sa parfums inter 2 · situation. our organic growth plan ... and creators (analysis of trends in...

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I N T E R P A R F U M S S A

SUMMARIZED ANNUAL REPORT 2002

2

Document1 5/06/03 12:19

Financial highlights

Business

Products

Organization structure

2002 Highlights

Stock market

Financial reportinginvestor relations

Directors and officers

Commitmentto the environment

2002 Financial statements

03

05

11

27

31

33

35

37

38

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Contents

Document1 5/06/03 12:19

2Letter to shareholders

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SUMMARIZED ANNUAL REPORT 2002

Philippe BenacinJean Madar

Two launches, for bothwomen and men, willfollow in 2004 under theChristian Lacroix and PaulSmith names, targeted at the French and Englishmarkets, respectively.

With net cash of € 25million, up 70% comparedwith 2001, the company is capable of making an“intelligent” acquisition of a brand of perfumes or cosmetics at the rightmoment, without anyundue stress.

Additional staff wasrecruited across thecompany in 2002, joining a highly motivated teamwhose strong corporateculture should drive newsales growth in 2003 and 2004.

Business indicators for the first quarter of 2003are already good, andorders for upcomingproduct launches arehigher than we had initiallyplanned. We are confidentthat we will exceed € 100million in sales in 2003, by a wide margin.

After a somewhat slowstart, 2002 ended well as sales increased by 5% to € 93 million and netincome rose by 10% to € 8.8 million compared with 2001. This goodperformance was obtained in part thanks to thesuccessful launches of theChristian Lacroix Bazar andS.T. Dupont Essence Purelines, and also benefitedfrom the continued growthof the Burberry perfumes in all markets.

As 2003 begins, we arerelatively optimistic despitea challenging and complexinternational economicsituation.

Our organic growth plan is well under way, with the launches of seasonalperfumes under the Celineand Christian Lacroixbrands and two newperfumes for women underthe Burberry name, one to be released this springand the other this autumn.

Letter toshareholders

Institutional (quadri) 5/06/03 12:10 Page 1

http://www.inter-parfums.fr

Consolidated salesSustained growth with sales up 77% in four years

2002

€ 93.4 m

2001

88.5

2000

76.8

1999

56.6

1998

52.9

financialhighligh

2002

€ 8.8 m

2001

8.0

2000

6.6

1999

4.7

1998

4.0

2002

€ 13.7 m

2001

12.9

2000

11.0

1999

8.4

1998

6.9

Consolidated net incomeNet income more than doubled in four years

Consolidated income from operationsIncome from operations doubled in four years


2Summarized annual report 2002 Inter Parfums

03

Financial highlights

Key consolidated figures

In € thousands 1998 1999 2000 2001 2002

Sales 52,911 56,647 76,854 88,486 93,378% international 88% 89% 90% 90% 91%

Income from operations 6,868 8,389 11,028 12,938 13,733% of sales 13.0% 14.8% 14.3% 14.6% 14.7%

Net income 4,043 4,714 6,610 8,057 8,837% of sales 7.6% 8.3% 8.6% 9.1% 9.5%

Shareholders’ equity 30,509 35,299 41,357 48,567 55,742Net cash 7,144 13,432 10,985 14,241 24,551Total assets 50,226 59,403 72,311 75,941 86,143

Employees (as of December 31) 47 53 55 60 62

Consolidated net cashConsiderable net cash

2002

€ 24.5 m

2001

14.2

2000

11.0

1999

13.4

1998

7.1

Consolidated simplifiedbalance sheet as ofDecember 31, 2002The balance sheet remainsextremely solid

hlightsFixed

assets3.0

Currentassets

57.9

Netcash24.5

Shareholders'equity55.7

Accounts payable26.4

Debt-

Commitmentsandcontingencies3.3

Assets€ m

Liabilities€ m



business

Created in 1982 by Philippe Benacin and Jean Madar following theirgraduation from France’sESSEC business school,Inter Parfums began bydeveloping and distributingeau de toilette at reasonableprices for the mass marketbefore deciding in the early1990s to focus on theselective perfumes niche.

In 1993, the companysigned a licensing contractto produce perfumes underthe British brand nameBurberry, the first step in a strategy designed tocreate a portfolio ofinternational perfume and cosmetics brands in the high-end ready-to-wear, high fashion andaccessories sectors.

In 1995, Inter Parfumsraised growth capital by listing its shares on the Second Marché of the Paris Stock Exchange and entered into newlicense agreements withS.T. Dupont in 1997, Paul Smith in 1998 and two LVMH subsidiaries,Christian Lacroix in 1999and Celine in 2000.

Inter Parfums is active in the perfumeand cosmeticsbusiness andspecializesmainly inprestigeperfumes.



05

Business

s

There are a number of stages in the design,development andproduction process, which lasts between 12and 18 months dependingon the complexity of the project:

■ Simultaneous briefingswith perfume designers and creators (analysis of trends in esthetics andscents, identification of thetarget clientele, advertisingand promotional strategy,etc.);

■ Product concept choice;

■ Production of mock-upsfor final acceptance ofbottles and packaging;

■ Invitation of bids fromcomponents suppliers(glass makers, plasticsprocessors, printers, etc.);

■ Invitation of bids from the company’s variouspackaging partners;

■ Supplier and vendorselection;

■ Drawing up of supply and packaging schedules;

■ Issuance of componentpurchase orders;

■ Quality control ofincoming components;

■ Packaging and inventorymanagement.

Suppliers that assist Inter Parfums withproduct developmentinclude:

■ Leading independentperfume designers(Federico Restrepo,Ateliers Dinand, FabienBaron, Aesthete, etc.);

■ Perfumers (IFF,Firmenich, CréationsAromatiques, Quest,Givaudan, Charabot, etc.),which create the perfumeoff of the company’s brief;

■ Contract manufacturersof components such asglassware (Saint Gobain,Saverglass, NouvellesVerreries de Momignie,etc.), caps (MT Packaging,Codiplas, etc.) and boxes(Printor Packaging,Draeger, Imcarvau, etc.);

■ Production specialiststhat handle packaging (MF Production, CCI,Brand, ConditionnementServices) and logistics(SAGA, a subsidiary ofBolloré, for storage, orderpreparation and shipment).

The design,development and production process

For prestige products, 80%of purchases are made withthe top 20 out of 120 activesuppliers. No single supplieraccounts for more than 10%of purchases.



Prestige products:internationaldistribution88% of sales in 2002

6%North America

United States Cosmopolitan (Wella)Canada Puig

7%South America

Brazil MextraArgentina Greta

Mexico Clarins

40%Western Europe

Italy PacodisPortugal Luso HelveticaSpain Colomer / Hevige

Germany NobilisUnited Kingdom

Fragrance Factory / Kenneth GreenTurkey Te Ha Guzellik

9%France

International distribution ishandled by independentcompanies or, in somecases, subsidiaries of themajor luxury goodscorporations. Between oneand three distributors areselected in each country,and each distributor hasexclusive rights to distributeone or more of thecompany’s brands in aspecific territory. Duty-freeoperators (airports, airlines,etc.) round out internationaldistribution.

The size of thesedistributors variessignificantly depending on the number and qualityof competing brands alsocarried. This extensive and diversified internationalnetwork provides InterParfums with a significantpresence in more than 120 countries.

Out of a total of 250 clients,50 account for 80% of sales.Only two clients account for more than 5% of totalexport sales of selectiveperfumes. In 2002, 62% of overall sales weredenominated in euros, 23% in U.S. dollars and the remaining 15% inpounds sterling, Canadiandollars and Japanese yen.Given the company’sextensive internationaloperations, sales are notsubject to seasonalvariations.


2Summarized annual report 2002 Inter ParfumsBusiness

Prestigeproducts:Frenchdistribution9% of sales in 2002

Distributorsworldwide

14%Asia

Japan Beaucos / BluebellSouth Korea

IPC Tong SangChina Eternal OpticalSingapore + Taiwan

Beauté Concept

10%Eastern EuropeRussia Cofidec

Poland Selective Beauty

12%Middle East

Saudi Arabia Al Malki GroupKuwait Chalhoub / Wahran Trading

Dubai Création / Ghadeer Trading

The French sales teamhandles French distributiondirectly. The network ofsales outlets breaks downas 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 merchandisingactivities (shelf management,product placement instores, sales promotion and event planning), whichare key factors for thecompany’s future growth.

Out of a total of around1,200 active clients inFrance, 200 account for80% of sales. No singleclient accounts for morethan 5% of selectiveperfume sales. 207More than 90% of massmarket product distributionis for export, and is handledby a network of specializedindependent distributors.They market the productlines to multi-product stores(perfumeries, pharmacies,drugstores, kiosks, etc.) in some 80 countries.

Out of 40 active clients, 20 account for 80% ofsales. Five clients accountfor more than 5% of massmarket sales each.

Distribution of mass marketproducts3% of sales in 2002



The perfume market usesfour types of distributionchannels:

■ selective distribution,namely perfumeries andspecialty sections ofdepartment stores for brandproducts with a luxuryimage;■ mass market distribution,of moderately pricedconsumer products for a broad client base withmodest purchasing power;■ direct sales;■ pharmacies.

Despite the globaleconomic downturn, the French perfume andcosmetics industry, whichaccounts for approximatelyone-third of the globalmarket, recorded furthergrowth in 2002. Industrysales, based on netproducer prices, rose by 4.5% versus 2001 to € 13.3 billion (up 4.9%on a constant exchangerate basis).

With exports nearly six times larger thanimports, the perfumeand cosmetics industryis France’s fourth largestnet exporter, behindbeverages, automobilesand aerospace.

up 7%European Union

Sales in the EuropeanUnion (52% of exports)

continue to rise stronglyyear after year (up 6.5% in 2002), even in maturemarkets like the United

Kingdom (15%), Italy (11%)and Belgium and Spain (7%).The only noteworthy change

occurred in Germany, which remained France’s most important customer

despite flat sales

up 6%Outside the European Union

European countries outside the European

Union posted solid increases (6%), notably

in Poland (17%) and Russia (10%)

down 1%North American

North American sales(10% of exports) fell by 1%, as was to be

expected in light of theeconomic difficulties

experienced subsequentto the events of

September 11, 2001

down 17%South America

South American sales fellsharply (down 17%) due to

ongoing economic andfinancial crises and

problems in countries likeArgentina (down 74%) and

Brazil (down 15%)

With € 7 billion in total sales through its fourdistribution channels,exports increased by nearly 5%


209Business Summarized annual report 2002 Inter Parfums

Despite the troubledeconomy, the Frenchmarket set a new record in 2002 with € 6.3 billion in sales, up 5.3% comparedwith 2001. Growth wassimilar to the increase in2001 compared with 2000(5.1%) and higher than the4.3% annual average overthe last ten years. Lastyear’s growth included a moderate 2.7% increasein prices and 2.6% fromadditional volumes.

In the selective distributionsegment alone, salesreached € 1.7 billion in2002, a 3.3% increase over2001, on stable volumes.Good spring and autumnperformances contrastedwith more mediocre resultsin the summer months.(Source: Perfume IndustriesAssociation)

Competition

In an industry that is highly concentrated around major players with billions of euros in sales, Inter Parfums offers a unique strategy of steadily and methodically developing a portfolio of perfumes for selective distribution based oninternationally renowned brands.Although Inter Parfums’ closestcompetitors do not develop mass market or cosmetics products, clearly the perfume divisions of several large corporations have comparable management strategies.

Perfume market

up 6%Outside the European Union

European countries outside the European

Union posted solid increases (6%), notably

in Poland (17%) and Russia (10%)

up 8%Asia

Sales in Asia, after growing9% in 2001 and 26%

in 2000, rose by nearly 8%in 2002 and the region

replaced North America as the second largest

market for French products(11% of exports)

Growth rates varied by country, from favorable

in South Korea (13%) to satisfactory in Japan (up3%, despite the recession)and difficult in Hong Kong

(down 3%).

Strong growth in China(up 26%) concealed importduty problems experienced

during much of the year

up 6%Middle East

Sales to the Middle East continued to rise (6%)

and still account for nearly 7% of total exports, with the United Arab Emirates

(up 12%) the most important export destination

Market share

In France, Inter Parfumsattained a roughly 1% share of the market for theprestige perfumes selectivedistribution segment, whichis estimated at € 850million. In certain countriessuch as the United States,the United Kingdom, Italy,Portugal, Saudi Arabia andSouth Korea, the companyestimates that its marketshare of total Frenchperfume imports rangesbetween 1% and 4%.(Source: internal estimates)


products



s 2111

Products Summarized annual report 2002 Inter Parfums

In the prestige segment, the creation and marketingof each product line is intimately linked to the brand, its history,positioning, clientele and,more generally, its universe.Consequently, each newproduct line is researchedfor a period of 12 to 18months prior to its marketlaunch.

This market research helpsto define the brand’s overallpositioning and, morespecifically, its “juice” or fragrance, bottle,packaging and marketingstrategy. A cohesivestrategy involving these four marketing elementsdetermines the product’ssuccess.

In 2002, total spending onmarketing and point-of-salesupport reached around € 17.8 million, comparedwith € 17.2 million in 2001.Of this total, € 5.6 million in point-of-sale expenseswere included under cost of sales, and € 12.2 millionof advertising and marketingexpenses were includedunder selling expenses.

Prestigeperfumes

In addition, the company’sdistributors incur comparableselling expenses directly.The cost of launching a product, including moldsand tooling as well as start-up costs, promotionalspending and media buying,etc., varies between € 0.2million and € 1.5 million.

Success in this businessrequires thoroughknowledge of the market, a detailed analysis of each brand’s image andpotential, a “good dose” of creativity and a highlyprofessional approach tothe international distributionchannels. The average life expectancy for theseprestige products isbetween five and ten years,sometimes longer, and theyretail for between € 30 and€ 70. Sales in this segmenttotaled € 72 million in 2000,€ 84 million in 2001 and € 91 million in 2002.

Since the early 1990s,Inter Parfums hassought to establish a portfolio of luxurybrands through licenseagreements or theacquisition of existingbrands.

