UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C.  20549
 
 FORM
10-Q
 (
MARK ONE )
 
 x
              Quarterly
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the quarterly period ended June 30,
  2010.
 
 OR
 
  ̈
              Transition
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the transition period from ___________to
  ________.
 
 Commission
File No. 0-16469
 
 INTER
PARFUMS, INC.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
                
                13-3275609(State
      or other jurisdiction of
                
                (I.R.S.
      Employerincorporation
      or organization)
                
                Identification
      No.)
 
 551 Fifth Avenue, New York, New
      York
                
                10176(Address
      of Principal Executive Offices)
                
                (Zip
      Code)
 
 (212) 983-2640(Registrants
      telephone number, including area
code)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days: Yes xNo  ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes  ̈ No
 ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company”  in Rule 12b-2 of the Exchange Act).
 
 Large
      accelerated Filer  ̈
              Accelerated
      filer xNon-accelerated
      filer  ̈
      (Do not check if a smaller reporting company)
              Smaller
      reporting company  ̈
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  ̈ No
x
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
 
 At August
6, 2010, there were 30,442,881 shares of common stock, par value $.001 per
share, outstanding.
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 INDEX
 
 Page
      NumberPart
      I.
                                                                            
                                                                            Financial
      Information
                                                                            
                                                                            1Item
      1.
                                                                            Financial
      StatementsConsolidated
      Balance Sheets as of June 30, 2010 (unaudited) and December 31,
      2009
                                                                            
                                                                            2Consolidated
      Statements of Income for the Three and Six Months Ended June 30, 2010
      (unaudited) and June 30, 2009 (unaudited)
                                                                            
                                                                            3Consolidated
      Statements of Changes in Equity for the Six Months Ended June 30, 2010
      (unaudited) and June 30, 2009 (unaudited)
                                                                            
                                                                            4Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2010
      (unaudited) and June 30, 2009 (unaudited)
                                                                            
                                                                            5Notes
      to Consolidated Financial Statements
                                                                            
                                                                            6Item
      2.
                                                                            Management's
      Discussion and Analysis of  Financial
      Condition and Results of Operations
                                                                            
                                                                            16Item
      3.
                                                                            Quantitative
      and Qualitative Disclosures About
      Market Risk
                                                                            
                                                                            29Item
      4.
                                                                            Controls
      and Procedures
                                                                            
                                                                            30Part
      II.
                                                                            
                                                                            Other
      Information
                                                                            
                                                                            31Item
      6.
                                                                            Exhibits
                                                                            
                                                                            31Signatures
                                                                            
                                                                            32
  INTER
PARFUMS, INC. AND SUBSIDIARIES
  Part
I. Financial Information
 
 Item
1. Financial Statements
 
 In our
opinion, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly our financial position, results of operations and cash flows for
the interim periods presented. We have condensed such financial statements in
accordance with the rules and regulations of the Securities and Exchange
Commission (“SEC”). Therefore, such financial statements do not include all
disclosures required by accounting principles generally accepted in the United
States of America. In preparing these consolidated financial statements, the
Company has evaluated events and transactions for potential recognition or
disclosure through the date the consolidated financial statements were issued by
filing with the SEC. These financial statements should be read in conjunction
with our audited financial statements for the year ended December 31, 2009
included in our annual report filed on Form 10-K.
 
 The
results of operations for the six months ended June 30, 2010 are not necessarily
indicative of the results to be expected for the entire fiscal
year.
  Page
1
 INTER
PARFUMS, INC. AND SUBSIDIARIES
  CONSOLIDATED
BALANCE SHEETS
 (In
thousands except share and per share data)
 
 June 30,
                    2010
                  
                  
                  December 31,
                    2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  58,670
                  
                  
                  $
                  100,467Short-term
      investments
                  
                  
                  33,408
                  
                  
                  
                  —Accounts
      receivable, net
                  
                  
                  102,810
                  
                  
                  
                  101,334Inventories
                  
                  
                  97,914
                  
                  
                  
                  85,428Receivables,
      other
                  
                  
                  1,125
                  
                  
                  
                  3,229Other
      current assets
                  
                  
                  3,411
                  
                  
                  
                  8,090Deferred
      tax assets
                  
                  
                  4,026
                  
                  
                  
                  4,088Total
      current assets
                  
                  
                  301,364
                  
                  
                  
                  302,636Equipment
      and leasehold improvements, net
                  
                  
                  8,804
                  
                  
                  
                  9,191Goodwill
                  
                  
                  3,369
                  
                  
                  
                  3,927Trademarks,
      licenses and other intangible assets, net
                  
                  
                  86,289
                  
                  
                  
                  101,799Other
      assets
                  
                  
                  1,684
                  
                  
                  
                  1,535Total
      assets
                  
                  $
                  401,510
                  
                  
                  $
                  419,088LIABILITIES
      AND EQUITYCurrent
      liabilities:Loans
      payable – banks
                  
                  $
                  3,505
                  
                  
                  $
                  5,021Current
      portion of long-term debt
                  
                  
                  10,088
                  
                  
                  
                  11,732Accounts
      payable - trade
                  
                  
                  50,526
                  
                  
                  
                  48,138Accrued
      expenses
                  
                  
                  54,715
                  
                  
                  
                  37,440Income
      taxes payable
                  
                  
                  2,558
                  
                  
                  
                  1,646Dividends
      payable
                  
                  
                  1,979
                  
                  
                  
                  996Total
      current liabilities
                  
                  
                  123,371
                  
                  
                  
                  104,973Long-term
      debt, less current portion
                  
                  
                  10,011
                  
                  
                  
                  17,862Deferred
      tax liability
                  
                  
                  6,388
                  
                  
                  
                  8,840Equity:Inter
      Parfums, Inc. shareholders’ equity:Preferred
      stock, $.001 par; authorized 1,000,000 shares; none issuedCommon
      stock, $.001 par; authorized 100,000,000 shares; outstanding 30,442,881
      and 30,171,952 shares at June 30, 2010 and December 31, 2009,
      respectively
                  
                  
                  30
                  
                  
                  
                  30Additional
      paid-in capital
                  
                  
                  48,859
                  
                  
                  
                  45,126Retained
      earnings
                  
                  
                  194,652
                  
                  
                  
                  186,611Accumulated
      other comprehensive income
                  
                  
                  (9,766
                  )
                  
                  
                  30,000Treasury
      stock, at cost, 10,009,492 and 10,056,966 common shares at June 30, 2010
      and December 31, 2009, respectively
                  
                  
                  (34,151
                  )
                  
                  
                  (33,043
                  )Total
      Inter Parfums, Inc. shareholders’ equity
                  
                  
                  199,624
                  
                  
                  
                  228,724Noncontrolling
      interest
                  
                  
                  62,116
                  
                  
                  
                  58,689Total
      equity
                  
                  
                  261,740
                  
                  
                  
                  287,413Total
      liabilities and equity
                  
                  $
                  401,510
                  
                  
                  $
                  419,088
 
 See
notes to consolidated financial statements.
  Page
2
 INTER
PARFUMS, INC. AND SUBSIDIARIES
  CONSOLIDATED
STATEMENTS OF INCOME
 (In
thousands except per share data)
 (Unaudited)
 
 Three Months Ended
                    June 30,
                  
                  
                  Six Months Ended
                    June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      sales
                  
                  $
                  107,765
                  
                  
                  $
                  88,604
                  
                  
                  $
                  227,138
                  
                  
                  $
                  179,013Cost
      of sales
                  
                  
                  43,041
                  
                  
                  
                  38,403
                  
                  
                  
                  90,693
                  
                  
                  
                  75,247Gross
      margin
                  
                  
                  64,724
                  
                  
                  
                  50,201
                  
                  
                  
                  136,445
                  
                  
                  
                  103,766Selling,
      general and administrative expenses
                  
                  
                  53,240
                  
                  
                  
                  43,380
                  
                  
                  
                  108,938
                  
                  
                  
                  86,643Income
      from operations
                  
                  
                  11,484
                  
                  
                  
                  6,821
                  
                  
                  
                  27,507
                  
                  
                  
                  17,123Other
      expenses (income):Interest
      expense
                  
                  
                  510
                  
                  
                  
                  397
                  
                  
                  
                  1,098
                  
                  
                  
                  1,709(Gain)
      loss on foreign currency
                  
                  
                  514
                  
                  
                  
                  (2,563
                  )
                  
                  
                  2,896
                  
                  
                  
                  (3,942
                  )Interest
      income
                  
                  
                  (341
                  )
                  
                  
                  (101
                  )
                  
                  
                  (595
                  )
                  
                  
                  (609
                  )683
                  
                  
                  
                  (2,267
                  )
                  
                  
                  3,399
                  
                  
                  
                  (2,842
                  )Income
      before income taxes
                  
                  
                  10,801
                  
                  
                  
                  9,088
                  
                  
                  
                  24,108
                  
                  
                  
                  19,965Income
      taxes
                  
                  
                  3,818
                  
                  
                  
                  3,335
                  
                  
                  
                  8,175
                  
                  
                  
                  6,956Net
      income
                  
                  
                  6,983
                  
                  
                  
                  5,753
                  
                  
                  
                  15,933
                  
                  
                  
                  13,009Less:  Net
      income attributable to the noncontrolling interest
                  
                  
                  1,627
                  
                  
                  
                  1,527
                  
                  
                  
                  4,027
                  
                  
                  
                  3,355Net
      income attributable to Inter Parfums, Inc.
                  
                  $
                  5,356
                  
                  
                  $
                  4,226
                  
                  
                  $
                  11,906
                  
                  
                  $
                  9,654Earnings
      per share:Net
      income attributable to Inter Parfums, Inc. common
      shareholders:Basic
                  
                  $
                  0.18
                  
                  
                  $
                  0.14
                  
                  
                  $
                  0.39
                  
                  
                  $
                  0.32Diluted
                  
                  $
                  0.18
                  
                  
                  $
                  0.14
                  
                  
                  $
                  0.39
                  
                  
                  $
                  0.32Weighted
      average number of shares outstanding:Basic
                  
                  
                  30,361
                  
                  
                  
                  30,064
                  
                  
                  
                  30,277
                  
                  
                  
                  30,115Diluted
                  
                  
                  30,467
                  
                  
                  
                  30,064
                  
                  
                  
                  30,379
                  
                  
                  
                  30,115Dividends
      declared per share
                  
                  $
                  0.065
                  
                  
                  $
                  0.033
                  
                  
                  $
                  0.13
                  
                  
                  $
                  0.066
 
 See
notes to consolidated financial statements.
  Page
3
 INTER
PARFUMS, INC. AND SUBSIDIARIES
  CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
 (In
thousands)
 
 Inter Parfums, Inc. shareholdersAccumulatedAdditional
                    
                    
                    
                    
                    
                    otherCommon
                    
                    
                    paid-in
                    
                    
                    Retained
                    
                    
                    comprehensive
                    
                    
                    Treasury
                    
                    
                    Noncontrollingstock
                    
                    
                    Capital
                    
                    
                    earnings
                    
                    
                    income
                    
                    
                    stock
                    
                    
                    interest
                    
                    
                    TotalBalance
      – January 1, 2009
                    
                    $
                    30
                    
                    
                    $
                    41,950
                    
                    
                    $
                    168,025
                    
                    
                    $
                    25,515
                    
                    
                    $
                    (31,319
                    )
                    
