another major step forward

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3 another major step forward contents letter to our shareholders 03 operating highlights and key figures 07 the stockmarket and investor relations milestones and 2007 outlook 13 activity and philosophy 15 the products 17 the distribution network 37 sustainable development 41 corporate governance 49 consolidated financial statements according to IFRS 61 shareholder information 81 auditors and certificates 93 disclaimer This document is a free translation of an abridged version of the French language registration document (document de référence) produced solely for the convenience of English speaking readers. However, only the French text has any legal value. Consequently, the translation may not be relied upon to sustain any legal claim, nor should it be used as the basis of any legal opinion.

4 2006Fiscal 2006 was an excellent year for Inter Parfums, representing another benchmark in its development. We met targets with another year of double-digit growth (+11%) to achieve sales of million. All our major brands contributed to this performance. As a result, operating income totaled 29.2 million and net income 18.7 million accompanied by a net margin of 8.6%. Burberry fragrances pursued their expansion with the launch of a fifth major line, Burberry London. Sales rose in consequence 10% over 2005 to million (+20% excluding the discontinued Burberry Brit Red line). Lanvin fragrances, the portfolio s second top-selling brand, exceeded targets with sales of 35 million (+19%) fueled by strong gains of the Eclat d Arpège line and a successful launch of the Rumeur line. Paul Smith also surpassed expectations with sales of 17.7 million (+22%) boosted by renewed growth of the Paul Smith and Paul Smith Extrême lines and the international launch of the Paul Smith Story line. Finally, the Nickel cosmetics division pursued its development in France and expanded its distribution base in other markets. In conjunction with the launch of a significant number of new lines, we continued to focus on developing additional growth drivers. This year 2006 annual report inter parfums letter to our shareholders

5 letter toour shareholders these included the signature of two major license agreements with: the Quiksilver Group, the world's leading outdoor sports lifestyle company, for the Roxy and Quiksilver brands; the Van Cleef & Arpels fine jewelry brand. With a portfolio of premium brands and a diverse range of target customer segments, prospects should be just as promising for Several initiatives that should to contribute to maintaining these positive trends include: the creation of four European distribution companies (Germany, Spain, Italy, United Kingdom); the launch of the first women's line under the Roxy Brand; the repositioning of the Van Cleef & Arpels brand to be focused around the three major existing lines and the preparation of a new women's line. Our expansion has also benefited from the quality recruitments carried out in the last two years that have strengthened and expanded the expertise of our teams. Our corporate culture, with its emphasis on the value of people, brands and products, provides the basis for a highly efficient organization. This alchemy based on achieving just the right balance between commitment, motivation, a convivial team spirit and the pleasures of working towards common objectives is undoubtedly one of the key factors of our successes today and in the future. We are confident in consequence about both prospects for 2007 and achieving sales of 300 million by We will also continue to explore opportunities for further growth that may be offered by additional strategic acquisitions. philippe benacin jean madar 03

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8 216.2 m 29.2 m 18.7 m 44.1 m CONSOLIDATED SALES CONSOLIDATED INCOME FROM OPERATIONS CONSOLIDATED NET INCOME CONSOLIDATED NET CASH Fiscal 2004, 2005 and 2006 are presented under IFRS Fiscal 2004, 2005 and 2006 are presented under IFRS KEY CONSOLIDATED FIGURES FRENCH GAAP IFRS In thousands Sales 93, , , , ,235 % international 91% 92 % 91% 92% 92% Income from operations 13,733 19,055 24,207 25,913 29,182 Operating margin 14.7% 15.3 % 15.4% 13.3% 13.5 % Net income 8,837 12,679 15,518 16,295 18,694 Net margin 9.5% 10.2 % 9.9% 8.4% 8.6% Shareholders equity 55,742 68,433 82,665 98, ,795 Net cash 24,551 32,391 15,857 34,390 44,072 Total assets 86, , , , ,401 Workforce (at 31 December) annual report inter parfums operating highlights and key figures

9 A combination of sustained marketing and advertising efforts and limited growth in administrative and non-selling expenses contributed to a 13% increase in operating income over The operating margin advanced in consequence to 13.5% noncurrent assets current assets shareholders' equity 26.1 non current liabilities With lower financial expenses resulting from the improved cash position, net income totaled 18.7 million, up 15% over the prior year. This increase resulted in an expansion of the net margin to 8.6%. With cash net of long term debt of 18 million and shareholders equity of 116 million as of December 31, 2006 the company has a strong balance sheet and debt capacity enabling it to pursue potential acquisition opportunities m 44.2 net cash 81.5 current liabilities SHAREHOLDERS' EQUITY & LIABILITIES ASSETS CONSOLIDATED BALANCE TOTAL DIVIDENDS operating highlightsand keyfigures SHEET HIGHLIGHTS 07

