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 March 31,
  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 May 5,
2010, there were 30,292,881 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 Sheetsas
      of March 31, 2010 (unaudited)and
      December 31, 2009
                                            2Consolidated
      Statements of Incomefor
      the Three Months EndedMarch
      31, 2010 (unaudited)and
      March 31, 2009 (unaudited)
                                            3Consolidated
      Statements of Changes in Equityfor
      the Three Months EndedMarch
      31, 2010 (unaudited) andMarch
      31, 2009 (unaudited)
                                            4Consolidated
      Statements of Cash Flowsfor
      the Three Months EndedMarch
      31, 2010 (unaudited) andMarch
      31, 2009 (unaudited)
                                            5Notes
      to Consolidated Financial Statements
                                            6Item
      2.   Management's Discussion and Analysis
ofFinancial Condition and Results of Operations
                                            14Item
      3.   Quantitative and Qualitative
    DisclosuresAbout Market Risk
                                            26Item
      4.   Controls and Procedures
                                            27Part
      II.   Other Information
                                            28Item
      2.   Unregistered Sales of Equity Securities and Use of
      Proceeds.
                                            28Item
      6.   Exhibits
                                            28Signatures
  
  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 three
months ended March 31, 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)
 
 March
      31,
                                                  2010
                                                
                                                
                                                December
      31,
                                                  2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                
                                                $
                                                95,262
                                                
                                                
                                                $
                                                100,467Short-term
      investments
                                                
                                                
                                                8,087
                                                
                                                
                                                
                                                —Accounts
      receivable, net
                                                
                                                
                                                110,574
                                                
                                                
                                                
                                                101,334Inventories
                                                
                                                
                                                88,085
                                                
                                                
                                                
                                                85,428Receivables,
      other
                                                
                                                
                                                2,125
                                                
                                                
                                                
                                                3,229Other
      current assets
                                                
                                                
                                                8,119
                                                
                                                
                                                
                                                8,090Deferred
      tax assets
                                                
                                                
                                                4,588
                                                
                                                
                                                
                                                4,088Total
      current assets
                                                
                                                
                                                316,840
                                                
                                                
                                                
                                                302,636Equipment
      and leasehold improvements, net
                                                
                                                
                                                9,158
                                                
                                                
                                                
                                                9,191Goodwill
                                                
                                                
                                                3,684
                                                
                                                
                                                
                                                3,927Trademarks,
      licenses and other intangible assets, net
                                                
                                                
                                                94,465
                                                
                                                
                                                
                                                101,799Other
      assets
                                                
                                                
                                                707
                                                
                                                
                                                
                                                1,535Total
      assets
                                                
                                                $
                                                424,854
                                                
                                                
                                                $
                                                419,088LIABILITIES
      AND EQUITYCurrent
      liabilities:Loans
      payable – banks
                                                
                                                $
                                                7,153
                                                
                                                
                                                $
                                                5,021Current
      portion of long-term debt
                                                
                                                
                                                11,028
                                                
                                                
                                                
                                                11,732Accounts
      payable - trade
                                                
                                                
                                                60,004
                                                
                                                
                                                
                                                48,138Accrued
      expenses
                                                
                                                
                                                37,982
                                                
                                                
                                                
                                                37,440Income
      taxes payable
                                                
                                                
                                                3,728
                                                
                                                
                                                
                                                1,646Dividends
      payable
                                                
                                                
                                                1,964
                                                
                                                
                                                
                                                996Total
      current liabilities
                                                
                                                
                                                121,859
                                                
                                                
                                                
                                                104,973Long-term
      debt, less current portion
                                                
                                                
                                                13,909
                                                
                                                
                                                
                                                17,862Deferred
      tax liability
                                                
                                                
                                                7,186
                                                
                                                
                                                
                                                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 30,215,502
      and 30,171,952 shares at March 31, 2010 and December 31, 2009,
      respectively
                                                
                                                
                                                30
                                                
                                                
                                                
                                                30Additional
      paid-in capital
                                                
                                                
                                                46,672
                                                
                                                
                                                
                                                45,126Retained
      earnings
                                                
                                                
                                                191,241
                                                
                                                
                                                
                                                186,611Accumulated
      other comprehensive income
                                                
                                                
                                                12,949
                                                
                                                
                                                
                                                30,000Treasury
      stock, at cost, 10,056,966 common shares at March 31, 2010 and December
      31, 2009
                                                
                                                
                                                (33,043
                                                )
                                                
                                                
                                                (33,043
                                                )Total
      Inter Parfums, Inc. shareholders’ equity
                                                
                                                
                                                217,849
                                                
                                                
                                                
                                                228,724Noncontrolling
      interest
                                                
                                                
                                                64,051
                                                
                                                
                                                
                                                58,689Total
      equity
                                                
                                                
                                                281,900
                                                
                                                
                                                
                                                287,413Total
      liabilities and equity
                                                
                                                $
                                                424,854
                                                
                                                
                                                $
                                                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
                            March
      31,2010
                          