In its license agreements,the company markets the brand and controlsthe product’s image,positioning anddistribution in exchange for thepayment of royaltiesindexed to sales.

Celine Oriental Summer

Celine 2003


€ 55.8millionof sales in 2002

60%of the total sales

Burberry London (1995) Burberry Week end (1997) Burberry Touch (2000)



213Burberry’s products Summarized annual report 2002 Inter Parfums

Burberry London

Burberry 1995

In July 1993, we enteredinto an exclusive, 10-yearlicense agreement withBurberry to create andproduce perfumes underthe Burberry name, and to distribute themworldwide.

In February 2000, this license agreement was extended for threemore years throughDecember 31, 2006.



Burberry Baby Touch

Burberry 2002

In the spring of 2002, the company launched the Burberry Baby Touchline for babies (eau detoilette with and withoutalcohol, shower and bathgel, moisturizing cream andmassage oil), in step withthe Burberry Touch line thatthe company introduced at the end of 2000.


215Burberry’s products Summarized annual report 2002 Inter Parfums

Burberry Touch

Burberry 2000

Burberry Week end

Burberry 1997

After obtaining severalawards in France, the U.K.and the U.S. in 2001, InterParfums was honored witha new distinction in France:the Oscar 2002 – fromCosmétique Magazine for the Burberry Touch bathline, named best line of skincare and bath products.




S.T. Dupont Paris (1998)S.T. Dupont Essence Pure (2002)



217S.T. Dupont’s products Summarized annual report 2002 Inter Parfums

In June 1997, we enteredinto an exclusive, 11-yearcontract with S.T. Dupont to create and produceperfumes under the S.T. Dupont name, and todistribute them worldwide.

S.T. Dupont Essence Pure

S.T. Dupont 2002

S.T. Dupont Paris

S.T. Dupont 1998




Paul Smith (2000)Paul Smith Extrême (2002)



2Paul Smith’s products Summarized annual report 2002 Inter Parfums

Paul Smith Extreme

Paul Smith 2002

In December 1998, we entered into anexclusive, 12-year contractwith Paul Smith to createand produce perfumes and cosmetics under thePaul Smith name, and todistribute them worldwide.

19

Paul Smith

Paul Smith 2000




Eau florale (2000)Christian Lacroix Bazar (2002)Bazar Summer Fragrance (2003)



2211Christian Lacroix’s products Summarized annual report 2002 Inter Parfums

In March 1999, we enteredinto an exclusive, 12-yearcontract with ChristianLacroix (LVMH Group) to develop and produceperfumes under theChristian Lacroix name, and to distribute themworldwide.

Bazar Summer Fragrance

Christian Lacroix 2003

Christian Lacroix Bazar

Christian Lacroix 2002




Celine (2001)Celine Oriental Summer (2003)



223Celine’s products Summarized annual report 2002 Inter Parfums

Celine Oriental Summer

Celine 2003

Celine

Celine 2001

In May 2000, we enteredinto an exclusive, 12-yearcontract with Celine (LVMHGroup) to develop andproduce perfumes underthe Celine name, and todistribute them worldwide.



Inter Parfums also developsthe Molyneux line (Quartz,Quartz pour Homme,Modern Quartz with its mainmarkets in France andSouth America) andRégine’s line (Régine’s formen with its main market in the Middle East) brands,which account for around3% of its total sales.

Inter Parfums’ original ideawas to develop a line ofhigh-quality eau de toiletteswith a stylish bottle,creative packaging and the“Made In France” label. Theidea was for these eau detoilettes to be priced verycompetitively and marketedto a clientele with limiteddisposable income. Thisline, which has changedover the years, consists ofapproximately 50 productswith life expectancies ofbetween three and tenyears.

These original productssatisfy a real demand inseveral emerging marketssuch as Eastern Europe andthe Middle East, as theyallow consumers topurchase high-quality eaude toilettes for $ 6 to $ 8.

After posting steady salesgrowth through 1997, thedivision’s sales havesteadily declined due mainlyto growing consumerpreference for brand-nameproducts, and did not break€ 3 million in 2002.

€ 2.6 millionof sales in 2002


€ 2.4 millionof sales in 2002


Mass marketperfumes

Other selective brands

Modern Quartz

Molyneux 2001


225Products Summarized annual report 2002 Inter Parfums

Sales by brand

In € millions 1998 1999 2000 2001 2002

Burberry 31.7 30.7 41.9 51.2 55.8S.T. Dupont 6.1 10.3 13.7 10.6 9.4Paul Smith - - 8.7 11.3 8.9Christian Lacroix - 3.4 2.7 2.2 7.5Celine - - - 4.2 6.8Other prestige brands 9.2 6.7 5.4 4.5 2.6

Prestige perfumes 47.0 51.1 72.4 84.0 91.0Mass market perfumes 5.9 5.5 4.4 4.5 2.4

Total 52.9 56.6 76.8 88.5 93.4

As a % of total sales 1998 1999 2000 2001 2002

Burberry 59.8 54.3 54.4 57.9 59.7S.T. Dupont 11.5 18.1 17.9 11.9 10.0Paul Smith - - 11.4 12.8 9.5Christian Lacroix - 6.0 3.5 2.5 8.0Celine - - - 4.8 7.3Other prestige brands 17.5 11.8 7.0 5.0 2.8

Prestige perfumes 88.8 90.2 94.2 94.9 97.3Mass market perfumes 11.2 9.8 5.8 5.1 2.7

Total 100.0 100.0 100.0 100.0 100.0

Main brands and licenses

Burberry S.T.Dupont P. Smith C. Lacroix Celine Molyneux

Type License License License License License Owned

Date acquired 07/1993 07/1997 12/1998 03/1999 05/2000 03/1994

Duration (in years) 10+3.5 11 12 11 12 NA

Price or acquisition cost 0 0.9 0 0 0 3.7

Royalties (% of sales) ND 3 to 6 3 to 6 3 to 6 3 to 6 NA

NA Not Applicable ND Not Disclosed

Change in prestige perfumes salesNet sales doubled in four years

2002

€ 91.0 m

2001

84.0

2000

72.4

1999

51.1

1998

47.0



Over the years, InterParfums has developed a corporate culture built around creativity,teamwork and thedevelopment of privilegedrelationships with clientsand suppliers based on trust and respect for commitments.

This culture is now firmlyimplanted in a team of women and men, whobring the experience oftheir different and variedbackgrounds.

Staff structureAs of December 31, 2002,the company employed a total of 62 people (17 men and 45 women)under full-time contracts,including 29 officers and managers and 33 non-supervisory staff.

The average employee is presently 36-years old (42 for the men, 34-yearsfor the women), with an average seniority of 6-years (8-years for the men, 6-years for the women).

Changes in staffingThe company’s stronggrowth during these pastyears has created numerousjobs, in France and abroad,both upstream at componentssuppliers and packagingcompanies as well asdownstream at distributors.Inter Parfums’ total staff has increased by over 40%in eight years.In 2002, eight people were recruited, includingtwo temporary employees,two people hired underapprenticeship contracts and four full-time employees.The company also had one dismissal and oneresignation.

organizationstru


227Organization structure Summarized annual report 2002 Inter Parfums

EmployeerepresentationAs required by law,elections are held every two years to elect aworkers’ committee andemployee representatives.The last elections, whichwere held at the beginningof 2003, failed to electeither a workers’ committee or employeerepresentatives.

Implementation of the 35-hour workweekAn agreement regarding the implementation of the35-hour workweek wasreached in 2000 that tookeffect on February 1, 2000.All company employeesbenefit from the reducedworking hours as providedfor by law. Employeesgenerally work on a basis of a 35-hour workweek,with a 217-day work year.The company does notemploy any part-timeemployees.

The company’s absenteeismrate came to 2.9% in 2002,basically owing to sick daysand maternity leave.

BenefitsThe company paid € 231,330 in benefits in 2002, mainly foremployee meal allowances,supplemental health and pension coverage and other programs.

The company has nohandicapped employees,but subcontracts work out to specialized,protected workshops. Costs incurred under this system amounted to € 21,443 in 2002.

Inter Parfums’ management

April 2003

onstructure



Sophisticated marketingDeveloping perfumes for brands as diverse as Paul Smith, ChristianLacroix and Celine requiressophisticated marketingknow-how attuned to eachbrand’s image and focusedon its end users. A team of 17 employees under Eric de Labouchere handles marketing,development, purchasing,supplier relations, qualityassurance, cost control and operations.

A quality distributionnetworkThe successfuldevelopment of prestigeperfumes also requiresdetailed knowledge ofdistribution channels. Over the past five years,Inter Parfums has developeda highly efficient globalnetwork and maintains

close ties to its distributorpartners in more than 120countries around the world.

Frédéric Garcia-Pelayoleads a team of 12professionals responsiblefor Inter Parfums’ exportdevelopment strategy,distribution managementand contract negotiationswhile also monitoring profitmargins and advertisingexpenditures.

Jack Ayer’s staff of 19handles the company’sdevelopment strategy,distribution management,contract negotiations and monitoring of profitmargins and advertisingexpenditures in France.

Effective reportingFollowing its listing on the Second Marché, Inter Parfums developed an efficient reporting system that makes

it possible to analyzefinancial performances and cash managementfrequently, and also allowsthe company to update its operating and netincome projections for the year in progress.

This system, which provides excellent visibilityon the company’s accounts,also enables a high degreeof responsiveness. PhilippeSanti heads up a staff of 12 responsible forfinancial strategy andcommunications, investorrelations, accounting,budgets, cost accounting,labor relations, tax and legal services, cashmanagement andcollections.

Compensation and employee profit-sharing

CompensationIn 2002, total payrollexpenses (includingbenefits) came to € 5,318million, up 6.4% versus2001 and equal to 5.7% of consolidated 2002 sales.

The company’s hiring and compensation policiesare gender-neutral, and the management system is applied uniformly to all employees.

Stock option plansInter Parfums has chosen to give all employees of the company and itssubsidiaries a direct stakein the company’s earningsthrough individual,performance-basedcompensation plans as wellas via the development ofemployee stock ownershipthrough annual stock optionplans, implemented eachyear and open to allemployees.

More than 428,000 optionshave been granted throughthese plans since 1994, and 358,226 options wereoutstanding (9.4% of the capital stock) as ofDecember 31, 2002.

Statutory employee profit-sharingIn accordance withapplicable legislation, an employee profit-sharingagreement was implementedon December 20, 2001. The amount paid for 2002was € 421,000.

Corporateorganization

The rapid growth in recentyears following thecompany’s initial publicoffering on the SecondMarché of the Paris StockExchange has led InterParfums to organize itselfin four main departments:Marketing & Operations,France, Export, Finance & Administration

Number of employees

as of 12/31 2000 2001 2002

Executive management 2 2 2Marketing & Operations 15 16 17Export 12 12 12France 15 19 19Finance & Administration 11 11 12

Total 55 60 62


229Organization structure Summarized annual report 2002 Inter Parfums

Inter Parfumsand itssubsidiaries

The consolidated group isstructured around two salescompanies – Inter Parfumsfor prestige perfumes andInter Parfums Grand Publicfor mass market perfumes – and Inter ParfumsTrademark, a brandmanagement company thatowns the Molyneux, Weil and mass market brands.This organizational structurehas no material impact onthe consolidated group’searnings or financialsituation.

Inter Parfumsand its parentcompany

Founded in 1985, the U.S.company Inter Parfums Inc.is listed on the Nasdaq (seecompany organizationalchart) and has businessactivities in two areas:■ mass market perfumesaimed mainly at the U.S.consumer market anddeveloped by its whollyowned U.S. subsidiary,Jean-Philippe FragrancesLLC;■ prestige perfumes aimedat the global selectiveperfumes market anddeveloped by its Frenchsubsidiary, Inter Parfums,which as of December 31,2002 was 77%-owned.

Organization chartDecembre 31, 2002

Consolidated financial highlights

In $ millions 1998 1999 2000 2001 2002

Sales 89.4 87.1 101.6 112.2 130.3

Net income 4.6 4.8 6.6 8.1 9.4

Shareholders’ equity 53.7 52.4 55.1 65.1 80.9

Net cash 23.2 24.9 27.6 28.6 38.3

€ 1 = $ 1.038 as of December 31, 2002

Inter Parfums Inc.(listed on Nasdaq)

19%

77%

LV Capital(LVMH Group)

61%

Philippe BenacinJean Madar

20%

23%

Public

Inter Parfums SA

(listed on Second Marché)

Public



01/2002Inscription in theNextPrime index of EuroNext Paris

At the start of 2002,in order to increasetransparency, InterParfums chose to join the NextPrime marketsegment, undertaking to respect its high financial communicationsstandards, notably withregard to reporting and share liquidity.

03/2002Launch of the BurberryBaby Touch line

In the spring of 2002, thecompany launched theBurberry Baby Touch linefor babies (eau de toilettewith and without alcohol,shower and bath gel,moisturizing cream andmassage oil), in step withthe Burberry Touch line thatthe company introduced atthe end of 2000.

2002highligh


2Summarized annual report 2002 Inter Parfums2002 Highlights

06/2002New issue of bonusshares

In June, the companyconducted its third issueof bonus shares, as it had in June 2000 and June2001, on the basis of onenew share for ten existingshares, by incorporatingcertain reserves fromshareholders’ equity.

09/2002

New version of thewww.inter-parfums.frwebsite

When releasing half-yearlyearnings in September2002, the company releaseda new, more dynamic andmore ergonomic version of its website, in French and in English. It is nowpossible, among otherthings, to:

■ learn about thecompany’s recentdevelopments;■ find information regarding brands and lines of perfume;■ read the most recentpress releases and earnings statements;■ download the annualreport and the letter to shareholders;■ contact the company.

ghlights■ Oscar 2002 – fromCosmétique Magazine for the Burberry Touch bathline, named best line of skincare and bath products;

■ Flacon d’Or 2002 –from Marionnaud for theCeline pour Homme line ofperfume, named best men’sperfume launched in 2001on the French market.

