Edgar Filing: INTER PARFUMS INC

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

( MARK ONE )

x	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2009.

¨	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. Employer
	incorporation 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 x No ¨

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 x
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

At August 7, 2009, there were 30,060,839 shares of common stock, par value $.001 per share, outstanding.

INTER PARFUMS, INC. AND SUBSIDIARIES

INDEX

			Page Number

Part I.	Financial Information		1

	Item 1.	Financial Statements

		Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008	2

		Consolidated Statements of Income for the Three and Six Month Periods Ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited)	3

		Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited)	4

		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited)	5

		Notes to Consolidated Financial Statements	6

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

	Item 4.	Controls and Procedures	28

Part II.	Other Information		29

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

	Item 4.	Submission of Matters to a Vote of Security Holders	29

	Item 6.	Exhibits	30

Signatures			30

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. Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2008 included in our annual report filed on Form 10-K.

The results of operations for the six months ended June 30, 2009 are not necessarily indicative of the results to be expected for the entire fiscal year.

Page 1

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except share and per share data)

	June 30, 2009			December 31, 2008
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	34,045		$	42,404
Accounts receivable, net		109,148			120,507
Inventories		116,953			123,633
Receivables, other		4,353			2,904
Other current assets		12,400			10,034
Income tax receivable		517			1,631
Deferred tax assets		4,062			3,388

Total current assets		281,478			304,501

Equipment and leasehold improvements, net		8,928			7,670

Goodwill		5,553			5,470

Trademarks, licenses and other intangible assets, net		103,264			104,922

Other assets		972			2,574

Total assets	$	400,195		$	425,137

LIABILITIES AND EQUITY

Current liabilities:
Loans payable – banks	$	10,489		$	13,981
Current portion of long-term debt		11,403			13,352
Accounts payable - trade		48,856			66,236
Accrued expenses		27,294			35,368
Income taxes payable		783			442
Dividends payable		992			996

Total current liabilities		99,817			130,375

Long-term debt, less current portion		22,371			27,691

Deferred tax liability		11,379			11,562

Equity:
Inter Parfums, Inc. shareholders’ equity:
Preferred stock, $.001 par; authorized 1,000,000 shares; none issued
Common stock, $.001 par; authorized 100,000,000 shares; outstanding 30,060,839 and 30,168,939 shares at June 30, 2009 and December 31, 2008, respectively		30			30
Additional paid-in capital		42,187			41,950
Retained earnings		175,808			168,025
Accumulated other comprehensive income		27,935			25,515
Treasury stock, at cost, 10,074,479 and 9,966,379 common shares at June 30, 2009 and December 31, 2008, respectively		(31,950	)		(31,319	)

Total Inter Parfums, Inc. shareholders’ equity		214,010			204,201

Noncontrolling interest		52,618			51,308

Total equity		266,628			255,509

Total liabilities and equity	$	400,195		$	425,137

See notes to consolidated financial statements.

Page 2

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008

Net sales	$	88,604		$	99,078		$	179,013		$	222,241

Cost of sales		38,403			43,104			75,247			92,179

Gross margin		50,201			55,974			103,766			130,062

Selling, general and administrative		43,380			49,142			86,643			104,085

Income from operations		6,821			6,832			17,123			25,977

Other expenses (income):
Interest expense		397			376			1,709			1,447
(Gain) loss on foreign currency		(2,563	)		(181	)		(3,942	)		186
Interest income		(101	)		(551	)		(609	)		(1,165	)

		(2,267	)		(356	)		(2,842	)		468

Income before income taxes		9,088			7,188			19,965			25,509

Income taxes		3,335			2,698			6,956			9,882

Net income		5,753			4,490			13,009			15,627

Less: Net income attributable to the noncontrolling interest		1,527			718			3,355			3,147

Net income attributable to Inter Parfums, Inc.	$	4,226		$	3,772		$	9,654		$	12,480

Earnings per share:

Net income attributable to Inter Parfums, Inc. common shareholders:
Basic	$	0.14		$	0.12		$	0.32		$	0.41
Diluted	$	0.14		$	0.12		$	0.32		$	0.40

Weighted average number of shares outstanding:
Basic		30,064			30,627			30,115			30,674
Diluted		30,064			30,914			30,115			30,861

Dividends declared per share	$	0.033		$	0.033		$	0.066		$	0.066

See notes to consolidated financial statements.