10 72% inter parfums inc 28% public 100% SECURITIES MARKET INFORMATION Market: Euronext Paris Market segment: Eurolist compartment B IPO date: November 1995 ISIN code: FR ITP Indexes: MidCac, CAC Small90, NextPrime, Next 150, SBF250 Market maker: Oddo Midcap OWNERSHIP AS OF DECEMBER 31, 2006 Inter Parfums has more than 7,500 individual shareholders and nearly 200 institutional shareholders (1/4 of which are not French). After particularly strong gains in 2005 (+41%), the Inter Parfums share pursued an upward trend in 2006 following the announcement of the license agreement with Quiksilver that was accompanied by significant trading volume. The share price was subsequently adversely affected by the downturn in financial markets in the month of May, particularly in the segment of MidCaps, falling back to the levels of the beginning of the year. The publication in September of first-half sales that surpassed market expectations followed by the announcement of the license agreement in October with the Van Cleef & Arpels jewelry house reversed this trend. As a result, the share ended the year at 35.4 with a market capitalization of 380 million. Trading volume in 2006 averaged 8,000 shares per day, confirming the strong interest in the stock, especially among investors specialized in MidCaps. SHARE PRICE AND TRADING VOLUME DATA Trading volume data in thousands Share price in euros DIVIDENDS In euros Dividend per share Annual increase (1) +25% +61% +26% +10% +15% Average number of shares outstanding (2) 3,642,789 4,022,210 5,174,465 8,974,298 10,421,965 (1) in light of bonus shares excluding treasury shares 2006 annual report inter parfums the stockmarket and investor relations

11 Since it was listed on the EuroNext Paris Second Market in November 1995, Inter Parfums regularly provides investors and the financial community with information on its situation in compliance with the principles of transparency and the best practices in financial communications. This information is provided through a variety documents and media including: an annual report, filed with the French financial market authorities (Autorité des Marchés Financiers or AMF) as an annual registration document (document de référence). An abridged English version is also produced, a semi-annual report, in French and English, A letter to shareholders, published every November, press releases and financial notices, in French and English, a web site, in French and English, Individual and group meetings in France and Europe with financial analysts, fund managers, journalists from the economic and financial press and individual shareholder. upcoming publications and events 2007 second-quarter sales July 24, first-half sales and earnings September 10, third-quarter sales Mid-October letter to shareholders Mid-November annual sales Mid-January sales and earnings Mid-March 2008 Presentation of 2007 first-half earnings September 11, 2007 pavillon Gabriel MidCaps Events trade show, Paris September 17 & 18, 2006 Actionaria trade show, Paris November 16 & 17, 2006 Institutions providing financial research on Inter Parfums are Arkéon, Aurel Leven, Berenberg, CM-CIC Securities, CAI Indosuez Cheuvreux, Exane Bnp Paribas, Fideuram Wargny, Fortis Bank, Gilbert Dupont, HSBC, Ing, Jefferies, Ixis Securities, Natexis Bleichroeder, Oddo Midcap, Portzamparc et Société Générale. the stockmarket andinvestor relations 09

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14 M I L E S T O N E S anothermajor step forward february march april Launch of the Burberry London women's fragrance line A major launch to mark the 150th anniversary of the brand. A new women's line exemplifying the pure British style and the creation Burberry around a floral fragrance. This was followed by the launch of the men's version of Burberry London in the fall. Quiksilver license agreement An exclusive worldwide license agreement for the creation, development and distribution of fragrance, suncare, skincare and related products under the Roxy and Quiksilver brands. Extension of the S.T.Dupont license agreement The exclusive 11-year agreement concluded in 1997 was extended an additional three years, i.e. until June 30, Launch of S.T.Dupont Noir A new men's line was launched providing a fit with existing lines and strengthening the brand's identity annual report inter parfums 2006 milestones and 2007 outlook

15 2007 outlook Fiscal 2006 represented another major benchmark in the Group's development with the signature of two new license agreements. Initial guidance was achieved with consolidated sales of million (+11.2% at current exchange rates and +11.5% at constant exchange rates over 2005) and gains by all major brands. 2007: ambitious growth targets the creation of four European distribution companies (Germany, Spain, Italy, United Kingdom) operational starting January 1, 2007, several launches, notably under the Roxy and Paul Smith brands, the integration of Van Cleef & Arpels fragrances and preparation of a new line for launch in Inter Parfums remains confident in its ability to pursue sustained and profitable growth. On this basis, it confirms guidance for 2007 net sales of 245 million and 2007 net income in the 20 million to 21 million range. september october Launch of the Rumeur women's line of Lanvin Rumeur is the first women's fragrance created by Inter Parfums under the Lanvin brand drawing on its strong identity. Launch of the Paul Smith Story line The brand's fourth line, Paul Smith Story inspired by a passion for books. License agreement with Van Cleef & Arpels Signature of a worldwide license agreement to manufacture and distribute perfumes and anciliary products under the Van Cleef & Arpels brand effect of January

16 A C T I V I T Y A N D P H I L O S O luxury and creativity The company creates, manufactures and distributes prestige perfumes through license agreements with leading brands in the high-end ready-to-wear, high fashion, jewelry and accessories sectors, in exchange for the payment of royalties. recognized expertise Inter Parfums' success is based on expertise: creating products perfectly adapted to the image and positioning of the brands represented, developing a wide range of POS (point-of-sale) advertising and marketing materials traditionally used in the selective perfumes market (store windows, posters, stands, promotional gifts, etc.), selecting the appropriate media for each country. long-term partnerships Through brand license agreements, Inter Parfums assures the design, production, and distribution of perfume lines created for the brand for the duration of the license. The licensor retains a right of inspection to ensure that the products properly fit with the brand image while the licensee exercises complete control over the product for the duration of the agreement annual report inter parfums activity and philosophy

