 1,482,651 13.56% 1,482,651 7.93%Foreign Investors 542,212 4.96% 542,212 2.90%Individuals 1,111,542 10.17% 1,115,760 5.96%Treasury shares 19,580 0.17% - -Total 10,935,911 100.00% 18,700,475 100.00%

A survey of shareholder ownership identified 7,530 shareholders at February 28, 2007, up nearly 40% in one year. ExcludingInter Parfums Holding, ownership breaks down as follows:

■ 170 French investors and mutual funds owning 13.6% of the capital stock compared with 129 in 2005 owning 15.6%,

■ 60 foreign investors, located mainly in the U.K., Switzerland, the U.S. and Luxembourg, who own 5% of the capital stockcompared with 56 in 2005 with 2.1%,

■ 7,300 individuals owning 10.1% of the capital stock compared with 5,240 in 2005 owning 8.3%.

To the Company’s knowledge, there are no other shareholders that possess directly, indirectly or together, 5% or more of thecapital or voting rights.

2.2Changes in Inter Parfums Holding’s ownership over four years

31/12/03 31/12/04 12/31/05 12/31/06

Inter Parfums Holding 75.00% 73.84% 72.71% 71.56%Investors. free float and employees 25.00% 26.16% 27.29% 28.44%Total 100.00% 100.00% 100.00% 100.00%

2006 annual report inter parfumsshareholder information

3.Breakdown of Inter Parfums Holding’s capital stock as of December 31, 2006

Inter Parfums Holding, whose sole equity holding is Inter Parfums, is itself wholly owned by Inter Parfums Inc., listed onNASDAQ in the United States with approximately 1,750 shareholders. As of December 31, 2006 it had the following ownership structure:

■ Philippe Benacin and Jean Madar: 55.59%■ Free float: 44.41%

4.Key stock market dataIn number of shares and euros 2002 2003 2004 2005 2006

Shares outstanding as of December 31 3,799,490 4,272,198 8,727,086 9,734,659 10,881,080Market capitalization as of December 31 152 M 278 M 233 M 334 M 386 MHigh (1) 61.82 66.50 67.30 35.10 41.88Low (1) 29.00 27.27 25.15 26.65 31.52Average (1) 45.13 44.68 29.12 31.20 35.25Year-end 40.00 65.00 26.79 34.29 35.43Average daily volume (1) 1,200 2,260 4,570 8,093 7,785Earnings per share (1) 2.43 3.11 3.00 1.82 1.79Dividend per share (1) 0.42 0.60 0.37 0.37 0.38Average number of shares outstanding 3,642,789 4,055,210 5,174,465 8,968,569 10,421,965

(1) Historical data (not restated for bonus issues in 2002, 2003, 2004, 2005 and 2006).

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5.Share price

Since January 2, 1998, Inter Parfums shares (ISIN codeFR0004024222-ITP) listed in the EuroNext Paris incontinuous trading, joined compartment B of Eurolist (for companies with a market capitalization between €150 million and €1 billion) in February 2005.

After particularly strong gains in 2005 (+41%), the Inter Parfumsshare pursued an upward trend in 2006 following the announcement of the license agreement with Quiksilver,that was accompanied by significant trading volume. The share price was subsequently adversely affected

by the downturn in financial markets in the month of May,particularly in the segment of MidCaps, falling back to the levels of the beginning of the year.

On June 15, 2006, the company proceeded with a newbonus share issue of one new share for each 10 shares held.

The publication in September of first-half sales thatsurpassed market expectations, followed by theannouncement of the license agreement in October with the Van Cleef & Arpels jewelry house reversed this trend. As a result, the share ended the year at €35.4 with a marketcapitalization of €380 million.

3.resolutions submitted to the combined shareholders meeting of April 20, 2007

Ordinary resolutions

FIRST RESOLUTION

Approval of the parent company financial statements for the period endend December 31, 2006

The shareholders, in accordance with the conditions ofquorum and majority that apply at ordinary general meetings,after reviewing the report of the Board of Directors, includingthe Chairman's report provided for under article 225-37 ofthe French Commercial Code, and the Auditors' report on thefinancial statements for the period ended December 31, 2006,approve the annual financial statements, as presentedshowing a net income of €18,395,672. They also approvethe transactions described in the accounts and summarizedin these reports.