                    $
                    51,308
                    
                    
                    $
                    255,509Comprehensive
      income:Net
      income
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    9,654
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    3,355
                    
                    
                    
                    13,009Foreign
      currency translation adjustment
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    4,202
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    4,202Net
      derivative instrument gain (loss), net of tax
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,782
                    )
                    
                    
                    —
                    
                    
                    
                    (567
                    )
                    
                    
                    (2,349
                    )Purchase
      of subsidiary shares from noncontrolling interests
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (55
                    )
                    
                    
                    (55
                    )Sale
      of subsidiary shares to noncontrolling interests
                    
                    
                    —
                    
                    
                    
                    (17
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    238
                    
                    
                    
                    221Dividends
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,986
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,716
                    )
                    
                    
                    (3,702
                    )Purchased
      treasury stock
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (631
                    )
                    
                    
                    —
                    
                    
                    
                    (631
                    )Stock
      compensation
                    
                    
                    —
                    
                    
                    
                    254
                    
                    
                    
                    115
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    55
                    
                    
                    
                    424Balance
      – June 30, 2009
                    
                    $
                    30
                    
                    
                    $
                    42,187
                    
                    
                    $
                    175,808
                    
                    
                    $
                    27,935
                    
                    
                    $
                    (31,950
                    )
                    
                    $
                    52,618
                    
                    
                    $
                    266,628Balance
      – January 1, 2010
                    
                    $
                    30
                    
                    
                    $
                    45,126
                    
                    
                    $
                    186,611
                    
                    
                    $
                    30,000
                    
                    
                    $
                    (33,043
                    )
                    
                    $
                    58,689
                    
                    
                    $
                    287,413Comprehensive
      income:Net
      income
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    11,906
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    4,027
                    
                    
                    
                    15,933Foreign
      currency translation adjustment
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (39,764
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (39,764
                    )Net
      derivative instrument gain (loss), net of tax
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (2
                    )
                    
                    
                    —
                    
                    
                    
                    48
                    
                    
                    
                    46Shares
      issued upon exercise of stock options and warrants
                    
                    
                    —
                    
                    
                    
                    3,459
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    493
                    
                    
                    
                    —
                    
                    
                    
                    3,952Purchase
      of subsidiary shares from noncontrolling interests
                    
                    
                    —
                    
                    
                    
                    (1,063
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,913
                    )
                    
                    
                    (2,976
                    )Sale
      of subsidiary shares to noncontrolling interests
                    
                    
                    —
                    
                    
                    
                    1,039
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    3,267
                    
                    
                    
                    4,306Dividends
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (3,943
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (2,049
                    )
                    
                    
                    (5,992
                    )Shares
      received as proceeds of option exercise
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,601
                    )
                    
                    
                    —
                    
                    
                    
                    (1,601
                    )Stock
      compensation
                    
                    
                    —
                    
                    
                    
                    298
                    
                    
                    
                    78
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    47
                    
                    
                    
                    423Balance
      – June 30, 2010
                    
                    $
                    30
                    
                    
                    $
                    48,859
                    
                    
                    $
                    194,652
                    
                    
                    $
                    (9,766
                    )
                    
                    $
                    (34,151
                    )
                    
                    $
                    62,116
                    
                    
                    $
                    261,740
 
 See
notes to consolidated financial statements.
  Page
4
 INTER
PARFUMS, INC. AND SUBSIDIARIES
  CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (In
thousands)
 (Unaudited)
 
 Six months ended
                    June 30,2010
                  
                  
                  2009Cash
      flows from operating activities:Net
      income
                  
                  $
                  15,933
                  
                  
                  $
                  13,009Adjustments
      to reconcile net income tonet
      cash provided by operating activities:Depreciation
      and amortization
                  
                  
                  4,665
                  
                  
                  
                  5,108Provision
      for doubtful accounts
                  
                  
                  (186
                  )
                  
                  
                  703Noncash
      stock compensation
                  
                  
                  484
                  
                  
                  
                  508Deferred
      tax (benefit)
                  
                  
                  (1,572
                  )
                  
                  
                  (987
                  )Change
      in fair value of derivatives
                  
                  
                  (137
                  )
                  
                  
                  (702
                  )Changes
      in:Accounts
      receivable
                  
                  
                  (15,968
                  )
                  
                  
                  11,900Inventories
                  
                  
                  (24,428
                  )
                  
                  
                  7,858Other
      assets
                  
                  
                  5,460
                  
                  
                  
                  (4,643
                  )Accounts
      payable and accrued expenses
                  
                  
                  34,370
                  
                  
                  
                  (25,680
                  )Income
      taxes payable, net
                  
                  
                  1,143
                  
                  
                  
                  2,507Net
      cash provided by operating activities
                  
                  
                  19,764
                  
                  
                  
                  9,581Cash
      flows from investing activities:Purchases
      of equipment and leasehold improvements
                  
                  
                  (2,567
                  )
                  
                  
                  (2,809
                  )Purchases
      of short-term investments
                  
                  
                  (44,159
                  )
                  
                  
                  —Proceeds
      from sale of short-term investments
                  
                  
                  7,975
                  
                  
                  
                  —Payment
      for intangible assets acquired
                  
                  
                  (1,834
                  )
                  
                  
                  (328
                  )Payment
      for acquisition of noncontrolling interests
                  
                  
                  (2,976
                  )
                  
                  
                  (55
                  )Proceeds
      from sale of stock of subsidiary
                  
                  
                  4,306
                  
                  
                  
                  221Net
      cash used in investing activities
                  
                  
                  (39,255
                  )
                  
                  
                  (2,971
                  )Cash
      flows from financing activities:Repayment
      of loans payable – banks, net
                  
                  
                  (1,367
                  )
                  
                  
                  (3,409
                  )Repayment
      of long-term debt
                  
                  
                  (5,397
                  )
                  
                  
                  (7,452
                  )Proceeds
      from exercise of options and warrants
                  
                  
                  2,457
                  
                  
                  
                  —Dividends
      paid
                  
                  
                  (2,960
                  )
                  
                  
                  (1,986
                  )Dividends
      paid to noncontrolling interest
                  
                  
                  (2,049
                  )
                  
                  
                  (1,716
                  )Purchase
      of treasury stock
                  
                  
                  (106
                  )
                  
                  
                  (631
                  )Net
      cash used in financing activities
                  
                  
                  (9,422
                  )
                  
                  
                  (15,194
                  )Effect
      of exchange rate changes on cash
                  
                  
                  (12,884
                  )
                  
                  
                  225Net
      decrease in cash and cash equivalents
                  
                  
                  (41,797
                  )
                  
                  
                  (8,359
                  )Cash
      and cash equivalents - beginning of period
                  
                  
                  100,467
                  
                  
                  
                  42,404Cash
      and cash equivalents - end of period
                  
                  $
                  58,670
                  
                  
                  $
                  34,045Supplemental
      disclosure of cash flow information:Cash
      paid for:Interest
                  
                  $
                  1,067
                  
                  
                  $
                  1,545Income
      taxes
                  
                  
                  6,795
                  
                  
                  
                  6,166
 
 See
notes to consolidated financial statements.
  Page
5
 INTER
PARFUMS, INC. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 
 1.
              Significant Accounting
      Policies:
 
 The
accounting policies we follow are set forth in the notes to our financial
statements included in our Form 10-K which was filed with the Securities and
Exchange Commission for the year ended December 31, 2009. We also discuss
such policies in Part I, Item 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, included in this Form
10-Q.
 
 The
consolidated financial statements include the accounts of the Company and its
subsidiaries, including majority-owned Inter Parfums, S.A. (“IPSA”), a
subsidiary whose stock is publicly traded in France. In 2010, IPSA formed and
began operations of two new wholly-owned subsidiaries, Interparfums Singapore
Pte. Ltd. and Interparfums Luxury Brands, Inc. All material intercompany
balances and transactions have been eliminated.
 
 2.
              New Accounting
      Pronouncements - adopted:
 
 In
January 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and
Disclosures (ASC Topic 820): Improving Disclosures about Fair Value
Measurements” which amends ASC Subtopic 820, “Fair Value Measurements and
Disclosures” (“ASU 2010-06”) to add new requirements for disclosures about
transfers into and out of Levels 1 and 2 and separate disclosures about
purchases, sales, issuances, and settlements relating to Level 3
measurements. ASU 2010-06 also clarifies existing fair value disclosures
about the level of disaggregation and about inputs and valuation techniques used
to measure fair value. The new disclosure and clarifications of existing
disclosures are effective for interim and annual periods beginning after
December 31, 2009, except for the disclosures about purchases, sales, issuances
and settlements in the roll forward activity in Level 3 fair value measurements.
Those disclosures are effective for interim and annual periods beginning after
December 31, 2010. The adoption of the applicable provisions of this guidance
did not have a material impact on our consolidated financial
statements.
 
 In June
2009, the FASB issued ASC topic 810 (formerly SFAS No. 167, “Amendments to FASB
Interpretation No. 46(R)”). ASC topic 810 amends the consolidation guidance
applicable to variable interest entities and affects the overall consolidation
analysis.  ASC topic 810 is effective for fiscal years beginning after
November 15, 2009. The adoption of ASC topic 810 did not have a material impact
on our consolidated financial statements.
 
 There are
no other new accounting pronouncements issued but not yet adopted that would
have a material effect on the Company’s financial statements.
 
 3.
              Inventories:
 
 Inventories
consist of the following:
 
 (In thousands)
                      
                      June 30,
                          2010
                      
                      
                      December 31,
                          2009Raw
      materials and component parts
                      
                      $
                      37,949
                      
                      
                      $
                      29,052Finished
      goods
                      
                      
                      59,965
                      
                      
                      
                      56,376$
                      97,914
                      
                      
                      $
                      85,428
  Page
6
 INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 
 4.
              Fair Value
      Measurement:
 
 The
following tables present our financial assets and liabilities that are measured
at fair value on a recurring basis and are categorized using the fair value
hierarchy. The fair value hierarchy has three levels based on the reliability of
the inputs used to determine fair value.
  (In thousands)
                    
                    
                    
                    
                    FairValueMeasurementsatJune30,2010QuotedPricesin
                    
                    
                    SignificantOther
                    
                    
                    SignificantActiveMarketsfor
                    
                    
                    Observable
                    
                    
                    UnobservableIdenticalAssets
                    
                    
                    Inputs
                    
                    
                    InputsTotal
                    
                    
                    (Level1)
                    
                    
                    (Level2)
                    
                    
                    (Level3)Assets:Short-term
      investments
                    
                    $
                    33,408
                    
                    
                    $
                    —
                    
                    
                    $
                    33,408
                    
                    
                    $
                    —Liabilities:Foreign
      currency forwardexchange
      contractsnot
      accounted for usinghedge
      accounting
                    
                    $
                    2,682
                    
                    
                    $
                    —
                    
                    
                    $
                    2,682
                    
                    
                    $
                    —Interest
      rate swaps
                    
                    
                    514
                    
                    
                    
                    —
                    
                    
                    