05/2002Launch of the ChristianLacroix Bazar line

The major event of the yearwas the launch of theChristian Lacroix Bazar line,first in France in May andthen abroad during thesecond half. This newinitiative for the brand wasvery well received, and wasaccompanied by very highreorder rates.

Inter Parfums receivestwo new distinctions for its products

After obtaining severalawards in France, the U.K.and the U.S. in 2001 for the Burberry Touch andPaul Smith lines ofperfumes, Inter Parfumswas honored with two new distinctions in Francein 2002:

10/2002Launch of the S.T.Dupont Essence Purelines

In the autumn of 2002, the company launched S.T. Dupont Essence Pure– its third line of perfumesunder the Dupont namefollowing S.T. Dupont Parisand S.T. Dupont Signature– primarily in France,Portugal, Eastern Europeand the Middle East. The product’s introductioncontinued in the first half of 2003 in Eastern Europeand Asia.

Launch of the PaulSmith Extrême lines

Meanwhile, a brand-extension of the Paul Smithline, called Paul SmithExtrême, based on theEnglish designer’s famousstripes, appeared on

the French and Italianmarkets as well as in theMiddle East. The line will be launched in England andJapan as well as in certainother European countries in 2003.

311



Since January 2, 2002, the shares have been part of the NextPrime segmentand corresponding index.

After posting very sharp gainsover the last three years (withmultiplication of the shareprice by three), Inter Parfumsshares’ performance closelytracked the SBF 250 index in 2002. It fluctuated in the € 50 – € 60 range throughthe beginning of June, beforefalling to around € 30 rangeduring the summer due to theuncertain world economicoutlook.

Several factors contributed to a turnaround in the tradingtrend – maintenance of astrong level of profitabilityduring the first half of 2002,healthy increases in salesduring the second half of theyear and a good outlook forgrowth for the year 2003.After hitting a low of € 26 atthe beginning of October, theshare started to rebound andfinished at € 40 per share on December 31, 2002, for a total market capitalization of € 150 million.

Since January 1, 2003, the stock has been tradingerratically in the € 30 to € 40 range, almost entirelydue to international eventsand despite the good 2002earnings released in March2003.

An average of 1,200 sharesper day were traded in 2002,compared with 1,500 in 2001.This slowdown was notunexpected given investors’shunning of equities ingeneral and of mid-caps in particular.

stockmarket

Since January 2, 1998,Inter Parfums shares(Euroclear Code 5379)have been listed in theEuroNext Paris ContinuB category. They wereincluded in the SecondMarché index from itsinception and joined the MidCac index onDecember 24, 1999.


2Summarized annual report 2002 Inter ParfumsStock market

Dividend

Key stockmarket data

Share priceand tradingvolume

In euros 1998 1999 2000 2001 2002

Shares outstanding (1) 2,234,023 2,275,786 3,041, 816 3,440,198 3,799,490Market capitalization (1) 60 million 113 million 229 million 193 million 152 millionHigh 36.43 49.80 78.80 80.95 61.82Low 19.15 22.00 37.54 45.00 29.00Average 27.82 31.31 55.78 65.70 45.13Year-end 26.68 49.60 75.20 56.00 40.00Average daily volume 1, 240 1,900 1,900 1,520 1,200Earnings per share (2) 1.81 2.10 2.43 2.46 2.43Dividend per share (2) 0.18 0.27 0.32 0.37 0.42Average number of shares outstanding 2,227,715 2,244,183 2,721,975 3,275,695 3,642,789

(1) As of December 31

(2) Historical data (not restated for bonus share issues in 2000, 2001 and 2002)

0

50

100

150

200

250

Inter Parfums daily share price in %SBF250 index in %

Daily trading volume in thousands

0

10

20

30

40

50

30060

07/99 01/00 07/00 01/01 07/0207/01 01/02 01/0301/99

In 1998, Inter Parfums made its first dividendpayment (€ 0.18 per share, net of the dividendtax credit), equivalent to 10% of itsconsolidated earnings. Dividends increasedsharply in each of the next three years (50%,55% and 37% in 1999, 2000 and 2001,

respectively, including bonus shares). It wasraised to € 0.42 per share (net of the tax credit)in 2002, equivalent to an 18% payout rate on consolidated earnings and a 25% increaserelative to the previous year (including the bonus shares issued in June 2002).

33

Financial (bichro) 5/06/03 12:09 Page 33


1

financial reportinginvestor relations

Since it was listed on the EuroNext Paris Second Market inNovember 1995, InterParfums has providedregular financial reportsto keep investors andthe financial communityinformed of its situation.

Annual reportCommunicationtools

Requests for information or to be added to the mailing list for company reports can be addressed to Investor Relations(attention: Karine Marty).

Tel: +33 1 53 77 00 99

Fax: +33 1 40 74 08 42

Via the website:http://www.inter-parfums.fr

Requestsfor information

■ a detailed panorama of the company’s strategy,business and products;■ key summary figures;■ a detailed managementreport providing information on the economic environmentand risk management;■ information for shareholders;■ clearly presentedconsolidated financialstatements, with very detailed notes;■ the complete findings of the statutory auditors;■ information regarding the company’s directors,officers and managementbodies.

The annual report is sent to more than 1,200 institutionalinvestors, French and foreignfinancial analysts, investmentclubs and individualshareholders. It is alsoavailable online on thewebsites of the company and of the Commission des Opérations de Bourse.

An abridged version inEnglish is also prepared eachyear and sent to some 200foreign institutional investors,primarily in Europe. Thisversion is also available on the company’s website.


Summarized annual report 2002 Inter Parfums

235

2

3

4

5

Financial reporting

Letter to shareholdersPublished every Novemberwith over 20,000 copies sentout. This document is sent to all shareholders and nearly15,000 investment clubsthrough the French NationalFederation of InvestmentClubs, as well as to aselection of institutionalinvestors. It is also availableonline on the company’swebsite, and nearly 6,000copies are distributed during the French Actionariainvestor trade show.

Institutions providingfinancial research on Inter Parfums

Several brokerage firms, banks and financialinstitutions follow and/or publish regularresearch reports on Inter Parfums for use by their clients:

Aurel Leven, CDC Ixis, CIC Securities, CreditAgricole Indosuez Chevreux / Group CréditAgricole, Credit Lyonnais Securities Europe,Deutsche Bank, Enskilda Securities, Exane,Fortis, Gilbert Dupont / Group Crédit duNord, HSBC CCF, ING Ferri, Natexis Capital /Group Banques Populaires, Oddo Pinatton(Inter Parfums specialist and market maker),Portzamparc, Société Générale GlobalEquities, Wargny, Directors and officers

Individual and groupmeetings■ meetings with journalistsfrom the economic andfinancial press on semi-annual and annual earningsreleases;■ briefings for financialanalysts and institutionalinvestors on the release of semi-annual and annualearnings, at the PavillonGabriel in Paris;■ shareholder trade showssuch as Actionaria, held at the end of November in the Palais des Congrèsconvention center in Parisallows the company to meetindividual shareholders,answer their questions and remit the letter toshareholders to them;■ presentations and forumsfor individual investors,organized by EuroNext or Investir magazine;■ meetings with financialanalysts and institutionalinvestors in France andabroad (Paris, Monaco,London, Geneva, Brussels,Edinburgh and other cities).

The Inter Parfums corporate website ■ company news (includingproduct launches and pressreleases);■ the perfume business and brands;■ financial data (key figures, annual report,letter to shareholders, etc.).

Financialreporting calendar 2003 / 2004

Releases■ Second-quarter 2003 sales report July 10, 2003■ First-half 2003 sales and earnings reportSeptember 10, 2003■ Third-quarter 2003 sales report October 9, 2003■ 2003 Letter to shareholders Mid-November 2003■ 2003 Sales report Mid-January 2004■ 2003 Sales and earnings report Mid-March 2004

Forums and trade shows■ Investir forum in Bordeaux May 12, 2003■ Investir forum in Lille October 13, 2003■ Actionaria trade show November 21 & 22, 2003■ Investir forums in Lyon December 10, 2003■ MidNex trade show Mid-January 2004

Press releases and financial notices■ financial announcementspublished in the economicand financial press (Les Echos, Le Figaro, Investir and Le Journal desFinances) target individualshareholders;■ press releases, in Frenchand English, are sent to institutional investors, French and foreign financialanalysts and are alsoavailable online on thecompany’s website.


Board of Directors

Board of Directors and list of mandatesas of December 31, 2002

Philippe BenacinChairman and Chief Executive Officer of Inter Parfums(mandate renewed April 21, 1998, expires at the close of the2004 annual Shareholders’ Meeting)Other functions: Chairman of the Board of Directors of InterParfums Holding, Chairman of the Board of Directors of InterParfums Trademark, Chairman and Chief Executive OfficerInter Parfums Grand Public

Jean MadarDirector (mandate renewed April 21, 1998, expires at theend of the 2004 annual Shareholders’ Meeting)Other function: Director and Chief Executive Officer of InterParfums Trademark

Marianne BenacinDirector (mandate renewed April 21, 1998, expires at theend of the 2004 annual Shareholders’ Meeting)Other functions: Director of Inter Parfums Grand Public,Director of Inter Parfums Trademark

Raoul MadarDirector (mandate renewed April 21, 1998, expires at theend of the 2004 annual Shareholders’ Meeting)Other function: Director of Inter Parfums Holding


directorsand officers


2

Corporate governance

The Board of Directors is granted broad powers to determinethe company’s strategic business orientations, and isresponsible for their implementation within the limits of thecompany’s purpose and the powers explicitly granted by lawto Shareholders’ Meetings. The Board of Directors considersall questions regarding the company’s proper functioning,resolves all matters concerning it and carries out any controlsand verifications that it may find appropriate.

Management of the company is entrusted to a Board ofDirectors, which consisted of four members as of December31, 2002, each with a renewable six-year mandate.

In application of the provisions of article L.225-51 of theFrench Commercial Code, the Board of Directors in itsmeeting of December 19, 2002 took a decision regarding thecompany’s executive management, and decided againstseparating the function of Chairman of the Board of Directorsfrom that of Chief Executive Officer.

As a result, Philippe Benacin, as Chairman of the company’sBoard of Directors, is legally mandated to represent thecompany’s Board of Directors, to organize its work and toreport on its work to the annual Shareholders’ Meeting, toensure the correct functioning of the company’s managementbodies and, in particular, to ensure that the directors are ableto carry out their assignment.

On behalf of the company’s executive management, andsubject to the powers the law explicitly grants Shareholders’Meetings and the Board of Directors, he is vested with thebroadest powers to act in all circumstances in the company’sname and to represent it in its dealings with third parties.

Meetings

The Board of Directors met eight times during 2002, with adirectors’ attendance rate of 81%.

Compensation paid to directors and officers

The Chairman’s compensation consists of both fixed andvariable components. It is determined at the beginning of theyear by the Board of Directors. The variable component is based notably on the group’s consolidated net income, andis paid in the year following the year to which it refers.

In 2002 total gross compensation paid by Inter Parfums toPhilippe Benacin, Chairman and Chief Executive Officer,amounted to € 174 thousand, compared with a total of € 167thousand in 2001. Philippe Benacin also received 6,500 stockoptions priced at € 30 per share. He did not exercise anyoptions.

In 2002 total gross compensation paid by Inter ParfumsTrademark to Jean Madar, Chief Executive Officer, amountedto € 5 thousand compared with a total of € 24 thousand in 2001. Jean Madar also received 6,500 stock options pricedat € 30 per share. He did not exercise any options.

Directors’ fees

No directors’ fees are paid.

Regulated agreementsAll regulated agreements in existence at the year-end closingare listed in the special report of the statutory auditors.Moreover, no regulated agreement has been entered intobetween the year-end closing and the date at which thisreport was filed.

Management Committee

Composition of the ManagementCommitteePhilippe BenacinChairman and Chief Executive Officer

Jean MadarChief Executive Officer

Eric de LabouchereDirector of Development

Frédéric Garcia-PelayoDirector, Export

Jack AyerDirector, France

Philippe SantiChief Financial Officer

Meetings

The Management Committee met five times during 2002 and discussed the following points:■ February: 2001 earnings, 2002 product launches andinternal organization;■ May: 2001 earnings, first-half 2002 forecasts, ChristianLacroix launch and issue of bonus shares;■ July: first-half 2002 earnings, second-half 2002 forecasts,and the S.T. Dupont and Paul Smith launches;■ October: 2002 forecasts, 2003 budgets, schedule of 2003and 2004 launches and internal organization;■ December: 2002 earnings, 2003 budgets, schedule of 2003and 2004 launches.

Management Committee compensation

Total gross compensation paid to the members of theManagement Committee amounted to € 754 thousand in2002, compared with € 722 thousand in 2001. The variablecomponent, pegged notably to the company’s earnings,amounted to € 194 thousand in 2002, compared with € 175thousand in 2001.

Directors and officers Summarized annual report 2002 Inter Parfums

37



Although it operates in a sector that is considered lesspolluting than other industries, Inter Parfums is stillconcerned with preserving the environment and the quality oflife. It is involved in an ongoing manner in the productionprocess and coordinates all of the subcontractors andsuppliers who manufacture its products and are directlyresponsible for their impact on the environment.

Inter Parfums’ consumption of water and energy is restrictedto normal office usage in the administrative premises thathouse 45 of its 62 employees.

The company constantly strives to reduce the already lowimpact of its business on the environment by investing totreat and recycle the packages, cardboard boxes and glassthat are left once its customers have finished using itsproducts.

By contributing to the “Eco Emballage” packaging recyclingprogram, Inter Parfums helps in the management andrecycling of waste.

In its desire to balance its products’ quality and esthetics withenvironmental considerations, Inter Parfums has taken careto reduce packaging volumes at the source and select theappropriate materials at each stage of production to ensureoptimal conditions for their recycling or disposal.

For example, for glass recycling reasons, Inter Parfums haschosen color some of its bottles using a biodegradablewater-soluble solution that does not harm the environment.

In addition to these measures and expenditures relateddirectly to its own business, Inter Parfums is aware thatpreserving the quality of life requires management practicesthat respect the environment from product design topackaging recycling. Inter Parfums will continue to refine itsapproach by adopting new ways of designing, manufacturingand distributing its products.