                          
                          2009Net
      sales
                          
                          $
                          119,373
                          
                          
                          $
                          90,409Cost
      of sales
                          
                          
                          47,652
                          
                          
                          
                          36,844Gross
      margin
                          
                          
                          71,721
                          
                          
                          
                          53,565Selling,
      general and administrative expenses
                          
                          
                          55,698
                          
                          
                          
                          43,263Income
      from operations
                          
                          
                          16,023
                          
                          
                          
                          10,302Other
      expenses (income):Interest
      expense
                          
                          
                          589
                          
                          
                          
                          1,312(Gain)
      loss on foreign currency
                          
                          
                          2,382
                          
                          
                          
                          (1,379
                          )Interest
      income
                          
                          
                          (255
                          )
                          
                          
                          (508
                          )2,716
                          
                          
                          
                          (575
                          )Income
      before income taxes
                          
                          
                          13,307
                          
                          
                          
                          10,877Income
      taxes
                          
                          
                          4,357
                          
                          
                          
                          3,621Net
      income
                          
                          
                          8,950
                          
                          
                          
                          7,256Less:
      Net income attributable to the noncontrolling interest
                          
                          
                          2,400
                          
                          
                          
                          1,828Net
      income attributable to Inter Parfums, Inc.
                          
                          $
                          6,550
                          
                          
                          $
                          5,428Earnings
      per share:Net
      income attributable to Inter Parfums, Inc. common
      shareholders:Basic
                          
                          $
                          0.22
                          
                          
                          $
                          0.18Diluted
                          
                          $
                          0.22
                          
                          
                          $
                          0.18Weighted
      average number of shares outstanding:Basic
                          
                          
                          30,192
                          
                          
                          
                          30,166Diluted
                          
                          
                          30,291
                          
                          
                          
                          30,166Dividends
      declared per share
                          
                          $
                          0.065
                          
                          
                          $
                          0.033
 
 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
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      5,428
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      1,828
                      
                      
                      
                      7,256Foreign
      currency translation adjustment
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (9,651
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (9,651
                      )Net
      derivative instrument gain (loss), net of tax
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (2,659
                      )
                      
                      
                      —
                      
                      
                      
                      (791
                      )
                      
                      
                      (3,450
                      )Purchase
      of subsidiary shares from noncontrolling interests
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (142
                      )
                      
                      
                      (142
                      )Sale
      of subsidiary shares to noncontrolling interests
                      
                      
                      —
                      
                      
                      
                      (7
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      30
                      
                      
                      
                      23Dividends
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (996
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (996
                      )Purchased
      treasury stock
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (349
                      )
                      
                      
                      —
                      
                      
                      
                      (349
                      )Stock
      compensation
                      
                      
                      —
                      
                      
                      
                      127
                      
                      
                      
                      61
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      29
                      
                      
                      
                      217Balance
      – March 31, 2009
                      
                      $
                      30
                      
                      
                      $
                      42,070
                      
                      
                      $
                      172,518
                      
                      
                      $
                      13,205
                      
                      
                      $
                      (31,668
                      )
                      
                      $
                      52,262
                      
                      
                      $
                      248,417Balance
      – January 1, 2010
                      
                      $
                      30
                      
                      
                      $
                      45,126
                      
                      
                      $
                      186,611
                      
                      
                      $
                      30,000
                      
                      
                      $
                      (33,043
                      )
                      
                      $
                      58,689
                      
                      
                      $
                      287,413Comprehensive
      income:Net
      income
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      6,550
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      2,400
                      
                      
                      
                      8,950Foreign
      currency translation adjustment
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (17,036
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (17,036
                      )Net
      derivative instrument gain (loss), net of tax
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (15
                      )
                      
                      
                      —
                      
                      
                      
                      74
                      
                      
                      
                      59Shares
      issued upon exercise of stock options
                      
                      
                      —
                      
                      
                      
                      437
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      437Sale
      of subsidiary shares to noncontrolling interests
                      
                      
                      
                      
                      
                      
                      961
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,862
                      
                      
                      
                      3,823Dividends
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (1,964
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (1,964
                      )Stock
      compensation
                      
                      
                      —
                      
                      
                      
                      148
                      
                      
                      
                      44
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      26
                      
                      
                      
                      218Balance
      – March 31, 2010
                      
                      $
                      30
                      
                      
                      $
                      46,672
                      
                      
                      $
                      191,241
                      
                      
                      $
                      12,949
                      
                      
                      $
                      (33,043
                      )
                      
                      $
                      64,051
                      
                      
                      $
                      281,900
 
 See
notes to consolidated financial statements.
  Page
4
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (In
thousands)
 (Unaudited)
 
 Three
      months ended
                              March
      31,2010
                            
                            
                            2009Cash
      flows from operating activities:Net
      income
                            
                            $
                            8,950
                            
                            
                            $
                            7,256Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                            
                            
                            2,393
                            
                            
                            
                            2,336Provision
      for doubtful accounts
                            
                            
                            (188
                            )
                            