                    514
                    
                    
                    
                    —$
                    3,196
                    
                    
                    $
                    —
                    
                    
                    $
                    3,196
                    
                    
                    $
                    —
  (In thousands)
                    
                    
                    
                    
                    FairValueMeasurementsatDecember31,2009Quoted Prices in
                    
                    
                    Significant Other
                    
                    
                    SignificantActive Markets for
                    
                    
                    Observable
                    
                    
                    UnobservableIdentical Assets
                    
                    
                    Inputs
                    
                    
                    InputsTotal
                    
                    
                    (Level1)
                    
                    
                    (Level2)
                    
                    
                    (Level3)Assets:Foreign
      currency forwardexchange
      contractsnot
      accounted for usinghedge
      accounting
                    
                    $
                    5,620
                    
                    
                    $
                    —
                    
                    
                    $
                    5,620
                    
                    
                    $
                    —Liabilities:Interest
      rate swaps
                    
                    $
                    752
                    
                    
                    $
                    —
                    
                    
                    $
                    752
                    
                    
                    $
                    —
 
 The
carrying amount of cash and cash equivalents including money market funds,
short-term investments, accounts receivable, other receivables, accounts payable
and accrued expenses approximates fair value due to the short terms to maturity
of these instruments. Short-term investments consist of certificates of deposit
with maturities of approximately six months. The carrying amount of loans
payable approximates fair value as the interest rates on the Company’s
indebtedness approximate current market rates. The fair value of the Company’s
long-term debt was estimated based on the current rates offered to companies for
debt with the same remaining maturities and is approximately equal to its
carrying value. Foreign currency forward exchange contracts are valued based on
quotations of observable market transactions of spot and forward rates provided
to us by financial institutions and the value of interest rate swaps are the
discounted net present value of the swaps using quotes obtained from financial
institutions. No transfers between Level 1 and Level 2 occurred during the six
months ended June 30, 2010.
  Page
7
 INTER
PARFUMS, INC. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 
 The
following table presents gains and losses in derivatives designated as hedges
and the location of those gains and losses in the financial statements (in
thousands):
  Derivatives
                                                                    Designated as
                                                                    Hedging
                                                                    Instuments
                                                                  
                                                                  Amount of Gain
                                                                    (Loss) Recognized in
                                                                    OCI on Derivative
                                                                    (Effective Portion)
                                                                  
                                                                  Location of Gain
                                                                    (Loss)Reclassified
                                                                    fromAccumulated
                                                                    OCI intoIncome
                                                                    (EffectivePortion)
                                                                  
                                                                  Amount of Gain (Loss)
                                                                    Reclassified from
                                                                    Accumulated OCI into
                                                                    Income (Effective
                                                                    Portion)
                                                                  
                                                                  Location of Gain
                                                                    (Loss) Recognized in
                                                                    Income on Derivative
                                                                    (Effective Portion)
                                                                  
                                                                  Amount of Gain (Loss)
                                                                    Recognized in Income
                                                                    on Derivative(Effective
                                                                    Portion) (A)Six months ended
                                                                    June 30,
                                                                  
                                                                  
                                                                  
                                                                  Six months ended
                                                                    June30,
                                                                  
                                                                  
                                                                  
                                                                  Six months ended
                                                                    June30,2010
                                                                  
                                                                  
                                                                  2009
                                                                  
                                                                  
                                                                  
                                                                  2010
                                                                  
                                                                  
                                                                  2009
                                                                  
                                                                  
                                                                  
                                                                  2010
                                                                  
                                                                  
                                                                  2009Foreign
      exchange
                                                                    contracts
                                                                  
                                                                  $
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  (438
                                                                  )
                                                                  Gain
      (loss) on foreign currency
                                                                  
                                                                  $
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  3,191
                                                                  
                                                                  Gain
      (loss) on foreign currency
                                                                  
                                                                  $
                                                                  (2,679
                                                                  )
                                                                  
                                                                  
                                                                  702
  Three
      months ended
                          June
      30,
                        
                        
                        
                        Three
      months ended
                          June
      30,
                        
                        
                        
                        Three
      months ended
                          June
      30,2010
                        
                        
                        2009
                        
                        
                        
                        2010
                        
                        
                        2009
                        
                        
                        
                        2010
                        
                        
                        2009Foreign
      exchange
                          contracts
                        
                        $
                        —
                        
                        
                        
                        3,417
                        
                        Gain
      (loss) on foreign currency
                        
                        $
                        —
                        
                        
                        
                        2,129
                        
                        Gain
      (loss) on foreign currency
                        
                        $
                        —
                        
                        
                        
                        (94
                        )
 
 (A) The
amount of gain (loss) recognized in income represents the amount excluded from
the assessment of hedge effectiveness.
 
 The
following tables present gains and losses in derivatives not designated as
hedges and the location of those gains and losses in the financial statements
(in thousands):
  Derivatives NotDesignated
                            as HedgingInstruments
                          
                          Location of Gain (Loss)
                            recognized in Income on
                            Derivative
                          
                          Six monthsendedJune 30,2010
                          
                          
                          Six monthsended
                            June 30,2009Interest
      rate swaps
                          
                          Interest
      expense
                          
                          $
                          137
                          
                          
                          $
                          (105
                          )Foreign
      exchange contracts
                          
                          Gain
      (loss) on foreign currency
                          
                          $
                          (69
                          )
                          
                          $
                          24
  Derivatives NotDesignated
                              as HedgingInstruments
                            
                            Location of Gain (Loss)
                              recognized in Income on
                              Derivative
                            
                            Three months
                              endedJune 30,
                              2010
                            
                            
                            Three months
                              endedJune 30,
                              2009Interest
      rate swaps
                            
                            Interest
      expense
                            
                            $
                            105
                            
                            
                            $
                            122Foreign
      exchange contracts
                            
                            Gain
      (loss) on foreign currency
                            
                            $
                            (11
                            )
                            
                            $
                            7
  Page
8
 INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 
 All
derivative instruments are reported as either assets or liabilities on the
balance sheet measured at fair value. The valuation of interest rate swaps
resulted in a liability which is included in long-term debt on the accompanying
balance sheets. The valuation of foreign currency forward exchange contracts not
accounted for using hedge accounting as of June 30, 2010 resulted in a liability
and are included in accrued expenses on the accompanying balance sheet. The
valuation of foreign currency forward exchange contracts not accounted for using
hedge accounting as of December 31, 2009, resulted in an asset and are included
in other current assets on the accompanying balance sheet. Generally, increases
or decreases in the fair value of derivative instruments will be recognized as
gains or losses in earnings in the period of change. If the derivative
instrument is designated and qualifies as a cash flow hedge, the changes in fair
value of the derivative instrument will be recorded as a separate component of
shareholders’ equity.
  We enter
into foreign currency forward exchange contracts to hedge exposure related to
receivables denominated in a foreign currency and to manage risks related to
future sales expected to be denominated in a foreign currency. Before entering
into a derivative transaction for hedging purposes, it is determined that a high
degree of initial effectiveness exists between the change in value of the hedged
item and the change in the value of the derivative instrument from movement in
exchange rates. High effectiveness means that the change in the cash flows of
the derivative instrument will effectively offset the change in the cash flows
of the hedged item. The effectiveness of each hedged item is measured throughout
the hedged period and is based on the dollar offset methodology and excludes the
portion of the fair value of the foreign currency forward exchange contract
attributable to the change in spot-forward difference which is reported in
current period earnings. Any hedge ineffectiveness as defined by ASC topic
815-10-10 is also recognized as a gain or loss on foreign currency in the income
statement. For hedge contracts that are no longer deemed highly effective, hedge
accounting is discontinued and gains and losses accumulated in other
comprehensive income are reclassified to earnings. If it is probable that
the forecasted transaction will no longer occur, then any gains or losses
accumulated in other comprehensive income are reclassified to current-period
earnings. Cash-flow hedges were highly effective, in all material
respects.
  At June
30, 2010, we had foreign currency contracts in the form of forward exchange
contracts in the amount of approximately U.S. $37 million and GB pounds
1.55 million which all have maturities of less than one year.
 
 5.
              Goodwill and Other
      Intangible Assets:
 
 We review
goodwill and trademarks with indefinite lives for impairment at least annually,
and whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. The following table presents our assets and
liabilities that are measured at fair value on a nonrecurring basis and are
categorized using the fair value hierarchy.
 
 FairValueMeasurementsatJune30,2010Quoted Prices in
                    
                    
                    Significant Other
                    
                    
                    SignificantActive Markets for
                    
                    
                    Observable
                    
                    
                    UnobservableIdentical Assets
                    
                    
                    Inputs
                    
                    
                    InputsTotal
                    
                    
                    (Level1)
                    
                    
                    (Level2)
                    
                    
                    (Level3)DescriptionTrademark
      - Nickel
                    
                    $
                    2,203
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    2,203Goodwill
                    
                    $
                    3,369
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    3,369
  Page
9
 INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 
 FairValueMeasurementsatDecember31,2009Quoted Prices in
                    
                    
                    Significant Other
                    
                    
                    SignificantActive Markets for
                    
                    
                    Observable
                    
                    
                    UnobservableIdentical Assets
                    
                    
                    Inputs
                    
                    
                    InputsTotal
                    
                    
                    (Level1)
                    
                    
                    (Level2)
                    
                    
                    (Level3)DescriptionTrademark
      - Nickel
                    
                    $
                    2,586
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    2,586Goodwill
                    
                    $
                    3,927
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    3,927
 
 The
goodwill and trademarks referred to above relate to our Nickel skin care
business, which is primarily a component of our European operations. Testing
goodwill for impairment requires us to estimate the fair value of the reporting
unit using significant estimates and assumptions. The assumptions we make will
impact the outcome and ultimate results of the testing. In making our
assumptions and estimates, we use industry accepted valuation models and set
criteria that are reviewed and approved by management and, in certain instances,
we engage third party valuation specialists to advise us. There was no change to
the carrying amount of the intangible assets referred to above during the six
month period ended June 30, 2010 other than for the effect of changes in foreign
currency translation rates.
 
 6.
              Accrued
      Expenses:
 
 Accrued expenses include
      approximately $13.7 million and $9.2 million in advertising liabilities as
      of June 30, 2010 and December 31, 2009,
    respectively.
 
 7.
              Share-Based
      Payments:
 
 We
maintain a stock option program for key employees, executives and directors. The
plans, all of which have been approved by shareholder vote, provide for the
granting of both nonqualified and incentive options.  Options granted
under the plans typically have a six year term and vest over a four to five-year
period. The fair value of shares vested during the six months ended
June 30, 2010 and 2009 aggregated $0.04 million and $0.05 million,
respectively. Compensation cost is recognized on a straight-line basis over the
requisite service period for the entire award. It is generally our policy to
issue new shares upon exercise of stock options.
  The
following table sets forth information with respect to nonvested options for the
six months ended June 30, 2010:
  Number of Shares
                              
                              
                              Weighted Average
                                GrantDate Fair ValueNonvested
      options – beginning of year
                              
                              
                              480,598
                              
                              
                              $
                              3.92Nonvested
      options granted
                              
                              
                              10,500
                              
                              
                              $
                              5.26Nonvested
      options vested or forfeited
                              
                              
                              (15,845
                              )
                              
                              $
                              3.62Nonvested
      options – end of year
                              
                              
                              475,253
                              
                              
                              $
                              3.96
  Page
10
 INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 
 Share-based
payment expense decreased income before income taxes by $0.33 million and $0.60
million for the three and six month periods ended June 30, 2010, respectively,
as compared to $0.24 million and $0.51 million for the corresponding periods of
the prior year.  Share-based payment expense decreased income
attributable to Inter Parfums, Inc. by $0.21 million and $0.33 million for the
three and six month periods ended June 30, 2010, respectively, as compared to
$0.13 million and $0.29 million for the corresponding periods of the prior
year.
 