Inter Parfums strives to surpass its role as a simplecoordinator by increasing its partners’ awareness ofenvironmental issues and staying informed of the businesspractices of its subcontractors and suppliers. All this formspart of Inter Parfums’ commitment to preserving theenvironment, which is, after all, everyone’s responsibility.

By building its businessmainly around the creativeaspect and the distributionof products, Inter Parfumshas chosen to entrust theentire production process to manufacturing partners,consisting of producers of juice, glass, caps andcardboard boxes, andpackaging companies.

Having no productionactivities of its own, Inter Parfums does not own laboratories ormanufacturing sites.

commitment tothe environment


2managementreport

Sales trends

Consolidated financialtrends

Risk factors

Litigation

Events occurring after the closing date ofthe financial statements

2003 Outlook

40

41

42

42

43

43

management report contents

Summarized annual report 2002 Inter ParfumsManagement report

39


1 Sales trends

1.1 Economic environment

The French perfume and cosmetics industry, whichaccounts for approximately one-third of the world market,continued to improve in 2002 despite the downturn in theglobal economy. Industry sales (based on net producerprices) rose by 4.5% compared with 2001 to € 13.3 billion,and were up 4.9% on a constant exchange rate basis.

With € 7 billion in total sales through its four distributionchannels, exports increased by nearly 5%:

■ Sales in the European Union (52% of exports) continue torise strongly year after year (up 6.5% in 2002), even in maturemarkets like the United Kingdom (15%), Italy (11%) andBelgium and Spain (7%). The only noteworthy changeoccurred in Germany, which remained France’s mostimportant customer despite flat sales;

■ European countries outside the European Union postedsolid increases (6%), notably in Poland (17%) and Russia(10%);

■ Sales in Asia, after growing 9% in 2001 and 26% in 2000,rose by nearly 8% in 2002 and the region replaced NorthAmerica as the second-largest market for French products(11% of exports). Growth rates varied by country, fromfavorable in South Korea (13%) to satisfactory in Japan (up3%, despite the recession) and difficult in Hong Kong (down3%). Strong growth in China (up 26%) concealed import dutyproblems experienced during much of the year;

■ North American sales (10% of exports) fell by 1%, as wasto be expected in light of the economic difficulties experiencedsubsequent to the events of September 11, 2001;

■ Sales to the Middle East continued to rise (6%) and stillaccount for nearly 7% of total exports, with the United ArabEmirates (up 12%) the most important export destination;

■ South American sales fell sharply (down 17%) due toongoing economic and financial crises and problems incountries like Argentina (down 74%) and Brazil (down 15%).

With exports nearly six times larger than imports, the perfumeand cosmetics industry is France’s fourth largest net exporter,behind beverages, automobiles and aerospace.

Despite the troubled economy, the French market set a newrecord in 2002 with € 6.3 billion in sales, up 5.3% comparedwith 2001. Growth was similar to the increase in 2001compared with 2000 (5.1%) and higher than the 4.3% annualaverage over the last ten years. Last year’s growth included amoderate 2.7% increase in prices and 2.6% from additionalvolumes.

In the selective distribution segment alone, sales reached € 1.7 billion in 2002, a 3.3% increase over 2001, on stablevolumes. Good spring and autumn performances contrastedwith more mediocre results in the summer months.Source: Perfume Industries Association

Some key figures for the industry■ 170,000 bottles of perfume are sold in France every day■ The French spend an average of € 171 per person onhealth and beauty and perfume products every year■ France’s perfume and cosmetics industry earns € 15.8million in foreign exchange every day■ France exports cosmetic products to more than 200countries worldwideSource: Perfume Industries Association

1.2 2002 Highlights

Several major events had an impact on InterParfums’ activities in 2002:

Launch of the Burberry Baby Touch line

In the spring of 2002, the company launched the BurberryBaby Touch line for babies (eau de toilette with and withoutalcohol, shower and bath gel, moisturizing cream andmassage oil), in step with the Burberry Touch line that thecompany introduced at the end of 2000.

Launch of the Christian Lacroix Bazar line

The major event of the year was the launch of the ChristianLacroix Bazar line, first in France in May and then abroadduring the second half. This new initiative for the brand wasvery well received, and was accompanied by very highreorder rates.

New issue of bonus shares

In June, the company conducted its third issue of bonusshares, as it had in June 2000 and June 2001, on the basis ofone new share for ten existing shares, by incorporatingcertain reserves from shareholders’ equity.

Launch of the S.T. Dupont Essence Pure lines

In the autumn of 2002, the company launched S.T. DupontEssence Pure – its third line of perfumes under the Dupontname following S.T. Dupont Paris and S.T. Dupont Signature –primarily in France, Portugal, Eastern Europe and the MiddleEast. The product’s introduction continued in the first half of2003 in Eastern Europe and Asia.

Launch of the Paul Smith Extrême lines

Meanwhile, a brand-extension of the Paul Smith line, calledPaul Smith Extrême, based on the English designer’s famousstripes, appeared on the French and Italian markets as well asin the Middle East. The line will be launched in England andJapan as well as in certain other European countries in 2003.

1.3 Evolution of the company’s business in 2002

In 2002, Inter Parfums continued to gain marketshare, with sales of € 93.4 million that were up 5.5% (6.6%on a constant exchange rate basis) versus 2001.

The success of the year’s launches and the growth of theprincipal lines in the product portfolio compensated by far thenegative effects related to the worsening of the worldeconomy. Inter Parfums won market share and confirmedboth the pertinence of its operating models and the quality ofits portfolio of brands.

1.4 Sales by brand2001 2002

In € % of In € % ofmillions total millions total

Burberry 51.2 57.9% 55.8 59.7%S.T. Dupont 10.6 11.9% 9.4 10.0%Paul Smith 11.3 12.8% 8.9 9.5%Christian Lacroix 2.2 2.5% 7.5 8.0%Celine 4.2 4.8% 6.8 7.3%Other brands 4.5 5.0% 2.6 2.8%Prestige perfumes 84.0 94.9% 91.0 97.3%Mass market perfumes 4.5 5.1% 2.4 2.7%

Total 88.5 100.0% 93.4 100.0%



2

Prestige perfumes

Sales of the prestige perfumes, which now represent 97% ofInter Parfums’ business, increased by 8% to € 91 million in2002 from € 84 million in 2001, and were up 11% excluding“other brands”.

This favorable trend reflects mainly the continued growth ofBurberry perfumes in practically all markets.

In addition:

■ Firm sales in Eastern Europe and the Middle East and thesatisfactory initial results of the launch of the S.T. DupontEssence Pure line compensated the abandon of the S.T.Dupont Signature line. As budgeted, S.T. Dupont perfumesexceeded € 9 million in sales in 2002;

■ The good performance of the Paul Smith perfumes in theU.K., which represents a third of their sales, mitigated theimpact of the poor first half with full-year sales that were onbudget;

■ Celine perfumes continued to grow, with sales of nearly € 7 million that were mainly higher in Western Europe;

■ The successful launch of the Bazar line (€ 6.6 million in nine months), notably in France, resulted in therevitalization of the Christian Lacroix name in perfumes, withsales of € 7.5 million;

■ Economic difficulties in South America caused sales ofMolyneux perfumes to plummet by 50%.

Mass market perfumes

No new products were launched in 2002, and mass marketperfume sales fell sharply to € 2.4 million. This non-strategicbusiness now represents only 2.7% of the Inter Parfums’ total sales.

1.5 Sales by geographic region

2001 2002In € % of In € % of

millions total millions total

North America 7.2 8.1% 5.4 5.8%South America 8.7 9.9% 6.4 6.9%Asia 13.4 15.1% 12.6 13.5%Eastern Europe 9.5 10.8% 9.3 10.0%Western Europe (1) 28.9 32.7% 38.0 40.7%Middle East 11.1 12.5% 11.5 12.3%France 8.9 10.0% 8.5 9.1%Rest of world 0.8 0.9% 1.7 1.7%

Total 88.5 100.0% 93.4 100.0%(1) Excluding France

The geographic breakdown of sales was affected by theinternational environment and specific structural problems incertain countries. Western Europe was the most stronglyimpacted, with its share of total sales increasing by 8 pointsin 2002, thanks notably to the success of the past few years’product launches and the continued growth of the portfolio’sprincipal lines:

■ North America suffered from the lack of distribution ofChristian Lacroix and Paul Smith perfumes in 2002, whilesales of the other brands were especially satisfactory;

■ The economic and financial difficulties that struck SouthAmerica in 2002 (notably Argentina and, to a lesser degree,Brazil) weighed heavily on the region’s sales, which fell by27% versus 2001. Sales of Molyneux perfumes dropped bymore than 75%;

■ Asian sales leveled off after a period of strong growth inrecent years (44% in 2000 and 37% in 2001). The drop in PaulSmith perfumes was offset by growth in the Celine andChristian Lacroix lines;

■ While the mass market business fell sharply – down 66% –Eastern Europe benefited from the successful launch of theChristian Lacroix Bazar line, especially in Russia, while S.T.Dupont perfumes strengthened their positions;

■ With over 40% of total sales, Western Europe remained thecompany’s largest sales region. Sales increased by nearly32% in 2002 to € 38 million, with accelerated, double-digitgrowth across all brands;

■ Sales in the Middle East were stable at € 11 million. S.T.Dupont perfumes consolidated their market share in theregion, while the Christian Lacroix Bazar line was particularlywell received;

■ In France, despite an economic environment that remainshighly competitive and marked by numerous productlaunches, sales were virtually stable in 2002 at € 8.5 million.

2 Consolidated financial trends

2.1 Earnings trends

In € millions 2001 2002 ∆

Sales 88.5 93.4 +5%Gross margin 46.7 47.4 +2%

% of sales 52.8% 50.7%Income from operations 12.9 13.7 +6%

% of sales 14.6% 14.7%Net income 8.0 8.8 +10%

% of sales 9.1% 9.5%

Income from operations increased by 6% to € 13.7 millionthanks to close scrutiny of fixed expenses and ongoingcontrol of marketing and advertising expenses (up 2%). Theoperating margin amounted to 14.7% of sales.

Net income rose by nearly 10% from € 8.0 million in 2001 to€ 8.8 million in 2002, equivalent to € 2.43 per share. InterParfums’ profitability continued to improve with the netmargin up to 9.5% from 9.1% in 2001 and 8.6% in 2000, andeven higher than the latest forecasts.

2.2 Major balance sheet trends

In € millions 2001 2002

Fixed assets 3.8 2.9Inventories 22.4 19.6Accounts receivable 28.3 31.3Net cash 14.2 24.5Shareholders’ equity 48.6 55.6Debt 1.5 -Accounts payable 16.2 20.0

The year was marked by continued strengthening of InterParfums’ consolidated balance sheet, with as of December31, 2002:

■ Significant shareholders’ equity: € 55.6 million, equivalentto 65% of total assets;

■ Net cash of € 24.5 million, up by more than € 10 million forthe year thanks to tight management of working capitalneeds;

Management report Summarized annual report 2002 Inter Parfums

411


■ No goodwill;

■ No financial debt, as the company reimbursed the onlyborrowing on its books as of December 31, 2001 in October2002.

2.3 Major cash flow trends

The consolidated statements of cash flows highlightthe following noteworthy trends:

■ Strong improvement in cash flows provided by operatingactivities (up € 14.7 million). Good control allowed inventoriesto be reduced by nearly € 3 million despite increased sales,while the slight rise in accounts receivable was offset by a comparable increase in accounts payable;

■ Cash used in investing activities was fairly low at € 1.3 million,and was used for traditional licensing rights acquisitions, andthe usual molds and tooling;

■ Cash flows used in financing activities related mainly to thepayment of the dividend earned in 2001 and the repayment of € 1.5 million in debt.

In this context, net cash recorded strong growth – more than€ 10 million for the year – to reach € 24.5 million as ofDecember 31, 2002.

3 Risk factors

3.1 Foreign exchange risk

Since 1995, Inter Parfums has chosen a conservativeapproach to managing its exchange rate risk, seeking only tohedge its exposure from operations and to maintain its grossmargins. Forward sales are carried out routinely, mainly on theU.S. dollar and the pound sterling, which in 2002 accountedfor 23% and 13% of total billings respectively, compared with 31% and 8% the previous year. In addition, the impact of sharp U.S. dollar parity fluctuations on the gross margincan be partially offset through adjustments to the products’sales prices.

3.2 Country risk

With sales in more than 120 markets, Inter Parfumsregularly reassesses its country risk exposure.

For the past few years, the company has incurred no significantdefault on payments. However, in light of the political,economic and financial situation in Argentina, the € 180,000that Inter Parfums allocated to reserves in the financialstatements for the year ended December 31, 2001 weremaintained in the accounts closed on December 31, 2002.

Given our collections policies, receivables monitoring and thequality of our distributors’ financial health, no other countryrisk reserve allocations were made in the financial statementsfor the year ended December 31, 2002.

3.3 Insurance

Inter Parfums has always carried adequate insurancefor its activities worldwide, under conditions that comply withindustry norms, providing global coverage for variousimportant risks and activities.

Insurance coverage includes:

■ Damage to equipment and the resulting operating losses;

■ Civil liability;

■ Directors’ and officers’ liability;

■ Product liability;

■ Shipping.

Inter Parfums purchases supplemental insurance when required,either in compliance with the law or more specifically to hedgebusiness risk or the risk arising from specific circumstances.

Insurance programs are overseen by a specialized broker, andspread chiefly among four major European insurance companies.

3.4 License agreements

The licensing system, which is typical in the perfumeand cosmetics industry, consists of a brand name company(Christian Lacroix, Celine, etc.) granting the licensee (InterParfums) the right to use the brand name in exchange for aroyalty payment, which is typically indexed to sales. The riskpertains to the potential non-renewal of agreements uponexpiration.

In the case of Inter Parfums, several factors tend to limit oreliminate 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.