The shareholders further approve disallowed deductions(article 39-4 of the French General Tax Code) of €14,896.

The shareholders consequently grant discharge to alldirectors for their management for the period endedDecember 31, 2006.

SECOND RESOLUTION

Approval of the consolidated financial statements for the period ended December 31, 2006

The shareholders, in accordance with the conditions ofquorum and majority that apply at ordinary general meetings,after reviewing the report of the Board of Directors on themanagement of the Group and the Auditors' report on theconsolidated financial statements, approve these financialstatements for the period ended as presented showing an IFRS net income of €18,694,000. They also approve the transactions described in the accounts and summarizedin these reports.

THIRD RESOLUTION

Approval of net income and the distribution of the dividend

The shareholders, approving the proposal of the Board of Directors, decide to appropriate the net income of €18,395,672.00 as follows:Net income of the period €18,395,672.00

Appropriation to the legal reserve €919,784.00Retained earnings €13,344,308.00 Dividend €4,131,580.00Total appropriation €18,395,672.00

All qualifying shares of the company will receive a dividend of €0.38.


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The shareholders duly note that all dividends distributed toqualifying individual shareholders confer a right to a tax creditof 40% in accordance with article 158.3.2 of the Frenchgeneral tax code.

The dividend payment will begin on April 30th, 2007.If on the date of payment the company holds treasury shares,

the amount corresponding to dividends not distributed for said shares will be allocated to retained earnings.

As required by law the shareholders duly note that dividendsfor the last three periods including the corresponding taxcredits were as follows:

Year Number Dividend Tax credit Qualifyiong for Totalof shares (avoir fiscal) the tax allowance distribution

2005 (3) 9,734,659 €0.37 €0 Yes €0. 372004 (2) 8,727,086 €0.37 €0 Yes €0.372003 (1) 4,272,198 €0.60 €0.30 No €0.90

(1) Not restated to take into account successive bonus issues in 2003 and 2004.

(2) Dividends distributed in 2005 qualifying for the 50% tax allowance under 158.3.2 of the French General tax code following the cancellation of the tax credit

(avoir fiscal) in 2005.

(3) Dividends distributed in 2006 qualifying for the 40% tax allowance under 158.3.2 of the French General tax code following the cancellation of the tax credit

(avoir fiscal) in 2005.

FOURTH RESOLUTIONReading of the auditors’ special report on regulatedagreements under article L 225-38 et seq. of the frenchcommercial code

The shareholders, in accordance with the conditions ofquorum and majority that apply at ordinary general meetingsand after reviewing the Auditors' special report on related-party agreements governed by articles L. 225-38 et seq. of the French Commercial Code, approve each of these agreements.

FIFTH RESOLUTIONSetting of directors’ fees

The shareholders, in accordance with the conditions ofquorum and majority that apply at ordinary general meetings,set annual directors fees for the year in progress at €60,000and grant full power to the Board of Directors to determinethe criteria for allocating these fees among board memberswithin the limit of this amount.

SIXTH RESOLUTIONRenewal of the appointment of the firm Mazars & Guerard as statutory auditors

The shareholders, in accordance with the conditions ofquorum and majority applicable to ordinary general meetingsand noting that the appointment of the accounting firmMazars & Guerard (61, rue Henri Regnault, 92400Courbevoie) expires at the end of this meeting, resolve to renew their appointment for six financial years, i.e. until the close of the general meeting called to approve the financial statements for the period ending December 31, 2012.

SEVENTH RESOLUTIONRenewal of the appointment of the firm Sfeco & Fiduciaaudit as statutory auditors

The shareholders, in accordance with the conditions ofquorum and majority applicable to ordinary general meetingsand noting that the appointment of the accounting firm Sfeco & Fiducia audit (50, rue de Picpus – 75012 Paris)

expires at the end of this meeting, resolve to renew theirappointment for six financial years, i.e. until the close of the general meeting called to approve the financialstatements for the period ending December 31, 2012.

