Item 1. Business
Introduction
We are Inter Parfums, Inc., a world-wide provider of prestige perfumes and mass market perfumes, cosmetics and health and beauty aids. Organized under the laws of the State of Delaware in May 1985 as Jean Philippe Fragrances, Inc., we changed our name to Inter Parfums, Inc. on July 14, 1999, to better reflect our image as a provider of prestige perfumes. We have also retained the brand name, Jean Philippe Fragrances, for our mass market products.
Our worldwide headquarters and the office of our two (2), wholly-owned, New York limited liability companies, Jean Philippe Fragrances, LLC and Inter Parfums USA, LLC, are located at 551 Fifth Avenue, New York, New York 10176, and our telephone number is 212.983.2640. Our consolidated wholly-owned subsidiary, Inter Parfums Holdings, S.A., its majority-owned subsidiary, Inter Parfums, S.A., and its two (2) wholly-owned subsidiaries, Inter Parfums Grand Public, S.A., and Inter Parfums Trademark, S.A., maintain executive offices at 4, Rond Point des Champs Elysees, 75008 Paris, France. Our telephone number in Paris is 331.5377.0000.
Our common stock is listed on The Nasdaq Stock Market (National Market System) and its trading symbol is "IPAR" and we are considered a "controlled company" under the applicable rules of The Nasdaq Stock Market. The common shares of our subsidiary, Inter Parfums, S.A., are traded on the Paris Stock Exchange.
We maintain our internet website at www.interparfumsinc.com which is linked to the SEC Edgar database. You can obtain through our website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange as soon as reasonably practicable after we have electronically filed with or furnished them to the SEC.
We operate in the fragrance and cosmetic industry, specializing in prestige perfumes, mass market perfumes, cosmetics and health and beauty aids:
* 	Prestige products - For each prestige brand, owned or licensed by us, we develop an original concept for the perfume or cosmetic line consistent with world market trends.
* 	Mass market products - We design, market and distribute inexpensive fragrances and personal care products including alternative designer fragrances, mass market cosmetics and health and beauty aids.
We have also previously disclosed that our Paris-based subsidiary, Inter Parfums, S.A., has signed a letter of intent to acquire a 64% interest in Nickel S.A. for approximately $6 million in cash. Closing of the transaction, which is subject to certain due diligence procedures and signing of a definitive agreement, is expected to take place in April 2004. This proposed transaction would mark our official entree into prestige skin care products.
Production and Supply
The stages of the development and production process for all fragrances are as follows:
* 	Simultaneous discussions with perfume designers and creators (includes analysis of esthetic and olfactory trends, target clientele and market communication approach);
* 	Concept choice;
* 	Produce mock-ups for final acceptance of bottles and packaging;
* 	Receive bids from component suppliers (glass makers, plastic processors, printers, etc.) and packaging companies;
* 	Choose our suppliers;
* 	Schedule production and packaging;
* 	Issue component purchase orders;
* 	Follow quality control procedures for incoming components; and
* 	Follow packaging and inventory control procedures.
Suppliers who assist us with product development include:
* 	Independent perfumery design companies (Federico Restrepo, Fabien Baron, Aesthete, Ateliers Dinand);
* 	Perfumers (IFF, Firmenich, Creations Aromatiques, Robertet, Quest, Givaudan,Wessel Fragrances) which create a fragrance consistent with our expectations and, that of the fragrance designers and creators;
* 	Contract manufacturers of components such as glassware (Saint Gobain, Saverglass, Pochet, Nouvelles Verreries de Momignie), caps (MT Packaging, Codiplas, Risdon, Newburgh) or boxes (Printor Packaging, Draeger, Dannex Manufacturing);
* 	Production specialists who carry out packaging (MF Production, Brand, CCI, IKI Manufacturing) or logistics (SAGA for storage, order preparation and shipment).
For our prestige product lines, 80% of component and production needs are purchased from approximately 20 suppliers out of a total of over 120 active suppliers. The suppliers' accounts for our French operations are primarily settled in Euros, and for our United States operations, suppliers' accounts are primarily settled in U.S. dollars.
Marketing and Distribution
	Prestige Products
For our international distribution of prestige products, we contract with independent distribution companies specializing in luxury goods. In each country, we designate anywhere from one to three distributors with the status of "exclusive representative" for one or more of our name brands. We also distribute our prestige products through a variety of duty-free operators, such as airports and airlines and select vacation destinations.
Approximately 27% of our prestige fragrance net sales are denominated in U.S. dollars. In an effort to reduce our exposure to foreign currency exchange fluctuations, we engage in a program of cautious hedging of foreign currencies to minimize the risk arising from operations. Our sales are not subject to material seasonal fluctuations.
Distribution in France of our prestige products is carried out by a sales team who oversee some 1,200 points of sale including, retail perfumers (chain stores) such as
* 	Sephora
* Marionnaud
* Nocibe
* Galeries Lafayette
or specialized independent points of sale. Approximately 80% of prestige product sales in France are made to approximately 200 customers out of a total of over 1,200 active accounts.
Our distributors vary in size depending on the number of competing brands they represent. This extensive and diverse network provides us with a significant presence in over 120 countries around the world. Approximately 50 distributors out of a total of over 250 active accounts represent 80% of international prestige fragrance sales. No one customer represents more than 10% of sales.
	Mass Market Products
In the United States, mass merchandisers and supermarket chains, are the target customers for our mass market products. Our current customer list includes
*	Walmart
*	Walgreens'
*	Target
*	Albertson's
*	Family Dollar
*	Dollar General
*	Dollar Tree Distributors
*	Consolidated Stores (Big Lot Stores)
*	99 Cent Only
In addition, our mass market products are sold to wholesale distributors, such as Variety Wholesalers, specialty store chains, and to multiple locations of accessory, jewelry and clothing outlets, such as Charming Shoppes.
	 	These products are sold through a highly efficient and dedicated in-house sales team and reach approximately 15,000 retail outlets throughout the United States. Our 140,000 square foot distribution center has provided us with the opportunity and resources to meet our customers' delivery requirements. The entrepreneurial spirit of our management enables us, and challenges us, to seek out and master new technologies to better serve our customers.
	 	International distribution of our mass market product lines operate through the use of exclusive and nonexclusive distribution agreements in such major territories such as
* 	Brazil
* 	Mexico
* 	Argentina
* 	Chile
* 	Columbia
* 	Canada
* 	Hong Kong
* 	Australia
The Market
The fragrance and cosmetic market can be broken down into two (2) types of retail distribution:
* 	Selective distribution - perfumeries and specialty sections of department stores, who sell brand name products with a luxury image, and
* 	Mass distribution - Mass merchandisers, discount stores and supermarkets, who sell low to moderately-priced mass market products for a broad customer base with limited purchasing power.
	Selective Distribution
The following information is based on information from the Federation des Industries de la Parfumerie.
During 2003, the French perfume industry, which accounts for about approximately 30% of the world market, reported a 1.6% growth rate, as compared to a 4.5% growth rate in 2002 and a 7% growth rate in 2001.
	 	Net sales in 2003 for the French domestic market increased by 2.8% as compared to 2002, while the French export market increased by 0.5%.
*	The European Union: Sales increased overall by 4% in this the largest market for French exports. Sales were strongest in the United Kingdom (7% increase) and Spain (8% increase).
*	Europe (excluding the European Union countries): Net sales decreased by 5%, with substantial decreases in Poland (-10%) and Russia (-6%).
*	Asia: Net sales decreased by 6%. Asia is the second largest market for French cosmetics and perfumes. However, there were sharp decreases in South Korea (-23%), Hong Kong (-11%) and Singapore (-4%) due to the SARS epidemic.
*	North America: Although net sales decreased in the United States (-5%) and Canada (-4%), in constant dollars, net sales increased by 10%.
*	South America: Net sales to South America (-0.5%) were stable after two declining years as the result of the financial crises in Argentina and Brazil.
While our market share, based on our internal data, is less than 1% in France, in other countries such as the United Kingdom, United States, Italy, Portugal, Saudi Arabia and South Korea, we estimate that our market share is between 1% and 4% of French perfumery imports.
Mass Distribution
	 	Our mass market products, which consist of low to moderately-priced fragrances, cosmetics and health and beauty aids are designed for a broad customer base with limited purchasing power. We sell our products both in the United States and abroad. Mass merchandisers, discount stores and supermarkets continued to perform very well during the slowdown of the economy. Our Aziza line of cosmetics has achieved widespread acceptance with distribution in over 15,000 doors in the US and growing. Our line of health and beauty aids, which consist of shampoos, conditioners and lotions, under our Intimate brand, is currently distributed in over 10,000 US doors. We expect sales to continue to grow as our high volume, discount store customers open more stores, and we continue to develop new products for them.
Competition
The market for fragrances and beauty related products is highly competitive and sensitive to changing mass market preferences and demands. The prestige fragrance industry is highly concentrated around certain major players with resources far greater than ours. We compete with an original strategy-- regular and methodical development of quality fragrances for a growing portfolio of internationally renowned brand names.
Our closest competitors in the prestige market typically do not have mass market products departments. However, they may develop, market and sell prestige cosmetics. The market for prestige cosmetics is dominated by large companies, with resources far greater than ours, such as L'Oreal, Shiseido and Clarins. During late 2003, we entered the prestige color cosmetic market with the launch of our Diane von Furstenberg Beauty cosmetic line. Also as previously discussed, we have signed a letter of intent to acquire a controlling interest in Nickel SA, a men's prestige skin care products company. We intend to compete on the basis of our products brand recognition and quality.
At the present time, we are aware of approximately four established companies which market alternative designer fragrances similar to ours. This market is characterized by competition primarily based upon price. We feel the quality of our fragrance products, competitive pricing, and our ability to quickly and efficiently develop and distribute new products, will enable us to continue to effectively compete with these companies.
The market for mass market color cosmetics is highly competitive, with several major cosmetic companies marketing similar products. Many of these companies, such as L'Oreal and Revlon, have substantial financial resources and national marketing campaigns. However, we believe that brand recognition of the Aziza name, together with the quality and competitive pricing of our products, enables us to compete with these companies in the mass market.
	 	The market for health and beauty aids is also highly competitive, and is dominated by large multi-national companies such as Unilever and Proctor and Gamble. We compete primarily with a low price point coupled with the recognition of our brand name, Intimate.
Fragrance and Cosmetic Products
Prestige Perfumes
Since 1992, primarily through our 76% owned subsidiary in Paris, Inter Parfums, S.A., we have sought to build a portfolio of luxury brand names through licensing agreements or through direct acquisition of brand names. Under license agreements we obtain the right to use the brand name, create new fragrances and packaging, determine positioning and distribution, and market and sell the licensed products, in exchange for the payment of royalties. Our rights under license agreements are also generally subject to certain minimum sales requirements and advertising expenditures.
The creation and marketing of each product line are intimately linked with the brand's name, its past and present positioning, customer base and, more generally, the prevailing market atmosphere. Accordingly, we generally study the market for each proposed product line for almost a full year before we introduce any new product into the market. This study is intended to define the general position of the line and more particularly its fragrance, bottle, packaging and appeal to the buyer. In our opinion, the unity of these four elements of the marketing mix makes for a successful product.
	 	Overall spending on marketing and point of sale support aggregated approximately $29 million in 2003 with approximately $ 8.5 million in point of sale support, which is included in cost of sales and $ 20.5 million in other marketing costs, included in selling expenses. Generally, distributors of our product lines contribute a similar amount for additional marketing support. The cost of launching a new product (molds and tools, start-up costs and communication costs, media, etc.) generally varies from $0.2 million to $2.0 million.
The smooth and consistent operation of our prestige perfume operations requires a thorough knowledge of the market, detailed analysis of the image and potential of each brand name, a "good dose" of creativity, as well as a highly professional approach to international distribution channels. Our prestige fragrances have an average life expectancy of five to ten years, and retail at prices of $30 to $80.
Our brand name portfolio, which has been steadily increasing since 1988, is now made up essentially of eight brand names, each of which has a variety of product lines. Burberry is our leading prestige brand name, as net sales of Burberry products accounted for 55.6%, 40.6% and 40.8% of net sales for the years ended December 31, 2003, 2002 and 2001, respectively.
The following is a description of our major, prestige fragrance brands, and for 2004, we have scheduled four (4) new fragrance launches for our prestige brands.
	 	Burberry
(Burberry London, Burberry Week end, Burberry Touch, Burberry Brit )
Burberry is our leading prestige brand name and we are operating under the terms of an exclusive worldwide license agreement entered into in 1993. In February 2000, we extended the license agreement until December 31, 2006, and in 2001 we expanded the license to include baby fragrance and toiletry products.
In May 2003 we launched a Burberry Touch brand extension, Burberry Tender Touch, which is a new woman's line designed with a spirited pink color inspired by pink fashion collections. This new line extension enjoyed a successful debut without adversely affecting sales of existing Burberry fragrance lines.
During the third quarter of 2003, we experienced a substantial increase in sales due in great part to the initial launches of the Burberry Brit women's line into a number of major markets including the United Kingdom, the United States, Spain, France and Italy. Launches of Burberry Brit then continued throughout the balance of 2003 in the rest of Europe.
Year 2004 will be marked by the continued rollout of the Burberry Brit women's line in Asia, South America and the Middle East, and the launch of Burberry Brit for men in select markets in the Autumn of 2004.
	 	S.T. Dupont
	(S.T. Dupont Paris, S.T. Dupont Essence Pure, L'Eau de S.T. Dupont)
In June 1997 we signed an exclusive license agreement with S.T. Dupont for the creation, manufacture and worldwide distribution of S.T. Dupont perfumes. Two lines launched in September 1998 made a promising start with a strong sell through based on a strong international luxury image. A line of bath products introduced during the first half of 1999 further enhanced the image of the brand.
In March 2000 we launched a new S.T. Dupont Signature line of two new highly selective perfumes. The Signature line did not meet our overall expectations and it was discontinued in 2002. In late 2002, we launched S.T. Dupont Essence Pure, a new line for men and women under our S.T. Dupont license, and for the Spring of 2004, a new fragrance, L'Eau de S.T. Dupont, will make its debut.
	 	Paul Smith
	(Paul Smith,Paul Smith Extrême,Paul Smith London)
	 	We signed an exclusive license agreement with Paul Smith in December 1998 for the creation, manufacture and worldwide distribution of Paul Smith perfumes and cosmetics, our first designer fragrance.
	 	Paul Smith is an internationally renowned British designer who creates fashion with a clear identity. Paul Smith has a modern style which combines elegance, inventiveness and a sense of humor. These images, in conjunction with a growing audience, provided the justification for the creation of a perfume and possibly a cosmetics line. We launched our first line of Paul Smith perfumes in certain international markets beginning in July 2000.
In October 2002, we commenced the initial launch of our Paul Smith Extrême line, and sales of Paul Smith fragrances have been strong in the United Kingdom and Japan. We are creating a new Paul Smith fragrance line, Paul Smith London, for men and women, which we have scheduled to launch in the Summer of 2004.
	 	Christian Lacroix
	(Eau Florale, Bazar, Bazar Summer Fragrance)
	 	In March 1999, we entered into an exclusive license agreement with the Christian Lacroix Company, a division of LVMH Moet Hennessy Louis Vuitton S.A. ("LVMH"), for the worldwide development, manufacture and distribution of perfumes. For us, this association with a prestigious fashion label is another key area for growth which we expect will further strengthen our position in the prestige fragrance market. Our first Christian Lacroix line, Eau de Parfum, was launched in 1999 and in 2001, we launched a lighter eau de toilette fragrance, Eau Florale.
During 2002, we developed and launched two completely new lines for Christian Lacroix: Bazar pour femme and Bazar pour homme. The Bazar pour femme comes in an eau de parfum spray as well as an Eau Deodorante Natural Spray, Perfumed Body Lotion and Perfumed bath and shower gel. The Bazar pour homme comes in an eau de toilette spray a Deodorant Stick, All Over Shampoo, After-Shave balm and After-Shave.