 The
following table summarizes stock option information as of June 30,
2010:
 
 Number of
                      Shares
                  
                  
                  Weighted
                      Average
                      Exercise PriceOutstanding
      at January 1, 2010
                  
                  
                  920,825
                  
                  
                  $
                  11.32Granted
                  
                  
                  10,500
                  
                  
                  
                  14.65Cancelled
                  
                  
                  (5,450
                  )
                  
                  
                  11.15Exercised
                  
                  
                  (223,455
                  )
                  
                  
                  9.99Outstanding
      at June 30, 2010
                  
                  
                  702,420
                  
                  
                  $
                  11.80Options
      exercisable at June 30, 2010
                  
                  
                  227,167
                  
                  
                  $
                  12.47Options
      available for future grants
                  
                  
                  931,275
 
 As of
June 30, 2010, the weighted average remaining contractual life of options
outstanding is 3.54 years (2.79 years for options exercisable), the aggregate
intrinsic value of options outstanding and options exercisable is $1.7 million
and $0.4 million, respectively and unrecognized compensation cost related to
stock options outstanding on Inter Parfums, Inc. stock aggregated $1.4 million.
The amount of unrecognized compensation cost related to stock options
outstanding of our majority-owned subsidiary, Inter Parfums S.A., was €0.34
million. Options under Inter Parfums, S.A. plans vest over a four-year
period.
  Cash
proceeds, tax benefits and intrinsic value related to stock options exercised
during the six months ended June 30, 2010 and June 30, 2009 were as
follows:
  (In thousands)
                    
                    2010
                    
                    
                    2009Cash
      proceeds from stock options exercised
                    
                    $
                    738
                    
                    
                    $
                    —Tax
      benefits
                    
                    
                    —
                    
                    
                    
                    —Intrinsic
      value of stock options exercised
                    
                    
                    1,173
                    
                    
                    
                    —
 
 No tax
benefit was realized or recognized from stock options exercised as valuation
reserves were allocated to those potential benefits.
  The
weighted average fair values of the options granted by Inter Parfums, Inc.
during the six months ended June 30, 2010 and 2009 were $5.26 and $1.92 per
share, respectively, on the date of grant using the Black-Scholes option pricing
model to calculate the fair value of options granted.
  Page
11
 INTER
PARFUMS, INC. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 
 The
assumptions used in the Black-Scholes pricing model for the periods ended
June 30, 2010 and 2009 are set forth in the following table:
  June 30,
                      2010
                  
                  
                  June 30,
                      2009Weighted-average
      expected stock-price volatility
                  
                  
                  49
                  %
                  
                  
                  46
                  %Weighted-average
      expected option life
                  
                  4.18
      years
                  
                  
                  3.75
      yearsWeighted-average
      risk-free interest rate
                  
                  
                  2.5
                  %
                  
                  
                  1.7
                  %Weighted-average
      dividend yield
                  
                  
                  2.0
                  %
                  
                  
                  2.2
                  %
  Expected
volatility is estimated based on historic volatility of our common stock. We use
the simplified method in developing its estimate of the expected term of the
option as historic data regarding employee exercise behavior is incomplete for
the new vesting parameters we recently instituted. The risk-free rate is based
on the U.S. Treasury yield curve in effect at the time of the grant of the
option and the dividend yield reflects the assumption that the dividend payout
in place at the time of stock-based award grant would continue with no
anticipated increases.
  8.
              Shareholders’
      Equity:
 
 As of
December 31, 2009 we had 300,000 outstanding warrants for the purchase of
300,000 shares of our common stock. In May 2010, we received proceeds of $1.7
million upon the exercise of 150,000 of the warrants and in July 2010 the
remaining 150,000 expired unexercised.
 
 In April
2010, both the Chief Executive Officer and the President each exercised 75,000
outstanding stock options of the Company’s common stock. The aggregate exercise
prices of $1.5 million were paid by them tendering to the Company an aggregate
of 95,744 shares of the Company’s common stock, previously owned by them, valued
at fair market value on the date of exercise. All shares issued pursuant to
these option exercises were issued from treasury stock of the Company. In
addition, the Chief Executive Officer tendered an additional 6,782 shares for
payment of certain withholding taxes resulting from his option
exercises.
 
 9.
              Earnings Per
      Share:
 
 Basic
earnings per share is computed using the weighted average number of shares
outstanding during each period. Diluted earnings per share is computed using the
weighted average number of shares outstanding during each period, plus the
incremental shares outstanding assuming the exercise of dilutive stock options
and warrants using the treasury stock method.
  Page
12
 INTER
PARFUMS, INC. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 
 The
following table sets forth the computation of basic and diluted earnings per
share:
 
 (In thousands)
                          
                          Three months ended
                            June 30,
                          
                          
                          Six months ended
                            June 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Numerator:Net
      income attributable to Inter Parfums, Inc.
                          
                          $
                          5,356
                          
                          
                          $
                          4,226
                          
                          
                          $
                          11,906
                          
                          
                          $
                          9,654Effect
      of dilutive securities of consolidated subsidiary
                          
                          
                          (12
                          )
                          
                          
                          (8
                          )
                          
                          
                          (17
                          )
                          
                          
                          (18
                          )$
                          5,344
                          
                          
                          $
                          4,218
                          
                          
                          $
                          11,889
                          
                          
                          $
                          9,636Denominator:Weighted
      average shares
                          
                          
                          30,361
                          
                          
                          
                          30,064
                          
                          
                          
                          30,277
                          
                          
                          
                          30,115Effect
      of dilutive securities:Stock
      options and warrants
                          
                          
                          106
                          
                          
                          
                          —
                          
                          
                          
                          102
                          
                          
                          
                          —30,467
                          
                          
                          
                          30,064
                          
                          
                          
                          30,379
                          
                          
                          
                          30,115
 
 Not
      included in the above computations is the effect of antidilutive potential
      common shares which consist of outstanding options to purchase 0.1 million
      and 0.3 million shares of common stock for the three and six month periods
      ended June 30, 2010, and 1.1 million shares of common stock for both the
      three and six month periods ended June 30, 2009, respectively, as well as
      outstanding warrants to purchase 0.15 million shares of common stock for
      both the three and six month periods ended June 30, 2010 and 0.3
      million shares of common stock for both the three and six month periods
      ended June 30, 2009.
 
 10.
              Comprehensive Income
      (Loss):
 
 (In thousands)
                    
                    Three months ended
                      June 30,
                    
                    
                    Six months ended
                      June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Comprehensive
      income (loss):Net
      income
                    
                    $
                    6,983
                    
                    
                    $
                    5,753
                    
                    
                    $
                    15,933
                    
                    
                    $
                    13,009Other
      comprehensive income, net of tax:Foreign
      currency translation adjustment
                    
                    
                    (22,728
                    )
                    
                    
                    13,853
                    
                    
                    
                    (39,764
                    )
                    
                    
                    4,202Change
      in fair value of derivatives
                    
                    
                    (13
                    )
                    
                    
                    2,155
                    
                    
                    
                    46
                    
                    
                    
                    (771
                    )Net
      gains reclassified into earningsfrom
      equity
                    
                    
                    —
                    
                    
                    
                    (1,054
                    )
                    
                    
                    —
                    
                    
                    
                    (1,578
                    )Comprehensive
      income (loss):
                    
                    
                    (15,758
                    )
                    
                    
                    20,707
                    
                    
                    
                    (23,785
                    )
                    
                    
                    14,862Less
      comprehensive income (loss) attributable to the noncontrolling
      interest
                    
                    
                    1,601
                    
                    
                    
                    1,751
                    
                    
                    
                    4,075
                    
                    
                    
                    2,788Comprehensive
      income (loss) attributable to Inter Parfums, Inc.
                    
                    $
                    (17,359
                    )
                    
                    $
                    18,956
                    
                    
                    $
                    (27,860
                    )
                    
                    $
                    12,074
  Page
13
 INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 
 11.
              Net Income
      Attributable to Inter Parfums, Inc. and Transfers From the Noncontrolling
      Interest:
 
 (In thousands)
                    
                    Three months ended
                      June 30,
                    
                    
                    Six months ended
                      June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Net
      income attributable to Inter Parfums, Inc.
                    
                    $
                    5,356
                    
                    
                    $
                    4,226
                    
                    
                    $
                    11,906
                    
                    
                    $
                    9,654Decrease
      in Inter Parfums, Inc.’s additional paid-in capital for subsidiary share
      transactions
                    
                    
                    (985
                    )
                    
                    
                    (10
                    )
                    
                    
                    (24
                    )
                    
                    
                    (17
                    )Change
      from net income attributable to Inter Parfums, Inc. and transfers from
      noncontrolling interest
                    
                    $
                    4,371
                    
                    
                    $
                    4,216
                    
                    
                    $
                    11,882
                    
                    
                    $
                    9,637
 
 12.
              Segment and Geographic
      Areas:
 
 We
      manufacture and distribute one product line, fragrances and fragrance
      related products and we manage our business in two segments, European
      based operations and United States based operations. The European assets
      are primarily located, and operations are primarily conducted, in France.
      European operations primarily represent the sale of prestige brand name
      fragrances and United States operations primarily represent the sale of
      specialty retail and mass market fragrances. Information on our operations
      by geographical areas is as
follows:
 
 (In thousands)
                                
                                Three months ended
                                  June 30,
                                
                                
                                Six months ended
                                  June 30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009Net
      sales:United
      States
                                
                                $
                                15,838
                                
                                
                                $
                                9,236
                                
                                
                                $
                                26,916
                                
                                
                                $
                                17,609Europe
                                
                                
                                91,927
                                
                                
                                
                                79,368
                                
                                
                                
                                200,222
                                
                                
                                
                                161,404Eliminations
      of intercompany sales
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —$
                                107,765
                                
                                
                                $
                                88,604
                                
                                
                                $
                                227,138
                                
                                
                                $
                                179,013Net
      income (loss) attributable to Inter Parfums, Inc.:United
      States
                                
                                $
                                359
                                
                                
                                $
                                (578
                                )
                                
                                $
                                (178
                                )
                                
                                $
                                (1,345
                                )Europe
                                
                                
                                4,975
                                
                                
                                
                                4,792
                                
                                
                                
                                12,062
                                
                                
                                
                                10,972Eliminations
      of intercompany profits
                                
                                
                                22
                                
                                
                                
                                12
                                
                                
                                
                                22
                                
                                
                                
                                27$
                                5,356
                                
                                
                                $
                                4,226
                                
                                
                                $
                                11,906
                                
                                
                                $
                                9,654June
      30,
                                
                                
                                December
      31,2010
                                
                                
                                2009Total
      Assets:United
      States
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                45,580
                                
                                
                                $
                                45,580Europe
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                365,240
                                
                                
                                
                                382,628Eliminations
      of investment in subsidiary
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (9,310
                                )
                                
                                
                                (9,120
                                )$
                                401,510
                                
                                
                                $
                                419,088
  Page
14
 INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 
 13.
              Entry into Definitive
      Agreements:
 
 Nine
West
 
 In July
2010, we entered into an exclusive worldwide license agreement with Nine West
Development Corporation for the creation, production, marketing and global
distribution of women’s fragrances under the Nine West brand. The agreement,
which runs through December 31, 2016, contains a provision for further
renewal if certain conditions are met. The agreement also provides for direct
sales to Nine West retail stores in the United States, as well as a licensing
component, enabling us to sell women's fragrances to better department stores
and specialty retailers worldwide. Our rights under such license agreement are
subject to certain minimum sales, advertising expenditures and royalty payments
as are customary in our industry.
 