EIGHTH RESOLUTIONRenewal of the appointment of Mr. Guillaume Potel as substitute auditor

The shareholders, in accordance with the conditions ofquorum and majority applicable to ordinary general meetingsand noting that the appointment of Mr. Guillaume Potel (61, rue Henri Regnault, 92400 Courbevoie) expires at theend of this meeting, resolve to renew his appointment for six financial years, i.e. until the close of the general meetingcalled to approve the financial statements for the periodending December 31, 2012.

NINTH RESOLUTIONRenewal of the appointment of Mr. Serge Azan as substitute auditor

The shareholders, in accordance with the conditions of quorum and majority applicable to ordinary generalmeetings and noting that the appointment of Mr. Serge Azan(16, rue Daubigny – 75017 Paris) expires at the end of thismeeting, resolve to renew his appointment for six financialyears, i.e. until the close of the general meeting called toapprove the financial statements for the period endingDecember 31, 2012.

TENTH RESOLUTIONRenewal of the authorization for the company to purchase and sell its own chares on the market

The shareholders, in accordance with the conditions of quorum and majority that apply at ordinary meetings and after reviewing the report of the Board of Directors and in accordance with the provisions of article L 225-209 of the French Commercial Code et seq., grant the Board of Directors the authority, which it may further delegate, to acquire shares of the company, according to the terms and conditions set forth below.

The purpose of this authorization is to enable the companymake use of the possibilities to purchase and sell its ownshares for uses provided for by law. In consequence, the shareholders decide that this share repurchase programmay be used for the following purposes:

■ maintain an orderly market in the company’s sharesthrough an investment services provider within the frameworkof a liquidity agreement in compliance with the conduct of business rules of the French association of investmentfirms (AFEI),

■ grant bonus shares to employees or officers of thecompany and/or the Group in accordance with the provisionsof articles L 225-197-1 et seq. of the French CommercialCode, and the terms and conditions set forth in resolutionthirteenth of the shareholders' meeting of April 22, 2005,

■ use such shares as a means of payment or exchange in connection with financial transactions or acquisitions in compliance with the financial market regulations,

■ cancel shares to increase the return on equity and earningsper share and/or eliminate the impact of dilution forshareholders from capital increases subject to adoption of the eighteenth resolution of this extraordinary general meeting,

■ permit the company to buy and sell its own shares for anyother authorized purpose or practice admitted by the marketor which may be subsequently authorized or admitted byapplicable laws and regulations.

Shares that will be acquired shall be subject to the following limits:

■ the maximum purchase price is €70 per share, excludingexecution costs, and the minimum sale price €10 per shareexcluding execution costs,

■ the total number of shares acquired may not exceed 5% of the capital stock outstanding on the date of this meeting.This 5% limit applies to an amount of capital that will be, as applicable, adjusted for corporate actions affecting thecapital stock after this meeting, whereby acquisitions by the company shall under no circumstances increase itsholding, directly and indirectly through indirect subsidiaries, to more than 5% of the capital stock. At December 31, 2006,the company held 10,881,080 equity shares. On this basis,the company would be authorized to repurchase no morethan 544,054 of its own shares,

■ on the basis of the above, the maximum potentialaggregate amount of funds that may be raised under thisshare repurchase program may not exceed €38,083,780.

The Board of Directors may adjust the above-mentionedprices pursuant to modifications in the par value of the share,the capitalization of retained earnings and bonus issues, stock splits or reverse splits, repayment or reduction of capital,distribution of retained earnings or other assets and any othertransactions involving the company's capital stock, to reflectthe impact of these transactions on the share's value.

In accordance with applicable regulations, said shares maybe purchased, held, sold or transferred, according to thecase, in one or more transactions, at any time the Board of Directors so chooses including when tender offers are in effect subject to applicable regulations, by any means,on or off market, and notably through block trades.

Shares held by the Company must, in compliance with thelaw, be maintained in registered form. In addition said sharesthat will not confer preferential rights or entitlement to dividends shall be deprived of voting rights.

The shareholders grant all powers to the Board of Directorsthat is in turn entitled to delegate such authority to:

■ place all stock orders on or off the market,

■ sign any agreement notably with a view to maintainingpurchase and sale ledgers,

■ submit all declarations to the Autorité des MarchésFinanciers (AMF) or any other such entity, carry out allformalities and, in general, make all necessary arrangements.