                            
                            15Noncash
      stock compensation
                            
                            
                            260
                            
                            
                            
                            263Deferred
      tax (benefit)
                            
                            
                            (1,789
                            )
                            
                            
                            (1,767
                            )Change
      in fair value of derivatives
                            
                            
                            (32
                            )
                            
                            
                            (796
                            )Changes
      in:Accounts
      receivable
                            
                            
                            (15,354
                            )
                            
                            
                            1,860Inventories
                            
                            
                            (7,205
                            )
                            
                            
                            (1,859
                            )Other
      assets
                            
                            
                            1,269
                            
                            
                            
                            807Accounts
      payable and accrued expenses
                            
                            
                            18,080
                            
                            
                            
                            (8,233
                            )Income
      taxes payable, net
                            
                            
                            2,185
                            
                            
                            
                            1,982Net
      cash provided by operating activities
                            
                            
                            8,569
                            
                            
                            
                            1,864Cash
      flows from investing activities:Purchases
      of equipment and leasehold improvements
                            
                            
                            (1,340
                            )
                            
                            
                            (1,414
                            )Purchases
      of short-term investments
                            
                            
                            (8,297
                            )
                            
                            
                            —Payment
      for intangible assets acquired
                            
                            
                            (463
                            )
                            
                            
                            (168
                            )Payment
      for acquisition of noncontrolling interests
                            
                            
                            —
                            
                            
                            
                            (142
                            )Proceeds
      from sale of stock of subsidiary
                            
                            
                            3,823
                            
                            
                            
                            23Net
      cash used in investing activities
                            
                            
                            (6,277
                            )
                            
                            
                            (1,701
                            )Cash
      flows from financing activities:Proceeds
      from (repayments of) loans payable – banks, net
                            
                            
                            2,327
                            
                            
                            
                            (1,719
                            )Repayment
      of long-term debt
                            
                            
                            (2,792
                            )
                            
                            
                            (3,665
                            )Proceeds
      from exercise of options
                            
                            
                            437
                            
                            
                            
                            —Dividends
      paid
                            
                            
                            (996
                            )
                            
                            
                            (996
                            )Purchase
      of treasury stock
                            
                            
                            —
                            
                            
                            
                            (349
                            )Net
      cash used in financing activities
                            
                            
                            (1,024
                            )
                            
                            
                            (6,729
                            )Effect
      of exchange rate changes on cash
                            
                            
                            (6,473
                            )
                            
                            
                            (1,985
                            )Net
      decrease in cash and cash equivalents
                            
                            
                            (5,205
                            )
                            
                            
                            (8,551
                            )Cash
      and cash equivalents - beginning of period
                            
                            
                            100,467
                            
                            
                            
                            42,404Cash
      and cash equivalents - end of period
                            
                            $
                            95,262
                            
                            
                            $
                            33,853Supplemental
      disclosure of cash flow information:Cash
      paid for:Interest
                            
                            $
                            580
                            
                            
                            $
                            749Income
      taxes
                            
                            
                            2,357
                            
                            
                            
                            4,266
 
 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.
 
 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)
                        
                        March
      31,
                            2010
                        
                        
                        December
      31,
                            2009Raw
      materials and component parts
                        
                        $
                        31,253
                        
                        
                        $
                        29,052Finished
      goods
                        
                        
                        56,832
                        
                        
                        
                        56,376$
                        88,085
                        
                        
                        $
                        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)
                    
                    
                    
                    
                    Fair Value Measurements at March 31,
      2010Quoted
      Prices in
                    
                    
                    Significant
      Other
                    
                    
                    SignificantActive
      Markets for
                    
                    
                    Observable
                    
                    
                    UnobservableIdentical
      Assets
                    
                    
                    Inputs
                    
                    
                    InputsTotal
                    
                    
                    (Level 1)
                    
                    
                    (Level 2)
                    
                    
                    (Level 3)Assets:Short-term
      investments
                    
                    $
                    8,087
                    
                    
                    $
                    —
                    
                    
                    $
                    8,087
                    
                    
                    $
                    —Liabilities:Foreign
      currency forward exchange contracts not accounted for using hedge
      accounting
                    
                    $
                    908
                    
                    
                    $
                    —
                    
                    
                    $
                    908
                    
                    
                    $
                    —Interest
      rate swaps
                    
                    
                    673
                    
                    
                    
                    —
                    
                    
                    
                    673
                    
                    
                    
                    —$
                    1,581
                    
                    
                    $
                    —
                    
                    
                    $
                    1,581
                    
                    
                    $
                    —
 
 (In
      thousands)
                    
                    
                    
                    
                    Fair Value Measurements at December 31,
      2009Quoted
      Prices in
                    
                    
                    Significant
      Other
                    
                    
                    SignificantActive
      Markets for
                    
                    
                    Observable
                    
                    
                    UnobservableIdentical
      Assets
                    
                    
                    Inputs
                    
                    
                    InputsTotal
                    
                    
                    (Level 1)
                    