4 Litigation

4.1 Tax litigation

Involving Inter Parfums (1993 and 1994 fiscal years)

In the first half of 1996, Inter Parfums was audited by the taxauthorities for the years 1993 and 1994. Following this audit,an assessment for additional tax was issued in June 1996,and the company made reserve allocations for the undisputedamounts, which were not significant, in its financialstatements for the year ended December 31, 1996.

Acting on the advice of tax attorneys, Inter Parfums initiatedlegal action to obtain full tax relief with regard to formallycontested adjustments, which involved a total ofapproximately € 0.75 million. The tax authorities waivedcertain adjustments over the years, and as a result the totalamount of formally contested adjustments now stands ataround € 0.34 million.

Based on its regular year-end review and in keeping withconservative accounting principles, the company allocated € 0.15 million to reserves as of December 31, 2000. Nosignificant event occurred in 2001or 2002 and this reserveamount remained unchanged as of December 31, 2002.



2

Involving Inter Parfums / Inter Parfums Grand Public(1996 to 1998 fiscal years)

In the first half of 1999, Inter Parfums SA and Inter ParfumsGrand Public were audited by the tax authorities for the years1996 to 1998. Following this audit, a first tax adjustment forthe 1996 fiscal year was issued in August 1999, and a secondfor the 1997 and 1998 fiscal years was issued in March 2000.

The accepted adjustments involved insignificant amounts forwhich reserve allocations were established in the 1999 and2000 financial statements, without any material impact.Acting on the advice of tax attorneys, the company initiatedlegal action to obtain full tax relief with regard to the formallycontested adjustments, which amounted to approximately€ 2 million.

After several adjustments were progressively dropped by thetax authorities, the remaining formally contested adjustmentsnow total € 1.3 million.

Based on its regular year-end review, the company allocated€ 0.7 million to reserves as of December 31, 2000. Nosignificant event occurred in 2001 or 2002.

4.2 Brand-related and sales-relatedlitigation

Brand-related litigation

In 1998, several sales-related and strategy-related legaldisputes over Jean Charles Brosseau’s license agreementwith Inter Parfums resulted in lawsuits before the ParisCommercial Court.

In a decision dated September 27, 1999, the ParisCommercial Court ruled in favor of Jean Charles Brosseau’srequest to terminate its license agreement and ordered InterParfums to pay the minimum contractually guaranteedroyalties plus € 0.6 million in damages and interest.

In light of events occurring in 2000 and in keeping withconservative accounting principles, the company, whichappealed the ruling in 1999, established a provision forcontingencies of € 0.7 million.

In a ruling dated February 23, 2001, the Paris Appellate Courtupheld Jean Charles Brosseau’s request to terminate thecompany’s license agreement (which had no material impacton 2001 sales). It ordered Inter Parfums to pay the minimumcontractually guaranteed royalties (for which reserves wereestablished in the accounts prepared on April 23, 2000),appointed an expert for the purpose of conducting furtheranalyses and ordered Inter Parfums to pay € 0.15 millionprovisionally to cover damages and interest. Since that date,the litigation remains pending, no significant event occurred in 2001 or 2002 and the reserve amount was unchanged as of December 31, 2002.

Sales-related litigation

Reserves were established in the financial statements for theyear ended December 31, 2001 in the amount of € 0.2 millionfor two sales-related lawsuits that arose during that year. In light of events occurring in 2002, the company establisheda provision for contingencies of € 0.4 million in the accountsclosed on December 31, 2002.

To the best of the company’s knowledge, there are no otherclaims, litigation or extraordinary circumstances likely to have,or having recently had, a material impact on the company’sand the group’s financial position, earnings, sales or ongoingbusiness value.

5 Events occurring after the closing date of the financial statementsNo significant event has occurred since the closing

date of the financial statements.

6 2003 OutlookIn 2003, Inter Parfums plans to launch several

products under the Celine, Christian Lacroix and especiallyBurberry brands.

Good results in the second half of 2002 and early 2003 haveenabled Inter Parfums to start the year with confidence,despite the uncertain international environment. Sales areexpected to reach € 103 million in 2003.

Management report Summarized annual report 2002 Inter Parfums

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shareholderinformation

Information regarding the company

Main legal provisions and by-laws

Capital stock

Dividends

Shareholder agreements

Key stock market data

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Shareholderinformation contents


2

1 Information regarding the company

1.1 General information

Corporate name: Inter Parfums

Registered office: 4, rond-point des Champs Elysées 75008Paris, France

Date of incorporation: April 5, 1989

Date of expiration: April 5, 2088

Legal incorporation: Corporation with a Board of Directorsgoverned by the law of July 24, 1966 and the March 23, 1967application decree.

Business purpose:The company’s business purpose in France and all othercountries involves:

■ The purchase, sale, manufacture, import and export of allproducts related to perfumes and cosmetics;

■ The use of license agreements;

■ Providing all services related to the above-mentionedactivities;

■ the company’s participation by all means, directly orindirectly, in all transactions that may relate to its businesspurpose through the creation of new companies, thecontribution, subscription or purchase of company shares orrights, mergers or other, through the creation, acquisition,rental or lease management of all rights to conduct businessor establishments, and through the acquisition, operation ordisposal of all procedures and patents related to theseactivities;

■ and, generally, all commercial, industrial, financial, civil,securities and real estate transactions that relate directly orindirectly to the company business purpose or to any similartransactions and related questions.

Fiscal year: January 1 - December 31

Siret number: 350 219 382 00032

Activity code: 514 L Wholesale perfume and beauty products.

1.2 Share account registration

At the option of their owners, shares are registered inan exclusively personal account, in an administered personalaccount or to the bearer identifiable at an authorizedintermediary. Euro Emetteurs Finances handles share servicesand the management of exclusively personal accounts.Questions may be addressed to the registered office.

2 Main legal provisions and by-laws

2.1 Shareholders’ Meetings(article 19 of the by-laws)

All shareholders have the right to participate inShareholders’ Meetings or to be represented, regardless ofthe number of shares owned, provided the shares are fullypaid up and registered in the shareholder’s name for at leastfive days prior to the Shareholders’ Meeting, or were

referenced in a certificate filed by an approved intermediary atthe sites mentioned in the Meeting notice stating theunavailability of the shares up until the date of the Meeting.

All shareholders may be represented by a spouse or othershareholder. All shareholders may vote by correspondenceusing a proxy statement that complies with legal provisionsand is obtainable by returning the Meeting notice.

2.2 Beneficial ownership of shares(article 20 of the by-laws)

All shareholders, acting alone or in concert, who ownmore than one twentieth, one tenth, one fifth, one third, onehalf or two thirds of the company’s capital stock or votingrights must comply with the provisions of article L. 233-7 ofthe new French Commercial Code (formerly article 356-1 ofthe July 24, 1966 law) and, more specifically, must notify thecompany immediately by certified mail with return receipt. Inthe event this requirement is not met, the provisions of articleL. 233-14 of the new French Commercial Code (formerlyarticle 356-4 of the July 24, 1966 law) shall apply.

Article L. 233-7 of the new French Commercial Code (formerlyarticle 356-1 of the July 24, 1966 law) now requires ashareholder to state his intentions with regard to shareownership for the next 12 months once the 10% and 20%ownership and voting rights thresholds in a listed companyhave been exceeded.

2.3 Purchase of treasury sharesby the company(article 21 of the by-laws)

The Shareholders’ Meeting, having received theBoard of Directors’ Report and the information contained inthe memorandum approved by the Commission desOpérations de Bourse (reference number 03-184 dated March24, 2003), which was established for the Meeting in order to review the current resolution, authorizes the Board of Directors, in accordance with the provisions of article L. 225-209 of the new French Commercial Code, to buy andsell shares in Inter Parfums pursuant to the following termsand methods, for the purpose of:

■ Stabilizing the share price through systematic marketintervention in order to offset the market trend;

■ Purchasing and sale of shares depending on marketconditions;

■ Partially or entirely cancelling shares through a capitaldecrease, in order to optimize earnings per share, subject tothe approval of the thirteenth resolution submitted for vote atthe Special Shareholders’ Meeting;

■ Optimizing the company’s asset and financial management;

■ Using shares as payment or as unit of exchange during anyacquisition or other financial transaction.

The Board is authorized to buy, using all available resources,a number of shares not to exceed 5% of the capital stockoutstanding as of the present Shareholders’ Meeting. TheBoard may also cancel such shares, subject to the adoptionof the ninth resolution submitted at the Special Shareholders’Meeting.

Shareholder information Summarized annual report 2002 Inter Parfums

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The Board of Directors decides that the company may acquireshares within the following limitations on price:

■ a maximum purchase price of € 60 per share, excludingacquisition costs;

■ a minimum sale price of € 15 per share, excludingacquisition costs.

The total authorized amount for such purchases is therefore € 11,398,470.

These prices have been set with the understanding thatadjustments may be necessary to reflect potentialtransactions involving the company’s capital stock, notablythe incorporation of retained earnings and bonus issues ofnew shares. The treasury shares shall be registered and arenot eligible to receive dividends, pre-emptive subscriptionrights or voting rights.

The current authorization, which replaces the previousauthorization granted in accordance with the fourth resolutionapproved by the Shareholders’ Meeting of May 5, 2002, isgranted to the Board of Directors for a maximum duration of18 months, which shall end under all circumstances at theconclusion of the Shareholders’ Meeting held to approve thefinancial statements for the year ended December 31, 2003.

In order to ensure the execution of this authorization, theBoard of Directors is granted the legal and regulatory powersrequired to initiate buy and sell orders in the market, to signany agreement notably with a view to keeping purchase andsale ledgers, to submit all declarations to the Commission desOperations de Bourse (COB) and the Conseil des MarchésFinanciers or any other such entity, to carry out all formalitiesand in general to make all necessary arrangements.

Under the previous share purchase program (COB referencenumber 02-352 dated April 10, 2002), share purchases totaled€ 990,913 for 24,064 shares at an average price of € 41.18,while share sales totaled € 1,048,691 for 24,548 shares soldat an average price of € 42.72.

As of February 28, 2003, the company held 8,629 treasuryshares, or 0.23% of the capital stock, including 6,156 sharesheld as part of the liquidity contract with the Oddo Pinattonbrokerage firm acting as market-maker.

2.4 Appropriation and distributionof earnings (article 24 of the by-laws)

If the financial statements approved by theShareholders’ Meeting show a distributable profit as definedby law, the Shareholders’ Meeting decides whether to makeappropriations to one or more retained earnings or reserveaccounts under its control, to carry it forward or to distributeit. The Shareholders’ Meeting may grant shareholders thechoice of receiving a dividend in cash or in shares for all or part of the dividend to be distributed or advance paymentson dividends, subject to the applicable legal provisions.

Following the approval of the financial statements by theShareholders’ Meeting, any losses that should occur arecarried forward to be offset against future earnings until theselosses have been fully utilized.

2.5 Double voting rights(article 11 of the by-laws)

In accordance with the provisions of article L 225-123 of the French Commercial, the Special Shareholders’Meeting of September 29, 1995 created shares with doublevoting rights. These shares must be fully paid-up andregistered in the company’s Shareholder Registry asregistered shares for at least three years.

2.6 Availability of company documents

The by-laws, minutes and other company documentsare available at Inter Parfums’ registered office.

2.7 Legal jurisdiction

In the event of litigation, the courts having jurisdictionare those of the registered office in cases where the companyis a defendant. They are designated according to the natureof the litigation, barring any contrary provisions of the newCivil Procedure Code.



23.2 Authorized capital

The Board of Directors meeting of May 14, 2002 tookadvantage of the authorization granted by the combinedRegular and Special Shareholders’ Meeting of May 3, 2002, toincrease Inter Parfums’ capital in the amount of € 1,032,327,bringing it to a total of € 11,355,621 through the creation of344,109 new shares, issued at no cost to the shareholders asa bonus in the ratio of one new share for ten existing shares.

The May 5, 2002 Shareholders’ Meeting having granted suchauthorization for a period of 24 months, the Regular andSpecial Shareholders’ Meeting of April 25, 2003 voted, in itsninth resolution, to renew, for a three-year period, theauthorization to increase the capital stock in one or moreoperations, up to a maximum of € 5 million, by incorporation

of all or part of additional paid-in capital, retained earnings ornet income with corresponding issues of new bonus shares.

The same Meeting also voted, under the terms of its ninth andeleventh resolutions, to delegate to the Board of Directors thenecessary powers to increase share capital, in one or moreoperations, during a three-year period:

■ for which pre-emptive rights would be waived, up to anamount not to exceed € 5 million, through the open market,via new shares to be issued for cash or as compensation forthe company’s liquid liability obligations;

■ for which pre-emptive rights would not be waived, up to anamount not to exceed € 5 million, via new shares to be issuedfor cash or as compensation for the company’s liquid liabilityobligations.

3 Capital stock

3.1 Five-year history of capital stock transactions

Year Transaction type Number Shares Total Capital of shares created shares stock (in €)

1998 Exercise of 07/1994 convertible bonds 75,630 151,260 2,044,525 6,233,717Exercise of 11/1994 convertible bonds 92,006 184,012 2,228,537 6,794,765Exercise of 1994 stock options 3,436 3,436 2,231,973 6,805,242Exercise of 1996 stock options 2,050 2,050 2,234,023 6,811,492

1999 Exercise of 07/1994 convertible bonds 4,662 9,324 2,243,347 6,839,921Exercise of 11/1994 convertible bonds 2,204 4,408 2,247,755 6,853,361Exercise of 1994 stock options 21,331 21,331 2,269,086 6,918,399Exercise of 1996 stock options 3,750 3,750 2,272,836 6,929,832Exercise of 1997 stock options 1,850 1,850 2,274,686 6,935,473Exercise of 1998 stock options 800 800 2,275,486 6,937,912Exercise of 1999 stock options 300 300 2,275,786 6,938,827

2000 Exercise of 1994 stock options 400 400 2,276,186 6,940,047Exercise of 1996 stock options 4,101 4,101 2,280,287 6,952,550Exercise of 1997 stock options 1,884 1,884 2,282,171 6,958,295Exercise of 1998 stock options 200 200 2,282,371 6,958,904Bonus share issue 759,445 759,445 3,041,816 9,274,437

2001 Exercise of 1996 stock options 16,237 16,237 3,058,053 9,323,944Exercise of 1997 stock options 501 501 3,058,554 9,325,471Exercise of 1998 stock options 267 267 3,058,821 9,326,285Exercise of 1999 stock options 600 600 3,059,421 9,328,115Bonus share issue 380,777 380,777 3,440,198 10,489,096Conversion of capital stock into € - - 3,440,198 10,320,594

2002 Exercise of 1996 stock options 6,569 6,569 3,446,767 10,340,301Exercise of 1997 stock options 8,014 8,014 3,454,781 10,364,343Exercise of 1998 stock options 600 600 3,455,381 10,366,143Bonus share issue 344,109 344,109 3,799,490 11,398,470

As of December 31, 2002, the capital stock of Inter Parfums consisted of 3,799,490 shares with a par value of € 3.