This authorization is granted to the Board of Directors for 18 months from the date of the shareholders' meetingand cancels and supersedes the previous share repurchaseprogram authorized under the sixth resolution of the generalmeeting of April 28, 2006.

The Board of Directors will notify the general meeting of all transactions carried out under this resolution.

ELEVENTH RESOLUTIONPowers

All powers are granted to the bearer of copies or extracts ofthe minutes of this shareholders' meeting to perform all legalformalities relating to the above resolutions.

Extraordinary resolutions

TWELFTH RESOLUTIONAuthorization granted to the board of directors to issueshares through the capitalization of additional paid-incapital, reserves or profit (€15 million)

The shareholders, in accordance with the conditions ofquorum and majority applicable to extraordinary shareholdersmeetings, after reviewing the report of the Board of Directors,grants authority to the said Board, which the latter mayfurther delegate in accordance with the law, to increase the capital, in one or more transactions, by an amount not to exceed €15 million through the successive or simultaneous capitalization of all or part of the additionalpaid-in capital, reserves or profits. This capital increase maybe carried out by the creation and allotment of bonus sharesor, when applicable, by a combination of these two methods.

The maximum nominal amount of capital increasesauthorized under this resolution shall be included under the total authorization provided for under the seventeenthresolution of this meeting.


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The shareholders decide that the rights resulting from fractionalamounts shall not be negotiable and that the correspondingshares will be sold with the proceeds from such sale to beallocated to holders of rights no later than 30 days after the registration in their name of the whole number of sharesallotted to them.

The Shareholders grant full authority to the Board of Directors,which the latter may further delegate as provided for by law,for the purpose of implementing this resolution and notably to:

■ determine the dates and procedures and the amounts ofeach issue, and more generally take all measures to ensurethe success of the issues,

■ perform all formalities destined to record completion of thecapital increase or increases and,

■ amend the bylaws in consequence,

■ and finally, take all measures, in compliance with the law, to safeguard the rights of holders of securities conferringaccess to shares of the company.

This authorization replaces and supersedes the authorizationgranted by resolution eight of the shareholders' meeting ofApril 22, 2005 partially used by the Board of Directors’meetings of May 19, 2005 and June 12, 2006 for €5,558,490.

This authorization is granted by the shareholders' meeting for 26 months.

THIRTEENTH RESOLUTIONAuthority granted to the board of directors to increasethe capital stock by issuing ordinary shares withoutprejudice to shareholders’ preemptive rights (€5 million)

The shareholders, in accordance with the conditions ofquorum and majority applicable to extraordinary shareholdersmeetings, and after reviewing the report of the Board ofDirectors and in compliance with the provisions of articles L. 225-129-2 of the French Commercial Code:

■ vest the Board of Directors with the authority, which thelatter may further delegate in accordance with the law, toincrease the capital through one or more transactions inamounts and at such times it chooses, to issue in France newordinary shares paid for in cash or by offsetting amounts dueand payable, with or without additional paid-in capital,

■ grant the authorization provided for under this resolution for26 months, and duly note that this authorization cancels fromthis date onwards the previous authorization granted by theninth resolution of the shareholders' meeting of April 22, 2005with the same purpose, i.e. all authorizations to issue stockwithout prejudice to shareholders' preemptive rights,

■ decide that the nominal value of capital increasesauthorized under this authorization may not exceed €5 million, where this amount is included in the maximum forcapital increases authorized under the seventeenth resolution. This amount may be increased as necessary, by the nominalamount of additional securities that must be issued topreserve, as required by law the rights of holders of securitiesconferring rights to equity securities of the company,

■ decide that shareholders qualify in proportion to the numberof shares they hold for preemptive rights to subscribe to newshares issued under this authorization on the basis of exactrights (à titre irréductible). In addition, the Board of Directorsmay grant shareholders the right to subscribe to excessshares without trading rights (à titre réductible) over andabove the shares they were entitled to by exercising theirexact rights, in proportion to said rights and within the limit of their demand,

■ decide that the Board of Directors shall set the issue priceof the ordinary shares according to procedures established by applicable laws and regulations,

■ duly note that, if subscriptions for new shares on the basisof exact rights, and as the case may be, for excess shares,should fail to account for the entire issue, the Board ofDirectors may in the order it shall determine, have recourse to one and/or another of the following possibilities:

-reduce the number of securities issued, in accordance withthe law, to the number of applications received, provided that such applications are for at least three quarters of the intended amount,

-freely distribute all or part of the shares issued but notsubscribed,

-offer to the public all or part of the shares issued but notsubscribed.