During 2003, we launched a limited edition, seasonal fragrance, Bazar Summer Fragrance, which had a strong showing in France. For 2004, we have scheduled the launch of a new men and women's line, which is to debut in the Autumn of 2004 or Spring 2005.
Celine
	(Celine, Oriental Summer)
In May 2000 we entered into an exclusive worldwide license agreement for the development, manufacturing and distribution of fragrance lines under the Celine brand name with Celine, a division of LVMH Moet Hennessy Louis Vuitton S.A. We launched two new fragrance lines the fourth quarter of 2001. We also introduced a Celine bath line in the third quarter of 2002.
Celine, a French luxury fashion and accessory company, and part of LVMH, is known throughout the world for its luxury and quality products, as well as the unique designs of Michael Kors. This agreement is an important part of Celine's strategy to develop dynamic brand recognition and to offer a varied range of luxury items to an international clientele. Association with this prestigious fashion label is an important step in the development and expansion of our prestige business. This relationship is expected to add strength to all of our prestige brands and contribute to our continued growth.
During 2003, we launched a limited edition, seasonal fragrance, Oriental Summer, and we anticipate that we will bring a new Celine line to the market in the Autumn of 2004 or Spring 2005.
	 	Molyneux
	(Quartz, Quartz Pour Homme, Modern Quartz)
The Molyneux brand name, which we purchased in March 1994, was originally created at the turn of the century by the fashion designer Edouard Molyneux, and ranks among the institutional brand names of French perfumery. Molyneux enjoys a very prominent market position in South America, especially through the "Quartz" line for women, which was launched in 1978. The Molyneux name is also well established in duty-free outlets, France and other Western European countries.
Prestige Color Cosmetics
Diane von Furstenberg
In May 2002 we entered into an exclusive worldwide license agreement with Diane von Furstenberg Studio, L.P. for the development, manufacturing and distribution of fragrance, cosmetics, skin care and related beauty products, to be sold under the Diane von Furstenberg, DVF, Diane von Furstenberg The Color Authority and Tatiana brand names. Our rights under such license agreement are subject to certain minimum sales requirements, advertising expenditures and royalty payments.
Designer and entrepreneur, Diane von Furstenberg has been on the American fashion scene since the mid 1970's when she launched her first fashion coup, the wrap dress. Some five million were sold globally, attesting to the designer's ability to innovate. Throughout her career, she embarked on many other ventures, including home fashion products, fragrances and cosmetics, retail shops, and book publishing. Today, Diane von Furstenberg has reestablished her name in the fashion arena. Her collection is distributed worldwide through the finest specialty and department stores.
During September 2003, United States distribution of Diane von Furstenberg Beauty, our first ever line of prestige cosmetics, began at New York's Henri Bendel, and then expanded to include select Saks Fifth Avenue, Nordstrom and Fred Segal stores. Our distribution in the United States will be initially limited to 35 of the finest specialty stores in the country.
Diane's fashions have a loyal worldwide following, and our plans call for rolling out Diane von Furstenberg Beauty in many of the markets where her fashions are sold. We also plan on expanding the brand to encompass bath and body products, skin care treatments, as well as adding new fragrance and cosmetic products.
Table of Prestige Brands
The following is a summary of the prestige brand names owned or licensed by us:
Brand Name Licensed Or Owned Date Acquired
Term, Including Option Periods
Purchase Price (in millions)
Burberry Licensed July 93 13 years $0.0
S.T. Dupont Licensed July 97 11 years 1.0
Paul Smith Licensed Dec. 98 12 years 0.0
Celine Licensed May 00 11 years from January 2001, with an additional 5-year option term 0.0
Molyneux Owned Mar. 94 N/A 4.2
Christian Lacroix Licensed Mar. 99 11 years 0.0
Diane von Furstenberg Licensed May 02 8 year 7 month term with three additional 2-year option terms. 0.0
	 	Proposed Acquisition of Controlling Interest in Nickel SA
We have also previously disclosed that our Paris-based subsidiary, Inter Parfums, S.A., has signed a letter of intent to acquire a 64% interest in Nickel S.A. for approximately $6 million in cash. Closing of the transaction, which is subject to certain due diligence procedures and signing of a definitive agreement, is expected to take place in April 2004.
The letter of intent contemplates a provision for a follow-on cash infusion by Inter Parfums, S.A. of approximately $3.7 million, which would bring Inter Parfums, S.A.'s ownership to 74%. In addition, minority shareholders will have the right to sell their remaining interest in Nickel to Inter Parfums, S.A. from January 2007 through June 2007. The purchase price will be based upon a formula applied to Nickel's sales for the year ending December 31, 2006, pro rated for the minority holders' equity in Nickel.
Established in 1996 by Philippe Dumont, Nickel has developed two innovative concepts in the world of cosmetics: spas exclusively for male customers and skin care product lines for men. The Nickel range of some fifteen skin care products for the face and body is sold through prestige department and specialty stores primarily in France (500 outlets), the balance of Western Europe (900 outlets) and in the United States (300 outlets), as well as through its men's spas in Paris, New York and, most recently, San Francisco. For the twelve months ending March 2004, Nickel forecasts sales of nearly $6.1 million, a 50% increase over the previous year.
Mr. Dumont is to continue as President of Nickel, directing new product development and Nickel's multi-year spa expansion program. The other major metropolitan markets now under consideration or in the planning stage include: London, Berlin, Barcelona, Milan, Los Angeles and Miami.
This proposed transaction would mark our official entree into prestige skin care products. In addition, this proposed transaction also adds a skilled team of cosmetics professionals to guide us into the skin care business, which we intend to leverage by drawing upon our current portfolio of prestige brands.
Mass Market Products
Mass Market Fragrances
We produce and market a complete line of alternative designer fragrances and personal care products which sell at a substantial discount from their high profile, high retail cost, brand name counterparts. Our alternative designer fragrances, which are produced in the United States, are similar in scent to highly advertised designer fragrances that are marketed at a high retail price. These products are intended to have an upscale image without a high retail price, and typically sell at a price below $3.00 at the mass market retail level, substantially discounted from the high cost of designer fragrances which typically range from $30.00 to $200.00 at prestige retail locations.
	 	Our alternative designer fragrances encompass a complete array of fragrances, body sprays, deodorants and perfumed creams. Product line extensions into additional personal care products are ongoing and development of new and innovative product lines is a continuous process.
	 	New designer fragrances are constantly being launched in the marketplace. Substantial expenditure of advertising dollars, selective distribution and a high retail price create a perfect candidate for an alternative designer	fragrance. We react to demand by creating a similar scent which, when combined with an innovative packaging design, is ready for sale to mass market merchandisers, chain drug stores, wholesalers and international trading companies. To this end, our strategy is to be among the first to release these new introductions into the market.
	 	In May 2002 we, through our wholly-owned subsidiary, Jean Philippe Fragrances, LLC, acquired certain mass market fragrance brands, intellectual property, trademarks and inventory from Tristar Corporation, a Debtor-in-Possession in a Chapter 11 proceeding in U.S. Bankruptcy Court, paying $3.2 million for the intellectual property and $3.7 million for inventory.
	 	Tristar had been one of our most significant competitors over the years, and we believe this acquisition has benefited our mass market business. We now have greater market share, and the additional brands have opened new retail accounts for us, although we have experienced some consolidation of sales from our other mass market fragrance brands.
	 	Under the terms of a license agreement signed in 1990 with Jordache Enterprises, we have capitalized on the strength and awareness of the Jordache trademark. Our rights under this license agreement, which terminate on 30 June 2005 unless further renewed, are subject to certain minimum sales requirements and the payment of royalties. Discussions are in process for renewals beyond the current expiration date. We anticipate that future renewals will be on terms similar to those that are currently in effect. We have directed our marketing efforts on the younger, trendy mass market consumer who is the core of the Jordache franchise. New packaging, which utilizes the latest in graphic technology, is both innovative and attractive. We expect to continue this trend with additional line extensions under the Jordache brand name.
In June 2000 we signed an exclusive worldwide agreement with FUBU The Collection to produce and sell men's and women's fragrances. During 2002, we launched our FUBU Plush line for men and women. Unfortunately they did not receive widespread public acceptance and we have discontinued them.
	 	Mass Market Cosmetics
	 	We purchased the trademark, Aziza from Unilever N.V. in 1995. The recognition of the Aziza trade name provided us with the opportunity to introduce a new cosmetic line with an existing loyal customer base.
We market the Aziza line of low priced eyeshadow kits, mascara, and pencils to the young teen market. This product line, with its low suggested retail prices, is being distributed to mass market retailers and discount chains, including the 99 Cent and Dollar Store markets.
Line extensions to Aziza include foundation, lipstick, nail polish and related accessories. Aziza is presently distributed in approximately 15,000 mass market outlets throughout the United States.
Mass Market Health and Beauty Aids
During 2001, we introduced a new line of mass market health and beauty aids under our Intimate brand, consisting of shampoo, conditioner, hand lotion and baby oil. We distribute this line to the same mass market retailers and discount chains as our Aziza cosmetic line. Intimate health and beauty aids are presently distributed in approximately 10,000 mass market outlets throughout the United States.
During 2003 we launched a new line of FUBU brand hair products which are being exclusively sold at Target stores. As we have only recently begun marketing this line, we are not sure of the degree of public acceptance such line will receive.
Inventory
We purchase raw materials and component parts from suppliers based on internal estimates of anticipated need for finished goods, which enables us to meet production requirements for finished goods. We generally deliver product to customers within 72 hours of the receipt of their orders.
Product Liability
We maintain product liability coverage in an amount of $3,000,000. Based upon our experience, we believe this coverage is adequate and covers substantially all of the exposure we may have with respect to our products. We have never been the subject of any material product liability claims.
Government Regulation
A fragrance is defined as a "cosmetic" under the Federal Food, Drug and Cosmetics Act. A fragrance must comply with the labeling requirements of this FDC Act as well as the Fair Packaging and Labeling Act and its regulations. Some of our color cosmetic products may contain menthol and are also classified as a "drug". Under U.S. law, a product may be classified as both a cosmetic and a drug. Additional regulatory requirements for products which are "drugs" include additional labeling requirements, registration of the manufacturer and the semi-annual update of a drug list.
Our fragrances are subject to the approval of the Bureau of Alcohol, Tobacco and Firearms as a result of the use of specially denatured alcohol. So far we have not experienced any difficulties in obtaining the required approvals.
Trademarks
Under various license agreements we have the right to use certain registered trademarks throughout the world. These registered trademarks include:
*	Burberry
*	S.T. Dupont
*	Paul Smith
*	Christian Lacroix
*	Celine
*	Diane von Furstenberg, DVF, Diane von Furstenberg The Color Authority, and Tatiana
*	Jordache
In addition, we are the registered trademark owner of many trademarks, including:
*	Intimate
*	Aziza
*	Regal Collections, Royal Selections, Euro Collections and Apple
*	Parfums Molyneux, Captain, Quartz and Lord
Employees
As of March 1, 2004 we had 117 full-time employees world-wide. Of these, 49 are engaged in sales activities and 68 in administrative and marketing activities.
As of March 1, 2004 we had 72 full-time employees in Paris. Of these, 33 are engaged in sales activities and 39 in administrative and marketing activities.
As of March 1, 2004 we had 45 full-time United States employees. Of these, 16 were engaged in sales activities and 29 in administrative and marketing activities.
We believe that our relationship with our employees is good.
Forward Looking Information and Risk Factors
	 	Statements in this document which are not historical in nature are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from projected results. Given these risks, uncertainties and other factors, persons are cautioned not to place undue reliance on the forward-looking statements.
	 	The following is a discussion of some of the material risk factors relating to our business:
We Are Dependent Upon Burberry for a Significant Portion of Our Sales, and the Loss of or Failure to Renew this License Will Have a Material Adverse Effect on Us.
Burberry is our leading prestige brand name, as net sales of Burberry products accounted for 55.6%, 40.6% and 40.8% of consolidated net sales for the years ended December 31, 2003, 2002 and 2001, respectively. We are operating under the terms of an exclusive worldwide license agreement entered into in 1993. In February 2000 we extended the license agreement until December 31, 2006, and in 2001 we expanded the license to include baby fragrance and toiletry products.
We have had several discussions with Burberry relating to a long term extension of this license. We believe it is important to have this long term relationship with Burberry at this time, because product development and marketing strategies, including planning for product launches can, and often do, extend over several years. Although we believe that this license will be extended, it has not been extended at this time, and Burberry may not agree to an extension as quickly as we would like, or they may not agree to extend the license. Further, we believe that the terms of this license will change if an extension is granted, and certain terms will not be on terms as favorable as the current terms. Just as the loss of this license would have a material adverse effect on us, a renewal on less favorable terms may also negatively impact us.
The Success of Our Products Is Dependent on Public Taste.
	 	Although we believe we have the ability and experience to recognize valuable fragrances and cosmetic products and gauge trends in the cosmetic and fragrance market, our revenues are substantially dependent on the success of our products, which depends upon, among other matters, pronounced and rapidly changing public tastes, factors which are difficult to predict and over which we have little, if any, control. In addition, we have to develop successful marketing, promotional and sales programs in order to sell our fragrances and cosmetics. If we are not able to develop successful marketing, promotional and sales programs, then such failure will have a material adverse effect on our business, financial condition and operating results.
We are dependent upon Messrs. Jean Madar and Philippe Benacin, and the loss of their services could harm our business.
	 	Jean Madar, our Chief Executive Officer, and Philippe Benacin, our President, are responsible for day-to-day operations as well as major decisions. Termination of their relationships with us, whether through death, incapacity or otherwise, could have a material adverse effect on our operations, and we cannot assure you that qualified replacements can be found. We maintain key man insurance on the lives of both Mr. Madar ($1 million) and Mr. Benacin ($2.8 million), however, we cannot assure you that we would be able to retain suitable replacements for either Mr. Madar or Mr. Benacin.
We are subject to extreme competition in both the prestige and mass markets.
The market for fragrances and beauty related products is highly competitive and sensitive to changing market preferences and demands. Many of these companies have substantial financial resources and national marketing campaigns.
The prestige fragrance and cosmetic industry is highly concentrated around certain major players with resources far greater than ours. We compete with an original strategy-- regular and methodical development of quality products for a growing portfolio of internationally renowned brand names.
Mass market fragrances are characterized by competition primarily based upon price. We feel the quality of our fragrance products, competitive pricing, and our ability to quickly and efficiently develop and distribute new products, will enable us to continue to effectively compete with these companies.
The market for name brand and mass market color cosmetics, as well as health and beauty aids, is highly competitive, with several major cosmetic companies marketing similar products. However, we believe that brand recognition of the Aziza and Intimate brand names, together with the quality and competitive pricing of our products, enables us to compete with these companies in the mass market.
	 	We cannot assure you that sufficient demand for our existing fragrances, cosmetics and health and beauty aids will continue or that we will develop future products that will withstand competition.
Our reliance on third party manufacturers could have a material adverse effect on us.
	 	We rely on outside sources to manufacture our fragrances and cosmetics. The failure of such third party manufacturers to deliver either components or finished goods on a timely basis could have a material adverse effect on our business. Although we believe there are alternate manufactures available to supply our requirements, we cannot assure you that current or alternative sources will be able to supply all of our demands on a timely basis. We do not intend to develop our own manufacturing capacity. As these are third parties over which we have little or no control, the failure of such third parties to provide components or finished goods on a timely basis could have a material adverse effect on our business, financial condition and operating results.
The international character of our business renders us subject to fluctuation in foreign currency exchange rates and international trade tariffs, barriers and other restrictions.
	 	Approximately 27% of our Paris subsidiary's net sales are sold in US dollars. In an effort to reduce our exposure to foreign currency exchange fluctuations, we engage in a program of cautious hedging of foreign currencies to minimize the risk arising from operations. Despite such actions, fluctuations in foreign currency exchange rates for the U.S. dollar, particularly with respect to the Euro, could have a material adverse effect on our operating results. Possible import, export, tariff and other trade barriers, which could be imposed by the United States, France, Canada or other countries might also have a material adverse effect on our business.