17 P H Y A portfolio of prestigious international brands Burberry (with a license agreement first concluded in 1993 and renewed in 2004), S.T. Dupont (1997, extended for 3 years in 2006 until 2011), Paul Smith (1998), Christian Lacroix (1999), Céline (2000), Lanvin (2004), Quiksilver (2006), Van Cleef & Arpels (2006 effective at the beginning of 2007). a streamlined organization Since its inception, the company has adopted an efficient strategy that enables it to focus its efforts on creation, marketing, distribution and management while outsourcing packaging and logistics. expertise in production processes The design, development and production process which lasts between 12 and 18 months involving a certain number of phases in which the company as project manager has a solid track record of success: simultaneous briefings with perfume designers and creators; product concept choice; receive bids from components suppliers (glass makers, plastics processors, printers, etc.); receive bids from the company s various packaging partners; drawing up supply and packaging schedules; issuance of component purchase orders; quality control of incoming components; packaging and inventory management. 15

18 T H E P R O D U C T S reflecting theuniverse ofits brands

19 The creation and marketing of each product line are intimately linked to the brand, its history, positioning, clientele and, more generally, its universe. The product launch process is the cornerstone of the company's successful record of growth and expansion. For this reason, the decision to launch a new line is made very early on in the process with the licensor and the cycle of market research up to the product launch may range between 6 and 18 months. The success of the product is based on the combination of a good dose of creativity and achieving and optimal fit between the key components: the brand s overall positioning, the juice, the packaging and marketing strategy.

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21 In July 1993, Inter Parfums entered into an exclusive 10-year license agreement with Burberry Ltd. to create and produce perfumes under the Burberry name and distribute them worldwide. In October 2004, Inter Parfums signed a new agreement for 12.5 years effective July 1, 2004 with an option for an additional five years subject to mutual agreement of the parties. Five lines are distributed: Burberry (1995), Burberry Week end (1997), Burberry Touch (2000), Burberry Brit (2003/2004) and Burberry London (2006). In 2006, Burberry fragrances generated revenue of million (67% of total sales) reflecting good performances from the Burberry London line and limited declines by the brand's historical lines. Burberry London for Women oscar of the best women perfume Sommet de la Beauté de Megève million of sales 67.0% of total sales 19

22 Burberry London for Men 2006 Burberry Brit Cristal annual report inter parfums burberry s products

23 Burberry Brit for Men 2004 Burberry Brit for Women 2003 Burberry London 2006 Burberry Brit 2003/2004 Burberry Touch 2000 Burberry Week end 1997 Burberry

24 2006 annual report inter parfums lanvin s products

25 In July 2004 Inter Parfums entered into an exclusive agreement with the company Lanvin to create, develop and distribute fragrances under the Lanvin name. Five lines are distributed: Arpège (1927), Lanvin L Homme (1997), Eclat d Arpège (2002), Arpège pour Homme (2005) and Rumeur (2006). Rumeur million of sales 16.2% of total sales 23

26 Éclat d Arpège 2002 Arpège pour Homme 2005 Lanvin L Homme annual report inter parfums lanvin s products

27 Rumeur 2006 Lanvin fragrances exceeded targets with sales of 35 million (+19%) in response to strong gains by the Eclat d Arpège line (+17%) and the successful fall launch of the Rumeur line. Éclat d Arpège 2002 Arpège

28 In December 1998, Inter Parfums entered into an exclusive 12-year agreement with Paul Smith to create and produce perfumes and cosmetics under the Paul Smith name and distribute them worldwide. Four lines are distributed: Paul Smith (2000), Paul Smith Extrême (2002), Paul Smith London (2004) and Paul Smith Story (2006) million of sales 8.2% of total sales 2006 annual report inter parfums paul smith s products

29 Paul Smith Floral 2005 Paul Smith Story 2006 Paul Smith 2000 Paul Smith London 2004 Paul Smith Extreme

30 S.T. Dupont Noir 2006 L eau de S.T. Dupont 2004 S.T. Dupont Essence Pure annual report inter parfums s.t. dupont s products

31 In July 1997, Inter Parfums entered into an exclusive 11-year agreement with S.T. Dupont. In April 2006, this agreement was extended for an additional three years, i.e. until June 30, Four lines are distributed: S.T. Dupont (1998), S.T. Dupont Essence Pure (2002), L'eau de S.T. Dupont (2004), and S.T. Dupont Noir (2006). S.T. Dupont fragrances had revenue of 10.1 million in 2006 (4.7% of total sales) with contributions from the launch of S.T. Dupont Noir and a return to growth for the S.T. Dupont Essence Pure line. S.T. Dupont Paris million of sales 4.7% of total sales 29

32 Tumulte 2005 Prize awarded by the Victoires de la Beauté 2006 for the best selective distribution magazine advertising campaign with the visual for Tumulte women's fragrance of Christian Lacroix. In March 1999, Inter Parfums entered into an exclusive 12-year agreement with Christian Lacroix. Three lines are distributed: Eau florale (2000), Christian Lacroix Bazar (2002) and Tumulte (2005). 4.1 million of sales 1.9% of total sales 2006 annual report inter parfums christian lacroix s products