Page 3

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands)

	Inter Parfums, Inc. shareholders
									Accumulated
			Additional						other
	Common		paid-in			Retained			comprehensive			Treasury			Noncontrolling
	stock		Capital			earnings			income			stock			interest			Total
Balance – January 1, 2008	$	31	$	40,023		$	147,995		$	30,955		$	(26,344	)	$	53,925		$	246,585
Comprehensive income:
Net income		—		—			12,480			—			—			3,147			15,627
Foreign currency translation adjustment		—		—			—			11,698			—			—			11,698
Net derivative instrument gain, net of tax		—		—			—			(140	)		—			(46	)		(186	)
Purchase of subsidiary shares from noncontrolling interests		—		—			—			—			—			(8,732	)		(8,732	)
Sale of subsidiary shares to noncontrolling interests		—		197			—			—			—			1,579			1,776
Foreign currency translation adjustment		—		—			—			—			—			3,621			3,621
Dividends		—		—			(2,054	)		—			—			(1,735	)		(3,789	)
Purchased treasury stock		—		—			—			—			(2,206	)		—			(2,206	)
Shares issued upon exercise of stock options		—		212			—			—			—			—			212
Stock compensation		—		217			187			—			—			70			474
Balance – June 30, 2008	$	31	$	40,649		$	158,608		$	42,513		$	(28,550	)	$	51,829		$	265,080

Balance – January 1, 2009	$	30	$	41,950		$	168,025		$	25,515		$	(31,319	)	$	51,308		$	255,509
Comprehensive income:
Net income		—		—			9,654			—			—			3,355			13,009
Foreign currency translation adjustment		—		—			—			4,202			—			—			4,202
Net derivative instrument gain, net of tax		—		—			—			(1,782	)		—			(567	)		(2,349	)
Purchase of subsidiary shares from noncontrolling interests		—		—			—			—			—			(55	)		(55	)
Sale of subsidiary shares to noncontrolling interests				(17	)											238			221
Dividends		—		—			(1,986	)		—			—			(1,716	)		(3,702	)
Purchased treasury stock		—		—			—			—			(631	)		—			(631	)
Stock compensation		—		254			115			—			—			55			424
Balance – June 30, 2009	$	30	$	42,187		$	175,808		$	27,935		$	(31,950	)	$	52,618		$	266,628

See notes to consolidated financial statements.

Page 4

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six months ended June 30,
	2009			2008
Cash flows from operating activities:
Net income	$	13,009		$	15,627
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		5,108			5,111
Provision (benefit) for doubtful accounts		703			(69	)
Noncash stock compensation		508			591
Deferred tax expense (benefit)		(987	)		294
Change in fair value of derivatives		(702	)		—
Changes in:
Accounts receivable		11,900			4,826
Inventories		7,858			(39,518	)
Other assets		(4,643	)		430
Accounts payable and accrued expenses		(25,680	)		(395	)
Income taxes payable, net		2,507			(2,967	)

Net cash provided by (used in) operating activities		9,581			(16,070	)

Cash flows from investing activities:
Purchases of short-term investments		—			(5,337	)
Purchases of equipment and leasehold improvements		(2,809	)		(1,860	)
Payment for intangible assets acquired		(328	)		(701	)
Payment for purchase of subsidiary shares from noncontrolling interest		(55	)		(18,493	)
Proceeds from sale of subsidiary shares to noncontrolling interest		221			1,776

Net cash used in investing activities		(2,971	)		(24,615	)

Cash flows from financing activities:
Proceeds (repayments) of loans payable – bank, net		(3,409	)		3,937
Repayment of long-term debt		(7,452	)		(8,423	)
Proceeds from exercise of options		—			212
Dividends paid		(1,986	)		(2,054	)
Dividends paid to noncontrolling interest		(1,716	)		(1,735	)
Purchase of treasury stock		(631	)		(2,206	)

Net cash used in financing activities		(15,194	)		(10,269	)

Effect of exchange rate changes on cash		225			4,614

Net decrease in cash and cash equivalents		(8,359	)		(46,340	)

Cash and cash equivalents - beginning of period		42,404			90,034

Cash and cash equivalents - end of period	$	34,045		$	43,694

Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	1,545		$	1,915
Income taxes		6,166			9,478

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, 2008. 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:

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 established requirements for ownership interest in subsidiaries held by parties other than the Company (sometimes called “minority interests”) be clearly identified, presented and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. All changes in the parent’s ownership interest are required to be accounted for consistently as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value. SFAS 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. The adoption by the Company of SFAS 160 did not have a material impact on its consolidated financial statements. However as required by SFAS 160, presentation and disclosure requirements of SFAS 160 were retrospectively applied to the Company's consolidated financial statements.