 Betsey
Johnson
 
 In July
2010, we entered into an exclusive worldwide agreement with Betsey Johnson LLC
under which we will design, manufacture and sell fragrance, color cosmetics as
well as other personal care products across a broad retail spectrum. The
agreement, which runs through December 31, 2015 with a five year optional term
if certain conditions are met, encompasses both direct sales to global Betsey
Johnson stores and e-commerce site, as well as a licensing component, enabling
us to sell these fragrance and beauty products to specialty and department
stores as well as other retail outlets worldwide. Our rights under such license
agreement are subject to certain minimum sales, advertising expenditures and
royalty payments as are customary in our industry.
  Page
15
 INTER
PARFUMS, INC. AND SUBSIDIARIES
  Item
      2:
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OFFINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
 
 Forward
Looking Information
 
 Statements
in this report which are not historical in nature are forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance that such plans, intentions or expectations will be achieved. In some
cases you can identify forward-looking statements by forward-looking words such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"should," "will" and "would" or similar words. You should not rely on
forward-looking statements because actual events or results may differ
materially from those indicated by these forward-looking statements as a result
of a number of important factors. These factors include, but are not limited to,
the risks and uncertainties discussed under the headings “Forward Looking
Statements” and "Risk Factors" in Inter Parfums' annual report on Form 10-K for
the fiscal year ended December 31, 2009 and the reports Inter Parfums files from
time to time with the Securities and Exchange Commission. Inter Parfums does not
intend to and undertakes no duty to update the information contained in this
report.
  Overview
 
 We
operate in the fragrance business, and manufacture, market and distribute a wide
array of fragrances and fragrance related products. We manage our business in
two segments, European based operations and United States based operations. Our
prestige fragrance products are produced and marketed by our European operations
through our 74% owned subsidiary in Paris, Inter Parfums, S.A., which is also a
publicly traded company as 26% of Inter Parfums, S.A. shares trade on the
Euronext. Prestige cosmetics and prestige skin care products represent less than
3% of consolidated net sales.
 
 We
produce and distribute our prestige products primarily under license agreements
with brand owners, and prestige product sales represented approximately 88% and
90% of net sales for the six months ended June 30, 2010 and 2009, respectively.
We have built a portfolio of brands, which include Burberry, Lanvin, Van Cleef
& Arpels, Jimmy Choo, Montblanc, Paul Smith, S.T. Dupont and Nickel whose
products are distributed in over 120 countries around the world. Burberry is our
most significant license, as sales of Burberry products represented 57% and 58%
of net sales for the six months ended June 30, 2010 and 2009,
respectively.
 
 Our
specialty retail and mass-market fragrance and fragrance related products are
marketed through our United States operations and represented 12% and 10% of
sales for the six months ended June 30, 2010 and 2009, respectively. Trademarks
used pursuant to license or other agreements with the brand owners include Gap, Banana Republic, New York &
Company, Brooks Brothers, bebe, Betsey Johnson, Nine WestandJordache
trademarks.
 
 We grow
our business in two distinct ways. First, we grow by adding new brands to our
portfolio, either through new licenses, new specialty retail agreements or
out-right acquisitions of brands. Second, we grow through the introduction of
new products and supporting new and established products through advertising,
merchandising and sampling as well as phasing out existing products that no
longer meet the needs of our consumers. The economics of developing,
producing, launching and supporting products influence our sales and operating
performance each year.  Our introduction of new products may have some
cannibalizing effect on sales of existing products, which we take into account
in our business planning.
  Page
16
 INTER
PARFUMS, INC. AND SUBSIDIARIES
  Our
business is not capital intensive, and it is important to note that we do not
own manufacturing facilities. We act as a general contractor and source our
needed components from our suppliers. These components are received at one of
our distribution centers and then, based upon production needs, the components
are sent to one of several third party fillers which manufacture the finished
good for us and ship it back to our distribution center.
 
 As with
any business, many aspects of our operations are subject to influences outside
our control. The economic challenges and uncertainties in a number of
countries where we do business impacted our business in early
2009. However, improving sales trends began in the second half of 2009 and
have thus far continued into 2010.
  Our
reported net sales are impacted by changes in foreign currency exchange rates.
If the U.S. dollar continues to strengthen, then there will be an adverse impact
on our net sales in 2010. However, earnings are less affected by a strengthening
dollar because in excess of 30% of net sales of our European operations are
denominated in U.S. dollars, while all costs of our European operations are
incurred in euro. Our Company addresses certain financial exposures through a
controlled program of risk management that includes the use of derivative
financial instruments.  We primarily enter into foreign currency forward
exchange contracts to reduce the effects of fluctuating foreign currency
exchange rates.
 
 Recent
Important Events
 
 Nine
West
 
 In July
2010, we entered into an exclusive worldwide license agreement with Nine West
Development Corporation for the creation, production, marketing and global
distribution of women’s fragrances under the Nine West brand. The agreement,
which runs through December 31, 2016, contains a provision for further renewal
if certain conditions are met. The agreement also provides for direct sales to
Nine West retail stores in the United States, as well as a licensing component,
enabling us to sell women's fragrances to better department stores and specialty
retailers worldwide. Our rights under such license agreement are subject to
certain minimum sales, advertising expenditures and royalty payments as are
customary in our industry. Plans call for our first Nine West fragrance launch
in 2011.
 
 Betsey
Johnson
 
 In July
2010, we entered into an exclusive worldwide agreement with Betsey Johnson LLC
of New York, NY, under which we will design, manufacture and sell fragrance,
color cosmetics as well as other personal care products across a broad retail
spectrum. The agreement, which runs through December 31, 2015 with a five year
optional term if certain conditions are met, encompasses both direct sales to
global Betsey Johnson stores and e-commerce site, as well as a licensing
component, enabling us to sell these fragrance and beauty products to specialty
and department stores as well as other retail outlets worldwide. Our rights
under such license agreement are subject to certain minimum sales, advertising
expenditures and royalty payments as are customary in our industry. While we are
introducing a new twist on a vintage Betsey Johnson fragrance in August 2010,
plans call for our first new Betsey Johnson product launch in
2011.
  Page
17
 INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Gap
and Banana Republic
 
 Although
the initial term of our agreement with The Gap, Inc. covering the Gap and Banana
Republic brands in the United States and Canada expired on August 31, 2009, we
had entered into a series of short-term extension agreements to continue the
relationship as it previously existed while we were in discussions with The Gap,
Inc. for a formal extension of the agreement. In March 2010, we signed a new
specialty retail agreement with The Gap, Inc. covering the Gap and Banana
Republic brands in the United States and Canada, with terms and conditions
similar to those of the original agreement. This new agreement expires December
31, 2011.
 
 Montblanc
 
 In
January 2010, we announced that we had entered into an exclusive worldwide
license agreement with Montblanc International GMBH to create, produce and
distribute perfumes and ancillary products under the Montblanc brand. Our rights
under such license agreement, which took effect on July 1, 2010 and runs through
December 31, 2020, are subject to certain minimum sales, advertising
expenditures and royalty payments as are customary in our industry. We also paid
an upfront entry fee of €1 million for this license, and purchased inventory
from the former licensee which aggregated approximately €2.9 million. Plans call
for our first new Montblanc fragrance launch in 2011.
 
 Discussion
of Critical Accounting Policies
 
 We make
estimates and assumptions in the preparation of our financial statements in
conformity with accounting principles generally accepted in the United States of
America. Actual results could differ significantly from those estimates under
different assumptions and conditions. We believe the following discussion
addresses our most critical accounting policies, which are those that are most
important to the portrayal of our financial condition and results of operations.
These accounting policies generally require our management’s most difficult and
subjective judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.
 
 The
judgments used by management in applying critical accounting policies could
be affected by a further and prolonged general deterioration in the economic
environment, which could negatively influence future financial results and
availability of continued financing. Specifically, subsequent evaluations of our
accounts receivable, inventories, and deferred tax assets in light of the
factors then prevailing, could result in significant changes in our allowance
and reserve accounts in future periods, which in turn could generate significant
additional charges. Similarly, the valuation of certain intangible assets could
be negatively impacted by prolonged and severely depressed market conditions
thus leading to the recognition of impairment losses. The following is a brief
discussion of the more critical accounting policies that we employ.
  Page
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INTER
PARFUMS, INC. AND SUBSIDIARIES





Revenue
Recognition





We sell
our products to department stores, perfumeries, specialty retailers, mass-market
retailers, supermarkets and domestic and international wholesalers and
distributors. Sales of such products by our domestic subsidiaries are
denominated in U.S. dollars and sales of such products by our foreign
subsidiaries are primarily denominated in either euro or U.S. dollars. Accounts
receivable reflect the granting of credit to these customers. We generally grant
credit based upon our analysis of the customer’s financial position as well as
previously established buying patterns. We recognize revenues when merchandise
is shipped and the risk of loss passes to the customer. Net sales are comprised
of gross revenues less returns, trade discounts and allowances.





Sales
Returns





Generally,
we do not permit customers to return their unsold products. However, on a
case-by-case basis we occasionally allow customer returns. We regularly review
and revise, as deemed necessary, our estimate of reserves for future sales
returns based primarily upon historic trends and relevant current data. We
record estimated reserves for sales returns as a reduction of sales, cost of
sales and accounts receivable. Returned products are recorded as inventories and
are valued based upon estimated realizable value. The physical condition and
marketability of returned products are the major factors we consider in
estimating realizable value. Actual returns, as well as estimated realizable
values of returned products, may differ significantly, either favorably or
unfavorably, from our estimates, if factors such as economic conditions,
inventory levels or competitive conditions differ from our
expectations.





Promotional
Allowances





We have
various performance-based arrangements with certain retailers. These
arrangements primarily allow customers to take deductions against amounts owed
to us for product purchases. The costs that our Company incurs for
performance-based arrangements, shelf replacement costs and slotting fees are
netted against revenues on our Company’s consolidated statement of income.
Estimated accruals for promotions and advertising programs are recorded in the
period in which the related revenue is recognized. We review and revise the
estimated accruals for the projected costs for these promotions. Actual costs
incurred may differ significantly, either favorably or unfavorably, from
estimates if factors such as the level and success of the retailers’ programs or
other conditions differ from our expectations.