33 Tumulte pour Homme 2006 Eau Florale 2000 Christian Lacroix Bazar

34 Spa Nickel, Londres 2006 Lendemain de Fête 1996 In April 2004, Inter Parfums acquired a majority stake in Nickel, a company specialized in skincare products for men. Nickel products generated sales of 4.2 million in 2006 (1.9% of total sales) accompanied by the opening of new export markets and the launch of Eau Maximum. Eau Maximum annual report inter parfums nickel s products

35 Amuse-gueule 1999 Coup de Gueule 2005 Silicon Valley million of sales 1.9% of total sales 33

36 2006 was a banner year for Burberry fragrances with the launch of a fifth major line, Burberry London fuelling sales of million, advancing 10% over 2005 (+20% excluding the discontinued Burberry Brit Red line). Lanvin fragrances exceeded targets with sales of 35 million (+19%) in response to strong gains by the Eclat d Arpège line (+17%) and the successful fall launch of the Rumeur line. Paul Smith also surpassed expectations with sales of 17.7 million boosted by renewed growth of the Paul Smith and Paul Smith Extrême lines and the international launch of the Paul Smith Story line. S.T. Dupont sales were over budget, with the launch of the S.T. Dupont Noir men's line and a return for growth by the S.T. Dupont Essence Pure line. Christian Lacroix fragrances were under budget with no launches during the period. Finally the Nickel cosmetics division pursued its development by expanding its distribution base.

37 SALES BY BRAND In millions As a % of total sales Burberry % 73.3% 75.5% 67.5% 67.0% Lanvin % 15.1% 16.2% Paul Smith % 9.4% 9.1% 7.5% 8.2% S.T. Dupont % 7.1% 5.7% 4.5% 4.7% Christian Lacroix % 4.8% 2.3% 2.5% 1.9% Nickel % 1.6% 1.9% Other % 5.4% 1.5% 1.3% 0.1%

38 international markets accounting for 90% of sales america asia europe middle east Argentina Greta Brazil Mextra Canada Clarins Canada Colombia Grupo Wisa United States Procter & Gamble Mexico Clarins Mexico 30% of sales which of 24 % in United States China Eternal Optical South Korea IPC Tong Sang Japan Bluebell Singapore, Taiwan Luxasia 14% of sales Germany Inter Parfums Deutschland Gmbh, Selective Beauty Spain Inter Espana Parfums et Cosmétiques S.L., Hevige Italy Inter Parfums srl Poland Selective Beauty Portugal Luso Helvetica United Kingdom Inter Parfums Ltd, Kenneth Green Russia IFD Turkey Te Ha Guzellik Saudi Arabia Radwa, National Marketing Dubaï Création Alexandre, Ghadeer Trading Koweït Habchi Chalhoub, Wahran Trading 8% of sales Sales in North America posted strong growth (+15%) driven notably by the success of Burberry and the United States. Eastern Europe registered the strongest growth (+24% over 2005) to represent 9.2% of total sales. Market positions developed in Asia in previous years were strengthened by successful performances of the main brands (+16%). Western Europe with 65.4 million sales remains the largest market for Group products, representing 30% of total sales. Despite an environment that remains highly competitive characterized a proliferation of new products, successful launches fueled growth in sales of 10% in France. 47% of sales which of 30% in Western Europe 2006 annual report inter parfums the network

39 T H E D I S T R I B U T I O N N E T W O R K astrong global presence network of multiple distribution channels International distribution is assured through independent companies, subsidiaries of major luxury goods corporations, dutyfree operators (airports, airlines, etc.). They have exclusive rights to distribute one or more of the company s brands in a specific territory. solid European partnerships Inter Parfums has created four majority-held European distribution subsidiaries with local partners: Germany, in partnership with Nobilis, United Kingdom, in partnership with Fragrance Factory, Italy, in partnership with Selective Beauty, Spain, in partnership with Colomer. a direct distribution network in France The French sales team handles French distribution directly. The network of sales outlets breaks down as follows: integrated chains (Sephora, Marionnaud, Nocibé, etc.), franchise stores (Beauty Success, Passion Beauté, etc.), department stores (Galeries Lafayette, Printemps, Samaritaine, BHV, etc.), traditional perfumeries The French sales team also handles merchandising (shelf management, product placement in stores, sales promotion and event planning) which are key contributors to the company s growth. 37

40 T H E M A R K E T new growthin thesector The French perfume and cosmetics industry that accounts for approximately one third of the global market again registered record sales in 2006 as industry sales based on net producer prices grew 4.3% (versus 3.3% in 2005) to billion. selected industry figures 170,000 bottles of perfume are sold in France every day; The French spend on average more than 200 per person on health, beauty and perfume products per year. France exports cosmetic products to more than 200 countries worldwide. France s perfume and cosmetics industry earns 20 million in foreign exchange every day. Sources: Fédération des Industries de la Parfumerie 2006 annual report inter parfums the market