In May 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. SFAS No. 165 is effective prospectively for interim and annual periods ending after June 15, 2009.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”). SFAS No. 167 amends the consolidation guidance applicable to variable interest entities and affects the overall consolidation analysis under FASB Interpretation No. 46(R). SFAS No. 167 is effective for fiscal years beginning after November 15, 2009. We do not believe that the adoption of SFAS 167 will have a material impact on our consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS No. 168”). SFAS No. 168 stipulates the FASB Accounting Standards Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The implementation of this standard will 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 our consolidated financial statements.

3.	Inventories:

Inventories consist of the following:

(In thousands)	June 30, 2009		December 31, 2008

Raw materials and component parts	$	26,522	$	37,248
Finished goods		90,431		86,385

	$	116,953	$	123,633

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

4.	Fair Value Measurement:

The carrying amount of cash and cash equivalents, 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 from financial institutions and the value of interest rate swaps are the discounted net present value of the swaps using quotes obtained from financial institutions.

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 June 30, 2009
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	20,125	$	20,125	$	—	$	—
Foreign currency forward exchange contracts accounted for using hedge accounting		5,185		—		5,185		—
Foreign currency forward exchange contracts not accounted for using hedge accounting		3,411		—		3,411		—

	$	28,721	$	20,125	$	8,596	$	—
Liabilities:
Interest rate swaps	$	936	$	—	$	936	$	—

(In thousands)			Fair Value Measurements at December 31, 2008
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	19,816	$	19,816	$	—	$	—
Foreign currency forward exchange contracts accounted for using hedge accounting		8,162		—		8,162		—

	$	27,978	$	19,816	$	8,162	$	—
Liabilities:
Foreign currency forward exchange contracts not accounted for using hedge accounting	$	1,429	$	—	$	1,429	$	—
Interest rate swaps		811		—		811		—

	$	2,240	$	—	$	2,240	$	—

Page 7

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following tables present gains and losses in derivatives designated as hedges and the location of those gains and losses in the financial statements (in thousands):

Derivatives in Statement 133 Net Investment Hedging Relationship	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)					Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)				Location of Gain (Loss) Recognized in Income on Derivative (Effective Portion)	Amount of Gain (Loss) Recognized in Income on Derivative (Effective Portion) (A)
	Six months ended June 30,						Six months ended June 30,					Six months ended June 30,
	2009			2008			2009		2008			2009		2008
Foreign exchange contracts	$	(438	)		—	Gain (loss) on foreign currency	$	3,191		—	Gain (loss) on foreign currency	$	702		—

(A) The amount of gain (loss) recognized in income represents $702 related to the amount excluded from the assessment of hedge effectiveness.

Derivatives in Statement 133 Net Investment Hedging Relationship	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)				Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	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)
	Three months ended June 30,					Three months ended June 30,					Three months ended June 30,
	2009		2008			2009		2008			2009			2008
Foreign exchange contracts	$	3,417		—	Gain (loss) on foreign currency	$	2,129		—	Gain (loss) on foreign currency	$	(94	)		—

(A) The amount of gain (loss) recognized in income represents ($94) related to the amount excluded from the assessment of hedge effectiveness.

The following tables present gains and losses in derivatives not designated as hedges and the location of those gains and losses in the financial statements (in thousands):

Derivatives not Designated as Hedging Instruments under Statement 133	Location of Gain (Loss) Recognized in Income on Derivative	Six months ended June 30, 2009			Six months ended June 30, 2008

Interest rate swaps	Interest (expense)	$	(105	)	$	371
Foreign exchange contracts	Gain (loss) on foreign currency	$	24		$	332

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Derivatives not Designated as Hedging Instruments under Statement 133	Location of Gain (Loss) Recognized in Income on Derivative	Three months ended June 30, 2009		Three months ended June 30, 2008

Interest rate swaps	Interest (expense)	$	122	$	629
Foreign exchange contracts	Gain (loss) on foreign currency	$	7	$	68

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 accrued expenses on the accompanying balance sheet as of June 30, 2009. The valuation of foreign currency forward exchange contracts accounted for using hedge accounting and not accounted for using hedge accounting resulted in assets which are included in other current assets on the accompanying balance sheet as of June 30, 2009. 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.