Inventories





Inventories
are stated at the lower of cost or market value. Cost is principally determined
by the first-in, first-out method. We record adjustments to the cost of
inventories based upon our sales forecast and the physical condition of the
inventories. These adjustments are estimates, which could vary significantly,
either favorably or unfavorably, from actual requirements if future economic
conditions or competitive conditions differ from our
expectations.


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INTER
PARFUMS, INC. AND SUBSIDIARIES





Equipment
and Other Long-Lived Assets





Equipment,
which includes tools and molds, is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets. Changes in
circumstances such as technological advances, changes to our business model or
changes in our capital spending strategy can result in the actual useful lives
differing from our estimates. In those cases where we determine that the useful
life of equipment should be shortened, we would depreciate the net book value in
excess of the salvage value, over its revised remaining useful life, thereby
increasing depreciation expense. Factors such as changes in the planned use of
equipment, or market acceptance of products, could result in shortened useful
lives.





We
evaluate goodwill and indefinite-lived intangible assets for impairment at least
annually during the fourth quarter, or more frequently when events occur or
circumstances change, such as an unexpected decline in sales, that would more
likely than not (i) reduce the fair value of the reporting unit below its fair
value or (ii) indicate that the carrying value of an indefinite-lived intangible
asset may not be recoverable.  Impairment of goodwill is evaluated
using a two step process. The first step involves a comparison of the estimated
fair value of the reporting unit to the carrying value of that unit. If the
carrying value of the reporting unit exceeds the fair value of the reporting
unit, the second step of the process involves comparison of the implied fair
value of goodwill (based on industry purchase and sale transaction data) with
its carrying value. If the carrying value of the reporting unit’s goodwill
exceeds the implied fair value of that goodwill, an impairment loss is
recognized as an amount equal to the excess. For indefinite-lived intangible
assets, the evaluation requires a comparison of the estimated fair value of the
asset to the carrying value of the asset. If the carrying value of an
indefinite-lived intangible asset exceeds its fair value, impairment is
recorded.





Goodwill
relates to our Nickel skin care business, which is primarily a component of our
European operations. Testing goodwill for impairment requires us to estimate the
fair value of the reporting unit using significant estimates and assumptions.
The assumptions we make will impact the outcome and ultimate results of the
testing. In making our assumptions and estimates, we use industry accepted
valuation models and set criteria that are reviewed and approved by management
and, in certain instances, we engage third party valuation specialists to advise
us. The first step of our goodwill impairment evaluation has given rise to
potential impairment indicators and, as a result of continued sales declines, we
have been testing for impairment of goodwill on a quarterly basis. We have
determined that we may be inclined to sell the Nickel business within the next
few years. As of December 31, 2009, we have measured fair value of the business
to be equal to the average amount offered by several potential purchasers of the
Nickel business. As a result, the carrying amount of the goodwill exceeded its
implied fair value resulting in an impairment loss of $1.7 million in
2009.  We expect Nickel brand sales to remain steady over the next few
years as the result of new product launches in combination with an expected
economic recovery. In estimating future sales, we use our internal budgets
developed from recent sales data for existing products and planned timing of new
product launches. If sales for the reporting unit decreased 10% we could incur
an additional goodwill impairment charge of $0.5 million. No further impairment
charges were required during the six months ended June 30, 2010.





To
determine fair value of indefinite-lived intangible assets, we use an income
approach, including the relief-from-royalty method. This method assumes that, in
lieu of ownership, a third party would be willing to pay a royalty in order to
obtain the rights to use the comparable asset. The relief-from-royalty
calculations require us to make a number of assumptions and estimates concerning
future sales levels, market royalty rates, future tax rates and discount rates.
We use this method to determine if an impairment charge is required relating to
our Nickel brand trademarks. For the year ended December 31, 2009, an
impairment charge relating to the Nickel trademark in the amount of $0.54
million was recorded. No further impairment charges were required during the six
months ended June 30, 2010. We assumed a market royalty rate of 6% and a
discount rate of 7.8%. The following table presents the impact a change in the
following significant assumptions would have had on our impairment charge
recognized for the year ended December 31, 2009 assuming all other
assumptions remained constant:


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INTER
PARFUMS, INC. AND SUBSIDIARIES





Increase (decrease)(In thousands)
                    
                    Change
                    
                    
                    to impairment chargeWeighted
      average cost of capital
                    
                    
                    +10
                    %
                    
                    $
                    (246
                    )Weighted
      average cost of capital
                    
                    
                    -10
                    %
                    
                    $
                    307Future
      sales levels
                    
                    
                    +10
                    %
                    
                    $
                    244Future
      sales levels
                    
                    
                    -10
                    %
                    
                    $
                    (244
                    )





The fair
values used in our evaluations are also estimated based upon discounted future
cash flow projections using a weighted average cost of capital ranging from 8%
to 9.5%. The cash flow projections are based upon a number of assumptions,
including, future sales levels and future cost of goods and operating expense
levels, as well as economic conditions, changes to our business model or changes
in consumer acceptance of our products which are more subjective in nature. We
believe that the assumptions that we have made in projecting future cash flows
for the evaluations described above are reasonable and currently no impairment
indicators exist for our indefinite-lived assets other than the Nickel
trademarks referred to above. However, if future actual results do not meet our
expectations, we may be required to record an impairment charge, the amount of
which could be material to our results of operations.





Intangible
assets subject to amortization are evaluated for impairment testing whenever
events or changes in circumstances indicate that the carrying amount of an
amortizable intangible asset may not be recoverable. If impairment indicators
exist for an amortizable intangible asset, the undiscounted future cash flows
associated with the expected service potential of the asset are compared to the
carrying value of the asset. If our projection of undiscounted future cash flows
is in excess of the carrying value of the intangible asset, no impairment charge
is recorded. If our projection of undiscounted future cash flows is less than
the carrying value of the intangible asset, an impairment charge would be
recorded to reduce the intangible asset to its fair value. The cash flow
projections are based upon a number of assumptions, including future sales
levels and future cost of goods and operating expense levels, as well as
economic conditions, changes to our business model or changes in consumer
acceptance of our products which are more subjective in nature. We believe that
the assumptions we have made in projecting future cash flows for the evaluations
described above are reasonable and currently no impairment indicators exist for
our intangible assets subject to amortization. In those cases where we determine
that the useful life of long-lived assets should be shortened, we would
depreciate the net book value in excess of the salvage value (after testing for
impairment as described above), over the revised remaining useful life of such
asset thereby increasing amortization expense.


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INTER
PARFUMS, INC. AND SUBSIDIARIES





In
determining the useful life of our Lanvin brand names and trademarks, we applied
the provisions of ASC topic 350-30-35-3. The only factor that prevented us from
determining that the Lanvin brand names and trademarks were indefinite life
intangible assets was Item c. “Any legal, regulatory, or contractual provisions
that may limit the useful life”. The existence of a repurchase option in 2025
may limit the useful life of the Lanvin brand names and trademarks to the
company. However, this limitation would only take effect if the repurchase
option were to be exercised and the repurchase price was paid. If the repurchase
option is not exercised, then the Lanvin brand names and trademarks are expected
to continue to contribute directly to the future cash flows of our company and
their useful life would be considered to be indefinite.





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





Derivatives





We
account for derivative financial instruments in accordance with ASC topic 815,
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities.  This topic also requires the recognition of all
derivative instruments as either assets or liabilities on the balance sheet and
that they are measured at fair value.




We
occasionally use derivative financial instruments to hedge certain anticipated
transactions and interest rates, as well as receivables denominated in foreign
currencies.  We do not utilize derivatives for trading or speculative
purposes.  Hedge effectiveness is documented, assessed and monitored by
employees who are qualified to make such assessments and monitor the
instruments.  Variables that are external to us such as social, political
and economic risks may have an impact on our hedging program and the results
thereof.





Income
Taxes





Deferred
income taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates applicable to future years to the
difference between the financial statement carrying amounts and the tax bases of
existing assets and liabilities. Tax benefits recognized are reduced by a
valuation allowance where it is more likely than not that the benefits may not
be realized.


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INTER
PARFUMS, INC. AND SUBSIDIARIES





Results
of Operations





Three
and Six Months Ended June 30, 2010 as Compared to the Three and Six Months Ended
June 30, 2009





Net sales
                    
                    Three months ended
                      June 30,
                    
                    
                    Six months ended
                      June 30,(In millions)
                    
                    2010
                    
                    
                    %
                      Change
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    %
                      Change
                    
                    
                    2009European
      based product sales
                    
                    $
                    91.9
                    
                    
                    
                    16
                    %
                    
                    $
                    79.4
                    
                    
                    $
                    200.2
                    
                    
                    
                    24
                    %
                    
                    $
                    161.4United
      States based product sales
                    
                    
                    15.9
                    
                    
                    
                    71
                    %
                    
                    
                    9.2
                    
                    
                    
                    26.9
                    
                    
                    
                    53
                    %
                    
                    
                    17.6Total
      net sales
                    
                    $
                    107.8
                    
                    
                    
                    22
                    %
                    
                    $
                    88.6
                    
                    
                    $
                    227.1
                    
                    
                    
                    27
                    %
                    
                    $
                    179.0





Net sales for the three months ended
June 30, 2010 increased 22% to $107.8 million, as compared to $88.6 million for
the corresponding period of the prior year. At comparable foreign currency
exchange rates, net sales increased 28% for the period. Net sales for the six
months ended June 30, 2010 increased 27% to $227.1 million, as compared to
$179.0 million for the corresponding period of the prior year. At comparable
foreign currency exchange rates, net sales increased 29% for the period. The
strength of the U.S. dollar relative to the euro during the first six months of
2010 gave rise to the difference between constant dollar and reported net
sales.





European based prestige product sales
increased 16% for the three months ended June 30, 2010 and 24% for the six
months ended June 30, 2010, as compared to the corresponding periods of the
prior year. This sales growth was due in great part to the launch and global
rollout of Burberry Sport fragrances for men and
women, as well as the continued strong performance of established Burberry
scents. In local currency, Burberry fragrance sales increased 26% to €98.1
million for the six months ended June 30, 2010, as compared to €77.8 million for
the corresponding periods of the prior year. All of our prestige fragrance
brands contributed to sales growth with double digit comparable increases.
Lanvin, our second largest prestige brand, performed very well with year-to-date
sales in local currency aggregating €23.0 million, 21% ahead of last year lead
by the continued strength of Eclat d’Arpègeand Jeanne Lanvin. The 2010
launch of Oriens by Van
Cleef & Arpels boosted that brands local currency year to date sales by 36%
to €12.8 million as compared to €9.4 for the corresponding period of the prior
year.





We
continue to see our European based prestige fragrance business recover in many
geographic markets, especially Asia, South America, the Middle East and Eastern
Europe where comparable local currency year to date sales rose 39%, 67%, 22% and
68%, respectively. Western Europe and North America also saw positive results
with local currency year to date sales up 12% and 14% respectively.