41 export sales, the largest market for the French industry (57% of sales) 2006 was a very good year for the international perfume and cosmetics industry, consolidating its position in France as the country's fourth largest net exporter behind aerospace, automobiles and beverages. With 8.69 billion in combined sales from all distribution channels, exports grew 7.4% in value, the strongest increase in the last five years despite the persistence of unfavorable euro/us dollar exchange rate trends. Europe remains the largest market for French exports (67%): Sales in the European Union, where competition remains fierce, registered year-toyear gains of 5.4%. Germany that grew 6% remains the largest market for export sales followed by the United Kingdom (+4%) and Italy (+7%). Very strong export sales were also registered in the Czech Republic (+41%, versus +9% in 2005), Poland (+23%), and Slovenia (+21%); European countries outside the EU continued to post the strongest growth (+20%), driven by Russia (+43.5%, +10% in 2005), the Ukraine (+35%, +28% in 2005) and Romania (+29.5%). In contrast, the pace of growth in Turkey registered a slowdown (+1,3%); France: sustained growth trends despite a mature market In 2006, following two consecutive years of declines, (-1,2% in 2005 and -0,3% in 2004), the French market resumed its expansion, advancing 3.5% to 6.5 billion. This positive trend reflected an increase in producer prices of 2.6% combined with growth in volumes of 0.9%. In 2006, selective distribution registered the strongest performance of all channels combined, expanding 6.5% while price increases remain contained (+1.7% over 2005). Sales in the segment of pharmacies continued to expand, though at a slower pace (+1% versus average growth of 6% over the last 10 years). Mass retail, after two years of declines, rebounded sharply (+3.4%) in response to increases in producer prices (+3.6%, -0.8% in 2005 and -0.1% in 2004). Finally, the direct sales segment posted a marginal retreat (-1.5%) for the second consecutive year, adversely affected by the significant slowdown in the growth of producer prices (+1.5% versus +6.6% in 2005). The second largest export market, Far East (10.5% du total), following a marginal slowdown in 2005, resumed its expansion with growth of 5.4%. Expansion was particularly strong in China (+39.5%), India (+11.3%) and Singapore (+7.7%). In contrast, Japan (+0.1%) and Taiwan (+1%) experienced a slowdown. Sales to North America (9,5% of exports) remained buoyant advancing 6.8% overall (+7.8% for the United States and +1% for Canada). Latin America posted its third consecutive year of growth, expanding 12%. The Near and Middle East (5.8% of exports) registered solid growth of 7.3%. Sales to Africa to continued to expand and now accounting for 3% of total exports. Finally, sales to Australia/Oceania continued to retreat (-2% compared with -8% in 2005). Sources: Fédération des Industries de la Parfumerie market share and competition In France, Inter Parfums attained roughly a 2% share of the selective distribution market of prestige perfumes. In certain countries such as the United States, the United Kingdom, Russia, China or Italy, the company estimates its market share of total French perfume imports at between 1% and 4%. In an industry highly concentrated around major players with billions of euros in sales, Inter Parfums pursues a unique strategy of steadily and methodically developing a portfolio of perfumes for selective distribution based on internationally renowned brands. Although Inter Parfums closest competitors do not develop mass market or cosmetics products, several large corporations have perfume divisions with comparable strategies. 39

42 sustainable development social responsibility 41 environment responsibility 46 risk factors 46

43 1. social responsibility Over the years, Inter Parfums has developed a corporate culture built around creativity, teamwork and the development of privileged relationships with clients and suppliers based on trust and respect for commitments. This culture is now firmly implanted in a team of women and men with diverse range of experience and backgrounds Total workforce Officers and managers Average age (years) Average seniority (years) Two major fragrance licenses were signed in 2006 with Quiksilver in March and Van Cleef & Arpels in September effective in January To strengthen human resources, and notably marketing and the sales force, the company recruited 16 new employees. These recruitments were made at every level of the company and concerned all departments. As a result, in 2006, the number personnel increased by nearly 14%. Employee representation As required by law, elections are held every two years to select a works committee and employee representatives. The last elections, held in early 2007, did not elect either a workers committee or employee representatives. The 35-hour workweek in France An agreement on the implementation of the 35-hour workweek in France was reached in Under the terms of this agreement, employees generally work on the basis of a 35-hour workweek with a 217-day work year. Members of the personnel are entitled to 10 days of reduced working hours benefits (RTT) per year. The company's absenteeism rate was 4.4% in 2006 (3.5% in 2005) principally due to maternity leaves. Compensation and profit-sharing policy Inter Parfums has a compensation policy, a system of job classifications and performance evaluations uniformly applied to all employees. These procedures guarantee equal treatment of men and women employees and ensure the general cohesion of personnel. Stock option plans Employees of Inter Parfums and its subsidiaries are offered a direct stake in company earnings through individual, performance-based compensation plans and the development of employee stock ownership through annual stock option plans. Such plans, implemented each year, are open to all employees. More than 753,500 options have been granted through these plans since 1994 and 615,000 options (in light of bonus issues carried out since 1999) were outstanding (5.6% of the capital stock) as of December 31,