Our business is subject to governmental regulation, which could impact our operations.
	 	Fragrances and other cosmetics must comply with the labeling requirements of the Federal Food, Drug and Cosmetics Act as well as the Fair Packaging and Labeling Act and their regulations. Some of our color cosmetic products may also be classified as a "drug". Additional regulatory requirements for products which are "drugs" include additional labeling requirements, registration of the manufacturer and the semi-annual update of a drug list.
Our fragrances are subject to the approval of the Bureau of Alcohol, Tobacco and Firearms as a result of the use of specially denatured alcohol. So far we have not experienced any difficulties in obtaining the required approvals.
	 	However, we cannot assure you that, should we develop or market fragrances and cosmetics with different ingredients, or should existing regulations be revised, we would not in the future experience difficulty in obtaining such approvals.
We may become subject to possible liability for improper comparative advertising or "Trade Dress."
	 	Brand name manufacturers and sellers of brand name products may make claims of improper comparative advertising or trade dress (packaging) with respect to the likelihood of confusion between some of our mass market fragrances, cosmetics and health and beauty aids, and those of brand name manufacturers and sellers. They may seek damages for loss of business or injunctive relief to seek to have the use of the improper comparative advertising or trade dress halted. However, we believe that our displays and packaging constitute fair competitive advertising and are not likely to cause confusion between our products and others. Further, we have not experienced to any material degree, any of such problems to date.
Item 2.
Item 2. Properties
Our corporate headquarters and United States operations are located in approximately 9,000 square feet of office space at 551 Fifth Avenue, New York, New York. These premises are leased for a term ending February 28, 2013. Our monthly rental is approximately $27,000, which is subject to escalations.
Our Paris based subsidiary maintains offices located at 4 Rond Point Des Champs Elysees, Paris, France, in approximately 6,000 square feet of leased office space pursuant to three leases. The first lease is for approximately 4,000 square feet. The second lease is for approximately 2,000 square feet. Both of these leases expire in July 2005, unless terminated earlier by either party on six months written notice at three year specified intervals. The annual rentals are 127,000 Euros for the first lease and 71,000 Euros for the second lease. Rent is subject to escalations each July 1. The third lease is for the fifth floor (approximately 1700 square feet for a term ending June 2007, at an annual rent of approximately 52,000 Euros, which is subject to escalations.
In addition, we have a lease for approximately 2500 square feet of additional office space at 18 avenue Franklin Roosevelt, Paris, France, for a term ending April 2009, at an annual rental of approximately 90,000 Euros per year, which is subject to escalations. We have the right to terminate earlier at three year specified intervals.
We also occupy a 140,000 square foot distribution center at 60 Stults Road in Dayton, New Jersey. We are leasing these premises through October 31, 2010 with monthly rental payments of approximately $57,000, which is subject to escalations.
Our French subsidiary has an agreement with Sagatrans, S.A. for warehousing and distribution services through July 2005 with an option to extend until July 2008. Fees are calculated based upon a percentage of sales, which are customary in the industry.
We believe our office and warehouse facilities are satisfactory for our present needs and those for the foreseeable future.
Item 3.
Item 3. Legal Proceedings
Brosseau Lawsuit
	 	As previously reported, our French subsidiary, Inter Parfums, S.A., is a party to litigation with Jean Charles Brosseau, S.A. ("Brosseau"), the licensor of the Ombre Rose trademark. In October 1999, Inter Parfums, S.A. received notice of a judgment in favor of Brosseau, which awarded damages of approximately $600,000 and which directed Inter Parfums, S.A. to turn over its license to Brosseau within six months.
	 	Inter Parfums, S.A. appealed the judgment as it vigorously and categorically denied the claims of Brosseau. However, in June 2000, as a result of certain developments, Inter Parfums, S.A. and its special litigation counsel considered it likely that the judgment would be sustained and therefore took a charge against earnings for $600,000, the full amount of the judgment.
	 	In February 2001, the Court of Appeal confirmed the Brosseau claim with respect to turning over the license. In addition, the Court named an expert to proceed with additional investigations and required Inter Parfums, S.A. to pay $142,000 as an advance for damages claimed by Brosseau.
In February 2004, the Court of Appeal ordered Inter Parfums, S.A. to pay total damages of $390,000 of which $142,000 has already been advanced. Brosseau has two months to appeal this decision and, therefore Inter Parfums, S.A. will maintain its current reserves until such time as all rights to appeal have expired. We do not believe that such litigation will have any further material adverse effect on our financial condition or operations.
Item 4.
Item 4. Submissions Of Matters To A Vote Of Security Holders
Not applicable.
PART II
Item 5.
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters
The Market for Our Common Stock
Our company's common stock, $.001 par value per share, is traded on The Nasdaq Stock Market (National Market System) under the symbol "IPAR". The following table sets forth in dollars, the range of high and low closing prices for the past two fiscal years for our common stock.
Fiscal 2003 High Closing Price Low Closing Price
Fourth Quarter $ 26.92 $ 10.00
Third Quarter $ 11.55 $ 7.62
Second Quarter $ 8.59 $ 6.78
First Quarter $ 8.24 $ 5.80
Fiscal 2002 High Closing Price Low Closing Price
Fourth Quarter $ 8.25 $ 5.18
Third Quarter $ 7.98 $ 5.75
Second Quarter $ 8.99 $ 6.94
First Quarter $ 10.25 $ 6.60
As of 1 March 2004 the number of record holders, which include brokers and broker's nominees, etc., of the company's common stock was 62. We believe there are in excess of 580 beneficial owners of the company's common stock.
Dividends
	 	Commencing in March 2002, our Board of Directors authorized our first cash dividend of $.06 per share per annum, payable $.015 per share quarterly. The first cash dividend of $.015 per share was paid on 15 April 2002 to shareholders of record on 31 March 2002. In March 2003, our board of directors increased the cash dividend to $.08 per share per annum, payable $.02 per share on a quarterly basis.
	 	In March 2004, our board of directors increased the cash dividend to $.12 per share per annum, payable $.03 per share on a quarterly basis. The first cash dividend of $.03 per share is to be paid on 15 April 2004 to shareholders of record on 31 March 2004.
Our Certificate of Incorporation provides for the requirement of unanimous approval of the members of our board of directors for the declaration or payment of dividends, if the aggregate amount of dividends to be paid by us and our subsidiaries in any fiscal year is more than thirty percent (30%) of our annual net income for the last completed fiscal year, as indicated by our consolidated financial statements.
Sales of Unregistered Securities
	 	For the period consisting of the last quarter of the fiscal year ended December 31, 2003, through the date of this report, we issued the following unregistered equity securities.
In October 2003, each of the Chief Executive Officer and the President exercised 42,000 and 94,300 outstanding stock options, respectively, of the Company's common stock. The exercise prices of $107,352 for the Chief Executive Officer and $241,031 for the President were paid by each of them tendering to the Company 8,158 and 18,316 shares, respectively, of the Company's common stock, previously owned by them, valued at $13.16 per share, the fair market value on the date of exercise. All shares issued pursuant to these option exercises were issued from our treasury stock. In addition, the Chief Executive Officer tendered an additional 9,307 shares for payment of withholding taxes resulting from his option exercise. As a result of this transaction, we expect to receive a tax benefit of approximately $460,000, which has been reflected as an increase to additional paid-in capital in our financial statements.
Each of the Chief Executive Officer and the President agreed to hold their shares for investment and not with a view towards distribution. The above transactions were exempt from the registration requirements of Section 5 of the Securities Act under Sections 4(2) and 4(6) of the Securities Act.
	 	The following sets forth certain information as to all options granted to purchase our common stock during the last quarter of the last fiscal year and through the date of this report, which were not registered under the Securities Act. In each of the transactions, we granted options to affiliates (executive officers and directors) and employees. The transactions were exempt from the registration requirements of Section 5 of the Securities Act under Sections 4(2) and 4(6) of the Securities Act. Each option holder agreed that, if the option is exercised, the option holder would purchase his common stock for investment and not for resale to the public. Also, we provide all option holders with all reports we file with the SEC and press releases issued by us.
	 	 On December 31, 2003, we granted options to purchase an aggregate of 186,200 shares for a five year period at the exercise price of $23.05 per share, the fair market value at the time of grant, to 39 employees, 1 consultant and former executive officer and 4 current executive officers under our 1999 Stock Option Plan. In addition, 1 non-executive officer employee was granted an additional option to purchase 2,000 shares for a five year period at the exercise price of $14.835 per share on 14 November 2003, as part of her hiring compensation package.
	 On 5 January 2004, we granted an option to purchase 2,000 shares for a five year period at the exercise price of $22.765 per share, the fair market value at the time of grant, to 1 non-executive officer employee under our 1999 Stock Option Plan.
	 	On 2 February 2004, we granted options to purchase an aggregate of 10,000 shares for a five year period at the exercise price of $23.06 per share, the fair market value at the time of grant, to 7 directors under our 2000 Non-Employee Director Stock Option Plan.
	 	On 13 February 2004, we granted options to purchase an aggregate of 20,000 shares for a five year period at the exercise price of $25.24 per share, the fair market value at the time of grant, to 1 consultant and 1 executive officer under our 1999 Stock Option Plan.
Repurchases of Our Common Stock
	 	Except as disclosed above in connection with the tender of shares by the CEO and President for the exercise price of certain stock options, we did not repurchase any of our Common Stock during the fourth quarter of fiscal year ended December 31, 2003.
Item 6.
Item 6. Selected Financial Data
The following selected financial data have been derived from our financial statements, and should be read in conjunction with those financial statements, including the related footnotes.
Years Ended December 31
(In Thousands Except Share and Per Share Data)
2000
Income Statement Data:
Net Sales $185,589 $130,352 $112,233 $101,582 $87,140
Cost of Sales 93,024 69,760 57,887 51,873 45,325
Selling, General and Administrative 66,572 43,072 39,624 37,509 31,965
Income Before Taxes and Minority Interest 26,632 17,581 15,456 13,539 9,868
Net Income 13,837 9,405 8,119
6,5891 4,828
Net Income per Share2:
Basic
Diluted
$ .73
$ .69
$ .50
$ .47
$ .46
$ .41
$ .37
$ .34
$ .28
$ .26
Average Common Shares Outstanding2:
Basic
Diluted
19,032,460
20,116,433
18,776,988
19,948,305
17,834,945
19,935,534
17,590,106
19,500,648
17,081,828
18,232,839
______________
1 Includes nonrecurring charges aggregating $0.6 million and a gain of $0.6 million, all after taxes and minority interest. The charges represent an accrual for exposure relating to pending litigation of $0.2 million and a potential tax assessment of $0.4 million. The gain represents a realized gain on the sale of marketable securities.
2 Adjusted for 3:2 stock splits (50% stock dividends) paid in June 2000 and September 2001.
As at December 31
(In Thousands)
2000
Balance Sheet Data:
Working Capital $115,970 $83,828 $68,204 $57,688 $53,390
Total Assets 194,001 129,370 102,539 94,571 87,223
Long-Term Debt -0- 1,366 1,417 1,531
Shareholders' Equity 104,916 80,916 65,091 55,061 52,361
Item 7.
Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operation
Overview
We operate in a single segment in the fragrance and cosmetic industry, and manufacture, market and distribute a wide array of fragrances, cosmetics and health and beauty aids. We specialize in prestige perfumes and cosmetics and mass market perfumes, cosmetics and health and beauty aids. Most of our prestige products are produced and marketed by our 76% owned subsidiary in Paris, Inter Parfums, S.A., which is also a publicly traded company; 24% of Inter Parfums, S.A. shares trade on the Paris Bourse.
* Prestige products - For each prestige brand, owned or licensed by us, we develop an original concept for the perfume or cosmetic line consistent with world market trends.
*	Mass market products - We design, market and distribute inexpensive fragrances and personal care products, including alternative designer fragrances, mass market cosmetics and health and beauty aids.
Our prestige product lines, which are manufactured and distributed by us primarily under license agreements with brand owners, represented approximately 76% of net sales during 2003. Since 1992 we have built a portfolio of brands under licenses which include Burberry, S.T. Dupont, Paul Smith, Christian Lacroix, Celine, and Diane von Furstenberg, which are distributed in over 120 countries around the world. In terms of sales, Burberry is our most significant license, and sales of Burberry products represented 55.6%, 40.6% and 40.8% of net sales for the years ended December 31, 2003, 2002 and 2001, respectively. Our current Burberry license takes us through December 31, 2006. We believe it is important to have a long term relationship with Burberry at this time, because product development and marketing strategies, including planning for product launches can, and often do, extend over several years. Accordingly, a new license agreement is under serious discussion with Burberry. We are hopeful for a positive outcome by the summer of 2004.
We have two licenses with affiliates of our strategic partner, LV Capital, USA Inc. ("LV Capital"), a wholly-owned subsidiary of LVMH Moet Hennessy Louis Vuitton S.A. LV Capital owns approximately 18% of our outstanding common shares. In May 2000 we entered into an exclusive worldwide license for prestige fragrances for the Celine brand, and in March 1999 we entered into an exclusive worldwide license for Christian Lacroix fragrances. Both licenses are subject to certain minimum sales requirements, advertising expenditures and royalty payments as are customary in our industry. We believe that our association with LV Capital has enhanced our creditability in the cosmetic industry, which should lead us to additional opportunities in our industry that might not have been otherwise available to us.
Our mass market product lines, which represent 24% of sales, are comprised of alternative designer fragrances, cosmetics, health and beauty aids and personal care products. These lines are sold under trademarks owned by us or pursuant to license agreements we have for the trademarks Jordache, Tatiana and FUBU.
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 creation of product line extensions for the existing brands in our portfolio. Every two to three years, we create a new family of fragrances for each brand in our portfolio.
Our business is not very capital intensive, and it is important to note that we do not own any manufacturing facilities. Rather, 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 outside fillers which manufacture the finished good for us and ship it back to the distribution center.
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 following is a brief discussion of the more critical accounting policies that we employ.
Revenue Recognition
We sell our products to department stores, perfumeries, 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. Generally, we do not bill customers for shipping and handling costs and, accordingly, we classify such costs as selling and administrative expenses. 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, and 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 expectations.
Promotional Allowances
We have various performance-based arrangements with retailers to reimburse them for all or a portion of their promotional activities related to our products. These arrangements primarily allow customers to take deductions against amounts owed to us for product purchases. Estimated accruals for promotions and co-operative 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.
Long-lived assets, including trademarks and licenses, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, then we recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. The estimate of undiscounted cash flow is based upon, among other things, certain assumptions about expected future operating performance. Our estimates of undiscounted cash flow may differ from actual cash flow due to, among other things, economic conditions, changes to our business model or changes in consumer acceptance of our products. In those cases where we determine that the useful life of other 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.
Results of Operations
Net sales for the year ended December 31, 2003 increased 42% to $185.6 million. For the year ended December 31, 2002, net sales were up 16%. At comparable foreign currency exchange rates, net sales rose 31% and 12% in 2003 and 2002, respectively. The increases in net sales are attributable to increases in both our prestige and mass market product lines.
Prestige product sales, which were up approximately 12% in 2002, surged 61% in 2003. Prestige fragrance sales in general were slow for the first six months of 2002 as the economy and luxury goods manufacturers felt the effects of September 11, 2001. However, we began to see a significant turnaround in July 2002, which continued for the remainder of that year and throughout 2003.
	 	Prestige product sales growth in 2002 was spurred by increased global distribution of our Celine brand, which has a strong following throughout Western Europe and Japan. We also launched a new Christian Lacroix fragrance line, Bazar, for men and women, as well as two fragrance line extensions, Essence Pure by S.T. Dupont and Paul Smith Extreme.
Our 2003 calendar of new product launches was the most ambitious in our history. Besides the continued geographic rollout of Essence Pure by S.T. Dupont and Paul Smith Extreme, new brands and brand extensions made their debuts throughout the year. In the spring of 2003 we launched a summer seasonal fragrances for both our Celine and Christian Lacroix fragrance lines. In addition, in late September 2003, we launched a fragrance and cosmetic line under the Diane von Furstenberg label.