■ hereby note that the Board of Directors may automaticallyand in all cases limit the stock issue decided to the amount of shares subscribed when shares not subscribed representsless than 3% of the issue,

■ decide that the Board of Directors shall be granted theauthority, which the latter may further delegate in accordancewith the law, to implement this resolution and notably to:

- decide to proceed with the capital increase,

- decide the amount of the capital increase as well as theamount of additional paid-in capital that may be requested,

- set the number of new shares to be issued, the date fromwhich new shares shall be entitled to dividends includingretroactively and the procedures of payment,

- set the conditions for exercising rights associated with theshares, and notably those concerning the sale or trading of subscription rights of shares issued,

- conclude all agreements, notably with credit institutions, toensure that any issue carried out by virtue of this authorizationis properly carried out,

- receive subscription requests for new shares and thecorresponding payments,

- record completion of the capital increases that may becarried out through the issue of new shares, perform allresulting formalities, amending the articles of incorporationand bylaws in consequence,

- request that the new shares be admitted for trading in a regulated market,

- charge all costs to paid-in capital as deemed appropriateand notably costs, rights and fees incurred in connection withthe issue and appropriate from this amount funds necessaryto raise the legal reserve to one tenth the new capital aftereach issue,

- and in general, define all terms and conditions and proceed with all useful measures and formalities necessaryfor the issue.

FOURTEENTH RESOLUTIONAuthority granted to the board of directors to increasethe capital stock by issuing ordinary shares suspendingshareholders’ preemptive rights (€5 million)

The shareholders, in accordance with the conditions ofquorum and majority applicable to extraordinary shareholdersmeetings, and after reviewing the report of the Board ofDirectors and the special report of the Auditors and incompliance with the provisions of articles L. 225-129-2,L.225-135, L.225-136 et seq. of the French Commercial Code:

■ vest the Board of Directors with the authority to increasethe capital through one or more transactions in amounts atsuch times it chooses, by issuing in France new ordinaryshares paid for in cash or by offsetting debt due and payable,with or without additional paid-in capital,

■ grant the authorization provided for under this resolution for26 months, and duly note that this authorization cancels fromthis date onwards the previous authorization granted by the tenth resolution of the shareholders' meeting of April 22, 2005 with the same purpose, i.e. all authorizationsto issue stock entailing the suspension of shareholders'preemptive rights,

■ decide that the nominal value of capital increasesauthorized under this authorization may not exceed €5 million, where this amount is included in the maximum capital increase authorized under the seventeenth resolution.This amount may be increased as necessary, by additionalshares to safeguard the rights of holders of securitiesconferring rights to capital stock of the company, in accordance with the law,

■ suspend shareholders' preemptive rights to subscribe forshares to be issued in accordance with applicable laws andregulations and grant full authority to the Board of Directorsto provide for a preferential subscription period and set said period according to the duration provided for by articleL.225-135 of the French Commercial Code. This preemptiveright does not give rise to the creation of negotiable rightsand may be exercised, as the Board of Directors considersappropriate, in proportion to the exact number of sharesowned by each shareholder (à titre irréductible) or by application for excess shares without trading rights (à titre réductible),

■ decide that the Board of Directors shall set the issue priceof the ordinary shares according to procedures establishedby applicable laws and regulations, and notably the provisionsof article L.225-136 of the French Commercial Code,

■ decide that if subscriptions for new shares, including thoseof existing shareholders fail to account for the entire issue the Board of Directors may reduce the amount of the issuein accordance with the law in force on the date of

the transaction,

■ decide that the Board of Directors shall be granted theauthority, which the latter may further delegate in accordancewith the law, to implement this resolution and notably to:

- decide to proceed with the capital increase,

- decide the amount of the capital increase as well as theamount of additional paid-in capital that may be requested,