44 OPERATING ORGANIZATION AT MARCH 1, 2006 CHAIRMAN AND CHIEF EXECUTIVE OFFICER Ph. Benacin PRODUCTION & LOGISTICS A. Marot 18 employees BURBERRY FRAGRANCES H. de La Chevasnerie 24 employees LUXE & FASHION F. Garcia-Pelayo 19 employees FRENCH DISTRIBUTION J. Ayer 34 employees FINANCE & CORPORATE AFFAIRS Ph. Santi 23 employees NICKEL Ph. Dumont 12 employees Statutory employee profit-sharing In accordance with applicable legislation, an employee profit-sharing agreement was implemented on December 20, The amount paid for 2006 was 990,000 (compared with 860,000 in 2005). A proven development approach An activity characterized by its complexity and multiple details calls for a proven development process that meets strict standards of quality and deadlines to produce several million units a year. A team of 18 under Axel Marot handles sourcing, supply relations, quality assurance and cost control. Dedicated marketing and international distribution resources to support the Burberry brand: the Burberry Fragrances division To provide optimal support to the growing volume of the brand's sales and in accordance with the terms of the new license agreement, on March 1, 2005 Inter Parfums formed a new division for product development, marketing and international distribution fully dedicated to the brand. Today this division has 24 employees and is headed by Hugues de la Chevasnerie who joined Inter Parfums in early January Dedicated marketing and international distribution for the other brands: the Luxe & Fashion division Frédéric Garcia-Pelayo leads a dedicated team of 19 professionals responsible for product development, marketing and international distribution for the Paul Smith, S.T. Dupont, Christian Lacroix, Celine and Lanvin brands annual report inter parfums sustainable development

45 THE OWNERSHIP STRUCTURE OF INTER PARFUMS INC. BROKE DOWN AS FOLLOWS AT DECEMBER 31, 2006: Philippe Benacin and Jean Madar Public 56% 44% INTER PARFUMS INC Nasdaq - New York 72% 28% INTER PARFUMS S.A. Eurolist - EuroNext Paris 100% 68% 100% INTER PARFUMS TRADEMARK NICKEL S.A. INTER PARFUMS GRAND PUBLIC INTER PARFUMS INC CONSOLIDATED FINANCIAL HIGHLIGHTS In $ millions (1) Sales Net income Shareholders equity Net cash (1) 1 Euro = 1.3 USD at December 31, 2006 An extensive French distribution network Jack Ayer s staff of 34 handles the company s distribution strategy and management, contract negotiations and monitors profit margins and advertising expenditures in France. Effective financial management After its initial public offering on the Second Marché, Inter Parfums developed an efficient reporting system to regularly analyze financial performances and cash management that allows the company to update its operating and net income projections for the year in progress. This system provides excellent visibility for company financials and assures a high degree of responsiveness. Philippe Santi heads a staff of 23 responsible for financial strategy and communications, investor relations, accounting, budgets, cost accounting, labor relations, tax and legal services, cash management and collection. Nickel A team of 12 employees headed by Philippe Dumont is devoted to meeting specific needs of this brand in the product development, marketing and spa management. The French Distribution division manages the distribution of products in France while the Luxe & Fashion handles international distribution. Inter Parfums and its subsidiaries The consolidated Group is structured around two sales companies Inter Parfums for perfumes and Nickel (68%-held) for skincare and Inter Parfums Trademark, a brand management company. Inter Parfums and its parent company Founded in 1985, the U.S. company Inter Parfums Inc. is listed on NASDAQ (see company organization chart) and has business activities in two areas: mass market perfumes aimed mainly at the U.S. consumer market and developed by its wholly owned U.S. subsidiary, Jean-Philippe Fragrances LLC, prestige perfumes aimed at the global selective perfumes market and developed by its French subsidiary, Inter Parfums (72%-owned at December 31, 2006 via Inter Parfums Holding). In the summer of 2005, the US company signed an exclusive license agreement with Gap Inc to develop perfume and cosmetics products under the Gap and Banana Republic brands. 43

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47 team spirit, motivation and commitment in the service of common objectives: key strengths of our corporate culture