Breakdown of main additional paid-in capital

Year Transaction type Number Par value Paid-inof shares (in €) capital (in €)

1998 Capital increase 151,260 3.05 9.151998 Capital increase 184,012 3.05 10.062000 Capital increase (through bonus share issue) 759,445 3.05 -2001 Capital increase (through bonus share issue) 380,777 3.00 -

2002 Capital increase (through bonus share issue) 344,109 3.00 -


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3.3 Potential dilution of capital stock

General strategy

Since 1994, the managers and employees of Inter Parfums and its subsidiaries benefit regularly from stock option plans.

1996 Plan 1997a Plan 1997b Plan 1997c Plan 1998 Plan

Date of Board Mtg. proposing the plan 4/3/95 3/21/97 3/21/97 4/3/95 3/3/98Date of Shareholders’ Mtg. authorizing the plan 5/19/95 5/6/97 5/6/97 5/19/95 4/21/98Date of Board Mtg. opening the plan 11/29/96 7/21/97 9/19/97 9/19/97 10/6/98Expiration date for exercise of options 11/29/02 7/21/04 9/19/04 9/19/03 10/6/05Total number of options authorized 30,000 30,000 30,000 30,000 50,000Total number of options granted 24,700 28,250 1,750 5,300 43,400Initial subscription price 8.99 18.29 23.63 23.63 21.34Adjusted subscription price 5.45 11.09 14.32 14.32 12.94Option period 6 years 7 years 7 years 6 years 7 yearsWaiting period None 5 years (1) 5 years (1) 5 years (1) 5 years (1)

Share/option parity 1 for 1 1 for 1 1 for 1 1 for 1 1 for 1Exercised in 1999 or earlier 5,800 1,850 - - 800Cancelled in 1999 or earlier - 200 - - -Exercised in 2000 4,101 834 1,050 - 200Cancelled in 2000 - - - - -Bonus issue in 2000 5,555 8,739 501 1,773 14,143Exercised in 2001 16,237 - 301 200 267Cancelled in 2001 169 - - 602 -Bonus issue in 2001 2,104 4,266 152 892 7,045Exercised in 2002 6,569 5,185 730 2,099 600Bonus issue in 2002 517 3,845 107 726 6,351Options outstanding as of December 31, 2002 0 37,031 429 5,790 69,072

1999 Plan 2000 Plan 2001 Plan 2002 Plan

Date of Board Mtg. proposing the plan 03/08/99 03/08/99 03/02/01 03/02/01Date of Shareholders’ Mtg. authorizing the plan 04/27/99 04/27/99 04/24/01 04/24/01Date of Board Mtg. opening the plan 06/18/99 03/24/00 04/27/01 08/26/02Expiration date for exercise of options 06/18/06 03/24/07 04/26/08 08/26/09Total number of options authorized 100,000 100,000 100,000 100,000Total number of options granted 56,100 34,500 45,700 51,200Initial subscription price 26.68 60.98 64.00 30.00Adjusted subscription price 16.17 36.95 51.72 -Option period 7 years 7 years 7 years 7 yearsWaiting period 5 years (1) 5 years (1) 4 years (1) 4 years (1)

Share/option parity 1 for 1 1 for 1 1 for 1 1 for 1Exercised in 1999 or earlier 300 na na naCancelled in 1999 or earlier - na na naExercised in 2000 - - na naCancelled in 2000 4,667 2,934 na naBonus issue in 2000 18,614 11,510 na naExercised in 2001 600 - na naCancelled in 2001 200 301 225 naBonus issue in 2001 8,629 5,399 5,720 naExercised in 2002 - - - naBonus issue in 2002 7,781 4,839 5,139 na Options outstanding as of December 31, 2002 85,357 53,013 56,334 51,200

(1) Except in cases of dispensation na: non applicable

The bonus issue of one new share for ten existing shares led to an adjustment in the price and number of options outstandingas of June 10, 2002.

The potential capital stock created resulting from options issued during the year amounts to 358,226 shares, or a potentialmaximum dilution of the capital of 9.4%.

Breakdown of option holders as of December 31, 2002

1997 Plans 1998 Plan 1999 Plan 2000 Plan 2001 Plan 2002 Plan

Management Committee members 25,075 39,276 42,087 24,100 26,856 24,900Employees 18,175 29,796 43,270 28,913 29,478 26,300

Total 43,250 69,072 85,357 53,013 56,334 51,200



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3.4 Ownership of capital stock and voting rights of Inter Parfums

Situation as of March 1, 2003

Shares % of Voting % ofheld capital rights vote

Inter Parfums Holding S.A. 2,919,436 76.84% 5,573,470 86.33%French insurance company mutual fund 63,288 1.66% 63,288 0.98%U.K. investment fund, 53,831 1.42% 53,831 0.83%French insurance company mutual fund 53,680 1.41% 53,680 0.83%French insurance company mutual fund 39,600 1.04% 39,600 0.61%French financial institution mutual fund 34,974 0.92% 34,974 0.54%French financial institution mutual fund 33,331 0.88% 33,331 0.52%French insurance company mutual fund 32,195 0.85% 32,195 0.51%French financial institution mutual fund 26,378 0.69% 26,378 0.41%French financial institution mutual fund 24,750 0.65% 24,750 0.38%French financial institution mutual fund 24,000 0.63% 24,000 0.37%French financial institution mutual fund 20,899 0.55% 20,899 0.32%Treasury shares 8,629 0.23% - -Other 464,499 12.23% 475,569 7.37%

Total 3,799,490 100.00% 6,455,965 100.00%

As of March 1, 2003, there were 2,665,104 shares that had been held for more than three years and were therefore entitled to double voting rights.

A survey of shareholder ownership identified 2,800 shareholders as of March 1, 2003, the same number as of March 1, 2002.Excluding Inter Parfums Holding, the ownership breaks down as follows:

■ 80 French investors and mutual funds owning 13.6% of the capital stock, compared with 75 such shareholders in 2002owning 13.3% of the capital stock;

■ 33 foreign investors, located mainly in the U.K., Switzerland, the U.S. and Luxembourg, who own 3.2% of the capital stock,compared with 32 such investors in 2002 owning 3.0% of the capital stock;

■ 2,700 individuals owning 6.2% of the capital stock, compared with 2,700 in 2002 owning 6.5% of the capital stock.

To the company’s knowledge, there are no other shareholders that possess directly, indirectly or together, 5% or more of thecapital or voting rights. None of the company’s shares are effectively pledged.

Change in Inter Parfums Holding’s ownership over four years

As of December 31 1999 2000 2001 2002

Inter Parfums Holding 77.80% 77.55% 77.20% 77.07%Investors, free float and employees 22.20% 22.45% 22.80% 22.93%

Total 100.00% 100.00% 100.00% 100.00%


3.5 Breakdown of Inter Parfums Holding’s capital stock as of December 31, 2002

Inter Parfums Holding, whose sole equity holding is in Inter Parfums, is itself wholly owned by Inter ParfumsInc., which is listed on the Nasdaq in the United States, hasapproximately 2,300 shareholders and as of December 31,2002 had the following ownership structure:

■ Philippe Benacin and Jean Madar 61.9%

■ LV Capital (LVMH Group) 19.2%

■ Investors and free float 19.9%

4 DividendsThe April 25, 2003 Shareholders’ Meeting set a

dividend for the 2002 fiscal year of € 0.42 per share(excluding the tax credit), up 25% relative to the previous year(after factoring in the bonus shares issued in June 2002), withan ex dividend date of May 15, 2003. The dividends for the2001 and 2000 fiscal years were set at the respectiveamounts of € 0.37 and € 0. 32, excluding the tax credits.

5 Shareholder agreementsThere are no shareholder agreements involving either

Inter Parfums Holding or Inter Parfums Inc.

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6 Key stock market dataIn euros 1998 1999 2000 2001 2002

Shares outstanding as of 12/31 2,234,023 2,275,786 3,041,816 3,440,198 3,799,490Market capitalization as of 12/31 60 million 113 million 229 million 193 million 152 millionHigh 36.43 49.80 78.80 80.95 61.82Low 19.15 22.00 37.54 45.00 29.00Average 27.82 31.31 55.78 65.70 45.13Year-end 26.68 49.60 75.20 56.00 40.00

Average daily volume 1,240 1,900 1,900 1,520 1,200

Earnings per share (1) 1.81 2.10 2.43 2.46 2.43Dividend per share (1) 0.18 0.27 0.32 0.37 0.42Average number of shares outstanding 2,227,715 2,244,183 2,721,975 3,275,695 3,642,789

(1) Historical data (not restated for bonus share issues in 2000, 2001 and 2002)


6.1 Share price

Since January 2, 1998, Inter Parfums shares(Euroclear Code 5379) have been listed in the EuroNext ParisContinu B category. They were included in the SecondMarché index from its inception and joined the MidCac indexon December 24, 1999. Since January 2, 2002, the shareshave been part of the NextPrime segment and correspondingindex.

After posting very sharp gains over the last three years (withmultiplication of the share price by three), Inter Parfumsshares’ performance closely tracked the SBF 250 index in2002. It fluctuated in the € 50 – € 60 range through thebeginning of June, before falling to around € 30 during thesummer due to the uncertain world economic outlook.

Several factors contributed to a turnaround in the tradingtrend – maintenance of a strong level of profitability during thefirst half of 2002, healthy increases in sales during the secondhalf of the year and a good outlook for growth for 2003. Afterhitting a low of € 26 at the beginning of October, the sharestarted to rebound and finished at € 40 on December 31,2002, for a total market capitalization of € 150 million.

Since January 1, 2003, the stock has been trading erraticallyin the € 30 to € 40 range, almost entirely due to internationalevents and despite the good 2002 earnings released in March 2003.

An average of 1,200 shares per day were traded in 2002,compared with 1,500 in 2001. This slowdown was notunexpected given investors’ shunning of equities in generaland of mid-caps in particular.

6.2 Dividend

In 1998, Inter Parfums made its first dividendpayment (€ 0.18 per share, net of the dividend tax credit),equivalent to 10% of its consolidated earnings.

Dividends increased sharply in each of the next three years(50%, 55% and 37% in 1999, 2000 and 2001, respectively,including bonus shares). It was raised to € 0.42 per share (netof the tax credit) in 2002, equivalent to an 18% payout rate onconsolidated earnings and a 25% increase relative to theprevious year (including the bonus shares issued in June2002).


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6.3 Share price and volume trends since 2000

In High Low Volume Volume ineuros in shares € millions

2000January 55.00 50.05 35,465 1,428February 72.00 55.00 62,760 2,852March 70.00 58.40 52,280 2,582April 66.00 57.50 32,217 1,460May 70.20 60.50 21,387 1,058June 70.90 54.90 45,844 2,985July 62.50 58.90 12,959 787August 61.00 56.00 54,909 3,220September 63.80 56.70 27,463 1,674October 59.80 56.00 28,751 1,679November 74.30 58.00 58,108 3,849December 78.80 68.00 35,998 2,621

2001January 80.95 71.50 40,972 3,129February 73.40 67.00 13,585 962March 69.85 61.50 41,589 2,750April 71.90 63.90 22,573 1,538May 75.00 69.70 17,053 1,226June 75.00 67.00 44,427 3,101July 72.50 69.50 12,336 875August 70.80 64.80 28,560 1,929September 70.00 45.00 49,982 2,833October 65.10 55.25 32,705 1,974November 63.00 58.20 62,572 3,882Decembe 58.50 55.05 18,557 1,050

2002January 58.00 52.25 42,151 2,331February 57.80 56.40 13,002 742March 60.75 56.50 24,231 1,438April 61.82 51.64 86,251 4,730May 56.73 53.36 17,759 980June 53.91 43.98 18,634 906July 49.60 30.50 20,351 757August 35.00 31.55 9,242 304September 41.80 34.40 13,594 527October 40.66 29.00 18,228 643November 43.00 37.01 18,376 723December 45.40 38.99 24,160 1,076

2003January 43.20 38.05 35,573 1,458February 39.50 35.00 18,080 683March 35.87 30.00 26,254 849

Historical data (not restated for bonus share issues in 2000, 2001 and 2002).