                    
                    (Level 2)
                    
                    
                    (Level 3)Assets:Foreign
      currency forward exchange contracts not accounted for using hedge
      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. 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 three months ended March 31,
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)March
      31,
                    
                    
                    
                    March
      31,
                    
                    
                    
                    March
      31,2010
                    
                    
                    2009
                    
                    
                    
                    2010
                    
                    
                    2009
                    
                    
                    
                    2010
                    
                    
                    2009Foreign
      exchange
                      contracts
                    
                    $
                    —
                    
                    
                    
                    (3,855
                    )
                    Gain
      (loss) on
                      foreign
      currency
                    
                    $
                    —
                    
                    
                    
                    1,062
                    
                    Gain
      (loss) on
                      foreign
      currency
                    
                    $
                    (2,679
                    )
                    
                    
                    796
 
 (A) The
amount of gain (loss) recognized in income represents the amount excluded from
the assessment of hedge effectiveness.
 
 The
following table presents gains and losses in derivatives not designated as
hedges and the location of those gains and losses in the financial statements
(in thousands):
  Derivatives Not Designated
                              as Hedging Instruments
                            
                            Location of Gain (Loss)
                              Recognized in Income on
                              Derivative
                            
                            March 31, 2010
                            
                            
                            March 31, 2009Interest
      rate swaps
                            
                            Interest
      expense
                            
                            $
                            32
                            
                            
                            $
                            (227
                            )Foreign
      exchange contracts
                            
                            Gain
      (loss) on foreign currency
                            
                            $
                            (58
                            )
                            
                            $
                            17
  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 March 31, 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.
  Page
8
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 
 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 March
31, 2010, we had foreign currency contracts in the form of forward exchange
contracts in the amount of approximately U.S. $40 million and GB pounds
1.9 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.
 
 Fair Value Measurements at March 30,
      2010Quoted
      Prices in
                    
                    
                    Significant
      Other
                    
                    
                    SignificantActive
      Markets for
                    
                    
                    Observable
                    
                    
                    UnobservableIdentical
      Assets
                    
                    
                    Inputs
                    
                    
                    InputsTotal
                    
                    
                    (Level 1)
                    
                    
                    (Level 2)
                    
                    
                    (Level 3)DescriptionTrademark
      - Nickel
                    
                    $
                    2,419
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    2,419Goodwill
                    
                    $
                    3,684
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    3,684
 
 Fair Value Measurements at December 31,
      2009Quoted
      Prices in
                    
                    
                    Significant
      Other
                    
                    
                    SignificantActive
      Markets for
                    
                    
                    Observable
                    
                    
                    UnobservableIdentical
      Assets
                    
                    
                    Inputs
                    
                    
                    InputsTotal
                    
                    
                    (Level 1)
                    
                    
                    (Level 2)
                    
                    
                    (Level 3)DescriptionTrademark
      - Nickel
                    
                    $
                    2,586
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    2,586Goodwill
                    
                    $
                    3,927
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    3,927
  Page
9
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 
 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 three
month periods ended March 31, 2010 other than for the effect of changes in
foreign currency translation rates.
 
 6.           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 three months ended March 31,
2010 and 2009 aggregated $0.03 million and $0.04 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
three month period ended March 31, 2010:
  Number
                          of Shares
                        
                        
                        Weighted
                          Average
                          Grant Date
                          Fair ValueNonvested
      options – beginning of year
                        
                        
                        480,598
                        
                        
                        $
                        3.92Nonvested
      options granted
                        
                        
                        10,500
                        
                        
                        $
                        5.26Nonvested
      options vested or forfeited
                        
                        
                        (9,925
                        )
                        
                        $
                        3.43Nonvested
      options – end of year
                        
                        
                        481,173
                        
                        
                        $
                        3.96
 
 Share-based
payment expense decreased income before income taxes and net income attributable
to Inter Parfums, Inc. by $0.26 million and $0.13 million and by $0.26 million
and $0.15 million for the three months ended March 31, 2010 and 2009,
respectively.
 
 The
following table summarizes stock option information as of March 31,
2010:
  Shares
                  
                  
                  Weighted
                      Average
                      Exercise
      PriceOutstanding
      at January 1, 2010
                  
                  
                  920,825
                  
                  
                  $
                  11.32Granted
                  
                  
                  10,500
                  
                  
                  
                  14.65Exercised
                  
                  
                  (43,550
                  )
                  
                  
                  10.03Outstanding
      at March 31, 2010
                  
                  
                  887,775
                  
                  
                  $
                  11.42Options
      exercisable at March 31, 2010
                  
                  
                  406,602
                  
                  
                  $
                  11.34Options
      available for future grants
                  
                  
                  937,825
  Page
10
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 
 As of
March 31, 2010, the weighted average remaining contractual life of options
outstanding is 3.04 years (1.73 years for options exercisable), the aggregate
intrinsic value of options outstanding and options exercisable is $3.0 million
and $1.4 million, respectively and unrecognized compensation cost related to
stock options outstanding on Inter Parfums, Inc. stock aggregated $1.3 million.
The amount of unrecognized compensation cost related to stock options
outstanding of our majority-owned subsidiary, Inter Parfums S.A., was €0.55
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 three months ended March 31, 2010 and March 31, 2009 were as
follows:
  (In
      thousands)
                            