Our plans
for 2010 are well underway. In addition to Burberry Sport fragrances for men and
women which launched during the first quarter of 2010, we have committed capital
to further grow our largest brand through the launch of a cosmetics line for
women in about 30 to 40 shops around the world. The Burberry cosmetics
collection includes nearly 100 products for skin, lips and eyes. The launch of
this cosmetics line requires a significant investment in its first year to
develop products, build cosmetic counters, hire and train personnel, and is
expected to affect 2010 second half net income attributable to Inter Parfums,
Inc. by approximately $1.5 million or $0.05 per diluted share. We believe
that this is an essential development opportunity which will bring Burberry to
the next level of growth.


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INTER
PARFUMS, INC. AND SUBSIDIARIES





In 2010, we are also creating new
women’s scents for our Lanvin, S.T. Dupont and Paul Smith brands, and, in
addition to Oriens, a
women’s scent for Van Cleef & Arpels launched in the first half of 2010, we
will debut a new men’s fragrance for the brand later in 2010.





With
respect to our United States specialty retail and mass-market products, net
sales for the three months ended June 30, 2010 increased 71% to $15.9 million,
as compared to $9.2 million for the corresponding period of the prior year. Net
sales for the six months ended June 30, 2010 increased 53% to $26.9 million, as
compared to $17.6 million for the corresponding period of the prior
year.





International
distribution of specialty retail products suffered in early 2009 as a result of
the global economic recession. In 2010, international distribution benefitted
from the economic recovery which coincided with further expansion of new
products into new territories. In addition, our bebe signature fragrance has
done especially well in overseas markets and we expanded bebe distribution into
additional third party retail outlets throughout the United States.





Plans for
2010 include the introduction of two new Gap scents for distribution in Gap and
Gap Body stores nationwide. International distribution of these new Gap scents
began in April 2010. International distribution is expected to reach
approximately 5,000 doors by the end of 2011. Additional products for Gap and
Banana Republic are in the works including ancillary products, line extensions
and holiday gift sets for launch later in 2010.





New
Brooks Brothers fragrances, Miss Madison, a scent for
young women, and a trio of scents, Black Fleece Red, White &
Blue, are being prepared for a fall 2010 debut with international
distribution following shortly thereafter. In addition, bebe Sheer, a fresh women’s scent
has just launched in international markets and its domestic debut, along with
several color cosmetic products and holiday gift sets, are planned for later
this summer.





We have
been actively pursuing other new business opportunities and in July 2010, we
entered into exclusive worldwide agreement for both the Betsey Johnson and Nine
West brands. For Betsey Johnson we will design, manufacture and sell fragrance,
color cosmetics as well as other personal care products across a broad retail
spectrum. The agreement encompasses both direct sales to global Betsey Johnson
stores and e-commerce site, as well as a licensing component, enabling us to
sell these fragrance and beauty products to specialty and department stores as
well as other retail outlets worldwide. For Nine West, we are charged with the
creation, production, marketing and global distribution of women’s fragrances
under the Nine West brand. The agreement also provides for direct sales to Nine
West retail stores in the United States, as well as a licensing component,
enabling us to sell women's fragrances to better department stores and specialty
retailers worldwide. Plans for both brands call for new fragrance launches in
2011.


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INTER
PARFUMS, INC. AND SUBSIDIARIES





Gross margin
                  
                  Three months ended
                    June 30,
                  
                  
                  Six months ended
                    June 30,(In millions)
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      sales
                  
                  $
                  107.8
                  
                  
                  $
                  88.6
                  
                  
                  $
                  227.1
                  
                  
                  $
                  179.0Cost
      of sales
                  
                  
                  43.1
                  
                  
                  
                  38.4
                  
                  
                  
                  90.7
                  
                  
                  
                  75.2Gross
      margin
                  
                  $
                  64.7
                  
                  
                  $
                  50.2
                  
                  
                  $
                  136.4
                  
                  
                  $
                  103.8Gross
      margin as a percent of net sales
                  
                  
                  60
                  %
                  
                  
                  57
                  %
                  
                  
                  60
                  %
                  
                  
                  58
                  %





Gross
profit margin was 60% for both the three and six month periods ended
June 30, 2010, as compared to 57% and 58% for the corresponding periods of
the prior year. The gross margin improvement is primarily the result of product
mix. We are carefully watching foreign currency exchange rates as a result of
the effect that a strong U.S. dollar relative to the euro has on our European
based product sales to United States customers. Sales to these customers are
denominated in dollars while our costs are incurred in euro. Therefore, from a
profit standpoint, a strong U.S. dollar benefits our gross margin. While the use
of foreign currency forward exchange contracts benefited our gross margins in
the 2009 period, the recent strength of the U.S dollar relative to the euro has
provided a similar benefit in 2010.





Generally,
we do not bill customers for shipping and handling costs and such costs, which
aggregated $1.3 million and $2.6 million for the three and six month periods
ended June 30, 2010, respectively, as compared to $1.1 million and $2.4
million for the corresponding periods of the prior year, are included in
selling, general and administrative expenses in the consolidated statements of
income. As such, our Company’s gross profit may not be comparable to other
companies which may include these expenses as a component of cost of goods
sold.








Selling, general and administrative
                    expenses
                  
                  Three months ended
                    June 30,
                  
                  
                  Six months ended
                    June 30,(In
      millions)
                  
                  2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Selling,
      general and administrative expenses
                  
                  $
                  53.2
                  
                  
                  $
                  43.4
                  
                  
                  $
                  108.9
                  
                  
                  $
                  86.6Selling,
      general and administrative expenses as a percent of net
    sales
                  
                  
                  49
                  %
                  
                  
                  49
                  %
                  
                  
                  48
                  %
                  
                  
                  48
                  %





Selling, general and administrative
expenses increased 23% and 26% for the three and six-month periods ended June
30, 2010, respectively, as compared to the corresponding periods of the prior
year. As a percentage of sales, selling, general and administrative expenses
were 49% and 48% of sales for the three and six-month periods ended June 30,
2010 and 2009.





Promotion and advertising included in
selling, general and administrative expenses aggregated $20.4 million and $39.3
million for the three and six-month periods ended June 30, 2010, respectively,
as compared to $15.0 million and $28.0 million for the corresponding periods of
the prior year. Promotion and advertising represented 19% and 17% of net sales
for the three and six months ended June 30, 2010, as compared to 16.9% and
15.6% of sales for the corresponding period of the prior year. Our 2010 sales
include a substantial contribution from the global launch of Burberry Sportfor men and women. As
disclosed in the past, any new Burberry fragrance launch requires the support of
a significant advertising program.





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25


INTER
PARFUMS, INC. AND SUBSIDIARIES





Royalty expense, included in selling,
general and administrative expenses, aggregated $9.4 million and $20.6 million
for the three and six-month periods ended June 30, 2010, respectively, as
compared to $7.9 million and $16.4 million for the corresponding periods of the
prior year. As a percentage of sales, royalty expense represented 8.8% and 9.1%
of net sales for the three and six months ended June 30, 2010, as compared
to 8.9% and 9.2% of sales for the corresponding period of the prior
year.





Income
from operations increased 68% to $11.5 million for the three-month period ended
June 30, 2010, as compared to $6.8 million for the corresponding
period of the prior year. Income from operations increased 61% to $27.5 million
for the six month period ended June 30, 2010, as compared to $17.1 million for
the corresponding period of the prior year. Operating margins were 10.7% and
12.1% of net sales for the three and six month periods ended June 30, 2010,
respectively, as compared to 7.7% and 9.6% for the corresponding periods of the
prior year.





Interest
expense aggregated $0.5 million and $1.1 million for the three and six-month
periods ended June 30, 2010, respectively, as compared to $0.4 million and $1.7
million for the corresponding periods of the prior year. We use the credit lines
available to us, as needed, to finance our working capital needs. Loans
payable – banks and long-term debt including current maturities aggregated
$34.6 million as of December 31, 2009, as compared to $55.0 million as of
December 31, 2008.





Foreign
currency gains (losses) aggregated ($0.5) million and ($2.9) million for the
three and six-month periods ended June 30, 2010, respectively, as compared to
$2.6 million and $3.9 million for the corresponding periods of the prior
year.  We enter into foreign currency forward exchange contracts to
manage exposure related to certain foreign currency commitments. During 2009, we
were party to foreign currency forward exchange contracts to hedge approximately
80% of our 2009 sales expected to be invoiced in U.S. dollars. Hedge
effectiveness excludes the portion of the fair value of the foreign currency
forward exchange contract attributable to the change in spot-forward difference
which is reported in current period earnings and resulted in most of the gains
and losses referred to above.





Our
effective income tax rate was 35% and 34% for the three and six-month periods
ended June 30, 2010, respectively, as compared to 37% and 35% for the
corresponding periods of the prior year. Our effective tax rates differ from
statutory rates due to the effect of state and local taxes and tax rates in
foreign jurisdictions. Our effective tax rate is usually around 35%. The lower
rates achieved during the six month period ended June 30, 2010 is due to losses
in our United States segment which carry a higher effective rate due to state
and local taxes. No significant changes in tax rates were experienced nor were
any expected in jurisdictions where we operate.


Page
26




INTER
PARFUMS, INC. AND SUBSIDIARIES
  Net
income and earnings per share





(In thousands except per share data)
                      
                      Three Months Ended
                        June 30,
                      
                      
                      Six Months Ended
                        June 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Net
      income
                      
                      $
                      6,983
                      
                      
                      $
                      5,753
                      
                      
                      $
                      15,933
                      
                      
                      $
                      13,009Less:   Net
      income attributable to the noncontrolling interest
                      
                      
                      1,627
                      
                      
                      
                      1,527
                      
                      
                      
                      4,027
                      
                      
                      
                      3,355Net
      income attributable to Inter Parfums, Inc.
                      
                      $
                      5,356
                      
                      
                      $
                      4,226
                      
                      
                      $
                      11,906
                      
                      
                      $
                      9,654Earnings
      per share:Net
      income attributable to Inter Parfums, Inc. common
      shareholders:Basic
                      
                      $
                      0.18
                      
                      
                      $
                      0.14
                      
                      
                      $
                      0.39
                      
                      
                      $
                      0.32Diluted
                      
                      $
                      0.18
                      
                      
                      $
                      0.14
                      
                      
                      $
                      0.39
                      
                      
                      $
                      0.32Weighted
      average number of shares outstanding:Basic
                      
                      
                      30,361
                      
                      
                      
                      30,064
                      
                      
                      
                      30,277
                      
                      
                      
                      30,115Diluted
                      
                      
                      30,467
                      
                      
                      
                      30,064
                      
                      
                      
                      30,379
                      
                      
                      
                      30,115





Net
income increased 21% to $7.0 million for the three month period ended June 30,
2010, as compared to $5.8 million for the corresponding period of the prior
year. Net income increased 22% to $15.9 million for the six-month period ended
June 30, 2010, as compared to $13.0 million for the corresponding period of the
prior year.





Net
income attributable to the noncontrolling interest aggregated 23% and 25% of net
income for the three and six month periods ended June 30, 2010, respectively, as
compared to 26% for both corresponding periods of the prior year. Shares issued
by our French subsidiary Inter Parfums, S.A. pursuant to options exercised in
2010 diluted our ownership from approximately 75% as of December 31, 2009 to 74%
as of June 30, 2010.