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consolidatedfinancialstatements

Consolidated statements of income

Consolidated balance sheet

Statements of changes in shareholders’ equity

Statements of cash flows

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Consolidatedfinancial statementscontents


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1 Consolidated statements of income

In € thousands Notes 2000 2001 2002except per share data which is in units

Sales 3.1 76,854 88,486 93,378

Cost of sales (36,021) (41,805) (45,991)

Gross margin 40,833 46,681 47,387% of sales 53.1% 52.8% 50.7%

Logistics & shipping (3,405) (3,683) (3,601)Marketing & advertising 3.2 (11,124) (12,006) (12,286)Royalties (3,885) (4,245) (5,195)Wages & benefits (4,242) (4,999) (5,318)Depreciation & amortization 3.3 (2,180) (3,056) (2,295)Other purchases & external costs (4,961) (5,754) (4,959)

Income from operations 11,028 12,938 13,733% of sales 14.3% 14.6% 14.7%

Interest income (expense) 3.5 1,657 333 171Foreign currency gains (losses) (202) 45 (90)Extraordinary income (expense) 3.6 (1,423) (474) (85)

Income before income taxes 11,060 12,842 13,729% of sales 14.4% 14.5% 14.7%

Income taxes 3.7 (4,450) (4,785) (4,892)Effective tax rate 40.2% 37.3% 35.6%

Net income 6,610 8,057 8,837% of sales 8.6% 9.1% 9.5%

Earnings per share of basic common stock (1) 3.8 2.43 2.46 2.43Number of shares used for the calculation 2,721,975 3,275,695 3,642,789

Fully diluted earnings per share (1) 3.8 2.29 2.38 2.34Number of shares used for the calculation 2,887,351 3,378,254 3,771,447

(1) Changes not meaningful due to bonus share issues in 2000, 2001 and 2002

Consolidated financial statements


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2 Consolidated balance sheet

Assets

in € thousands Notes 2000 2001 2002

Fixed assets

Trademarks and other intangible assets 2.1 7,415 7,571 6,625Amortization and depreciation (3,385) (4,378) (4,286)Net intangible fixed assets 4,030 3,193 2,339

Tangible fixed assets 2.2 1,397 1,664 1,811Depreciation (1,032) (1,077) (1,296)Net tangible fixed assets 365 587 515

Financial fixed assets 77 86 97

Total fixed assets 4,472 3,866 2,951

Current assets

Inventories and work in progress 2.3 21,364 22,458 19,642Accounts receivable and related accounts 2.4 26,791 28,094 31,340Other receivables 2.5 3,588 3,530 4,129Marketable securities 2.6 13,793 15,124 25,147Cash and cash equivalents 1 31 163Prepaid expenses 2.7 2,302 2,838 2,771

Total current assets 67,839 72,075 83,192

Total assets 72,311 75,941 86,143

Shareholders’ Equity and Liabilities

in € thousands Notes 2000 2001 2002

Shareholders’ equity (before appropriation of net income)

Capital stock 2.8 9,274 10,321 11,364Additional paid-in capital 11,614 10,526 9,589Retained earnings 13,859 19,663 25,952Net income for the year 6,610 8,057 8,837

Total shareholders’ equity 41,357 48,567 55,742

Commitments and contingencies 2.9 2,590 3,017 3,261

Current liabilities

Borrowings and other financial debt 1,525 1,525 -Accounts payable and related accounts 19,391 16,189 20,041Other liabilities 4,639 5,729 6,340Loans payable - banks 2.10 2,809 914 759

Total current liabilities 28,364 24,357 27,140

Total shareholders’ equity and liabilities 72,311 75,941 86,143



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3 Statements of changes in shareholders’ equity

In € thousands Number Capital Paid-in Retained Totalof shares stock capital earnings/ equity

net income

As of December 31, 1997 1,893,265 5,773 7,931 8,451 22,155

Shares issued on exercise of stock options 5,486 17 38 - 55Shares issued on conversion of bonds 335,272 1,022 3,235 - 4,2571998 net income - - - 4,043 4,043

As of December 31, 1998 2,234,023 6,812 11,204 12,494 30,510

Shares issued on exercise of stock options 28,031 85 229 - 314Shares issued on conversion of bonds 13,732 42 130 - 1721999 net income - - - 4,713 4,7131998 dividend paid out in 1999 - - - (409) (409)

As of December 31, 1999 2,275,786 6,939 11,563 16,798 35,300

Bonus share issue 759,445 2,315 - (2,315) -Shares issued on exercise of stock options 6,585 20 51 - 712000 net income - - - 6,610 6,6101999 dividend paid out in 2000 - - - (624) (624)

As of December 31, 2000 3,041,816 9,274 11,614 20,469 41,357

Bonus share issue 380,777 1,161 (1,161) - -Shares issued on exercise of stock options 17,605 54 73 - 127Conversion of the capital stock into euros - (168) - 168 -2001 net income - - - 8,057 8,0572000 dividend paid out in 2001 - - - (974) (974)

As of December 31, 2001 3,440,198 10,321 10,526 27,720 48,567

Bonus share issue 344,109 1,032 (1,032) - -Shares issued on exercise of stock options 15,183 45 95 - 1402002 net income - - - 8,837 8,8372001 dividend paid out in 2002 - - - (1,274) (1,274)Purchase of treasury shares (11,587) (34) - (494) (528)

As of December 31, 2002 3,787,903 11,364 9,589 34,789 55,742

Consolidated financial statements


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4 Statements of cash flows

In € thousands 2000 2001 2002

Cash flows from operating activities

Net income 6,610 8,057 8,837Depreciation and amortization 2,654 2,306 1,375Reserve allocations for prepaid expenses 1,007 1,323 1,209Capital (gains) losses on fixed asset disposals 5 - (91)

Operating cash flows 10,276 11,686 11,330

Changes in inventories and work in progress (7,561) (1,930) 2,796Changes in accounts receivable and related accounts (6,600) (1,308) (3,179)Changes in other receivables 222 59 (599)Changes in accounts payable and related accounts 1,996 (3,201) 3,852Changes in other current liabilities 1,464 1,090 504

Changes in working capital needs (10,480) (5,291) 3,374

Net cash provided by (used in) operating activities (205) 6,396 14,704

Cash flows from investing activities

Acquisition of intangible assets (42) (156) (121)Acquisition of tangible fixed assets and molds (1,625) (2,124) (1,289)Changes in financial fixed assets (23) (10) (11)Proceeds from fixed asset disposals - 2 167

Net cash flows provided by (used in) investing activities (1,689) (2,288) (1,254)

Cash flows from financing activities

Issuance of borrowings and new financial debt - - -Debt repayments - - (1,525)Dividends paid (624) (974) (1,274)Capital increase 71 122 140Purchase of treasury shares - - (481)

Net cash flows from financing activities (553) (852) (3,140)

Change in net cash position (2,447) 3,256 10,310Cash and cash equivalents – beginning of year 13,432 10,985 14,241

Cash and cash equivalents – end of year 10,985 14,241 24,551



257notes to the

consolidatedfinancialstatements

Accounting principles

Notes to the balance sheet

Notes to the income statement

Information by business line

Other information

58

59

63

65

65

Notes to theconsolidated financialstatements contents

Summarized annual report 2002 Inter ParfumsNotes to the consolidated financial statements


1 Accounting principles

1.1 General

The consolidated financial statements areestablished in compliance with all applicable legal andregulatory provisions in France, in accordance with ruling 99-02 of April 29, 1999, ratified by the ruling of June 22, 1999,as issued by the French Finance Ministry’s accountingstandards board (Comité de la Réglementation Comptable, or“CRC”). All intercompany accounts, transactions, earningsand gains are eliminated.

1.2 Consolidation principles and scope

Inter Parfums Trademark and Inter Parfums GrandPublic are wholly controlled by Inter Parfums, and as such havebeen fully consolidated since July 12, 1994. All consolidatedcompanies close their accounts on December 31. No companyhas been excluded from the consolidation scope.

1.3 Translation method

Transactions in foreign currencies are converted atthe exchange rate in effect on the date of the transaction.Foreign currency denominated payables and receivables areconverted at the exchange rate in effect as of December 31.Translation losses and gains arising from the conversion ofaccounts denominated in foreign currencies on December 31,2002 are recorded in the income statement. Hedgedtransactions are converted at the negotiated exchange rate.

1.4 Trademarks and other intangiblefixed assets

Trademarks and other intangible fixed assets,including both trademarks under licensing contracts andacquired trademarks, are recorded at their historical cost.

Acquired trademarks that have widely recognized historicaland international notoriety and are legally protected are notamortized. They are appraised every year by discountingprojected future cash flows. A depreciation allocation isbooked to income if this value decreases.

All other intangible fixed assets are amortized over their usefullives.

1.5 Tangible fixed assets

Tangible fixed assets are valued at acquisition cost(purchase price plus related costs, excluding acquisition cost)and are depreciated over their estimated useful lives on a straight-line basis.

The most common depreciable lives are:■ Plant, equipment and tooling 3 to 5 years■ Facilities, fixtures and improvements 3 to 5 years■ Transportation equipment 3 to 5 years■ Office and computer equipment and furniture 3 to 5 years

1.6 Inventories and work in process

Inventories are valued at the lower of cost orprobable resale value. Allocations are made to an allowancefor writedowns of slow-moving inventories based on pasthistory and expected sales.

Raw materials and supplies inventories are valued using thelatest effective purchase price. Because these inventoriesturn over quickly, this valuation method yields the sameresults as those that would be obtained applying the FIFOmethod.

The cost of finished products includes the cost of materialsused, production expenses and a share of indirect costsvalued at a standard rate as given below:

Shipping charge rate 2000 2001 2002

Commodities and supply inventories 4% 4% 4%Finished products inventories 9% 9% 7%

At the end of every year, these standard rates are comparedwith the effective rate actually obtained based on actual dataat year-end.

1.7 Accounts receivable

Accounts receivable are recorded at their face value.An allowance for doubtful accounts is booked on a case-by-case basis, when the probable recovery value is deemedto be less than book value.

1.8 Marketable securities

Marketable securities are recorded at their historicalcost, and are written down to reflect any lower market valuation.

1.9 Prepaid expenses

The company’s share of costs relating to molds andnew product launches, as well as certain other expenses, arerecorded as prepaid expenses and amortized over amaximum of five years. Depreciation of mold acquisitioncosts is included in the cost of goods sold.

1.10 Commitments and contingencies

Beginning on January 1, 2002 Inter Parfums begancomplying with CRC ruling 2000-06 regarding liabilities. Thischange in method did not have any impact on 2002 earningsor on the opening balance of shareholders’ equity.

Pension benefits

This reserve is maintained to honor the company’s employeepension benefits commitments, and corresponds to thepresent value of the payments to which employees areentitled, under the collective bargaining agreement, once theyretire. The reserve is calculated using an actuarial method thattakes into account seniority, life expectancy and the rate ofemployee turnover, and makes assumptions aboutrevaluation and discounting to present value.

Risks and expenses

Allocations are made to reserves for all clearly defined risksand expenses when past or current events make theiroccurrence likely. These reserves are reevaluated at the endof every fiscal year to reflect changes in their impact orlikelihood.



2

1.11 Forward financial instruments

Some of Inter Parfums’ transactions are carried out inforeign currencies, and the company uses forward exchangecontracts and FX options solely to protect the gross marginfrom the impact of fluctuations of these currencies against theeuro. As described in the note on the company’s translationmethod, the forward financial instruments used are applied toreceivables and payables.

1.12 Income taxes

Timing differences between taxable income andreported consolidated net income give rise to the recording ofdeferred taxes under the liability method, taking the knownyear-end tax conditions into account. Potential tax creditsresulting from loss carry forwards are only recorded whentheir use in the short term seems sufficiently likely.

1.13 Extraordinary income and losses

Income and losses arising from any events ortransactions that are clearly not part of the company’s normaloperations and are not expected to recur in any frequent or regular manner are classified as extraordinary.

1.14 Earnings per share

Consolidated net income per share is calculatedusing the weighted average number of shares outstandingduring the year. Consolidated net income per share afterdilution is calculated using the weighted average number ofshares should all stock options be exercised.

1.15 Treasury shares

Treasury shares held by the company under its sharerepurchase program are recorded as “Other financial fixedassets”. Treasury shares held by the company are deductedfrom shareholders’ equity, and are not subject to any reserveallocations.

1.16 Other significant information

The accounts of Inter Parfums and its Inter ParfumsTrademark and Inter Parfums Grand Public subsidiaries are allfully consolidated into the accounts of Inter Parfums Inc.,whose registered office is located at 551 Fifth Avenue, New York, NY 10176 USA.

Notes to the consolidated financial statements


59

2 Notes to the balance sheet

2.1 Trademarks and other intangible fixed assets

In € thousands, as of December 31 2001 + - 2002

Molyneux and Weil trademarks 3,717 - 1,067 2,650Molyneux and Weil non-compete agreements 486 - - 486Jean Charles Brosseau initial licensing fee 1,580 - - 1,580S.T. Dupont initial licensing fee 869 - - 869Rights on molds and tooling for Christian Lacroix 305 - - 305Other 614 121 - 735

Total gross amount 7,571 121 (1,067) 6,625

Total amortization and depreciation (4,378) (898) 990 (4,286)

Total net amount 3,193 (777) (77) 2,339

Molyneux and Weil trademarks

Inter Parfums allocated € 0.5 million to a reserve for the Molyneux trademark subsequent to the annual brand reappraisal. The net book value of the Molyneux trademark is now € 1.5 million.

In early June 2002, Inter Parfums sold the Weil trademark to Aroli (Jean d’Aveze) for € 0.17 million, generating a € 0.09 million gain.

Jean Charles Brosseau initial licensing fee

The initial licensing fee was completely amortized as of December 31, 2002.

S.T. Dupont initial licensing fee

The initial licensing fee is amortized over 11 years.

Rights on molds and tooling for Christian Lacroix

Rights are amortized over five years.


2.2 Tangible fixed assets


Plant, equipment and tooling 586 - - 586Facilities 286 57 - 343Office and computer equipment and furniture 755 86 - 841Other 37 4 - 41

Total gross amount 1,664 147 - 1,811

Total depreciation (1,077) (219) - (1,296)

Total net amount 587 (72) - 515

2.3 Inventories and work in process

In € thousands, as of December 31 2000 2001 2002

Raw materials and components 9,372 8,072 8,458Finished goods 13,502 16,732 13,550

Total gross amount 22,874 24,804 22,008

Allowance for raw materials (1,038) (1,147) (1,087)Allowance for finished goods (472) (1,199) (1,279)

Total allowances (1,510) (2,346) (2,366)

Total net amount 21,364 22,458 19,642

2.4 Trade receivables and related accounts


Total gross amount 28,097 29,406 32,585Allowance (1,306) (1,312) (1,245)

Total net amount 26,791 28,094 31,340

Given the political, economic and financial situation in Argentina, Inter Parfums decided, in the spirit of financial conservatism,to maintain the € 0.18 million reserve created in 2001 in the accounts closed on December 31, 2002.