Most importantly, the global rollout of Burberry Brit for women, which began in the third quarter of 2003, is now expanding to Asia, South America and the Middle East. We anticipate that Burberry Brit for women will be the best selling fragrance in our history. We are also looking forward to the launch in the fall of the Burberry Brit for men line in selected markets.
	 	In September 2003, we launched our first prestige cosmetics line, Diane von Furstenberg Beauty, at about 33 of the finest retail doors in the US as well as in the designer's boutiques in New York and Miami. Initial sales have been satisfactory and efforts are being made to increase consumer awareness. Many promotional events are being planned, including personal appearances, free makeovers and gift with purchase programs. Diane von Furstenberg products will be available on Sephora.com in April 2004 and at several Sephora retail locations this summer.
The year 2004, will not be without its share of brand extensions. In July, we will unveil new fragrance families for both S.T. Dupont and Paul Smith. Les Eaux De S.T. Dupont will be available in versions for both men and women, as will Paul Smith London. In October, we will introduce a new Christian Lacroix fragrance for men and women, and we have a limited edition warm weather, seasonal fragrance for our Celine brand.
With respect to our mass market product lines, net sales were up 4% in 2003 after rising 27% in 2002. Through June 2003 we continued to see growth in our fragrances lines as a result of our May 2002 acquisition of certain fragrance brands from Tristar Corporation, a Debtor-in-Possession, ("Tristar"). Tristar was one of our most significant competitors in mass-market fragrances and the brands acquired are being sold in the same distribution channels as that of our other mass-market fragrance lines. As we have passed the one-year anniversary of this acquisition, we are consolidating certain fragrance lines to reduce duplication and improve overall efficiency, which resulted in decline in mass market fragrance sales in 2003. However, new product line extensions and an expanding distribution network continue to benefit sales volume in our Intimate health and beauty aids and our Aziza cosmetics lines.
Our new product development program for all of our product groups is well under way, and we expect to roll out new products throughout 2004. In addition, we are actively pursuing other new business opportunities. However, we cannot assure you that any new license or acquisitions will be consummated.
In December 2003, we announced the signing of a letter of intent by our Paris-based subsidiary, Inter Parfums, S.A., to acquire a 64% interest in Nickel S.A. for approximately $6 million in cash. Closing of the transaction, which is subject to certain due diligence procedures and signing of a definitive agreement, is expected to take place in April 2004. The letter of intent contemplates a provision for a follow-on cash infusion of approximately $3.7 million, which would bring our ownership to 74%. In addition, minority shareholders will have the right to sell their remaining interest in Nickel to us from January 2007 through June 2007. The purchase price is to be based upon a formula applied to Nickel's sales for the year ending December 31, 2006, pro rated for the minority holders' equity in Nickel.
Established in 1996 by Philippe Dumont, Nickel has developed two innovative concepts in the world of cosmetics: spas exclusively for male customers and skin care product lines for men. The Nickel range of some fifteen skin care products for the face and body is sold through prestige department and specialty stores primarily in France (500 outlets), the balance of Western Europe (900 outlets) and in the United States (300 outlets), as well as through its men's spas in Paris, New York and, most recently, San Francisco. For the twelve months ending March 2004, Nickel forecasts sales of nearly $6.1 million, a 50% increase over the previous year.
Gross profit margins were 50% in 2003, 46% in 2002 and 48% in 2001. In 2001, gross profit margins were aided by the strong dollar in relation to the Euro and were therefore ahead of our historic target rates of 45% to 46%. This results from the fact that certain European sales are denominated in U.S. dollars. In 2002, the weak U.S. dollar began to reverse that trend. In addition, sales of product in our prestige fragrance lines generate a significantly higher gross profit margin than sales of our mass market product lines. In 2002, mass market net sales were up 27% as compared to prestige product sales which were up 12%. In 2003, although the U.S. dollar continued to weaken against the Euro, its effect on 2003 gross margins was mitigated by the 61% net sales growth rate achieved in our prestige product lines as compared to 4% for our mass market lines. If the dollar remains at current levels, and product mix continues the pattern of 2003, then we expect the gross margin for 2004 to remain at approximately 50%.
Higher growth rates in our prestige product lines, as compared to our mass market product lines, results in higher selling, general and administrative expenses as a percentage of sales. This is because promotion and advertising are prerequisites for sales of designer prestige products. We develop a complete marketing and promotional plan to support our growing portfolio of prestige brands and to build upon each brand's awareness. Promotion and advertising included in selling, general and administrative expenses was approximately 14% of prestige product sales in each of the years in the three years period ended December 31, 2003. Our mass market product lines do not require extensive advertising and therefore, more of our selling, general and administrative expenses are fixed rather than variable. In addition, recent increases in certain fixed costs, including insurance, rent and wages, contributed to the increase in selling, general and administrative expenses in 2003.
Interest expense aggregated $0.3 million, $0.4 million and $0.3 million for the years ended December 31, 2003, 2002 and 2001, respectively. We use the credit lines available to us, as needed, to finance our working capital needs.
Foreign currency gains or (losses) aggregated $0.3 million, ($0.1) million and $0.1million for the years ended December 31, 2003, 2002 and 2001, respectively. We enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments.
Our effective income tax rate was 35%, 36% and 37% for the years ended December 31, 2003, 2002 and 2001, respectively. Our 76% owned subsidiary, Inter Parfums, S.A., is a Controlled Foreign Corporation operating out of France. Tax rates in France declined slightly in 2003 and 2002 giving rise to our lower overall tax rate.
Net income increased 47% to $13.8 million in 2003 after increasing 16% to $9.4 million in 2002. Diluted earnings per share increased 47% to $0.69 in 2003 after increasing 15% to $0.47 in 2002. Weighted average shares outstanding aggregated 19.0 million, 18.8 million and 17.8 million for the years ended December 31, 2003, 2002 and 2001, respectively. On a diluted basis, average shares outstanding were 20.1 million for the year ended December 31, 2003 and 19.9 million, for both years ended December 31, 2002 and 2001.
	Liquidity and Financed Resources
Profitable operating results continue to strengthen our financial position. At December 31, 2003, working capital aggregated $116 million and we had a working capital ratio of 2.7 to 1. Cash and cash equivalents aggregated $59 million and we had no long-term debt.
	 	Cash provided by operating activities aggregated $19.3 million, $12.7 million and $7.0 million for the years ended December 31, 2003, 2002 and 2001, respectively. At December 31, 2002, in terms of cash flows, accounts receivable and inventories were up 17% and 4%, respectively, from December 31, 2001. The 17% increase in accounts receivable was not unusual considering that net sales for the three months and year ended December 31, 2002 were up 36% and 16%, respectively. The increase in inventories is primarily attributable to the Tristar inventory purchased in connection with the intellectual property acquisition in May 2002. At December 31, 2003, in terms of cash flows, accounts receivable and inventories were up 34% and 49%, respectively, from December 31, 2002. The 34% increase in accounts receivable and the 49% increase in inventories are not unusual considering that net sales for the three months and year ended December 31, 2003 were up 33% and 42%, respectively. In addition, in 2003 a significant inventory build up during the fourth quarter of 2003 was made to meet our sales commitments in early 2004 including the continued rollout of our Burberry Brit for women line. This buildup was financed primarily through normal credit terms with our vendors, and therefore did not have any significant impact on our cash flows from operations.
Cash flows used in investing activities, which are primarily capital expenditures, aggregated $2.5 million, $4.4 million and $2.5 million for the years ended December 31, 2003, 2002 and 2001, respectively. As previously mentioned, our business is not capital intensive and we do not own any manufacturing facilities. We typically spend between $1.0 and $2.0 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. Cash flows used in investing activities in 2002 included $3.2 million for the May 2002 acquisition of certain fragrance brands from Tristar.
In March 2004, our board of directors increased the cash dividend to $.12 per share, approximately $2.3 million per annum, payable $.03 per share on a quarterly basis. Our first cash dividend of $.03 per share is to be paid on April 15, 2004 to shareholders of record on March 31, 2004. Dividends paid, including dividends paid to minority shareholders by our French subsidiary aggregated $1.8 million, $1.1 million and $0.2 million in 2003, 2002 and 2001, respectively. This increased cash dividend in 2004 represents a small part of our cash position and is not expected to have any significant impact on our financial position.
Our short-term financing requirements are expected to be met by available cash at December 31, 2003, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2003 consist of a $12.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $30.0 million in credit lines provided by a consortium of international financial institutions. Actual borrowings under these facilities have been minimal as we typically use our working capital to finance all of our cash needs.
In December 2003, we signed of a letter of intent to acquire a 64% interest in Nickel S.A. for approximately $6 million in cash. Closing of the transaction, which is subject to certain due diligence procedures and signing of a definitive agreement, is expected to take place in April 2004. The letter of intent contemplates a provision for a follow-on cash infusion of approximately $3.7 million, which would bring our ownership to 74%. We anticipate funding this acquisition with cash on hand and do not expect it to have any further significant effect on our financial position.
As previously reported, our French subsidiary, Inter Parfums, S.A., is a party to litigation with Jean Charles Brosseau, S.A. ("Brosseau"), the licensor of the Ombre Rose trademark. In October 1999, Inter Parfums, S.A. received notice of a judgment in favor of Brosseau, which awarded damages of approximately $600,000 and which directed Inter Parfums, S.A. to turn over its license to Brosseau within six months.
Inter Parfums, S.A. appealed the judgment as it vigorously and categorically denied the claims of Brosseau. In June 2000, as a result of certain developments, Inter Parfums, S.A. and its special litigation counsel considered it likely that the judgment would be sustained and therefore took a charge against earnings for $600,000, the full amount of the judgment. In February 2001, the Court of Appeal confirmed the Brosseau claim with respect to turning over the license. In addition, the Court named an expert to proceed with additional investigations and required Inter Parfums, S.A. to pay $142,000 as an advance for damages claimed by Brosseau.
In February 2004, the Court of Appeal ordered Inter Parfums, S.A. to pay total damages of $390,000 of which $142,000 has already been advanced. Brosseau has two months to appeal this decision and, therefore Inter Parfums, S.A. will maintain its current reserves until such time as all rights to appeal have expired. We do not believe that such litigation will have any further material adverse effect on our financial condition or operations.
	 	We believe that funds generated from operations, supplemented by our present cash position and available credit facilities, will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.
In January 1999, certain member countries of the European Union established permanent fixed rates between their existing currencies and the European Union's common currency, the Euro. The transition period for the introduction of the Euro was completed on January 1, 2002. The introduction of the Euro and the phasing out of other currencies have not had any material impact on our consolidated financial statements.
Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the year ended December 31, 2003.
Contractual Obligations
	The following table sets for a schedule of our contractual obligations over the periods indicated in the table, as well as our total contractual obligations ($ in thousands).
Item 7A.
Item 7A. 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 major industrial countries and are with large financial institutions, which are rated as strong investment grade.
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.
We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote and in any event would not be material. The contracts have varying maturities with none exceeding one year. Costs associated with entering into such contracts have not been material to our financial results. At December 31, 2003, we had foreign currency contracts at Inter Parfums, S.A. in the form of forward exchange contracts in the amount of approximately U.S. $18.0 million and GB Pounds 13.1 million.
Item 8.
Item 8. Financial Statements and Supplementary Data
The required financial statements commence on page.
Supplementary Data
Item 9.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
	 	Eisner LLP was previously the principal accountants for the Company. On January 7, 2004, that firm was dismissed as our principal accountants and KPMG LLP was engaged as principal accountants. The decision to change accountants was approved by our audit committee.
In connection with the audits of each of the two fiscal years ended December 31, 2001 and December 31, 2002, and the interim period through January 7, 2004, the date of dismissal, there were no disagreements with Eisner LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement.
The audit reports of Eisner LLP on the consolidated financial statements of Inter Parfums, Inc. and subsidiaries as of and for the years ended December 31, 2001 and 2002, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. Eisner LLP did make reference in their reports to other auditors who audited the financial statements of our consolidated foreign subsidiaries.
During the two fiscal years ended December 31, 2002, and the interim period through January 7, 2004, the date of engagement, we did not consult with or engage KPMG LLP regarding the application of generally accepted accounting principles to a specific transaction or the type of audit opinion that might be rendered on our consolidated financial statements. KPMG SA, an affiliate of KPMG LLP, has been engaged as the audit firm for our French subsidiaries for each of the three fiscal years ended December 31, 2001, 2002 and 2003.
Item 9A.
Item 9A. 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-14(c)) as of the end of the period covered by this annual report on Form 10-K (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 disclosure controls and procedures were adequate and effective to ensure that material information relating to our company and its consolidated subsidiaries would be made known to them by others within those entities, so that such material information is recorded, processed and reported in a timely manner, particularly during the period in which this annual report on Form 10-K was being prepared, and that no changes were required at this time.
Changes in Internal Controls
There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls after the Evaluation Date, or any significant deficiencies or material weaknesses in such internal controls requiring corrective actions. As a result, no corrective actions were taken.
PART III
Item 10.
Item 10. Executive Officers And Directors Of Registrant
As of the date of this report, our executive officers and directors were as follows:
Name Position
Jean Madar Chairman of the Board, Chief Executive Officer of Inter Parfums, Inc. and Director General of Inter Parfums, S.A.
Philippe Benacin Vice Chairman of the Board, President of Inter Parfums, Inc. and President of Inter Parfums, S.A.
Russell Greenberg Director, Executive Vice President and Chief Financial Officer
Philippe Santi Director and Director of Finance, Inter Parfums, S.A.
Francois Heilbronn Director
Joseph A. Caccamo Director
Jean Levy Director
Robert Bensoussan-Torres Director
Daniel Piette Director
Jean Cailliau Director
Serge Rosinoer Director
Wayne Hamerling Executive Vice President
Eric de Labouchere Director of Operations, Inter Parfums, S.A.
Frederic Garcia-Pelayo Director of Export Sales, Inter Parfums, S.A.
	 	Our directors will serve until the next annual meeting of stockholders and thereafter until their successors shall have been elected and qualified. LV Capital USA, Inc. and Messrs. Jean Madar and Philippe Benacin have entered into a Shareholders' Agreement relating to certain corporate governance issues, including granting two seats on the Board of directors to designees of LV Capital USA, Inc. LV Capital USA, Inc. and Messrs. Jean Madar and Philippe Benacin have each agreed to vote for each others nominees for directors. As Messrs. Madar and Benacin and LV Capital USA, Inc. beneficially own more than 50% of the outstanding shares of the Inter Parfums' common stock, Inter Parfums is considered a "controlled company" under the applicable rules of The Nasdaq Stock Market.
With the exception of Mr. Benacin, the officers are elected annually by the directors and serve at the discretion of the board of directors. There are no family relationships between executive officers or directors of our company.
Board of Directors
Our Board of Directors has the responsibility for establishing broad corporate policies and for the overall performance of our company. Although certain directors are not involved in day-to-day operating details, members of the Board are kept informed of our business by various reports and documents made available to them. The Board of Directors held seventeen (17) meetings (or executed consents in lieu thereof), including meetings of committees of the Board in Fiscal 2003, and all of the directors attended at least 75% of the meetings of the Board and committee meetings of which they were a member, except Serge Rosinoer.
We have adopted a Code of Business Conduct, which is filed with the Securities and Exchange Commission as Exhibit 14 to this report, and we agree to provide to any person without charge, upon request, a copy of our Code of Business Conduct. Any person who requests a copy of our Code of Business Conduct should provide their name and address in writing to: Inter Parfums, Inc., 551 Fifth Avenue, New York, NY 10176, Att.: Shareholder Relations.
During Fiscal 2003, the Board of Directors had the following standing committees:
* 	Audit Committee - The Audit Committee has the sole authority and is directly responsible for, the appointment, compensation and oversight of the work of the independent accountants employed by the Company which prepare or issue an audit report for the Company. During Fiscal 2003, the Audit Committee consisted of Messrs. Heilbronn, Levy and Cailliau. As the result of a change in independence requirements for members of the Audit Committee, in December 2003 Mr. Robert Bensoussan-Torres replaced Mr. Cailliau as a member of the Audit Committee.