The Company enters 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 SFAS No. 133 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 or when the underlying forecasted transaction occurs, 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. As of June 30, 2009, cash-flow hedges were highly effective, in all material respects.

As a result of the dramatic strengthening of the U.S. dollar, during our 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. At June 30, 2009, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $40.2 million, GB pounds 2.9 million, and Japanese yen 72.8 million which all have maturities of less than one year.

5.	Goodwill and Other Intangible Assets:

The Company reviews 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.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(In thousands)			Fair Value Measurements at June 30, 2009
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Description:
Trademark - Nickel	$	2,741	$	—	$	—	$	2,741

Goodwill	$	5,553	$	—	$	—	$	5,553

The goodwill and trademarks referred to above, relates to our Nickel skin care business which is primarily a component of our European operations. Nickel brand product sales continue to perform below our expectation, as a result, we have been reviewing goodwill and trademarks with indefinite lives relating to Nickel for impairment on a quarterly basis. We have measured fair value of goodwill as a multiple of sales applied to the average of 2007 and 2008 actual sales and projected sales for 2009. The sales multiple was based on a third party financial institution study of sales multiples for all transactions in the skin care, perfume and cosmetic sectors since 2001. There was no change to the carrying amount of the goodwill during the three month period ended June 30, 2009 other than for the effect of foreign currency translation rates. For indefinite-lived intangible assets, if the carrying value of an indefinite-lived intangible asset exceeds its fair value, as generally estimated using discounted future net cash flow projections and discounted terminal values, the carrying value of the asset is reduced to its fair value. During the three month period ended June 30, 2009, an impairment charge relating to the Nickel trademark in the amount of $0.26 million was recorded.

6.	Shareholders’ Equity:

As of December 31, 2008, the Company’s board of directors authorized the repurchase of up to 1,031,863 shares of the Company’s common stock. During the six month period ended June 30, 2009, the Company repurchased 108,100 shares of its common stock at an average price of $5.84 per common share.

7.	Share-Based Payments:

The Company maintains a stock option program for key employees, executives and directors. The plans, all of which have been approved by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans typically have a six year term and vest over a four to five-year period. The fair value of shares vested during the six month periods ended June 30, 2009 and 2008 aggregated $0.05 million and $0.02 million, respectively. Compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. It is generally the Company’s policy to issue new shares upon exercise of stock options. The following table sets forth information with respect to nonvested options for the six month period ended June 30, 2009:

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested options – beginning of year		490,263		$	3.81
Nonvested options granted		4,000		$	1.92
Nonvested options vested or forfeited		(18,990	)	$	3.73
Nonvested options – end of year		475,273		$	3.79

Share-based payment expense decreased income before income taxes by $0.24 million and $0.51 million for the three and six month periods ended June 30, 2009, respectively, as compared to $0.28 million and $0.59 million for the corresponding periods of the prior year. Share-based payment expense decreased income attributable to Inter Parfums, Inc. by $0.13 million and $0.29 million for the three and six month periods ended June 30, 2009, respectively, as compared to $0.16 million and $0.33 million for the corresponding periods of the prior year.

The following table summarizes stock option information as of June 30, 2009:

	Number of Shares			Weighted Average Exercise Price

Outstanding at January 1, 2009		1,138,375		$	11.23
Granted		4,000			6.15
Forfeited or expired		(57,000	)		15.02

Outstanding at June 30, 2009		1,085,375		$	11.01

Options exercisable at June 30, 2009		610,103		$	10.75
Options available for future grants		1,266,369

As of June 30, 2009, the weighted average remaining contractual life of options outstanding is 2.63 years (1.29 years for options exercisable), the aggregate intrinsic value of options outstanding and options exercisable is $0.04 million and unrecognized compensation cost related to stock options outstanding on Inter Parfums, Inc. stock aggregated $1.5 million. The amount of unrecognized compensation cost related to stock options outstanding of our majority-owned subsidiary, Inter Parfums S.A., was €0.2 million. Options under Inter Parfums, S.A. plans vest over a four-year period and no options were granted by Inter Parfums, S.A. during the six month periods ended June 30, 2009 and 2008.