- set the number of new shares to be issued, the date fromwhich new shares shall be entitled to dividends includingretroactively and the procedures of payment,

- conclude all agreements, notably with credit institutions, to ensure that any issue carried out by virtue of thisauthorization is properly carried out,

- receive subscription requests for new shares and thecorresponding payments,

- record completion of the capital increases that may be carried out through the issue of new shares, perform allresulting formalities, amending the articles of incorporationand bylaws in consequence,

- request that the new shares be admitted for trading in a regulated market,

- charge all costs to paid-in capital as deemed appropriateand notably costs, rights and fees incurred in connection withthe issue and appropriate from this amount funds necessaryto raise the legal reserve to one tenth the new capital aftereach issue,

- and in general, define all terms and conditions and proceedwith all useful measures and formalities necessary for the issue.

FIFTEENTH RESOLUTIONAuthority granted to the board of directors to increasethe number of shares to meet excess demand inresponse to capital increases with or withoutshareholders preemptive rights

The shareholders, in accordance with the conditions ofquorum and majority applicable to extraordinary shareholdersmeetings, and after reviewing the report of the Board of Directors and in accordance with provisions of article L.225-135-1 of the French Commercial Code:

■ decide that the Board of Directors shall be authorized with the possibility of further delegating to any person so authorized by law, to increase the number of shares to be issued in connection with a capital increase maintainingor suspending shareholders' preemptive rights in accordancewith the above thirteenth and fourteenth resolutions, withinthe limit of the percentage of the initial issue which shall be determined in accordance with applicable laws andregulations, it being specified that “overallotted” shares will be issued at the same price as shares of the initial offering,

■ decide that the nominal amount of the capital increasedecided by virtue of this resolution shall be subject to the limits,when applicable of the aggregate nominal amount set aboveby point three of the thirteenth and fourteenth resolutions,

■ grant the authorization provided for under this resolution for 26 months from the date of this meeting and duly notethat this authorization cancels as of today and replaces the previous authorization granted by the eleventh resolutionof the shareholders' meeting of April 22, 2005, unused to date and destined for the same purpose.


SIXTEENTH RESOLUTIONAuthority granted to the board of directors to proceedwith capital increases reserved for employees inaccordance with article L.225-129 -6 of the frenchcommercial code and entailing the suspension ofshareholders’ preemptive rights (€500,000)

The shareholders by virtue of the preceding resolutions, inaccordance with the conditions of quorum and majorityapplicable to extraordinary shareholders' meetings and afterreviewing the Board of Directors' report and the Auditors'special report in accordance with articles L.225-129-2,L.225-129-6, L.225-138 and L. 225-138-1 of the FrenchCommercial Code and L. 443-1 and L. 443-5 of the FrenchLabor Code:

■ grant authority to the Board of Directors Board of Directors,which the latter may further delegate as permitted by law, atits sole discretion, to increase the capital, in one or moretransactions in amounts and at times of its choosing to issuecommon stock reserved for employees of the company oraffiliated companies in accordance with applicable lawsbelonging to a company savings plan,

■ waive in favor of employees entitled to benefit from capitalincreases that may be decided by virtue of this authorization,the preemptive rights of shareholders to new shares that shallbe issued,

■ limit the maximum nominal amount of capital increasesunder this authorization to €500,000, it being specified that (i)this amount may be increased as necessary by the nominalamount of additional securities that must be issued topreserve, as required by law the rights of holders of securitiesconferring access to equity securities of the company and (ii)the nominal amount of capital increases permitted under thisauthorization shall be included under the maximum amountauthorized under the seventeenth resolution,

■ grant full authority to the Board of Directors within theabove limits and conditions for the purpose of implementingthe authority hereby granted, including notably to:

- determine the list of grantees of this authorization, thenumber of shares to be granted to each qualifying employeeand the issue price, subject to the limits imposed by articleL.225-138-1 of the French Commercial Code and L.443-5 of the French Labor Code, that may not exceed the averageprice of the 20 trading days preceding the decision settingthe beginning of the subscription period, nor less than 20%this average (or 30% when the waiting provided for by theplan in accordance with article L. 443-6 of the French LaborCode is greater than or equal to 10 years),

- determine the dates and procedures for the capitalincrease(s),

- receive applications for shares and determine theprocedures for their payment,

- produce a supplemental report describing the final terms ofthe offering, and in general, take all measures and undertake allformalities required for the issue, the listing of the securities andcustodial and related services for securities covered by thisauthorization, and amend the articles of bylaws in consequence.