48 2. environment responsibility Inter Parfums business focuses on the creative aspect and the distribution of products. For this reason, the entire production process is outsourced to manufacturing partners. These include producers of juice, glass, caps and cardboard boxes and packaging companies. With no production activities of its own, Inter Parfums does not own laboratories or manufacturing sites. Although it operates in a sector less polluting than other industries, Inter Parfums is committed to preserving the environment and quality of life. For this reason, it remains involved in the production process and coordinates with all subcontractors and suppliers who manufacture its products and are directly responsible for their impact on the environment. Low energy requirements Inter Parfums consumption of water and energy is limited to normal office usage in the administrative premises that house 100 of its 128 employees and in commercial premises where nine employees work. Recycling The company constantly strives to reduce the already low impact of its business on the environment by investing in the treatment and recycling of the packages, cardboard boxes and glass left once its customers have finished using its products. With this objective, through its participation in the Eco Emballage packaging recycling program, Inter Parfums contributes to waste management and recycling. The minimization of environmental impact To balance product quality and esthetism with environmental considerations, Inter Parfums takes care to reduce packaging volumes at the source and select the appropriate materials at each stage of production to ensure optimal conditions for their recycling or disposal. Accordingly, Inter Parfums selects partners using cutting-edge design techniques with a commitment to reduce the impact of manufacturing processes on the environment. The bottles of its products are made of recyclable glass and the production process provides for a system of recuperation, grinding and recasting of certain bottle components, which generates savings in volume of materials used of 20%. A biodegradable water-soluble solution that does not harm the environment is used in the coloring of some of its bottles. The process of coating used for certain products is compliant with the law of 2005 destined to reduce emissions of volatile organic compounds (VOC) in the air by the use of "hydro coating". This commitment to environmental responsibility is also a criteria in selecting subcontractors. A commitment to well-being Even though Inter Parfums does not manufacture its products itself, it nevertheless ensures their introduction on the market and is consequently responsible for ensuring their inoffensiveness to the skin and eyes. Within this framework, it ensures that its products are not subject to any tests on animals and maintains a scientific watch for the development of "alternative tests and cell culture tests. It also ensures compliance with national and European regulations and notably the Cosmetics Directive" which prohibits the use of certain animal derivatives such as lanolin. Inter Parfums actions in this area exceed that of a simple coordinator by increasing its partners awareness of environmental issues and staying informed of the business practices of its subcontractors and suppliers. All this forms part of Inter Parfums commitment to preserving the environment, which is, after all, everyone s responsibility. 3. risk factors Operating risks License agreements The licensing system which is typical in the perfume and cosmetics industry consists of a brand name company (Christian Lacroix, Celine, etc.) granting the licensee (Inter Parfums) the right to use the brand name in exchange for a royalty payment typically indexed to sales. The risk pertains to the potential non-renewal of agreements upon expiration. In the case of Inter Parfums, several factors tend to limit or eliminate this risk: length of contracts (10 years or more), possibility of early renewal, diversified portfolio of licensed brands, factors specific to the company (sophisticated marketing, distribution network, corporate organization, etc), limited number of potential licensees with a similar profile. Market conditions The creation and distribution of prestige perfumes is a highly competitive sector. The positioning of companies in the market depends on several factors including notably historical expertise, the quality of the products created and the distribution network. Insurance Inter Parfums has always carried adequate insurance for its activities worldwide under conditions that comply with industry standards, providing global coverage for important risks and activities. This coverage includes: property damage and business interruption, civil liability, directors and officers liability, product liability, transport. Inter Parfums purchases supplemental insurance when required, either in compliance with the law or more specifically to cover business risks or risks arising from specific circumstances. Insurance coverage is overseen by a specialized broker and spread among four major European insurers. International business risks Currency risks Since 1995, Inter Parfums has applied a conservative approach in managing exchange rate risk, seeking only 2006 annual report inter parfums sustainable development

49 to hedge its exposure from operations and maintain its gross margins. Forward sales are routinely carried out mainly on the U.S. dollar and the pound sterling. In 2006 they accounted for 34% and 9% of total billings respectively. In addition, the impact of sharp fluctuations in the U.S. dollar on the gross margin can be partially offset by adjusting the products sales prices. Country risks With sales in more than 100 markets, Inter Parfums regularly reassesses country risks. For the past few years, the company has incurred no significant default on payments in countries considered at risk. Given our collections policies, receivables monitoring and the quality of our distributors financial health, no country risk reserve allocations were made in the financial statements for the year ended December 31, Employee-related risks In light of the company's organizational structure, the role of personnel is decisive. To foster personnel retention and increase the level of expertise and service provided to customers, the company has developed a strong corporate culture and implemented a system of employee management and motivation based on a combination of tools including variable compensation, employee profit-sharing, stock options available to all personnel, annual review meetings, continuing education, etc. Risk associated with in adequate internal controls Effective procedures applied by all Group companies and in all areas of financial risks identified are reassessed annually in compliance with the Financial Security Act (Loi de Sécurité Financière). These internal controls are reinforced in France by the Sarbannes Oxley law within the framework of the regulatory obligations of Inter Parfums Inc (parent company of Inter Parfums SA) and its listing on NASDAQ (refer to the section of this document on internal control). Information technology risks Inter Parfums and its subsidiaries have an ERP application providing integrated sales, production and accounting management capabilities. This system makes it possible to monitor information in real-time and reduce the risk of data loss and errors from multiple entries. The company's computer system is subject to risks of breakdown, electrical power outages, computer viruses and data theft. To reduce these risks, the company has recourse to powerful systems such as power converters, firewalls, antivirus programs, etc. The company's rate of employee turnover and absenteeism is very low (refer to the chapter "social responsibility" of this document). Trade and financial risks Customer risks Trade receivable collection risks are managed from the inception of the receivable by maintaining a good knowledge of the company's market and customer base and limiting the volume of orders for new customers. In addition, this risk is further attenuated by being spread among 100 customers accounting for 80% of sales. The evolution of outstanding trade receivables is monitored daily, and collection procedures are immediately implemented. The rate of default of trade receivables is 0%. Risks of default The risk of not meeting its financial commitments for the company is extremely low given the ratio of non-current debt to equity of less than 4% and significant net cash resources representing 20% of total balance sheet. Interest-rate risks on the Lanvin loan are covered by an interest-rate swap implemented in October Valuation risks A significant share of the company's assets consists of intangible assets and goodwill whose value depends in large part on future operating performances. The valuation of intangible assets and goodwill also implies recourse to subjective judgments and complex estimates concerning items uncertain by nature. If a change occurs in the underlying assumptions on which this valuation is based, a reduction in the value of shareholders' equity will be recorded. The impact of such adjustment would however be extremely limited. 47

50 corporate governance the board of directors 49 the management committee 51 chairman s report on the work of the board and internal control 51