Net
income attributable to Inter Parfums, Inc. increased 27% to $5.4 million for the
three month period ended June 30, 2010, as compared to $4.2 million for the
corresponding period of the prior year. Net income attributable to Inter
Parfums, Inc. increased 23% to $11.9 million for the six-month period ended June
30, 2010, as compared to $9.7 million for the corresponding period of the prior
year.





Diluted
earnings per share were $0.18 and $0.14 for the three month periods ended
June 30, 2010 and 2009, respectively, and diluted earnings per share were
$0.39 and $0.32 for the six month periods ended June 30, 2010 and 2009,
respectively. Weighted average shares outstanding aggregated 30.4 million and
30.3 million for the three and six-month periods ended June 30, 2010,
respectively, as compared to 30.1 million for the corresponding periods of the
prior year. On a diluted basis, average shares outstanding were 30.5 million and
30.4 million for the three and six-month periods ended June 30, 2010, as
compared to 30.1 million for both the three and six-month periods ended June 30,
2009. The increase in shares outstanding is primarily the result of shares
issued pursuant to option and warrant exercises.


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27


INTER
PARFUMS, INC. AND SUBSIDIARIES





Liquidity
and Capital Resources





Our
financial position remains strong. At June 30, 2010, working capital aggregated
$178 million and we had a working capital ratio of 2.4 to 1. Cash and cash
equivalents and short-term investments aggregated $92 million.





Cash
provided by operating activities aggregated $19.8 million and $9.6 million for
the six month periods ended June 30, 2010 and 2009, respectively. For the six
months ended June 30, 2010, working capital items used less than $1.0
million in cash from operating activities as increases in inventories and
accounts receivable were offset by increases in accounts payable and accrued
expenses. The $16 million increase in accounts receivable for the six month
period ended June 30, 2010, as shown on the statement of cash flows, reflects
favorable collection activity as days receivable outstanding declined from 115
days sales as of June 30, 2009 to 87 days as of June 30, 2010. The $24 million
increase in inventories for the six month period ended June 30, 2010, as shown
on the statement of cash flows, reflects the needed inventory build to support
sales growth and upcoming product launches.





Cash
flows used in investing activities in 2010 reflects net purchases of $36 million
in short-term investments which are certificates of deposit with maturities
slightly greater than three months. We also spent approximately $2.6 million for
capital items. Our business is not capital intensive as we do not own any
manufacturing facilities. However, we typically spend between $2.5 million and
$3.5 million per year on tools and molds, depending on our new product
development calendar. The balance of capital expenditures is for office
fixtures, computer equipment and industrial equipment needed at our distribution
centers.  Capital expenditures in 2010 are expected to be in the range
of $5.0 million to $5.5 million, considering our 2010 launch schedule. Proceeds
from sale of stock of subsidiary reflect the proceeds from shares issued by our
French subsidiary Inter Parfums, S.A. pursuant to options exercised in 2010, and
payment for acquisition of minority interests represents repurchases of shares
of our French subsidiary Inter Parfums, S.A. in an effort to offset the dilution
from options exercised.





Our
short-term financing requirements are expected to be met by available cash on
hand at June 30, 2010, cash generated by operations and short-term credit lines
provided by domestic and foreign banks. The principal credit facilities for 2010
consist of a $15.0 million unsecured revolving line of credit provided by a
domestic commercial bank and approximately $45.0 million in credit lines
provided by a consortium of international financial institutions. As of
June 30, 2010, short-term borrowings aggregated $3.5 million.





Our
long-term credit facilities provides for principal and interest to be repaid in
20 quarterly installments. As of June 30, 2010, total long-term debt including
current maturities aggregated $20.1 million.





In
January 2010, the board of directors authorized an approximate 100% increase in
the annual dividend to $0.26 per share. The next quarterly dividend of $0.065
per share will be paid on October 15, 2010 to shareholders of record on
September 30, 2010. Dividends paid, including dividends paid once per year to
noncontrolling stockholders of Inter Parfums, S.A., aggregated $5.0 million for
the six months ended June 30, 2010. The cash dividends for 2010 are not expected
to have any significant impact on our financial position.


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INTER
PARFUMS, INC. AND SUBSIDIARIES





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





Inflation
rates in the U.S. and foreign countries in which we operate did not have a
significant impact on operating results for the six month period ended June 30,
2010.





Contractual
Obligations





The
following table sets for a schedule of our contractual obligations over the
periods indicated in the table, as well as our total contractual obligations ($
in thousands).





Payments due by periodContractual Obligations
                        
                        Total
                        
                        
                        Less than1year
                        
                        
                        Years
                          2-3
                        
                        
                        Years
                          4-5
                        
                        
                        More than5yearsLong-Term
      Debt (2)
                        
                        $
                        29,600
                        
                        
                        $
                        11,700
                        
                        
                        $
                        17,900Capital
      Lease ObligationsOperating
      Leases
                        
                        $
                        19,800
                        
                        
                        $
                        7,500
                        
                        
                        $
                        8,600
                        
                        
                        $
                        2,300
                        
                        
                        $
                        1,400Purchase
      obligations(1)
                        
                        $
                        1,210,700
                        
                        
                        $
                        134,700
                        
                        
                        $
                        313,300
                        
                        
                        $
                        327,400
                        
                        
                        $
                        435,300Other
      Long-Term Liabilities Reflected on the Registrant's Balance Sheet under
      GAAPTotal
                        
                        $
                        1,260,100
                        
                        
                        $
                        153,900
                        
                        
                        $
                        339,800
                        
                        
                        $
                        329,700
                        
                        
                        $
                        436,700





(1)
            Consists
      of purchase commitments for advertising and promotional items, minimum
      royalty guarantees, including fixed or minimum obligations, and estimates
      of such obligations subject to variable price provisions. Future
      advertising commitments were estimated based on planned future sales for
      the license terms that were in effect at December 31, 2009, without
      consideration for potential renewal periods and do not reflect the fact
      that our distributors share our advertising
  obligations.





(2)
            Interest
      due on the Company’s long-term debt is payable $0.70 million, $0.40
      million and $0.07 million in 2010, 2011 and 2012,
      respectively.





Item
      3:
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





General





We
address certain financial exposures through a controlled program of risk
management that primarily consists of the use of derivative financial
instruments. We primarily enter into foreign currency forward exchange contracts
in order to reduce the effects of fluctuating foreign currency exchange rates.
We do not engage in the trading of foreign currency forward exchange contracts
or interest rate swaps.





Foreign
Exchange Risk Management





We
periodically enter into foreign currency forward exchange contracts to hedge
exposure related to receivables denominated in a foreign currency and to manage
risks related to future sales expected to be denominated in a foreign currency.
We enter into these exchange contracts for periods consistent with our
identified exposures. The purpose of the hedging activities is to minimize the
effect of foreign exchange rate movements on the receivables and cash flows of
Inter Parfums, S.A., our French subsidiary, whose functional currency is the
Euro. All foreign currency contracts are denominated in currencies of majorindustrialcountriesand are with largefinancial institutions, which
are ratedasstronginvestmentgrade.


Page
29


INTER
PARFUMS, INC. AND SUBSIDIARIES





All
derivative instruments are required to be reflected as either assets or
liabilities in the balance sheet measured at fair value. Generally, increases or
decreases in fair value of derivative instruments will be recognized as gains or
losses in earnings in the period of change. If the derivative is designated and
qualifies as a cash flow hedge, then the changes in fair value of the derivative
instrument will be recorded in other comprehensive income.





Before
entering into a derivative transaction for hedging purposes, we determine that
the change in the value of the derivative will effectively offset the change in
the fair value of the hedged item from a movement in foreign currency rates.
Then, we measure the effectiveness of each hedge throughout the hedged
period.  Any hedge ineffectiveness is recognized in the income
statement.





At June
30, 2010, we had foreign currency contracts in the form of forward exchange
contracts in the amount of approximately U.S. $37 million and GB pounds
1.55 million which all have maturities of less than one year. We believe that
our risk of loss as the result of nonperformance by any of such financial
institutions is remote.





Interest
Rate Risk Management





We
mitigate interest rate risk by monitoring interest rates, and then determining
whether fixed interest rates should be swapped for floating rate debt, or if
floating rate debt should be swapped for fixed rate debt. We entered into an
interest rate swap in September 2007 on €22 million of debt, effectively
exchanging the variable interest rate of 0.6% above the three month EURIBOR to a
fixed rate of 4.42%. The remaining balance owed pursuant to this facility is as
of June 30, 2010 was €9.9 million. This derivative instrument is recorded at
fair value and changes in fair value are reflected in the accompanying
consolidated statements of income.





Item
      4.
            CONTROLS
      AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





Our Chief
Executive Officer and Chief Financial Officer have reviewed and evaluated the
effectiveness of our disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rule 13a-15(e)) as of the end of the period
covered by this quarterly report on Form 10-Q (the “Evaluation
Date”).  Based on their review and evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that as of the Evaluation
Date our Company's disclosure controls and procedures were
effective.





Changes
in Internal Control Over Financial Reporting





There has
been no change in our internal control over financial reporting (as defined in
Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the
quarterly period covered by this report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.


Page
30


INTER
PARFUMS, INC. AND SUBSIDIARIES





Part
      II.
            Other
      Information





Items 1. Legal Proceedings,1A.Risk Factors, 2. Unregistered Sales
of Equity Securities and Use of Proceeds, 3. Defaults Upon Senior Securitiesand 5. Other
Information, are omitted as they are either not applicable or have been
included in Part
I.





Item
      6.
            Exhibits.





The following documents are filed
herewith:





Exhibit No.
                  
                  Description
                  
                  Sequentially Numbered
                    Page in Report3.1
                  
                  Interparfums
      Singapore Pte. Ltd  Memorandum and Articles of
      Association
                  
                  353.2
                  
                  Interparfums
      Luxury Brands, Inc. Certificate of Incorporation
                  
                  8210.141
                  
                  License
      Agreement with Betsey Johnson LLC (Certain confidential information in
      this Exhibit 10.141 was omitted and filed separately with the Securities
      and Exchange Commission with a request for confidential treatment by Inter
      Parfums, Inc).
                  
                  8310.142
                  
                  License
      Agreement with Nine West Development Corporation (Certain confidential
      information in this Exhibit 10.142 was omitted and filed separately with
      the Securities and Exchange Commission with a request for confidential
      treatment by Inter Parfums, Inc).
                  
                  12631.1
                  
                  Certifications
      required by Rule 13a-14(a) of Chief Executive Officer
                  
                  24531.2
                  
                  Certifications
      required by Rule 13a-14(a) of Chief Financial Officer
                  
                  24632.1
                  
                  Certification
      required by Section 906 of the Sarbanes-Oxley Act of Chief Executive
      Officer
                  
                  24732.1
                  
                  Certification
      required by Section 906 of the Sarbanes-Oxley Act of Chief Financial
      Officer
                  
                  248


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INTER
PARFUMS, INC. AND SUBSIDIARIES





SIGNATURES





Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized on the 9th
day of August 2010.





INTER
      PARFUMS, INC.By:
              /s/
      Russell GreenbergExecutive
      Vice President andChief
      Financial Officer


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32