                            March
      31,
                                2010
                            
                            
                            March
      31,
                                2009Cash
      proceeds from stock options exercised
                            
                            $
                            437
                            
                            
                            $
                            —Tax
      benefits
                            
                            
                            —
                            
                            
                            
                            —Intrinsic
      value of stock options exercised
                            
                            
                            163
                            
                            
                            
                            —
 
 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 three months ended March 31, 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. The assumptions used in
the Black-Scholes pricing model for the periods ended March 31, 2010 and
2009 are set forth in the following table. 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.
  March
      31,
                        2010
                    
                    
                    March
      31,
                        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
                    %
  7.
              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
11
  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
                          March
      31,2010
                        
                        
                        2009Numerator:Net
      income attributable to Inter Parfums, Inc.
                        
                        $
                        6,550
                        
                        
                        $
                        5,428Effect
      of dilutive securities of consolidated subsidiary
                        
                        
                        (5
                        )
                        
                        
                        (10
                        )$
                        6,545
                        
                        
                        $
                        5,418Denominator:Weighted
      average shares
                        
                        
                        30,192
                        
                        
                        
                        30,166Effect
      of dilutive securities:Stock
      options and warrants
                        
                        
                        99
                        
                        
                        
                        —30,291
                        
                        
                        
                        30,166
 
 Not
included in the above computations is the effect of antidilutive potential
common shares which consist of outstanding options to purchase 0.5 million and
1.1 million shares of common stock for the three month periods ended March 31,
2010 and 2009, respectively, as well as outstanding warrants to purchase 150,000
and 300,000 shares of common stock for the three month periods ended
March 31, 2010 and 2009, respectively.
  8.           Comprehensive Income
(Loss):
  (In
      thousands)
                        
                        Three
      months ended
                          March
      31,2010
                        
                        
                        2009Comprehensive
      income (loss):Net
      income
                        
                        $
                        8,950
                        
                        
                        $
                        7,256Other
      comprehensive income, net of tax:Foreign
      currency translation adjustment
                        
                        
                        (17,036
                        )
                        
                        
                        (9,651
                        )Change
      in fair value of derivatives
                        
                        
                        59
                        
                        
                        
                        (2,926
                        )Net
      gains reclassified into earnings from equity
                        
                        
                        —
                        
                        
                        
                        (524
                        )Comprehensive
      income (loss)
                        
                        
                        (8,027
                        )
                        
                        
                        (5,845
                        )Less
      comprehensive income attributable to the noncontrolling
      interest
                        
                        
                        2,474
                        
                        
                        
                        1,037Comprehensive
      income (loss) attributable to Inter Parfums, Inc.
                        
                        $
                        (10,501
                        )
                        
                        $
                        (6,882
                        )
 
 9.
              Net Income
      Attributable to Inter Parfums, Inc. and Transfers From the Noncontrolling
      Interest:
  (In
      thousands)
                      
                      Three
      months ended
                        March
      31,2010
                      
                      
                      2009Net
      income attributable to Inter Parfums, Inc.
                      
                      $
                      6,550
                      
                      
                      $
                      5,428Increase
      (decrease) in Inter Parfums, Inc.’s additional paid-in capital for
      subsidiary share transactions
                      
                      
                      961
                      
                      
                      
                      (7
                      )Change
      from net income attributable to Inter Parfums, Inc. and transfers from
      noncontrolling interest
                      
                      $
                      7,511
                      
                      
                      $
                      5,421
  Page
12
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 
 10.         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
                        March
      31,2010
                      
                      
                      2009Net
      sales:United
      States
                      
                      $
                      11,078
                      
                      
                      $
                      8,373Europe
                      
                      
                      108,295
                      
                      
                      
                      82,036$
                      119,373
                      
                      
                      $
                      90,409Net
      income (loss) attributable to Inter Parfums, Inc.:United
      States
                      
                      $
                      (537
                      )
                      
                      $
                      (767
                      )Europe
                      
                      
                      7,087
                      
                      
                      
                      6,180Eliminations
                      
                      
                      —
                      
                      
                      
                      15$
                      6,550
                      
                      
                      $
                      5,428
 
 11.         Accrued
Expenses:
 
 Accrued expenses include
      approximately $11.9 million and $9.2 million in advertising liabilities as
      of March 31, 2010 and December 31, 2009,
    respectively.
 
 12.         Shareholders’
Equity:
 
 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.
  Page
13
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Item
      2:
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL
      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 91% of
net sales for the three months ended March 31, 2010 and 2009. 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 61% of net sales
for the three months ended March 31, 2010 and 2009.
 