■ grant the authorization provided for under this resolution for26 months from the date of this meeting.

SEVENTEENTH RESOLUTIONMaximum aggregate amount of capital increasesconferring present or future rights from authorizations

The shareholders by virtue of the preceding resolutions, in accordance with the conditions of quorum and majorityapplicable to extraordinary shareholders’ meetings and afterreviewing the Board of Directors' report, set in accordancewith article L. 225-129-2 of the French Commercial Code, a maximum amount of €25.5 million for present or futurecapital increases by virtue of the authorizations granted to the Board of Directors under the twelfth, thirteenth, fourteenthand sixteenth resolutions, not including the consequences of adjustments that might be made, in compliance with the law pursuant to issuance of securities conferring futurerights to capital, it being specified within this limit:

■ the capitalization of reserves covered by the twelfthresolution may not result in a capital increase of more than€15 million,

■ share issues maintaining the preemptive rights ofshareholders covered by the thirteenth resolution, after takinginto account the number of shares issued, when applicable,in application of the fifteenth resolution, may not result in acapital increase of more than €5 million,

■ issues entailing the suppression of shareholders'preemptive rights covered by the fourteenth resolution, aftertaking into account the increase in the number of sharesissued by virtue of the fifteenth resolution, may not result in a capital increase of more than €5 million,

■ employee share issues covered by the sixteenth resolutionmay not result in a capital increase of more than €500,000.

All these amounts that remain subject to the maximumauthorized capital increase do not take into account theconsequences of adjustments that might be made, in compliance with the law pursuant to issuance of securitiesconferring future rights to capital.

EIGHTEENTH RESOLUTIONAuthorization granted to the boead of directors to reducethe capital by the cancellation of treasury shares

The shareholders, in accordance with the conditions ofquorum and majority that apply at extraordinary shareholdersmeetings, and after reviewing the report of the Board ofDirectors and the special report of the Auditors and the tenthresolution of the ordinary general meeting of this dayauthorizing the company to purchase its own shares:

■ authorize the Board of Directors to cancel, at its owndiscretion, through one or more transactions, at amounts andtimes of its choosing, treasury shares acquired within theframework of article L. 225-209 of the French CommercialCode, not to exceed 5% of the common stock outstandingand by period of 24 months, reducing the authorized capitalin due proportion, in accordance with applicable laws andregulations,

■ this authorization is for 18 months from this meeting andreplaces the previous authorization by the shareholders'meeting of April 28, 2006 that was not used,

■ grant full authority to the Board of Directors, with thepossibility of further delegating to any person so authorizedby law, through one or more transactions, to reduce thecapital, to notably determine the final amount of the capitalreduction and the terms and procedures and record the

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completion of the capital reduction, amending inconsequence the bylaws, performing all necessaryformalities, and notably filings with all bodies and in generaldoing everything necessary.

NINETEENTH RESOLUTIONAmendment of article 9 of the bylaws to comply withnew french legislative provisions

The shareholders by virtue of the preceding resolutions, inaccordance with the conditions of quorum and majorityapplicable to extraordinary shareholders' meetings and afterreviewing the Board of Directors' report, decide to modifyarticle 9 of the bylaws of the company as follows:

Reference to article L228-1 paragraph 3 of the FrenchCommercial Code in the last paragraph of article 9 of thebylaws has been eliminated and replaced by reference toarticle L.228-1 paragraph 7.

The rest of this article remains unchanged.

TWENTIETH RESOLUTIONAmendment of article 19 of the company’s bylaws totake into account certain provisions of the decree ofDecember 11, 2006 and other new legislative provisions

The shareholders by virtue of the preceding resolutions, in accordance with the conditions of quorum and majorityapplicable to extraordinary shareholders’ meetings and afterreviewing the Board of Directors' report, decide to modifyarticle 19 of the company's bylaws:

■ Paragraph 5: the wording "thirty days" is replaced by thewording "thirty five days",

■ Paragraph 11: the wording "five days" is replaced by thewording "three days", and

■ Paragraph 15: the wording "five (5) days" is replaced by thewording "three days".