51 1. corporate governance Inter Parfums adopted the form of a société anonyme, the French equivalent of a joint stock company, when it was created in It is governed by a Board of Directors and a Management Committee. The Board of Directors In spring 2004, the company strengthened the Board of Directors, up until then with four members, by appointing new board members for renewable six year terms to benefit from their additional expertise and experience. On December 31, 2006 the Board of Directors had 10 members. In line with recommendations applicable in France on corporate governance of the AFEP-MEDEF report, the board ensures the presence of independent directors subject to the following conditions: the director is not an employee or corporate officer (mandataire social) of the company, nor an employee or director of its parent company or of one of its consolidated subsidiaries, and has not been one during the previous ive years, the director is not a corporate officer of a company in which the company holds, either directly or indirectly, a directorship, or in which a directorship is held by an employee of the company designated as such or by a current or former (going back five years) corporate officer of the company, the director is not a supplier, investment or commercial banker of the company or any company included in the scope of consolidation, the director does not have any close family ties with a corporate officer of the company, the director has not been an auditor of the company over the past five years, the director has not been a director of the company for more than 12 years, and the director does not have any legal ties with a shareholder owning directly or indirectly more than 10% of the share capital or voting rights. On the basis of these criteria, the board includes two independent directors, Maurice Alhadève and Michel Dyens. Composition of the board and profiles As of December 31, 2006 the composition of the Board of Directors was as follows: Philippe Benacin, Chairman and Chief Executive Officer of Inter Parfums (appointment renewed April 23, 2004, expiring at the close of the 2010 annual shareholders' meeting). Philippe Benacin, 48, a graduate of the ESSEC business school and cofounder of the company with his partner Jean Madar, has served as Chairman and Chief Executive Officer of Inter Parfums S.A. since its creation in

52 Other appointments: Chairman of the Board of Directors of Inter Parfums Holding, Chairman of the Board of Directors of Inter Parfums Trademark, Chairman and Chief Executive Officer of Inter Parfums Grand Public, Director of Nickel, President and Vice Chairman of the Board of Inter Parfums Inc (United States). Jean Madar, Director, (appointed 23 April 2004, expiring at the close of the 2010 annual shareholders' meeting). Jean Madar, 46, a graduate of the ESSEC business school, is the cofounder of the company with his partner Philippe Benacin. Other appointments: Chief Executive Officer of Inter Parfums Holding, Director and Chief Executive Officer of Inter Parfums Trademark, Director of Nickel, Chief Executive Officer and Chairman of the Board of Inter Parfums Inc (United States). Marianne Benacin, Director, (appointment renewed April 23, 2004, expiring at the close of the 2010 annual shareholders meeting). Other appointments: Director of Inter Parfums Grand Public, Director of Inter Parfums Trademark. Raoul Madar, Director, (appointment renewed April 23, 2004, expiring at the close of the 2010 annual shareholders meeting). Other appointment: Director of Inter Parfums Holding. Maurice Alhadève, Independent Director, (appointed by the shareholders meeting of April 23, 2004, expiring at the close of the 2010 annual shareholders meeting). as the Chief Financial Officer of Inter Parfums S.A. since 1995 and Executive Vice President since Other appointments: Director and Executive Vice President of Inter Parfums Trademark, Director and Executive Vice President of Inter Parfums Grand Public, Director of Nickel. Absence of condamnations To the best of the Company's knowledge, in the last five years none of the members of the Board of Directors have been: convicted for fraud or penalties for infractions rendered by statutory or regulatory authorities, involved in a bankruptcy, receivership or liquidation proceeding as a director or officer, disqualified from serving as a director or officer or participating in the management of the operations of an issuer. Absence of potential conflicts of interest To the best of the Company's knowledge, there exist no potential conflicts of interest between the duties towards the company and the personal interests and/or other duties of one of the members of the board. Absence of service contracts with board members To the best of the Company's knowledge, none of the board members is bound by service agreements with the company or one of its subsidiaries providing for the grant of benefits under its terms. Other appointments: none. Michel Dyens, Independent Director, (appointed by the shareholders meeting of April 23, 2004, expiring at the close of the 2010 annual shareholders meeting) Other appointments: none. Jean Levy, Director, (appointed by the shareholders meeting of April 23, 2004, expiring at the close of the 2010 annual shareholders meeting). Other appointments: Director of Inter Parfums Inc (United States), Director of Rallye S.A., Director of Price Minister S.A., Director of Axcess Groupe S.A. Patrick Choël, Director, (appointed by the shareholders meeting of December 1, 2004, expiring at the close of the 2010 annual shareholders meeting). Other appointments: Director of Inter Parfums Inc (United States, Director of Parfums Christian Dior, Director of Guerlain, Director of Parfums Loewe, Director of Benefit (United States), Director of Modelabs. Catherine Bénard-Lotz, Director, (holder of an employment contract preceding the appointment by the shareholders' meeting of April 23, 2004, expiring at the close of the 2010 annual shareholders meeting). Other appointments: Director of Nickel. Philippe Santi, Director and Executive Vice President, (holder of an employment contract preceding the appointment by the shareholders meeting of April 23, 2004, expiring at the close of the 2010 annual shareholders meeting). Philippe Santi, 44, a graduate of the Ecole Supérieur de Commerce of Reims and a public accountant has served 2006 annual report inter parfums corporate governance