The Audit Committee does not have a member who is an "Audit Committee Financial Expert" as such term is defined under the applicable rules and regulations. However, as the result of the background, education and experience of the members of the Audit Committee, the Board of Directors believes that such committee members are fully qualified to fulfill their obligations as members of the Audit Committee.
* 	Executive Compensation and Stock Option Committee - The Executive Compensation Committee oversees the compensation of the Company's executives and administers the Company's stock option plans. Until March 2003 when they were combined, the Company had two separate committees, the Executive Compensation Committee and the Stock Option Committee. In January and February 2003, the Stock Option Committee consisted of Messrs. Heilbronn, Levy and Cailliau, and the Executive Compensation Committee consisted of Messrs. Heilbronn, Levy and Piette. In March 2003, Mr. Piette replaced Mr. Cailliau as a member of the Stock Option Committee.
Our Board of Directors does not maintain a standing nominating committee or a committee performing similar functions. In view of the existing shareholders' agreement relating to certain corporate governance issues, including the election of directors, among LV Capital USA, Inc. and Messrs. Jean Madar and Philippe Benacin who beneficially own more than 50% of the outstanding shares of the Inter Parfums' common stock, our Board of Directors does not believe it necessary for the company to have such a committee. Also as a "controlled company" under the applicable rules of The Nasdaq Stock Market, we are exempt from the nominating committee requirements. Our Board of Directors as a group agreed to nominate the same members of the board who had served last year.
The following sets forth biographical information as to the business experience of each executive officer and director of our company for at least the past five years.
Jean Madar
Jean Madar, age 43, a Director, has been the Chairman of the Board of Directors since the Company's inception, and is a co-founder of the Company with Mr. Benacin. From inception until December 1993 he was the President of the Company; in January 1994 he became Director General of Inter Parfums, S.A., the Company's subsidiary; and in January 1997 he became Chief Executive Officer of the Company. Mr. Madar was previously the managing director of Inter Parfums, S.A., from September 1983 until June 1985. At such subsidiary, he had the responsibility of overseeing the marketing operations of its foreign distribution, including market research analysis and actual marketing campaigns. Mr. Madar graduated from The French Higher School of Economic and Commercial Sciences (ESSEC) in 1983.
Philippe Benacin
Mr. Benacin, age 45, a Director, has been the Vice Chairman of the Board since September 1991, and is a co-founder of the Company with Mr. Madar. He was elected the Executive Vice President in September 1991, Senior Vice President in April 1993, and President of the Company in January 1994. In addition, he has been the President of Inter Parfums, S.A. for more than the past five years. Mr. Benacin graduated from The French Higher School of Economic and Commercial Sciences (ESSEC) in 1983.
Russell Greenberg
Mr. Greenberg, age 47, the Chief Financial Officer, was Vice-President, Finance when he joined the Company in June 1992; became Executive Vice President in April 1993; and was appointed to the Board of Directors in February 1995. He is a certified public accountant licensed in the State of New York, and is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. After graduating from The Ohio State University in 1980, he was employed in public accounting until he joined the Company in June 1992.
Philippe Santi
Philippe Santi, age 42 and a Director since December 1999, has been the Director of Finance and the Chief Financial Officer of Inter Parfums, S.A. since February 1995. Mr. Santi is a Certified Accountant and Statutory Auditor in France.
Francois Heilbronn
Mr. Heilbronn, age 43, a Director since 1988, an independent director, and a member of the audit, stock option and executive compensation committees, is a graduate of Harvard Business School with a Master of Business Administration degree and is currently the managing partner of the consulting firm of M.M. Friedrich, Heilbronn & Fiszer. He was formerly employed by The Boston Consulting Group, Inc. from 1988 through 1992 as a manager. Mr. Heilbronn graduated from Institut D' Etudes Politiques De Paris in June 1983. From 1984 to 1986, he worked as a financial analyst for Lazard Freres & Co.
Joseph A. Caccamo
Mr. Caccamo, age 48, a Director since 1992, is an attorney with the law firm of Becker & Poliakoff, P.A., our general counsel. A member of both the New York and Florida bars, Mr. Caccamo has been a practicing attorney since 1981, concentrating in the areas of corporate and securities law, and in September 1991 he became counsel to us. From August 1992 through September 1997, he was a director of and general counsel to, Hydron Technologies, Inc., a publicly traded company primarily engaged in the development of cosmetic and personal care products.
Jean Levy
Jean Levy, age 71, a Director since August 1996, an independent director and a member of the audit and executive compensation and stock option committees, worked for twenty-seven years at L'Oreal, and was the President and Chief Executive Officer of Cosmair, the exclusive United States licensee of L'Oreal, from 1983 through June 1987. In addition, he is the former President and Chief Executive Officer of Sanofi Beaute (France). For the more than the past five years, Mr. Levy has been an independent advisor as well as a consultant for economic development to local governments in France. A graduate of l'Institut d'Etudes Politiques de Paris, he also attended Yale Graduate School and was a recipient of a Fulbright Scholarship. He was also a Professor at l'Institut d'Etudes Politiques de Paris. Mr. Levy is also a director of Rallye, S.A. He was formerly a director of Zannier Group and Escada Beaute Worldwide. In addition, Mr. Levy is also a director (Chairman of the Board until he resigned in October 2001) of Financière d'Or, and its subsidiary, Histoire d'Or which is in the retail jewelry business. Mr. Levy is also a consultant to Ernst & Young, Paris and a board member of Price Minister, an internet based retainer located in Paris.
Robert Bensoussan-Torres
Robert Bensoussan-Torres, age 46, has been a Director since March 1997, and also is an independent director and a member of the audit committee. In November 2001, he became the Chief Executive Officer of Jimmy Choo Ltd., a luxury shoe and ready to wear accessory company. From 1999 to December 2000, he was the Managing Director of Gianfranco Ferre fashion group, based in Milano, Italy. Mr. Bensoussan-Torres is a Director of Towers Consulting Europe, Ltd. Towers Consulting Europe, Ltd. is a consulting company based in London, which specializes in strategic advise in connection with mergers and acquisitions in the luxury goods business. Mr. Bensoussan-Torres was the Chief Executive Officer of Christian Lacroix, Paris, a subsidiary of LVMH Group, from February 1993 until May 1998. Christian Lacroix is a French Haute Couture House and has activities in the field of apparel, accessories and fragrances. From December 1990 through January 1993 he was based in Munich, Germany, as the International Sales Director of The Escada Group.
Daniel Piette
Mr. Piette, age 58, and a director since December 1999, is also a member of the executive compensation and stock option committee of the Board of Directors. The Board considers Mr. Piette to be independent of management, notwithstanding his affiliation with LV Capital USA Inc. Mr. Piette is the President of L Capital Management, a private equity fund sponsored by LVMH Moet Hennessy Louis Vuitton S.A. ("LVMH"), the world's largest luxury goods conglomerate. For the past 12 years, he has been a Group Executive Vice President of LVMH. Mr. Piette is also a non-executive director of D.S. Smith Holdings PLC (London) as well as a member of the Board of Overseers of ESSEC (Paris) and Columbia Business School (New York).
Jean Cailliau
Mr. Cailliau, age 41, and a director since December 1999. The Board considers Mr. Cailliau to be independent of management, notwithstanding his affiliation with LV Capital USA Inc. Through June 2001, Mr. Cailliau was the Deputy General Manager of LV Capital SA, the investment arm of LVMH. He is the CEO of LV Capital USA Inc., its United States vehicle. In January 2001 he became a Director of L Capital Management, a private equity fund sponsored by LVMH. For the past 10 years, Mr. Cailliau has held executive positions at LVMH. He is also a Director of various European companies. Mr. Cailliau is an Engineer in Agronomics and has an MBA (1988) from Insead.
Serge Rosinoer
	 	Mr. Rosinoer, age 72, was appointed to the Board of Directors in December 2000, as an independent director. Mr. Rosinoer has devoted most of his career to the personal care, cosmetics and fragrance industry. In 1978, Mr. Rosinoer joined the Clarins Group as Vice President and Chief Operating Officer where he was largely responsible for its rapid international expansion. As COO, then CEO since 1978, Mr. Rosinoer oversaw the transformation of Clarins into a major force in cosmetics, skin care and fragrance, with annual sales of approximately 600 million Euro and more than 4,000 employees. He retired from active duty in June of 2000, but continues to serve on the board of directors of Clarins. Earlier in his career he was President of Parfums Corday. He also held senior level executive positions at Max Factor, where he had full supervision of that cosmetics company's European production and sales. Mr. Rosinoer has served several terms as President of the French Prestige Cosmetics Association and currently serves as Conseiller du Commerce Exterieur de la France.
Wayne C. Hamerling
Mr. Hamerling, age 47, is an Executive Vice President in charge of mass market sales of fragrances, cosmetics and health and beauty aids in the United States. Mr. Hamerling, who attended Rutgers University, has over twenty (20) years experience in the fragrance and cosmetic business.
Eric de Labouchere
Eric de Labouchere, age 49, is the Director of Operations of Inter Parfums, S.A. He has been employed by Inter Parfums, S.A. since October 1986 in product development, purchasing and marketing.
Frederic Garcia-Pelayo
Frederic Garcia-Pelayo, age 45, has been the Director of Export Sales of Inter Parfums, S.A. since September 1994. Prior to September 1994, Mr. Garcia-Pelayo was the Export Manager for Benetton Perfumes for seven (7) years.
Section 16(a) Beneficial Ownership Reporting Compliance
	 	Based solely upon a review of Forms 3, 4 and 5 and any amendments to such forms furnished to us, and written representations from various reporting persons furnished to us, except as set forth below, we are not aware of any reporting person who has failed to file the reports required to be filed under Section 16(a) of the Securities Exchange Act of 1934 on a timely basis.
Mr. Russell Greenberg filed one Form 4 one day late in July 2003 as the result of technical difficulties in filing the form (the report was received by the Commission on the appropriate day, but after business hours), which disclosed one sale.
Mr. Jean Levy, who resides in Paris, filed one Form 4 four days late in January 2004, which disclosed two sales.
Item 11.
Item 11. Executive Compensation
The following table sets forth a summary of all compensation awarded to, earned by or paid to, our Chief Executive Officer and each of the four most highly compensated executive officers of our company whose compensation exceeded $100,000 per annum for services rendered in all capacities to our company and its subsidiaries during fiscal years ended 31 December 2003, 31 December 2002 and 31 December 2001. All amounts paid in euro have been converted to U.S. dollars at the average rate of exchange in each year.
The following table sets forth certain information relating to stock option grants during Fiscal 2003 to our Chief Executive Officer and each of the four most highly compensated executive officers of the company whose compensation exceeded $100,000 per annum for services rendered in all capacities to our company and its subsidiaries during Fiscal 2003:
	OPTION/SA GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information relating to option exercises effected during Fiscal 2003, and the value of options held as of December 31, 2003 by each of our Chief Executive Officer and the four most highly compensated executive officers of our company whose compensation exceeded $100,000 per annum for services rendered in all capacities to our company and its subsidiaries during Fiscal 2003:
1	Total value of unexercised options is based upon the fair market value of the common stock as reported by the Nasdaq Stock Market of $23.05 on 31 December 2003.
2	Value realized in dollars is based upon the difference between the fair market value of the common stock on the date of exercise, and the exercise price of the option, or the fair market value of the net amount of shares received upon exercise of options.
3	In April 2003, the Chief Executive Officer exercised 67,500 outstanding stock options of the Company's common stock. The aggregate exercise price of $232,475 was paid by him tendering to the Company 33,692 shares of the Company's common stock, previously owned by him, valued at $6.90 per share, the fair market value on the date of exercise. All shares issued pursuant to the option exercises were issued from treasury stock of the Company. In addition, the Chief Executive Officer tendered an additional 9,298 shares for payment of withholding taxes resulting from the option exercises. As a result of this transaction, we expect to receive a tax benefit of approximately $80,000, which has been reflected as an increase to additional paid-in capital in our financial statements.
	In October 2003, each of the Chief Executive Officer and the President exercised 42,000 and 94,300 outstanding stock options, respectively, of the Company's common stock. The exercise prices of $107,352 for the Chief Executive Officer and $241,031 for the President were paid by each of them tendering to the Company 8,158 and 18,316 shares, respectively, of the Company's common stock, previously owned by them, valued at $13.16 per share, the fair market value on the date of exercise. All shares issued pursuant to these option exercises were issued from our treasury stock. In addition, the Chief Executive Officer tendered an additional 9,307 shares for payment of withholding taxes resulting from his option exercise. As a result of this transaction, we expect to receive a tax benefit of approximately $460,000, which has been reflected as an increase to additional paid-in capital in our financial statements.
Employment Agreements
As part of our acquisition in 1991 of the controlling interest in Inter Parfums, S.A., now a subsidiary, we entered into an employment agreement with Philippe Benacin. The agreement provides that Mr. Benacin will be employed as Vice Chairman of the Board and President and Chief Executive Officer of Inter Parfums Holdings and its subsidiary, Inter Parfums. The initial term expired on September 2, 1992, and has subsequently been automatically renewed for additional annual periods. The agreement provides for automatic annual renewal terms, unless either party terminates the agreement upon 120 days notice. Mr. Benacin presently receives an annual salary of 135,000 Euros, which is approximately US$170,000, together with annual lodging expenses of approximately $35,000 and automobile expenses of approximately $15,000, which are subject to increase in the discretion of the Board of Directors. The agreement also provides for indemnification and a covenant not to compete for one year after termination of employment.
Compensation of Directors
All nonemployee directors receive $1,000 for each board meeting at which they participate. Mr. Caccamo's board fees are paid to his law firm. In addition, all members of the Audit Committee receive an additional $2,000 on January 1 of each year in which they serve on the Audit Committee.
In March 1997 our Board of Directors adopted our 1997 Nonemployee Stock Option Plan. This plan was approved by our stockholders at the annual meeting of shareholders held in July 1997. The purpose of this plan is to assist us in attracting and retaining key directors who are responsible for continuing the growth and success of our company.
Our 1997 Nonemployee Stock Option Plan provides for the grant of nonqualified stock options to nonemployee directors to purchase an aggregate of 25,000 shares of common stock. Options to purchase 1,000 shares are granted on each February 1st to all nonemployee directors for as long as each is a nonemployee director on such date except for Joseph A. Caccamo, who is granted options to purchase 4,000 shares. Options to purchase 2,000 shares are granted to each nonemployee director upon his initial election or appointment to our board.
In December 2000 our Board of Directors adopted our 2000 Nonemployee Stock Option Plan, as substantially all of the shares reserved under our 1997 Nonemployee Stock Option Plan had been allocated to outstanding options. This plan was approved by our stockholders at the annual meeting of shareholders held in July 2001. The purpose of this plan is to assist us in attracting and retaining key directors who are responsible for continuing the growth and success of our company.
Our 2000 Nonemployee Stock Option Plan provides for the grant of nonqualified stock options to nonemployee directors to purchase an aggregate of 30,000 shares of common stock. Options to purchase 1,000 shares are granted on each February 1st to all nonemployee directors for as long as each is a nonemployee director on such date except for Joseph A. Caccamo, who is granted options to purchase 4,000 shares. Options to purchase 2,000 shares are granted to each nonemployee director upon his initial election or appointment to our board.
	 	On 2 February 2004, options to purchase 1,000 shares were granted to each of Francois Heilbronn, Jean Levy, Robert Bensoussan-Torres, Daniel Piette, Jean Cailliau and Serge Rosinoer and an option to purchase 4,000 shares was granted to Joseph A. Caccamo at the exercise price of $23.06 per share under the 2000 plan. The options held by Mr. Caccamo are held as nominee for his present law firm.