The rest of this article remains unchanged.

TWENTY-FIRST RESOLUTIONAmendment of article 20 of the company’s Bylaws tocomply with new French legislative provisions

The shareholders by virtue of the preceding resolutions, in accordance with the conditions of quorum and majorityapplicable to extraordinary shareholders' meetings and afterreviewing the Board of Directors' report, decide to modifyarticle 20 of the company's bylaws to be replaced by thefollowing provisions:

"In accordance with the provisions of article L.233-7 of theFrench Commercial Code, any individual or entity, actingalone or in concert with others, that becomes the owner of,directly or indirectly, more than one-twentieth, one-tenth,three-twentieths, one-fifth, one-fourth, one-third, one-half,two-thirds, eighteen twentieths or nineteen-twentieths of theoutstanding shares or the voting rights of the company’scapital stock or voting rights or that increases or decreasesits shareholding or voting rights above or below any of thesethresholds, must notify the company by registered letter withadvice of delivery within five trading days of exceeding orfalling below such level.

Said individual or entity must also inform the company of thenumber of equity securities it holds and the voting rightsattached thereto.

Under article L. 233-7 VII of the French Commercial Codeshareholders must state their intentions with regard to shareownership for the next 12 months once the 10% and 5%ownership and voting rights thresholds in a listed companyhave been crossed".

TWENTY-SECOND RESOLUTIONAmendments of article 21 of the company’s Bylaws tocomply new french legislative provisions

The shareholders by virtue of the preceding resolutions, in accordance with the conditions of quorum and majorityapplicable to extraordinary shareholders’ meetings and afterreviewing the Board of Directors' report, decide to eliminateparagraph 1 of article 21 of the company's bylaws to bereplaced by the following paragraph:

"If the shares are listed on a regulated market, the ordinaryshareholders' meeting may authorize the Board of Directorsfor 18 months to purchase its own shares in compliance withthe provisions of articles L.225-209 et seq. of the FrenchCommercial Code according to the conditions set forth inthese articles."

TWENTY-THIRD RESOLUTIONPowers

All powers are granted to the bearer of copies or extracts ofthe minutes of this shareholders' meeting to perform all legalformalities relating to the above resolutions.


auditorsandcertificates

1.Auditors

The statutory auditors having issued reports on the parentcompany and consolidated financial statements are:

Mazars61 rue Henri Regnault – 92400 Courbevoie represented by Denis Grisonappointed by the AGM of December 1, 2004 to replace KPMG, expiration date: 2007 AGM

Sfeco & Fiducia Audit50 rue de Picpus 75012 Parisrepresented by Roger Berdugoappointed by AGM of May 19, 1995, reappointed by AGM of April 24, 2001, expiration date: 2007 AGM

The alternate auditors are respectively:

Guillaume Potel61 rue Henri Regnault - 92400 Courbevoie, appointed by the AGM of December 1, 2004, to replace J-F Lethu, Expiration date: 2007 AGM

Serge Azan16 rue Daubigny 75017 Paris, appointed by AGM of May 19, 1995, reappointed by AGM of April 24, 2001, expiration date: 2007 AGM

2.Auditors' feesIn € thousands Mazars SFECO & Fiducia

Work as statutory auditors and certification of financial statements 160 84Other assignments - -Total 160 84

Certificate of the officer responsible for the registrationdocument

I declare, having taken reasonable care to ensure that suchas the case, that the information contained in the registrationdocument is, to the best of my knowledge, in accordancewith the facts and contains no omission likely to affect its import.

Philippe BenacinChairman and Chief Executive Officer

4.Responsibility for financial information

Philippe SantiExecutive Vice President & Chief Financial Officer

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To receive information or be added to the mailing list for company reports contact the Investor Relations department (attention: Karine Marty)

Telephone: +33 800 47 47 47Fax: +33 1 40 74 08 42Website: www.inter-parfums.fr

2006 annual report inter parfumsby agence marc praquin

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