 Our
specialty retail and mass-market fragrance and fragrance related products are
marketed through our United States operations and represented 9% of sales for
the three months ended March 31, 2010 and 2009. These products are sold under
trademarks owned by us or pursuant to license or other agreements with the
owners of the Gap,
Banana Republic, New York
& Company, Brooks Brothers, bebeandJordache
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
14
  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. These factors include the effect of the current global
economic recession and therefore the potential for further deterioration in
consumer spending. The recent economic challenges and uncertainties in a number
of countries where we do business, including the United States, have impacted
our business. Although signs of a recovery have become apparent with
improving sales trends beginning in the second half of 2009, the impact of this
financial crisis was challenging for us in 2009 and may continue to be
challenging for us in 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
 
 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.
  Page
15
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 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 takes 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
agreed to pay an upfront entry fee of €1 million for this license, and to
purchase the inventory of the current licensee, which is anticipated to be
approximately €4 million. Plans call for our first new Montblanc fragrance
launch in 2011.
 
 Jimmy
Choo
 
 In
October 2009, we entered into an exclusive worldwide license agreement with J
Choo Limited, commencing on January 1, 2010, for the creation, development and
distribution of fragrances under the Jimmy Choo brand. Our rights under such
license agreement, which runs through 2022, are subject to certain minimum
sales, advertising expenditures and royalty payments as are customary in our
industry. Plans call for our first Jimmy Choo fragrance launch in early
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
16
  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.
  Page
17
  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. Therefore, as of December 31, 2009 and March 31, 2010, 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.  However, 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
in the first quarter of 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 in the first
quarter of 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:
  Page
18
  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.
  Page
19
  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.
 
 Results
of Operations
 
 Three
Months Ended March 31, 2010 as Compared to the Three Months Ended March 31,
2009
 
 Net
      Sales
                    
                    Three
      months ended March 31,2010
                    
                    
                    %
      Change
                    
                    
                    2009
                    
                    
                    %
      Change
                    
                    
                    2008(in
      millions)European
      based product sales
                    
                    $
                    108.3
                    
                    
                    
                    32
                    %
                    
                    $
                    82.0
                    
                    
                    
                    (26
                    )%
                    
                    $
                    110.6United
      States based product sales
                    
                    
                    11.1
                    
                    
                    
                    32
                    %
                    
                    
                    8.4
                    
                    
                    
                    (33
                    )%
                    
                    
                    12.6Total
      net sales
                    
                    $
                    119.4
                    
                    
                    
                    32
                    %
                    
                    $
                    90.4
                    
                    
                    
                    (27
                    )%
                    
                    $
                    123.2
  Page
20
  INTER PARFUMS, INC. AND SUBSIDIARIES
 
 After
declining 27% in the 2009 period as compared to 2008, net sales for the three
months ended March 31, 2010 increased 32% to $119.4 million, as compared to
$90.4 million for the corresponding period of the prior year. At comparable
foreign currency exchange rates, net sales in 2010 increased 29%. While our
sales results for 2009 reflect the global economic recession and its impact on
our distributors and retail customers, the signs of recovery which became
apparent in the second half of 2009 continued into 2010.
 
 European
based prestige product sales increased 32% to $108.3 million, as compared to
$82.0 million for the corresponding period of the prior year. First quarter
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. Burberry brand sales increased 33% to $72.9 million in 2010, as
compared to $54.8 million in 2009. All of our prestige fragrance brands
contributed to sales growth with double digit comparable quarter increases. In
local currency, Lanvin brand sales increased 20% and Van Cleef and Arpels brand
sales rose 55%.
 
 We are
seeing business recover in many geographic markets, especially Asia, South
America, the Middle East and Western Europe where comparable sales rose 53%,
41%, 47% and 15%, respectively. While Eastern Europe has been moving in the
right direction, North American sales came in slightly below last year’s first
quarter.
 
 Our plans
for 2010 are well under way. In addition to Burberry Sport fragrances for men and
women which launched during the first quarter of 2010, we are committing 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 will include nearly 100 products for skin, lips and eyes. The launch
of this cosmetics line will require a significant investment in the first year
to develop the product, build cosmetic counters, hire and train personnel, and
is expected to affect 2010 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 step which will take Burberry to the next level of
growth.
 
 In
addition, we are creating a new women’s scent for Lanvin, S.T. Dupont and Paul
Smith and men’s and women’s scents for Van Cleef & Arpels.
 