Item 12.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth information, as of March 18, 2004 with respect to the beneficial ownership of our common stock by (a) each person we know to be the beneficial owner of more than five percent of our outstanding common stock, (b) our executive officers and directors and (c) all of our directors and officers as a group. As of March 18, 2004, we had 19,170,936 shares of common stock outstanding.
	 	The following table sets forth certain information as of the end of our last fiscal year regarding all equity compensation plans that provide for the award of equity securities or the grant of options, warrants or rights to purchase our equity securities.
Equity Compensation Plan Information
Plan category
Number of securities to be issued upon exercise of
outstanding options,
warrants and rights (a)
Weighted-average exercise price of
outstanding options,
warrants and rights (b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a)) (c)
Equity compensation plans
approved by security holders
1,897,862
$ 5.92
333,279
Equity compensation plans not
approved by security holders
N/A
Total
1,897,862
$ 5.92
333,279
Item 13.
Item 13. Certain Relationships And Related Transactions
Transactions with French Subsidiaries
In connection with the acquisitions by our subsidiary, Inter Parfums, S.A., of the world-wide rights under the Burberry license agreement and the Paul Smith license agreement, we guaranteed the obligations of Inter Parfums, S.A. under the Burberry and Paul Smith license agreements.
Option Exercise Paid With Tender of Shares
In April 2003, the Chief Executive Officer exercised 67,500 outstanding stock options of the Company's common stock. The aggregate exercise price of $232,475 was paid by him tendering to the Company 33,692 shares of the Company's common stock, previously owned by him, valued at $6.90 per share, the fair market value on the date of exercise. All shares issued pursuant to the option exercises were issued from treasury stock of the Company. In addition, the Chief Executive Officer tendered an additional 9,298 shares for payment of withholding taxes resulting from the option exercises. As a result of this transaction, we expect to receive a tax benefit of approximately $80,000, which has been reflected as an increase to additional paid-in capital in our financial statements.
In October 2003, each of the Chief Executive Officer and the President exercised 42,000 and 94,300 outstanding stock options, respectively, of the Company's common stock. The exercise prices of $107,352 for the Chief Executive Officer and $241,031 for the President were paid by each of them tendering to the Company 8,158 and 18,316 shares, respectively, of the Company's common stock, previously owned by them, valued at $13.16 per share, the fair market value on the date of exercise. All shares issued pursuant to these option exercises were issued from our treasury stock. In addition, the Chief Executive Officer tendered an additional 9,307 shares for payment of withholding taxes resulting from his option exercise. As a result of this transaction, we expect to receive a tax benefit of approximately $460,000, which has been reflected as an increase to additional paid-in capital in our financial statements.
Remuneration of Counsel
	 	Joseph A. Caccamo, a director, is a senior attorney at the law firm of Becker & Poliakoff, P.A., our general counsel. In Fiscal 2003, we paid Becker & Poliakoff, P.A. an aggregate of $119,962 for legal fees and reimbursement of disbursements incurred on our behalf.
	 	On 2 February 2004 in accordance with the terms of our 2000 Nonemployee Stock Option Plan, Mr. Caccamo was granted an option with a term of five years to purchase 4,000 shares at $23.06 per share, the fair market value at the time of grant. He holds this option as nominee for his firm.
Sale of Goods to Related Party
	 	The wife of the Chief Executive Officer is to own and operate a Diane von Furstenberg retail store in Paris, with Diane von Furstenberg as a partner. Inter Parfums USA, LLC is the fragrance and cosmetic licensee of Diane von Furstenberg, and Inter Parfums Inc. is the guarantor of such license. The retail outlet is expected to open in July 2004 and will be purchasing DVF fragrances and cosmetics from Inter Parfums USA, LLC. All sales will be recorded as arms length transactions.
Transactions with LVMH Moet Hennessy Louis Vuitton S.A.
	Acquisition of Common Stock and Shareholders' Agreement
	 	In November 1999, LV Capital, USA Inc. ("LV Capital"), a wholly-owned subsidiary of LVMH Moet Hennessy Louis Vuitton S.A., purchased shares of our common stock from management and employees. As of the date of this report, it beneficially owns approximately 18% of our outstanding common stock. Further, in return for LV Capital becoming our strategic partner, LV Capital was granted the right to buy additional shares in order to maintain its percentage ownership upon issuance of shares to third parties, subject to certain exceptions, and was granted demand registrations rights for all of its shares. In addition, LV Capital has agreed to a standstill agreement, which limits the amount of shares of common stock that LV Capital can hold to twenty-five percent (25%) of our outstanding shares.
Celine
In May 2000 we entered into an exclusive worldwide license agreement with Celine, S.A., a division of LVMH Moet Hennessy Louis Vuitton S.A., for the development, manufacturing and distribution of prestige fragrance lines under the Celine brand name. The term of the License Agreement is for eleven (11) years, beginning as of 1 January 2001, with an optional five (5) year renewal term, which is subject to certain minimum sales requirements, advertising expenditures and royalty payments as are customary in our industry.
Christian Lacroix
In March 1999, we entered into an exclusive license agreement with the Christian Lacroix Company, a division of LVMH Moet Hennessy Louis Vuitton S.A., for the worldwide development, manufacture and distribution of perfumes. The license agreement has an 11 year term, and is subject to certain minimum sales requirements, advertising expenditures and royalty payments as are customary in our industry.
Item 14.
Item 14. 	Principal Accounting Fees and Services
General
As previously disclosed, Eisner LLP was previously the principal accountants for the Company. On January 7, 2004, that firm was dismissed as our principal accountants and KPMG LLP was engaged as principal accountants. The decision to change accountants was approved by our audit committee. KPMG SA, an affiliate of KPMG LLP, has been engaged as the audit firm for our French subsidiaries for each of the two fiscal years ended December 31, 2001 and December 31, 2002.
During Fiscal 2002 Eisner LLP served as the Company's independent certified public accountants, and KPMG S.A., served as the auditor of Inter Parfums Holdings, S.A. (a wholly-owned French corporation) and subsidiaries. In connection with its audit of our consolidated financial statements, Eisner LLP did not audit the financial statements of Inter Parfums Holdings, S.A. and subsidiaries, our consolidated foreign subsidiaries, but relied solely on the audit conducted by KPMG S.A. of Inter Parfums Holdings, S.A. and subsidiaries.
Fees
	 	The following sets forth and the fees billed to us by each of Eisner LLP and KPMG S.A., as well as discusses the services provided for the past two fiscal years.
Audit Fees
	The fees billed by Eisner LLP and KPMG LLP for audit services and review of the financial statements contained in our Quarterly Reports on Form 10-Q were $15,000 by Eisner LLP and $286,000 by KPMG LLP for Fiscal 2003 and $90,000 by Eisner LLP and $135,000 by KPMG S.A. for Fiscal 2002.
Audit-Related Fees
	 	The fees billed by KPMG S.A. for services that would be classified as audit-related were $61,000 for Fiscal 2003 and none for Fiscal 2002. The services performed for audit related fees for Fiscal 2003 were accounting and reporting consultations relating to Inter Parfums, S.A. dealing its it own shares, as is permissible under French law; treatment of a potential trademark acquisition; international financial reporting standards conversion; fraud risks; attestation services for warehouse services; and compliance with French securities laws.
Tax Fees
Eisner LLP billed us $17,000 for tax preparation and tax consulting services during Fiscal 2003 and $16,000 for Fiscal 2002.
All Other Fees
Eisner LLP billed us $5,500 in Fiscal 2003 relating to various tax matters and $10,600 in Fiscal 2002 for various matters relating to a corporate filing in the state of Texas and advise and consultation with respect to stock options and cash dividends.
For Fiscal 2003, KPMG S.A. billed us $13,000 to provide tax consultation and advice with respect to repatriation of earnings of our company's French subsidiaries to us in the United States. KPMG S.A. did not bill us for any other services during Fiscal 2002.
Audit Committee Pre Approval Policies and Procedures
	 The Audit Committee has the sole authority for the appointment, compensation and oversight of the work of our independent accountants, who prepare or issue an audit report for us. For the past several years, the Audit Committee had determined that it was beneficial to have two (2) independent accounting firms perform our audits: Eisner LLP, which acted as our principal auditor and for the United States operations, and KPMG Audit conducted the audit of Inter Parfums Holdings, S.A and its subsidiaries. However, as the result of the continued growth of our French operations, the Audit Committee determined that KPMG LLP would replace Eisner LLP and act as our principal auditor. On January 7, 2004 Eisner LLP was dismissed as our principal accountants and KPMG LLP was engaged as principal accountants to conduct our audit for 2003. In addition, the Audit Committee authorized KPMG S.A. to conduct such audit of Inter Parfums Holdings, SA and subsidiaries, as well as all work necessary, related to or helpful to properly conclude such audit.
	 	During the first quarter of 2003, the Audit Committee authorized us to retain Eisner LLP to perform tax consultation and tax preparation services in the ordinary course of business for our company for fiscal year ending December 31, 2003. In addition it authorized us to retain Eisner LLP for tax consultation services, as may be required on a project-by-project basis that would not be considered in the ordinary course of business up to a $5,000 fee limit per project, subject to an aggregate fee limit of $25,000; and that the approval of the Audit Committee would be required for any further tax services.
	 	Also during the first quarter of 2003, the Audit Committee also authorized us to retain KPMG S.A. to provide tax consultation and tax preparation services in the ordinary course of business for Inter Parfums, S.A., for the fiscal year ended December 31, 2003. In addition, the Audit Committee also authorized us to retain KPMG S.A. to provide tax consultation and advice with respect to repatriation of earnings of our company's French subsidiaries to us in the United States.
	 	In addition, if other services are needed to be provided by either auditor on an expedited basis, such that obtaining pre-approval of the Audit Committee is not practicable, then the Audit Committee has delegated to the Chairman of the Audit Committee the authority to grant the required pre-approvals for such services.
	None of the non-audit services of either of the company's auditors had the pre-approval requirement waived in accordance with Rule 2-01(c)(7)(i)(C) of Regulation S-X.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules, And Reports On Form 8-K
(a)(1) Financial Statements annexed hereto Page No.
Independent Auditors' Reports
Consolidated Balance Sheets as at December 31, 2003 and December 31, 2002
Consolidated Statements of Income for the Years ended December 31, 2003,
December 31, 2002, and December 31, 2001
Consolidated Statements of Changes in Shareholders'
Equity for the Years ended December 31, 2003,
December 31, 2002 and December 31, 2001
Consolidated Statements of Cash Flows for the Years ended December 31, 2003,
December 31, 2002 and December 31, 2001
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules annexed hereto:
Schedule II - Valuation and Qualifying Accounts and Reserves
Schedules other than those referred to above have been omitted as the conditions requiring their filing are not present or the information has been presented elsewhere in the consolidated financial statements.
(a)(3) Exhibits
	The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - January 18, 1990), as follows:
Exhibit No. and Description
10.13 License Agreement between the Company and Jordache dated January 18, 1990 (as no. 10.1 therein).
10.16 Letter Agreement from Jordache to the Company regarding foreign license rights dated January 18, 1990 (as no. 10.4 therein).
The following document heretofore filed with the Commission is incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991:
Exhibit No. and Description
10.25 Employment Agreement between the Company and Philippe Benacin dated July 29, 1991
The following documents heretofore filed with the Commission is incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-48811):
Exhibit No. and Description
10.26 Lease for portion of 15th Floor, 551 Fifth Avenue, New York, New York
The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992:
Exhibit No. and Description
4.10 Amendment to 1992 Stock Option Plan
4.11 1993 Stock Option Plan
The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - July 15, 1993), as follows:
Exhibit No. and Description
10.30 License Agreement dated July 15, 1993, among Burberrys Limited, Inter Parfums, S.A. and Jean Philippe Fragrances, Inc. (excised form)
10.31 License Agreement dated May 7, 1993, between Jean-Charles Brosseau, S.A. and Inter Parfums, S.A. (French, excised form)
10.32 License Agreement dated May 7, 1993, between Jean-Charles Brosseau, S.A. and Inter Parfums, S.A. (English translation, excised form)
The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - February 28, 1994), as follows:
Exhibit No. and Description
10.36 Cession D'Elements Partiels de Fonds de Commerce between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re: Parfums Molyneux)
10.38 Agreement (Acquisition) among Jean Philippe Fragrances, Inc., Inter Parfums, S.A. and Cosmetiques et Parfums de France, S.A. dated February 18, 1994
10.39 Noncompetition Agreement among Jean Philippe Fragrances, Inc., Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994
10.43 Convention among Cosmetiques et Parfums de France-I.D., S.A., Cosmetiques et Parfums de France, S.A., Jean Philippe Fragrances, Inc. and Inter Parfums, S.A. and Sodipe S.A. dated February 18, 1994 (re French regulatory requirements)
The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Form 8 Amendment no. 1 (dated March 14, 1994) to the Current Report on Form 8-K (date of event - February 28, 1994), as follows:
Exhibit No. and Description
10.46. English translation of exhibit no. 10.36, Cession D'Elements Partiels de Fonds de Commerce between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re: Parfums Molyneux)
The following document heretofore filed with the Commission is incorporated herein by reference to the Company's Form 8 Amendment no. 2 (dated March 21, 1994) to the Current Report on Form 8-K (date of event - February 28, 1994), as follows:
Exhibit No. and Description
10.50. English translation of exhibit no. 10.43, Convention among Cosmetiques et Parfums de France-I.D., S.A., Cosmetiques et Parfums de France, S.A., Jean Philippe Fragrances, Inc. and Inter Parfums, S.A. and Sodipe S.A. dated February 18, 1994 (re French regulatory requirements)
The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993:
Exhibit No. and Description
3.3 Articles of Incorporation of Inter Parfums Holding, S.A.
3.3.1 English Translation of Exhibit no. 3.3, Articles of Incorporation of Inter Parfums Holding, S.A.
3.4 Articles of Incorporation of Inter Parfums, S.A.
3.4.1 English Translation of Exhibit no. 3.4, Articles of Incorporation of Inter Parfums, S.A.
4.15 1994 Nonemployee Director Stock Option Plan
10.51 Traite D'Apport Partiel D'Actif dated July 30, 1993 (Reorganization Agreement between Inter Parfums, S.A. and Selective Industrie, S.A.)
10.51.1 English translation of Exhibit no. 10.51, Traite D'Apport Partiel D'Actif dated July 30, 1993 (Reorganization Agreement between Inter Parfums, S.A. and Selective Industrie, S.A.)
10.52 Lease for portion of 4, Rond Point Des Champs Des Elysees dated September 30, 1993
10.52.1 English translation of Exhibit no. 10.52, Lease for portion of 4, Rond Point Des Champs Des Elysees dated September 30, 1993
10.53 Lease for portion of 4, Rond Point Des Champs Des Elysees dated March 2, 1994
10.53.1 English translation of Exhibit no. 10.53, Lease for portion of 4, Rond Point Des Champs Des Elysees dated March 2, 1994
The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994:
4.16 1994 Nonemployee Director Supplemental Stock Option Plan (Listed as no. 4.15 therein)
10.59 Modification of Lease Agreement dated June 17, 1994 between Metropolitan Life Insurance Company and Jean Philippe Fragrances, Inc.
The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995:
Exhibit No. and Description
10.61 Lease for 60 Stults Road, South Brunswick, NJ between Forsgate Industrial Complex, a limited partnership, and Jean Philippe Fragrances, Inc. dated July 10, 1995
The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997:
Exhibit No. and Description
10.67 Second Modification of Lease made as of the 30th day of April, 1997 between Metropolitan Life Insurance Company as landlord and Jean Philippe Fragrances, Inc. as tenant.
10.68 Amendment I to License Agreement dated September 3, 1997 between Jordache Enterprises, Inc. as Licensor and Jean Philippe Fragrances, Inc. as Licensee.