Cash proceeds, tax benefits and intrinsic value related to stock options exercised during the six month periods ended June 30, 2009 and June 30, 2008 were as follows:

(In thousands)	June 30, 2009		June 30, 2008

Cash proceeds from stock options exercised	$	—	$	212
Tax benefits		—		—
Intrinsic value of stock options exercised		—		136

No tax benefit was realized or recognized from stock options exercised as valuation reserves were allocated to those potential benefits.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The weighted average fair values of the options granted by Inter Parfums, Inc. during the six months ended June 30, 2009 and 2008 were $1.92 and $3.69 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 June 30, 2009 and 2008 are set forth in the following table:

	June 30, 2009			June 30, 2008

Weighted-average expected stock-price volatility		46	%		39	%
Weighted-average expected option life	3.75 years			4.5 years
Weighted-average risk-free interest rate		1.74	%		2.7	%
Weighted-average dividend yield		2.20	%		1.20	%

Expected volatility is estimated based on historic volatility of the Company’s common stock. The Company uses 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 recently instituted by the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option and the dividend yield reflects the assumption that the dividend payout in place at the time of stock-based award grant would continue with no anticipated increases.

8.	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.

The following table sets forth the computation of basic and diluted earnings per share:

(In thousands)	Three months ended June 30,						Six months ended June 30,
	2009			2008			2009			2008
Numerator:
Net income attributable to Inter Parfums, Inc.	$	4,226		$	3,772		$	9,654		$	12,480
Effect of dilutive securities of consolidated subsidiary		(8	)		(10	)		(18	)		(87	)

	$	4,218		$	3,762		$	9,636		$	12,393
Denominator:
Weighted average shares		30,064			30,627			30,115			30,674
Effect of dilutive securities:
Stock options and warrants		—			287			—			187

		30,064			30,914			30,115			30,861

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Not included in the above computations is the effect of antidilutive potential common shares which consist of outstanding options to purchase 1.1 million shares of common stock for both the three and six month periods ended June 30, 2009, and 33,000 and 404,000 shares of common stock for the three and six month periods ended June 30, 2008, respectively, as well as outstanding warrants to purchase 300,000 shares of common stock for both the three and six month periods ended June 30, 2009 and 150,000 shares of common stock for both the three and six month periods ended June 30, 2008.

9.	Comprehensive Income:

(In thousands)	Three months ended June 30,						Six months ended June 30,
	2009			2008			2009			2008
Comprehensive income:
Net income	$	5,753		$	4,490		$	13,009		$	15,627
Other comprehensive income, net of tax:
Foreign currency translation adjustment		13,853			(607	)		4,202			11,698
Change in fair value of derivatives		2,155			—			(771	)		(186	)
Net gains reclassified into earnings from equity		(1,054	)		—			(1,578	)		—
Comprehensive income:		20,707			3,883			14,862			27,139
Less comprehensive income (loss) attributable to the noncontrolling interest		1,751			(718	)		2,788			3,101

Comprehensive income attributable to Inter Parfums, Inc.	$	18,956		$	3,165		$	12,074		$	24,038

10.	Net Income Attributable to Inter Parfums, Inc. and Transfers From the Noncontrolling Interest:

(In thousands)	Three months ended June 30,					Six months ended June 30,
	2009			2008		2009			2008

Net income attributable to Inter Parfums, Inc.	$	4,226		$	3,772	$	9,654		$	12,480
Increase (decrease) in Inter Parfums, Inc.’s additional paid-in capital for subsidiary share transactions		(10	)		173		(17	)		197
Change from net income attributable to Inter Parfums, Inc. and transfers from noncontrolling interest	$	4,216		$	3,945	$	9,637		$	12,677

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INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

11.	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 the Company’s operations by geographical areas is as follows:

(In thousands)	Three months ended June 30,						Six months ended June 30,
	2009			2008			2009			2008
Net sales:
United States	$	9,236		$	15,218		$	17,609		$	27,753
Europe		79,368			84,876			161,404			195,504
Eliminations of intercompany sales		—			(1,016	)		—			(1,016	)

	$	88,604		$	99,078		$	179,013		$	222,241

Net income (loss) attributable to Inter Parfums, Inc.:
United States	$	(578	)	$	669		$	(1,345	)	$	223
Europe		4,792			3,143			10,972			12,272
Eliminations of intercompany profits		12			(40	)		27			(15	)

	$	4,226		$	3,772		$	9,654		$	12,480

							June 30,			December 31,
							2009			2008
Total Assets:
United States							$	48,179		$	56,320
Europe								361,846			380,058
Eliminations of investment in subsidiary								(9,830	)		(11,241	)

							$	400,195		$	425,137

12.	Subsequent Events:

We evaluated subsequent events through August 10, 2009, the date this Quarterly report was filed with the Securities and Exchange Commission.