 With
respect to our United States specialty retail and mass-market products, net
sales increased 32% for the first quarter of 2010 after declining 33% for the
first quarter of 2009. In 2008, we expanded our relationship with Gap Inc. with
the signing of a licensing agreement for international distribution. After
getting off to a strong start, international distribution suffered in early 2009
as a result of the global economic recession. In 2010, international
distribution of specialty retail products benefitted from the economic recovery.
In addition, our bebe
signature fragrance has done especially well in overseas markets and we expanded
bebe distribution into
additional third party retail outlets. Finally, after a protracted period of
declining sales, our mass market business is seeing the beginnings of a
turnaround with sales growth of 20% for the three months ended March 31, 2010 as
compared to the corresponding period of the prior year.
  Page
21
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Plans for
2010 include expanded distribution of Close, a new Gap fragrance
launched in 2009 at approximately 550 Gap stores and roughly 175 Gap Body stores
nationwide. International distribution began in September, including an excusive
launch at 240 Sephora doors in Europe.  Total international
distribution is expected to reach approximately 5,000 doors by the end of 2011.
Two additional Gap scents are in the works along with additional ancillary
products and holiday gift sets for launch later in 2010. Recent additions, Republic of Menand Republic of Women, were
launched at Banana Republic stores in North America in late 2009 with
international distribution following in 2010.
 
 A new
Brooks Brothers fragrance called Black Fleece, launched in the
fall of 2009 and international distribution is now underway. In 2010, 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 year.
 
 In
addition, we are actively pursuing other new business opportunities. However, we
cannot assure that any new licenses, acquisitions or specialty retail agreements
will be consummated.
 
 Gross
      margin
                      
                      Three
      months ended March 31,(in
      millions)
                      
                      2010
                      
                      
                      2009Net
      sales
                      
                      $
                      119.4
                      
                      
                      $
                      90.4Cost
      of sales
                      
                      
                      47.7
                      
                      
                      
                      36.8Gross
      margin
                      
                      $
                      71.7
                      
                      
                      $
                      53.6Gross
      margin as a % of net sales
                      
                      
                      60
                      %
                      
                      
                      59
                      %
 
 Gross
margin was 60% in 2010 and 59% in 2009. The gross margin improvement is
primarily the result of product mix. We expected a small decline in gross margin
due to the 30 basis point benefit achieved in the 2009 period from our cash flow
hedging activities. 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.
 
 Generally,
we do not bill customers for shipping and handling costs and such costs, which
aggregated $1.3 million and $1.2 million for the three month period ended March
31, 2010 and 2009, respectively, are included in selling, general and
administrative expense 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 & administrative expenses
 (in
      millions)
                      
                      Three
      months ended March 31,2010
                      
                      
                      2009Selling,
      general & administrative expenses
                      
                      $
                      55.7
                      
                      
                      $
                      43.3Selling,
      general & administrative expenses as a % of net sales
                      
                      
                      47
                      %
                      
                      
                      48
                      %
 
 Selling,
general and administrative expenses increased 29% for the three months ended
March 31, 2010, as compared to the corresponding period of the prior year. As a
percentage of sales selling, general and administrative expenses were 47% and
48% for the three month period ended March 31, 2010 and 2009,
respectively.
  Page
22
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Promotion and advertising included in
selling, general and administrative expenses aggregated approximately $18.9
million (15.8% of net sales) and $13.0 million (14.4% of net sales) for the
three month period ended March 31, 2010 and 2009, respectively. Our 2010 first
quarter sales include a significant contribution from the global launch of
Burberry Sportfor men
and women. All of our Burberry fragrance launches are supported with a
significant advertising program.
 
 Royalty expense included in selling,
general, and administrative expenses aggregated $11.2 million (9.4% of net
sales) and $8.5 million (9.4% of net sales), for the three month periods ended
March 31, 2010 and 2009, respectively.
 
 Income
from operations increased 56% to $16.0 million for the three month period ended
March 31, 2010, as compared to $10.3 million for the corresponding period of the
prior year. Operating margins were 13.4% of net sales in the current period as
compared to 11.4% for the corresponding period of the prior year.
 
 Interest
expense aggregated $0.6 million for the three month period ended March 31, 2010,
as compared to $1.3 million in 2009. We use the credit lines available to us, as
needed, to finance our working capital needs as well as our financing needs for
acquisitions. 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. In connection with certain debt
facilities, we entered into swap transactions. These derivative instruments are
recorded at fair value and changes in fair value are reflected in the
consolidated statements of income. During the first quarter of 2009, we recorded
a charge to interest expense of $0.2 million relating to the change in the fair
value of interest rate swaps.
 
 Foreign
currency gains or (losses) aggregated ($2.4) million and $1.4 million for the
three month period ended March 31, 2010 and 2009, respectively. We enter into
foreign currency forward exchange contracts to manage exposure related to
certain foreign currency commitments. During the fourth quarter ended December
31, 2008, we entered into 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 33% for both the three month period ended
March 31, 2010 and 2009. 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 first quarter of 2010 and 2009 are 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
23
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 (in
      thousands except per share data)
                  
                  Three
      months ended
                    March
      31,2010
                  
                  
                  2009Net
      income
                  
                  $
                  8,950
                  
                  
                  $
                  7,256Less:
      Net income attributable to the noncontrolling interest
                  
                  
                  2,400
                  
                  
                  
                  1,828Net
      income attributable to Inter Parfums, Inc.
                  