10.69 Exclusive Licence Agreement dated June 20, 1997 between S.T. Dupont, S.A. and Inter Parfums (English translation, excised form)
The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998:
Exhibit No. and Description
3.2 Amended and Restated By-laws
4.17 1997 Nonemployee Director Stock Option Plan
10.70 Licence Agreement among Paul Smith Limited, Inter Parfums, S.A. and Jean-Philippe Fragrances, Inc. (excised form)
10.71 Licence Agreement between Christian LaCroix, a division of Group LVMH and Inter Parfums, S.A (English translation, excised form)
	The following documents heretofore filed with the Commission are incorporated by reference to the Company's current report on Form 8-K (date of event - November 22, 1999):
Exhibit No. and Description
4.2	Shareholder's Agreement among LV Capital USA, Inc., Jean Madar and Philippe Benacin dated November 22, 1999.
99.1	Stock Purchase Agreement among LV Capital USA, Inc., Jean Madar and Philippe Benacin dated November 22, 1999.
	The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999:
Exhibit No. and Description
3.1.4 Amendment to the Company's Restated Certificate of Incorporation, as amended, dated July 13, 1999 (listed therein as 3.1(d))
10.73 Burberry Confidential Treatment Agreement dated 8 February, 2000
10.74 Burberry Licence Amendment dated February, 2000 (excised form)
	The following documents heretofore filed with the Commission are incorporated by reference to the Company's current report on Form 8-K/A no. 1 (date of event - 18 May 2000):
Exhibit No.
Description
10.76 Celine License Agreement (French, excised form).
10.76.1 Celine License Agreement (English translation, excised form).
	The following document heretofore filed with the Commission is incorporated by reference to the Company's current report on Form 8-K/A no. 1 (date of event - 23 June 2000):
Exhibit No.
Description
10.77 Sublicense Agreement for FUBU Fragrances, dated June 22, 2000 (excised form).
The following document heretofore filed with the Commission is incorporated by reference to the Company's quarterly report on Form 10-Q for the period ending 30 June 2000:
Exhibit No.
Description
3.1.5 Amendment to the Company's Restated Certificate of Incorporation, as amended, dated 12 July 2000 (listed therein as 3.1(e))
	The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended 31 December 2000:
Exhibit No.
Description
3.1.1 Restated Certificate of Incorporation dated September 3, 1987
3.1.2 Amendment to the Company's Restated Certificate of Incorporation dated July 31, 1992
3.1.3 Amendment to the Company's Restated Certificate of Incorporation dated July 9,
4.19 2000 Nonemployee Director Stock Option Plan
10.78 Revolving Credit Agreement dated June 1, 2000 between HSBC Bank USA and Inter Parfums, Inc.
10.79 Bail [Lease] for 18 avenue Franklin Roosevelt, Paris France [French Original]
10.79.1 Bail [Lease] for 18 avenue Franklin Roosevelt, Paris France [English Translation]
10.80 Credit Lyonnais Letter Agreement dated 22 March 2001 - [French Original]
10.80.1 Credit Lyonnais Letter Agreement dated 22 March 2001 - [English Translation]
10.81 Barclays Bank Letter Agreement dated 4 June 1998 - [French Original]
10.81.1 Barclays Bank Letter Agreement dated 4 June 1998 - [English Translation]
10.82 Banque OBC Odier Bungener Courvoisier Letter Agreement one dated 31 July 1998 - [French Original]
10.82.2 Banque OBC Odier Bungener Courvoisier Letter Agreement one dated 31 July 1998 - [English Translation]
10.83 Banque OBC Odier Bungener Courvoisier Letter Agreement two dated 31 July 1998 - [French Original]
10.83.2 Banque OBC Odier Bungener Courvoisier Letter Agreement two dated 31 July 1998 - [English Translation]
10.84 Banque Worms Letter Agreement dated 22 December 1997 - [French Original]
10.84.1 Banque Worms Letter Agreement dated 22 December 1997 - [English Translation]
10.85 Credit Agricole ile de France Letter Agreement dated 19 June 1996 - [French Original]
10.85.1 Credit Agricole ile de France Letter Agreement dated 19 June 1996 - [English Translation]
	The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended 31 December 2001:
Exhibit No.
Description
3.2 Amended and Restated By-laws
4.20 1999 Stock Option Plan, as amended
10.86 Revolving Credit Agreement dated 21 September 2001 between HSBC Bank USA and Inter Parfums, Inc.
10.87 Burberry Licence Amendment effective 1 October 2001
List of Subsidiaries
	The following documents heretofore filed with the Commission are incorporated by reference to the Company's current report on Form 8-K (date of event - 21 May 2002):
Exhibit No.
Description
2.1 Agreement dated 21 May 2002 between Jean Philippe Fragrances, LLC and Tristar Corporation, Debtor-in-Possession*
10.88 Noncompetition and Nonsolicition Agreement dated 21 May 2002 among Jean Philippe Fragrances, LLC, Tristar Corporation, Debtor-in-Possession and Fragrance Impressions Corporation
_________________
* Certain disclosure schedules and other attachments are omitted, but will be furnished supplementally to the Commission upon request.
	The following documents heretofore filed with the Commission is incorporated by reference to the Company's current report on Form 8-K (date of event - 29 May 2002):
Exhibit No.
Description
10.90 Agreement dated 29th day of May, 2002, among Diane von Furstenberg Studio, L.P., Inter Parfums USA, LLC and Inter Parfums, Inc.*
_________________
* Filed in excised form.
	The following documents heretofore filed with the Commission are incorporated by reference to the Company's quarterly report on Form 10-Q for the period ending 30 June 2002:
Exhibit No.
Description
10.91 Bail entre SCI et Inter Parfums, S.A. [Original in French]
10.91.1 Lease between SCI and Inter Parfums, S.A. [English Translation Version]
10.92 Third Modification of Lease dated June 17, 2002 between Metropolitan Life Insurance Company, and Jean Philippe Fragrances, LLC
	The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended 31 December 2002:
Exhibit No.
Description
10.93 Revolving Credit Agreement dated as of 23 June 2002 between HSBC Bank USA and Inter Parfums, Inc.
23.1 Consent of Eisner LLP
23.2 Consent of KPMG Audit, a division of KPMG S.A.
99.1 Certification Required by Section 906 of the Sarbanes-Oxley Act
	The following documents heretofore filed with the Commission are incorporated by reference to the Company's Quarterly Report for the quarterly period ended September 30, 2003:
Exhibit No.
Description
10.97 Agreement dated August 8, 2003 between HSBC USA Bank and Jean Philippe Fragrances, LLC
10.98 Burberry Licence Amendment dated 23 June 2003
	The following documents heretofore filed with the Commission is incorporated by reference to the Company's current report on Form 8-K (date of event - 7 January 2004):
Exhibit No.
Description
16. Letter of Eisner LLP dated January 7, 2004
	The following documents heretofore filed with the Commission is incorporated by reference to the Company's current report on Form 8-K/A (date of event - 7 January 2004):
Exhibit No.
Description
16. Letter of Eisner LLP dated January 7, 2004
	The following documents are filed herewith:
Exhibit No.
Description
10.99 Agreement between Inter Parfums, S.A. and Credit Lyonnais dated 28 November 2003- French original
10.99.1 Agreement between Inter Parfums, S.A. and Credit Lyonnais dated 28 November 2003-English translation
10.100 Line of Credit Agreement between The Banque OBC-Odier Bungener Courvoisier and Inter Parfums, S.A dated 29 October 2003- French original
10.100.1 Line of Credit Agreement between The Banque OBC-Odier Bungener Courvoisier and Inter Parfums, S.A dated 29 October 2003- English translation
Code of Business Conduct
Certification Required by Rule 13a-14
Certification Required by Section 906 of the Sarbanes-Oxley Act
	b) Reports on Form 8-K: During the last quarter covered by this report and through the date of the filing of this report, we filed or furnished the following Current Reports on Form 8-K:
Date of Event: 5 November 2003 reporting items 7 and 12
Date of Event: 26 November 2003 reporting item 9
Date of Event: 7 January 2004, reporting items 4 and 7.
We also filed an amended Current Report on Form 8-K/A, Date of Event: 7 January 2004, reporting items 4 and 7.
Independent Auditors' Report
The Board of Directors and Shareholders
Inter Parfums, Inc.:
We have audited the accompanying consolidated balance sheet of Inter Parfums, Inc. and subsidiaries (the Company) as of December 31, 2003, and the related consolidated statements of income, changes in shareholders' equity and comprehensive income, and cash flows for the year then ended. In connection with our audit of the consolidated financial statements we have also audited the financial statement schedule as of December 31, 2003 as listed in the index on page. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inter Parfums, Inc. and subsidiaries as of December 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP
New York, New York
March 26, 2004
Independent Auditors' Report
Board of Directors and Shareholders
Inter Parfums, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Inter Parfums, Inc. and subsidiaries (the Company) as of December 31, 2002, and the related consolidated statements of income, changes in shareholders' equity and comprehensive income, and cash flows for each of the years in the two-year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Inter Parfums Holdings, S.A. and subsidiaries, consolidated foreign subsidiaries of the Company, which statements reflect total assets and net sales constituting 69% and 68% for 2002 and net sales constituting 71% for 2001. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts for Inter Parfums Holdings, S.A. and subsidiaries, is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the financial statements enumerated above present fairly, in all material respects, the consolidated financial position of Inter Parfums, Inc. and subsidiaries as of December 31, 2002, and the consolidated results of their operations and their consolidated cash flows for each of the years in the two-year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.
In connection with our audits of the consolidated financial statements enumerated above, we audited schedule II for each of the years in the two-year period ended December 31, 2002. In our opinion, schedule II, when considered in relation to the financial statements taken as a whole, presents fairly, in all material respects, the information stated therein.
Eisner LLP
New York, New York
March 5, 2003
With respect to accounts for foreign subsidiaries
March 21, 2003
Independent Auditors' Report
The Board of Directors and Shareholders
Inter Parfums, Inc.:
We have audited the accompanying consolidated balance sheet of Inter Parfums Holdings, S.A. and subsidiaries as of December 31, 2002, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for the each of the years in the two-year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Inter Parfums Holdings, S.A. and subsidiaries as of December 31, 2002, and of the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
Paris La Defense, March 21, 2003
KPMG Audit
A division of KPMG S.A.
Alain Bouchet
Partner
(1)	The Company and its Significant Accounting Policies
(a)	Business of the Company
Inter Parfums, Inc. and its domestic and foreign subsidiaries (the Company) manufacture and distribute prestige brand name fragrances and cosmetics and mass market fragrances, cosmetics, and personal care products.
(b)	Basis of Preparation
The consolidated financial statements include the accounts of the Company including majority-owned Inter Parfums, S.A. (IPSA), a subsidiary whose stock is publicly traded in France. All material intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(c)	Foreign Currency Translation
For foreign subsidiaries with operations denominated in a foreign currency, assets and liabilities are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Gains and losses from translation adjustments are accumulated in a separate component of shareholders' equity. In instances where the financial statements of foreign entities are remeasured into their functional currency (U.S. dollars), the remeasurement adjustment is recorded in operations.
(d)	Cash and Cash Equivalents
All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents.
(e)	Financial Instruments
The carrying amount of 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.
All derivative instruments are reported as either assets or liabilities on the balance sheet measured at fair value. 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 occasionally 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 value of the derivative instrument will effectively offset the change in the fair value of the hedged item. The effectiveness of each hedged item is measured throughout the hedged period. Any hedge ineffectiveness as defined by SFAS No. 133 is recognized as a gain or loss on foreign currency in the income statement. At December 31, 2003, the Company's subsidiary had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $18.0 million and GB pounds 13.1 million, which have maturities of less than a year.
(f)	Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
(g)	Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the estimated useful asset lives for equipment, which range between three and ten years and the shorter of the lease term or estimated useful asset lives for leasehold improvements.
(h)	Trademarks and Licenses
Trademarks with indefinite useful lives are stated at cost and through December 31, 2001, were amortized by the straight-line method over 20 years. The cost of licenses acquired is being amortized by the straight-line method over the term of the respective licenses.
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 establishes new guidelines for accounting for goodwill and other intangible assets. In accordance with SFAS No. 142, goodwill and intangible assets with an "indefinite useful life" associated with acquisitions consummated after June 30, 2001 are not amortized until their useful lives are determined to no longer be indefinite. The Company has adopted the remaining provisions of SFAS No. 142 on January 1, 2002. Since adoption, existing intangible assets with an "indefinite useful life" are no longer amortized but instead are assessed for impairment at least annually. The Company does not believe that the adoption of SFAS No. 142 had any material effect on the Company's financial statements. Amortization of intangible assets with indefinite useful lives ceased on January 1, 2002 upon adoption of SFAS No. 142. Excluding amortization expense related to intangible assets of $350 ($210 net of related tax effects) recognized in 2001, net income and basic and diluted income per share would have been $8,329, $0.47, and $0.42, respectively.
The Company reviews trademarks and licenses for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
(i)	Revenue Recognition
Revenue is recognized when merchandise is shipped and the risk of loss passes to the customer. The Company, at its discretion, permits limited returns of merchandise and establishes allowances for estimated returns based upon historic trends and relevant current data.
(j)	Issuance of Common Stock by Consolidated Subsidiary
The difference between the Company's share of the proceeds received by the subsidiary and the carrying amount of the portion of the Company's investment deemed sold is reflected as a gain or loss in the consolidated statements of income.
(k)	Stock-Based Compensation
The Company accounts for stock-based employee compensation under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations (APB 25). The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, which was released in December 2002 as an amendment of SFAS No. 123.
The Company applies APB No. 25 and related interpretations in accounting for its stock option incentive plans. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all awards.
The weighted average fair values of the options granted during 2003, 2002, and 2001 are estimated as $6.58, $2.25, and $1.94 per share, respectively, on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield 0.5% in 2003, 0.8% in 2002, and 0% in 2001; volatility of 50% in 2003, 50% in 2002, and 40% in 2001; risk-free interest rates at the date of grant, 1.88% in 2003, 1.83% in 2002, and 3.05% in 2001; and an expected life of the option of two years.
(l)	Earnings Per Share
Basic earnings per share is computed using the weighted average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted average number of shares outstanding during each year, plus the incremental shares outstanding assuming the exercise of dilutive stock options using the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per share:
Not included in the above computations is the effect of anti-dilutive potential common shares which consist of options to purchase 204,000, 114,000, and 9,000 shares of common stock for 2003, 2002, and 2001, respectively.
(m)	Advertising and Promotion
Costs associated with advertising and promotion are expensed when incurred. Advertising and promotion expenses were $30,000, $18,500, and $15,500 for 2003, 2002, and 2001, respectively.
The Company has various arrangements with customers pursuant to its trade terms to reimburse them for a portion of their advertising or promotional costs, which provide advertising and promotional benefits to the Company. The costs that the Company incurs for "cooperative" advertising programs, end cap replacement, shelf replacement costs and slotting fees are expensed as incurred and are netted against revenues on the Company's consolidated statement of income.
(n)	Accounts Receivable
Accounts receivable represent payments due to the Company for previously recognized net sales, reduced by an allowance for doubtful accounts or balances, which are estimated to be uncollectible at December 31, 2003 and 2002. Accounts receivable balances are recorded against the allowance for doubtful accounts when they are deemed uncollectible. Recoveries of accounts receivable previously recorded against the allowance are recorded in the consolidated statement of income when received.
(o)	Recent Accounting Pronouncements
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, was issued by the FASB in April 2003. This statement amends and clarifies the accounting and reporting for derivative instruments, including embedded derivatives, and for hedging activities under SFAS No. 133. SFAS 149 amends SFAS No. 133 to reflect the decisions made as part of the Derivatives Implementation Group (DIG) and in other FASB projects or deliberations. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company has applied the pertinent DIG interpretations as they were issued and they did not have a material impact on the Company's financial statements or disclosures.
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued by the FASB in May 2003. SFAS No. 150 provides guidance on how to classify and measure certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. None of the Company's financial instruments were impacted by this statement.
The FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of APB No. 51, in January 2003. This interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the interpretation. The interpretation applied immediately to variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. Significant changes to this interpretation were proposed by FASB in October 2003, including delaying the effective date to the beginning of the first reporting period ending after December 15, 2003. The Company does not currently own an interest in any variable interest entities, and the Company adopted this statement which did not have a material effect on its financial statements or disclosures.