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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, 2008 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 75% owned subsidiary in Paris, Inter Parfums, S.A., which is also a publicly traded company as 25% 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 European based prestige product sales represented 90% and 88% of net sales for the six months ended June 30, 2009 and 2008, respectively. We have built a portfolio of brands, which include Burberry, Lanvin, Van Cleef & Arpels, Paul Smith, S.T. Dupont, Quiksilver/Roxy and Nickel whose products are distributed in over 120 countries around the world. Burberry is our most significant license; sales of Burberry products represented 58% and 60% of net sales for the six months ended June 30, 2009 and 2008, respectively.

Our specialty retail and mass-market fragrance and fragrance related products are marketed through our United States operations and represented 10% and 12% of net sales for the six months ended June 30, 2009 and 2008, respectively. 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, bebe and Jordache trademarks.

Historically, seasonality has not been a major factor for our Company. However, with the commencement of operations in 2007 of our four majority-owned European distribution subsidiaries and direct to retailer shipments of our specialty retail product lines, sales are more concentrated in the second half of the year.

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INTER PARFUMS, INC. AND SUBSIDIARIES

We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses 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.

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 financial crisis and therefore the potential for further deterioration in consumer spending and consumer debt levels, as well as the continued availability of favorable credit sources and capital market conditions in general. The recent economic challenges and uncertainties in a number of countries where we do business, including the United States, have impacted our business. This financial crisis is global in scale and has negatively affected consumer demand, which is having an adverse impact on our distributors and our retail customers. These events have led distributors and retailers to carry less inventory than usual and have resulted in changes in their ordering patterns for the products that we sell. The impact of this financial crisis has been challenging for us thus far this year and is expected to continue to be challenging for the remainder of 2009.

We have reviewed our plans and have taken actions to mitigate the impact of these conditions. We have adjusted, and we are continuing to adjust our advertising and promotional budgets to align our spending with anticipated sales. In addition, we have implemented cost saving initiatives to right size our staff in an effort to maintain long-term profitable growth. As part of our strategy, we plan to continue to make investments behind fast-growing markets and channels to grow market share. While our business strategies are designed to strengthen our Company over the long-term, we believe the uncertainty about future market conditions, consumer spending patterns and the financial strength of some of our customers, combined with the fact that distributors and retailers are carrying less inventory, will negatively affect our net sales and operating results.

In addition to the ongoing global financial crisis, our reported net sales in comparison to the corresponding periods of the prior year have been negatively impacted by changes in foreign currency exchange rates caused by the strengthening of the U.S. dollar since the fourth quarter of 2008. If the current exchange rates persist or the U.S. dollar continues to strengthen, there will be a continuing adverse impact on our net sales in 2009.

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INTER PARFUMS, INC. AND SUBSIDIARIES

Recent Important Events

bebe Stores, Inc.

In July 2008, we entered into an exclusive six year worldwide agreement with bebe Stores, Inc. under which we will design, manufacture and supply fragrance, bath and body products and color cosmetics for company-owned bebe stores in the United States and Canada as well as select specialty and department stores worldwide.

Gap and Banana Republic International

In April 2008, we expanded our current relationship with Gap Inc. with the signing of a licensing agreement for international distribution of personal care products through Gap and Banana Republic stores as well as select specialty and department stores outside the United States, including duty-free and other travel related retailers. The agreement is effective through December 31, 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 receivables, 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.

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 Euros 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.

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INTER PARFUMS, INC. AND SUBSIDIARIES

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.

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.

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INTER PARFUMS, INC. AND SUBSIDIARIES

We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis during the fourth quarter, or when events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value or indicating 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, as generally estimated using discounted future net cash flow projections and discounted terminal values, the carrying value of the asset would be reduced to its fair value.

The fair values used in our evaluation are estimated based upon discounted future cash flow projections. The cash flow projections are based upon a number of assumptions, including risk-adjusted discount rates, 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. 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. 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.

Derivatives

We account for derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This statement also requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet and that they be measured at fair value.

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INTER PARFUMS, INC. AND SUBSIDIARIES

We currently 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 and Six Months Ended June 30, 2009 as Compared to the Three and Six Months Ended June 30, 2008

Net sales	Three months ended June 30,							Six months ended June 30,
(In millions)	2009		% Change			2008		2009		% Change			2008

European based product sales	$	79.4		(5	)%	$	83.9	$	161.4		(17	)%	$	194.4
United States based product sales		9.2		(39	)%		15.2		17.6