                  $
                  6,550
                  
                  
                  $
                  5,428Earnings
      per share:Net
      income attributable to Inter Parfums, Inc. common
      shareholders:Basic
                  
                  $
                  0.22
                  
                  
                  $
                  0.18Diluted
                  
                  $
                  0.22
                  
                  
                  $
                  0.18Weighted
      average number of shares outstanding:Basic
                  
                  
                  30,192
                  
                  
                  
                  30,166Diluted
                  
                  
                  30,291
                  
                  
                  
                  30,166
 
 Net
income increased 23% to $9.0 million for the three month period ended March 31,
2009, as compared to $7.3 million for the corresponding period of the prior
year. Net income attributable to the noncontrolling interest aggregated 27% of
net income in 2010 and 25% in 2009. Share 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 March 31, 2010. Net
income attributable to Inter Parfums, Inc. increased 21% to $6.6 million for the
three month period ended March 31, 2010, as compared to $5.4 million for the
corresponding period of the prior year.
 
 Basic and
diluted earnings per share increased 22% to $0.22 for the three month period
ended March 31, 2010, as compared to $0.18 for the corresponding period of
the prior year.
 
 Weighted average shares outstanding
aggregated 30.2 million for both the three months ended March 31, 2010 and
2009. On a diluted basis, average shares outstanding were 30.3 million for the
three months ended March 31, 2010, as compared to 30.2 million for the
corresponding period of the prior year.
 
 Liquidity
and Capital Resources
 
 Our
financial position remains strong. At March 31, 2010, working capital aggregated
$195 million and we had a working capital ratio of 2.6 to 1. Cash and cash
equivalents and short-term investments aggregated $103 million.
 
 Cash
provided by operating activities aggregated $8.6 million and $1.9 million for
the three month periods ended March 31, 2010 and 2009, respectively. For the
three months ended March 31, 2010, working capital items used only $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 increase in accounts receivable of $15.4 million or 14% reflects favorable
collection activity as sales rose 32% during the period. The higher than
expected sales growth during the first quarter of 2010 also kept inventories
down.
  Page
24
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Cash
flows used in investing activities in 2010 reflect the purchase of $8.3 million
in short-term investments which are certificates of deposit with maturities
slightly greater than three months. We also spent approximately $1.3 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.
 
 Our
short-term financing requirements are expected to be met by available cash on
hand at March 31, 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 March
31, 2010, short-term borrowings aggregated $7.2 million.
 
 Our
long-term credit facilities provides for principal and interest to be repaid in
20 quarterly installments. As of March 31, 2010, total long-term debt including
current maturities aggregated $24.9 million.
 
 In
January 2010, the board of directors authorized an approximate 100% increase in
the annual dividend to $0.26 per share. The first quarterly dividend of $0.065
per share was paid on April 15, 2010 to shareholders of record on March 31,
2010. The cash dividend for 2010 represents a small part of our cash position
and is not expected to have any significant impact on our financial
position.
 
 We believe that funds provided by or
used in operations can be supplemented by our present cash position and
available credit facilities, so that they will provide us with sufficient
resources to meet all present and reasonably foreseeable future operating
needs.
 
 Inflation
rates in the U.S. and foreign countries in which we operate did not have a
significant impact on operating results for the three month period ended March
31, 2010.
  Page
25
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 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 than
                    1 year
                  
                  
                  Years
                    2-3
                  
                  
                  Years
                    4-5
                  
                  
                  More than
                    5 yearsLong-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.
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26
  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 March
31, 2010, we had foreign currency contracts in the form of forward exchange
contracts in the amount of approximately U.S. $40 million and GB pounds
1.9 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 March 31, 2010 was €11.0 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.
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27
  INTER
PARFUMS, INC. AND SUBSIDIARIES
 
 Part
II.  Other Information
 
 Items 1, Legal Proceedings,1A,Risk Factors, 3, Defaults Upon Senior
Securitiesand 5, Other
Information, are omitted as they are either not applicable or have been
included in Part
I.
 
 Item
2.   Unregistered Sales of Equity Securities and Use of
Proceeds.
 
 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 6,782shares
for payment of certain withholding taxes resulting from his option exercises.
This transaction was exempt from the registration requirements of Section 5 of
the Securities Act under Sections 4(2) and 4(6) of the Securities Act. Both the
Chief Executive Officer and the President agreed that upon exercise of their
options, they would purchase their common stock for investment and not for
resale to the public.
 
 Item
6.    Exhibits.
 
 The following documents are filed
herewith:
 
 Exhibit No.
                
                Description31.1
                
                Certifications
      required by Rule 13a-14(a) of Chief Executive Officer31.2
                
                Certifications
      required by Rule 13a-14(a) of Chief Financial Officer32.1
                
                Certification
      required by Section 906 of the Sarbanes-Oxley Act of Chief Executive
      Officer32.1
                
                Certification
      required by Section 906 of the Sarbanes-Oxley Act of Chief Financial
      Officer
 
 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 10th
day of May 2010.
 
 INTER
      PARFUMS, INC.By:
                              /s/ Russell GreenbergExecutive
      Vice President andChief
      Financial Officer
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