(2)	Asset Acquisitions
On May 21, 2002, the Company purchased certain mass market fragrance brands and inventories of Tristar Corporation, a Debtor-in-Possession. The trademarks and related intellectual property were purchased for approximately $3.2 million, and the Company acquired certain existing inventory for approximately $3.7 million.
(3)	Inventories
December 31,
Raw materials and component parts $	19,776 $	11,080
Finished goods
34,479
21,118
$	54,255
$	32,198
(4)	Equipment and Leasehold Improvements
Depreciation expense for the years ended December 31, 2003, and 2002, and 2001 was $2,529, $1,552, and $1,592, respectively.
(5)	Trademarks and Licenses
During 2003, 2002, and 2001, the Company recorded charges for the impairment, included in selling, general, and administrative expense, of trademarks with indefinite useful lives aggregating $577, $501, and $0, respectively, based on fair value as determined using discounted cash flows.
(6)	Loans Payable - Banks
Loans payable - banks consist of the following:
Available credit lines of the Company's foreign subsidiaries under several bank overdraft facilities totaling $30,000, bearing interest at 0.6% above EURIBOR (2.12% and 2.86% at December 31, 2003 and 2002, respectively). Outstanding amounts totaled $121 and $794 at December 31, 2003 and 2002, respectively.
Borrowings under a $12,000 unsecured revolving line of credit due on demand and bearing interest at the banks' prime rate or 1.75% above LIBOR. The outstanding amount totaled $0 and $1,000 at December 31, 2003 and 2002, respectively.
During 2002, the Company repaid $1,366 of borrowings by a foreign subsidiary, which was the entire balance of the loan.
(7)	Commitments
(a)	Leases
The Company leases its office and warehouse facilities under operating leases expiring through 2013. Rental expense amounted to $4,505 in 2003, $2,524 in 2002, and $1,263 in 2001. Minimum future rental payments are as follows:
$	3,209 2,347
1,183
1,151
1,120
Thereafter
2,623
$	11,633
(b)	License Agreements
The Company is obligated under a number of license agreements for the use of trademarks and rights in connection with the manufacture and sale of its products. One such license, related to the Company's subsidiary, which expires in December 2006, subject to renewal, corresponds to 55.6%, 40.6%, and 40.8% of net sales for the years ended December 31, 2003, 2002, and 2001, respectively. Royalty expense, included in selling, general, and administrative expenses, aggregated $10,385, $5,498, and $4,205 for the years ended December 31, 2003, 2002, and 2001, respectively. In connection with certain license agreements, the Company is subject to certain minimum annual royalties as follows:
$	5,447
5,640
5,729
3,166
2,744
Thereafter
6,855
$	29,581
(8)	Shareholders' Equity
(a)	Common Stock Split
On August 6, 2001, the Company's board of directors authorized a three-for-two stock split effected in the form of a 50% stock dividend distributed on September 14, 2001 to shareholders of record as of August 31, 2001. As a result of the stock split, the accompanying consolidated financial statements reflect an increase in the number of outstanding shares of common stock and the transfer of the par value of these additional shares from paid-in capital. All share and per share amounts have been restated for all periods to reflect the retroactive effect of the stock split.
(b)	Issuance of Common Stock of Subsidiary
During 2003, 2002, and 2001, 89,528, 16,382, and 15,037 shares, respectively, of capital stock of IPSA were issued as a result of employees exercising stock options. At December 31, 2003 and 2002, the Company's percentage ownership of IPSA was approximately 76% and 77%, respectively.
The difference between the Company's share of the issuance or conversion proceeds and the carrying amount of the portion of the Company's investment sold is reflected as a gain or loss in the consolidated statements of income. Deferred taxes have not been provided because application of available tax savings strategies would eliminate taxes on this transaction.
(c)	Stock Option Plans
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 vest immediately and are exercisable for a period of five to six years.
A summary of the Company's stock option activity, and related information follows:
The following table summarizes stock option information as of December 31, 2003:
Exercise Prices
Number
Outstanding
Options Outstanding
Weighted Average
Remaining Contractual Life
Options
Exercisable
$2.56 - $2.86 1,166,950 1.17 Years 1,166,950
$3.94 4,500 0.92 Years 4,500
$4.06 - $4.53 32,288 1.02 Years 32,288
$5.08 - $5.81 71,400 1.83 Years 71,400
$6.50 - $6.92 28,500 2.17 Years 28,500
$7.08 - $7.95 205,075 3.02 Years 205,075
$8.03 191,950 3.97 Years 191,950
$9.60 9,000 2.66 Years 9,000
$14.84 2,000 4.87 Years 2,000
$23.05
186,200
5.00 Years
186,200
Totals
1,897,863
2.08 Years
1,897,863
At December 31, 2003, options for 333,279 shares were available for future grant under the plans.
In September 2001, the Chief Executive Officer and the President each exercised 899,625 of their outstanding stock options. The aggregate purchase price of $2,335 each, was paid by each of them tendering to the Company 233,469 shares of the Company's common stock, previously owned by them, valued at $10 per share, the fair market value on the date of exercise. The shares issued pursuant to the options exercised were issued from treasury stock of the Company. In addition, the Chief Executive Officer tendered an additional 149,884 shares for payment of withholding taxes resulting from the exercise of the options. As a result of this transaction, the Company received tax benefits aggregating $4,800, which has been reflected as an increase to additional paid-in capital in the accompanying financial statements.
In December 2002, the Chief Executive Officer exercised 132,000 of his outstanding stock options and the President exercised 199,500 of his outstanding stock options. The purchase price of $381 for the Chief Executive Officer and $614 for the President was paid by them tendering to the Company an aggregate of 121,140 shares of the Company's common stock, previously owned by them, valued at $8.215 per share, the fair market value on the date of exercise. The shares issued pursuant to the options exercised were issued from treasury stock of the Company. In addition, the Chief Executive Officer tendered an additional 23,535 shares for payment of withholding taxes resulting from the exercise of the options. As a result of this transaction, the Company received tax benefits aggregating $600, which has been reflected as an increase to additional paid-in capital in the accompanying consolidated financial statements.
In April and October 2003, both the Chief Executive Officer and the President exercised an aggregate of 109,500 and 94,300 outstanding stock options, respectively, of the Company's common stock. The exercise prices of $340 for the Chief Executive Officer and $241 for the President were paid by each of them tendering to the Company 41,850 and 18,316 shares, respectively, of the Company's common stock, previously owned by them, valued at $6.90 and $13.16 per share in April and October, respectively, the fair market value on the date of exercise. All shares issued pursuant to these option exercises were issued from our treasury stock. In addition, the Chief Executive Officer tendered an additional 18,605 shares for payment of withholding taxes resulting from his option exercise. As a result of this transaction, the Company expects to receive a tax benefit of approximately $540, which has been reflected as an increase to additional paid-in capital in the accompanying consolidated financial statements.
(d)	Treasury Stock
The board of directors of the Company has authorized a stock repurchase program whereby the Company purchases shares of its stock to be held in treasury. As of December 31, 2003, the Company is authorized to purchase an additional 404,350 treasury shares in the open market. The company has repurchased 0, 0 and 70,250 treasury shares during the years ended December 31, 2003, 2002 and 2001, respectively.
(e)	Dividends
The Company declared dividends of $0.12, $0.08, and $0.06 per share per annum for 2003, 2002, and 2001, respectively. The quarterly dividend of $383 declared in December 2003 was paid January 15, 2004.
(9)	Geographic Areas
The Company manages its business on the basis of one reportable operating segment. Information on the Company's operations by geographical areas is as follows. The European assets are primarily located, and operations are conducted, in France. European operations primarily represent the sales of the prestige brand name fragrances.
Net sales:
	United States $ 44,747 $ 41,972 $ 33,103
	Europe 141,192 88,565 79,270
	Eliminations
(350)
(185)
(140)
$ 185,589
$ 130,352
$ 112,233
Net income:
	United States $ 2,807 $ 3,013 $ 2,411
	Europe 11,036 6,396 5,708
	Eliminations
(6)
(4)
$ 13,837
$ 9,405
$ 8,119
Depreciation and amortization expense:
	United States $ 385 $ 380 $ 394
	Europe
2,959
1,840
1,740
$ 3,344
$ 2,220
$ 2,134
Interest income:
	United States $ 183 $ 245 $ 523
	Europe
$ 946
$ 628
$ 1,115
Interest expense:
	United States $ 4 $ 88 $ 24
	Europe
$ 271
$ 394
$ 347
Total assets:
	United States $ 52,407 $ 49,077
	Europe 150,639 89,370
	Eliminations
(9,045)
(9,077)
$ 194,001
$ 129,370
Additions to long-lived assets:
	United States $ 192 $ 3,417
	Europe
2,353
1,125
$ 2,545
$ 4,542
Total long-lived assets:
	United States $ 4,861 $ 5,054
	Europe
6,429
5,904
$ 11,290
$ 10,958
United States export sales were approximately $11,000, $11,000, and $9,800 for the years ended December 31, 2003, 2002, and 2001, respectively. Consolidated net sales for the year ended December 31, 2003 by region is as follows:
North America 32%
Europe 44%
Central and South America 8%
Middle East 7%
Asia 8%
Other 1%
(10)	Income Taxes
The components of income before income taxes and minority interest consist of the following:
The provision for current and deferred income tax expense (benefit) consists of the following:
Deferred taxes are provided principally for reserves, and certain other expenses that are recognized in different years for financial reporting and income tax purposes.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
At December 31, 2003, the Company had state tax loss carry forwards, subject to applicable state apportionment, for New York State and New York City tax purposes of approximately $6,700 and for New Jersey tax purposes of approximately $9,800 which expire in 2008 and beyond.
No valuation allowances have been provided on the Company's deferred tax assets, as management believes that it is more likely than not that the asset will be realized in the reduction of future taxable income.
The Company has not provided for U.S. deferred income taxes or foreign withholding taxes on $ 50,000 of undistributed earnings of its non-U.S. subsidiaries as of December 31, 2003 since the Company intends to reinvest these earnings indefinitely.
Differences between the United States Federal statutory income tax rate and the effective income tax rate were as follows:
(11)	Other Matters
(a)	As previously reported, IPSA is a party to litigation with Jean Charles Brosseau, S.A. (Brosseau), the licensor of the Ombre Rose trademark. In October 1999, IPSA received notice of a judgment in favor of Brosseau, which awarded damages of approximately $600 to Brosseau, and which directed IPSA to turn over its license to Brosseau within six months.
IPSA appealed the judgment as it vigorously and categorically denied the claims of Brosseau. In June 2000, as a result of certain developments, IPSA and its special litigation counsel considered it likely that the judgment would be sustained and therefore, in June 2000, the Company recorded a charge against earnings for $600, the full amount of the judgment.
In February 2001, the Court of Appeal confirmed the Brosseau claim with respect to turning over the license. In addition, the Court named an expert to proceed with additional investigations and required IPSA to pay $142 as an advance for damages claimed by Brosseau.
In February 2004, the Court of Appeal ordered IPSA to pay total damages of $390, of which $142 has already been advanced. Brosseau has two months to appeal this decision and, therefore, IPSA will maintain its current reserves until such time as all rights to appeal have expired. The Company does not believe that such litigation will have any further material adverse effect on its financial condition or operations.
(b)	IPSA is the subject of tax audits commenced by the French Tax Authorities. Assessments had been issued aggregating $2,300. IPSA contested these assessments as management and its tax consultants believe they had sound arguments to support their position and that the majority of these assessments would be reversed, and therefore, would not have a material adverse effect on the financial condition or results of operations of the Company. The Company had previously reserved $760 for this potential liability. During 2003, the Company settled certain of these assessments and, as a result, the balance as of December 31, 2003 was approximately $400.
(c)	On November 22, 1999, the Chief Executive Officer and the President of the Company entered into and closed a Stock Purchase Agreement with LV Capital, USA Inc. (LV Capital), a wholly owned subsidiary of LVMH Moet Hennessy Louis Vuitton, S.A. (LVMH). As of the date of this report, LV Capital owns approximately 18% of the outstanding common stock of the Company. In accordance with the terms of the Stock Purchase Agreement and in return for LV Capital becoming a strategic partner of the Company, LV Capital was granted the right to maintain its percentage ownership of the outstanding shares of Common Stock, by receiving an option to purchase shares of the Company's common stock for cash upon issuance of shares to any party other than LV Capital at the price paid by the purchaser, subject to certain exceptions such as the exercise of stock options previously granted and the grant of new stock options up to a certain limit. There have been no common stock or option transactions through December 31, 2003, which effected the LVMH option. LVMH was also granted demand registration rights for all shares of common stock it holds. Finally, LV Capital has agreed to a standstill agreement, which includes a limitation on the amount of shares that LV Capital can hold equal to 25% of the outstanding shares of common stock of the Company.
In March 1999 and May 2000, the Company entered into two 11-year license agreements with Christian Lacroix Company and Celine S.A., divisions of LVMH, respectively. Both agreements have minimum sales and advertising requirements and require the Company to pay royalties, as customary in the industry.
(d)	In December 2003, IPSA signed a letter of intent to acquire a 64% interest in Nickel S.A. (Nickel) for approximately $6 million in cash. The letter of intent contemplates a provision for a follow-on cash infusion by IPSA of approximately $3.7 million, which would bring IPSA's ownership to 74%. In addition, minority shareholders will have the right to sell their remaining interest in Nickel to IPSA from January 2007 through June 2007. The purchase price will be based upon a formula applied to Nickel's sales for the year ending December 31, 2006, pro rated for the minority holders' equity in Nickel. Closing of the transaction, which is subject to certain due diligence procedures and signing of a definitive agreement, is expected to take place in April 2004.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Inter Parfums, Inc.
By: /s/ Jean Madar
Jean Madar, Chief Executive Officer
Date: March 26, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Jean Madar
Jean Madar
Chairman of the Board of Directors and Chief Executive Officer March 26, 2004
/s/ Russell Greenberg
Russell Greenberg
Chief Financial and Accounting Officer and Director March 26, 2004
/s/ Philippe Benacin
Philippe Benacin
Director	 March 19, 2004
/s/ Philippe Santi
Philippe Santi
Director	 March 19, 2004
/s/ Francois Heilbronn
Francois Heilbronn
Director	 March 19, 2004
/s/ Joseph A. Caccamo
Joseph A. Caccamo
Director	 March 26, 2004
/s/ Jean Levy
Jean Levy
Director	 March 22, 2004
/s/ Robert Bensoussan-Torres
Robert Bensoussan-Torres
Director	 March 23, 2004
/s/ Daniel Piette
Daniel Piette
Director	 March 26, 2004
/s/ Jean Cailliau
Jean Cailliau
Director	 March 26, 2004
/s/ Serge Rosinoer
Serge Rosinoer
Director	 March 20, 2004
Exhibit 31
CERTIFICATIONS
I, Jean Madar, certify that:
1. I have reviewed this annual report on Form 10-K of Inter Parfums, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [omitted]
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based upon such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 26, 2004
/s/ Jean Madar
Jean Madar, Chief Executive Officer
I, Russell Greenberg, certify that:
1. I have reviewed this annual report on Form 10-K of Inter Parfums, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [omitted]
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based upon such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 26, 2004
/s/ Russell Greenberg
Russell Greenberg
Chief Financial Officer and
Principal Accounting Officer
Exhibit 32
CERTIFICATION
Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Inter Parfums, Inc., that the Annual Report of Inter Parfums, Inc. on Form 10-K for the year ended 31 December 2003, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of Inter Parfums, Inc.
Date: March 26, 2004
By: /s/ Jean Madar
Jean Madar
Chief Executive Officer
Date: March 26, 2004					
By: /s/ Russell Greenberg
Russell Greenberg
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
A signed original of this written statement required by Section 906 has been provided to Inter Parfums, Inc. and will be retained by Inter Parfums, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.