2.5 Other receivables


Accruals 1,048 873 1,499Company current accounts 790 - -Annual lump-sum income tax and down payment of company taxes 490 684 1,129Deferred tax asset 39 222 300Value-added tax 754 975 663Other 467 776 538

Total 3,588 3,530 4,129

2.6 Marketable securities


Certificates of deposit 5,869 6,869 15,500Money-market mutual funds 7,532 7,733 9,728Treasury shares 392 522 -

Total gross amount 13,793 15,124 25,228

Allowance - - (81)

Total net amount 13,793 15,124 25,147

In order to comply with regulatory requirements, the company reclassified the treasury shares it held as equity investments in the parent company accounts as of December 31, 2002 into shareholders’ equity in the consolidated accounts. Thisreclassification had no impact on earnings.



2

2.7 Prepaid expenses


Molds and new product launches 2,838 1,143 1,210 2,771

Total 2,838 1,143 1,210 2,771

2.8 Shareholders’ equity

2.8.1 Common stock

As of December 31, 2002, Inter Parfums’ capital was composed of 3,799,490 shares with a par value of € 3, and 77.1%held by Inter Parfums Holding.

2.8.2 Stock option programs

General policySince 1994, the managers and employees of Inter Parfums and its subsidiaries benefit regularly from stock option plans.

1996 Plan 1997a Plan 1997b Plan 1997c Plan 1998 Plan

Date of Board Mtg. proposing the plan 4/3/95 3/21/97 3/21/97 4/3/95 3/3/98Date of Shareholders’ Mtg. authorizing the plan 5/19/95 5/6/97 5/6/97 5/19/95 4/21/98Date of Board Mtg. opening the plan 11/29/96 7/21/97 9/19/97 9/19/97 10/6/98Expiration date for exercise of options 11/29/02 7/21/04 9/19/04 9/19/03 10/6/05Total number of options authorized 30,000 30,000 30,000 30,000 50,000Total number of options granted 24,700 28,250 1,750 5,300 43,400Initial subscription price 8.99 18.29 23.63 23.63 21.34Adjusted subscription price 5.45 11.09 14.32 14.32 12.94Option period 6 years 7 years 7 years 6 years 7 yearsWaiting period None 5 years (1) 5 years (1) 5 years (1) 5 years (1)

Share/option parity 1 for 1 1 for 1 1 for 1 1 for 1 1 for 1Exercised in 1999 or earlier 5,800 1,850 - - 800Cancelled in 1999 or earlier - 200 - - -Exercised in 2000 4,101 834 1,050 - 200Cancelled in 2000 - - - - -Bonus issue in 2000 5,555 8,739 501 1,773 14,143Exercised in 2001 16,237 - 301 200 267Cancelled in 2001 169 - - 602 -Bonus issue in 2001 2,104 4,266 152 892 7,045Exercised in 2002 6,569 5,185 730 2,099 600Bonus issue in 2002 517 3,845 107 726 6,351Options outstanding as of December 31, 2002 0 37,031 429 5,790 69,072

1999 Plan 2000 Plan 2001 Plan 2002 Plan

Date of Board Mtg. proposing the plan 03/08/99 03/08/99 03/02/01 03/02/01Date of Shareholders’ Mtg. authorizing the plan 04/27/99 04/27/99 04/24/01 04/24/01Date of Board Mtg. opening the plan 06/18/99 03/24/00 04/27/01 08/26/02Expiration date for exercise of options 06/18/06 03/24/07 04/26/08 08/26/09Total number of options authorized 100,000 100,000 100,000 100,000Total number of options granted 56,100 34,500 45,700 51,200Initial subscription price 26.68 60.98 64.00 30.00Adjusted subscription price 16.17 36.95 51.72 -Option period 7 years 7 years 7 years 7 yearsWaiting period 5 years (1) 5 years (1) 4 years (1) 4 years (1)

Share/option parity 1 for 1 1 for 1 1 for 1 1 for 1Exercised in 1999 or earlier 300 na na naCancelled in 1999 or earlier - na na naExercised in 2000 - - na naCancelled in 2000 4,667 2,934 na naBonus issue in 2000 18,614 11,510 na naExercised in 2001 600 - na naCancelled in 2001 200 301 225 naBonus issue in 2001 8,629 5,399 5,720 naExercised in 2002 - - - naBonus issue in 2002 7,781 4,839 5,139 naOptions outstanding as of December 31, 2002 85,357 53,013 56,334 51,200

(1) Except in cases of dispensation na: non applicable

The bonus issue of one new share for ten existing shares led to an adjustment in the price and number of options outstandingas of June 10, 2002.



611


Breakdown of option holders as of December 31, 2002

1997 Plans 1998 Plan 1999 Plan 2000 Plan 2001 Plan 2002 Plan

Management Committee members 25,075 39,276 42,087 24,100 26,856 24,900Employees 18,175 29,796 43,270 28,913 29,478 26,300

Total 43,250 69,072 85,357 53,013 56,334 51,200

2.9 Commitments and contingencies


Reserves for litigation 1,789 160 38 1,911Reserves for deferred taxes 1,053 - 52 1,001Reserves for pensions benefits 102 182 - 284Other commitments and contingencies 73 - 8 65

Total 3,017 342 98 3,261

Reserves for litigation include principally € 0.91 million for tax audits and € 0.69 million for the matter between Inter Parfumsand Jean Charles Brosseau.

2.10 Bank loans


Working capital line 2,809 914 759

Total 2,809 914 759

Variable interest rates on borrowings and debt are generally indexed on market rates, and notably 3-month Euribor and Eonia.

In % 2000 2001 2002

Average 3-month Euribor rate 4.39 4.26 2.83Closing 3-month Euribor rate 4.86 3.34 2.86Average Eonia rate 4.13 4.39 3.29Closing Eonia rate 4.88 3.37 3.44

Source: Crédit Lyonnais

2.11 Maturity of receivables and debts

Breakdown < 1 year > 1 year

Other financial fixed assets - 97Trade receivables and related accounts 30,305 1,035Receivables from French state and other public bodies 2,092 -Other receivables 538 -Prepaid expenses 1,499 -Borrowings and debt 759 -Trade payables and related accounts 20,041 -Owed to French state and other public bodies 921 -Other liabilities 5,419 -

2.12 Detail of accrued expenses as of December 31, 2002

In € thousands 2002

Suppliers 3,780Tax and payroll liabilities 1,420Other 500



2

3 Notes to the income statement

3.1 Breakdown of consolidated sales

3.1.1 By geographic region

In % 2000 2001 2002

North America 11 8 6South America 9 10 7Asia 13 15 14Europe, excluding France 43 43 50Middle East 12 12 12France 11 10 9Other 1 2 2

Total 100 100 100

3.1.2 By brand

In % 2000 2001 2002

Burberry 55 58 60S.T. Dupont 18 12 10Paul Smith 11 13 10Christian Lacroix 4 3 8Celine - 5 7Other prestige brands 6 4 3Mass market 6 5 2

Total 100 100 100

3.2 Marketing & Advertising

In order to present Inter Parfums’ marketing efforts most faithfully, the company’s Point of Sale (POS) advertising,including marketing materials (posters, stands, oversize mock bottles, etc.) and promotional items (key rings, bags, umbrellas,etc.), is recorded as marketing & advertising expenses:

In € thousands 2000 2001 2002

Marketing and media 9,164 9,448 10,313POS marketing materials and promotional items 1,960 2,558 1,973

Total marketing & advertising 11,124 12,006 12,286

POS materials such as testers, miniatures and other samples are included in the cost of goods sold.

3.3 Amortization and allocations to reserves

In € thousands 2000 2001 2002

Allocations 3,390 3,184 2,763Recoveries (1,210) (128) (468)

Net 2,180 3,056 2,295

3.4 Auditor and consultant fees

KPMG SFECO & Fiducia A.in € % in € %

Statutory auditors 83,000 100 53,000 100Additional auditing services - - - -Legal, tax, human resources and other services - - - -

Total 83,000 100 53,000 100



63


3.5 Interest income (expenses)

In € thousands 2000 2001 2002

Net income on disposal of marketable securities 2,011 695 488Interest paid on bank lines and receivables financing (287) (311) (172)Other (67) (51) (145)

Total 1,657 333 171

3.6 Extraordinary income (expenses)

In € thousands 2000 2001 2002

Related to employee compensation (106) - -Related to sales or trademarks (693) (465) (160)Related to taxes (624) (7) (16)Gain or loss on sale of trademark - - 91Other - (2) -

Total (1,423) (474) (85)

Extraordinary expenses related to sales or trademarks involve mainly reserve allocations pertaining to the litigation between InterParfums and Jean Charles Brosseau in 2000 and 2001 and other sales disputes in 2001 and 2002.

3.7 Income taxes

3.7.1 Detail of taxes

In € thousands 2000 2001 2002

Income taxable at 35.4% (4,013) (4,805) (5,023)Timing differences taxable at 35.4% (437) 20 131

Total (4,450) (4,785) (4,892)

3.7.2 Detail of tax receivables


Deferred tax asset 39 222 300Payments on account 490 685 1,129

Total 529 907 1,429

3.7.3 Detail of tax payables


Deferred tax liability 890 1,053 1,001Tax liability 157 1,210 609

Total 1,047 2,263 1,610

3.7.4 Reconciliation of effective tax recorded and the theoretical tax expense as of December 31, 2002

In € thousands Amount %

Theoretical tax calculated at normal rate 4,864 35.4%Tax credit and income taxable at lower rates (25) nsEffect of rate change on deferred taxes (23) nsTax assets reserved 64 nsPermanent non-deductible differences 36 nsOther (24) ns

Income taxes 4,892 35.6%

ns: non significant



2Notes to the consolidated financial statements


65

5.1.1 License agreements

Régine’sIn June 1988, Inter Parfums entered into an exclusive licenseagreement with Alphafin BV to create and produce perfumesunder the Régine’s name, and to distribute them worldwide.This license agreement was extended on a year-by-year basissince that date.

BurberryIn July 1993, Inter Parfums entered into an exclusive, 10-yearlicense agreement with Burberry to create and produceperfumes under the Burberry name, and to distribute themworldwide. In February 2000, this license agreement wasextended for three more years through December 31, 2006.

3.8 Earnings per shareIn € thousands as of December 31 2000 2001 2002except number of shares and earnings per share in euros,

Consolidated net income 6,610 8,057 8,837Average number of shares outstanding 2,721,975 3,275,695 3,642,789

Basic net income per share 2.43 2.46 2.43

Dilution effect of stock options:Potential number of additional shares 165,376 102,559 128,659Potential effect on consolidated net income - - -

Potential fully diluted consolidated net income 6,610 8,057 8,837Potential fully diluted average number of shares outstanding 2,887,351 3,378,254 3,771,447

Diluted net income per share 2.29 2.38 2.34

4 Information by business line

In € thousands Prestige perfumes Mass market perfumes

Sales 91.0 2.4Income from operations 13.5 0.2Net fixed assets (used in France) 2,950 -

5 Other information

5.1 Off balance sheet commitments

Off balance sheet commitments pertain only to the company’s normal business operations

■ Summary of the last three years’ off balance sheet commitments


Guaranteed minima on trademark royalties 29,430 27,370 24,840Discounted receivables not yet due (Dailly law) 1,500 1,215 1,200Guarantees given - 680 680Other commitments (offices, warehouse) 8,860 7,150 5,440

Total 39,790 36,415 32,160

■ Detail of off balance sheet commitments as of December 31, 2002

In € thousands Total < 1 year 1 to 5 years >5 years

Contractual commitmentsGuaranteed minima on trademark royalties 24,840 2,820 14,990 7,030Other commitments (offices, warehouse) 5,440 1,710 3,730 -Total contractual commitments 30,280 4,530 18,720 7,030

Other commitmentsDiscounted receivables not yet due (Dailly law) 1,200 1,200 - -Guarantees given 680 - 680 -

Total other commitments 1,880 1,200 680 -

Total 32,160 5,730 19,400 7,030

Forward currency sales are listed in paragraph 5.5 “Foreign exchange risk”.


S.T. DupontIn June 1997, Inter Parfums entered into an exclusive, 11-yearcontract with S.T. Dupont to create and produce perfumesunder the S.T. Dupont name, and to distribute themworldwide.

Paul SmithIn December 1998, Inter Parfums entered into an exclusive,12-year contract with Paul Smith to create and produceperfumes and cosmetics under the Paul Smith name, and todistribute them worldwide.

Christian LacroixIn March 1999, Inter Parfums entered into an exclusive, 12-year contract with Christian Lacroix (LVMH Group) todevelop and produce perfumes under the Christian Lacroixname, and to distribute them worldwide.

CelineIn May 2000, Inter Parfums entered into an exclusive, 12-yearcontract with Celine (LVMH Group) to develop and produceperfumes under the Celine name, and to distribute themworldwide.

5.1.2 Discounted receivables not yet due - Dailly law

Discounted receivables not yet due did not vary as compared with the previous year, and amounted to € 1.2 million as of December 31, 2002.

5.1.3 Guarantee given

A bank guarantee in the amount of € 0.7 million wasprovided to tax authorities with respect to the accountingaudits carried out in the years 1996 through 1998.

5.2 Insurance

Inter Parfums is named as beneficiary under a € 3 million life insurance policy for Philippe Benacin.

5.3 Litigation

5.3.1 Tax litigation

Involving Inter Parfums (1993 and 1994 fiscal years)In the first half of 1996, Inter Parfums was audited by the taxauthorities for the years 1993 and 1994. Following this audit,an assessment for additional tax was issued in June 1996,and the company made reserve allocations for the undisputedamounts, which were not significant, in its financialstatements for the year ended December 31, 1996.

Acting on the advice of tax attorneys, Inter Parfums initiatedlegal action to obtain full tax relief with regard to formallycontested adjustments, which involved a total ofapproximately € 0.75 million.

The tax authorities waived certain adjustments over the years,and as a result the total amount of formally contestedadjustments now stands at around € 0.34 million.

Based on its regular year-end review and in keeping withconservative accounting principles, the company allocated € 0.15 million to reserves as of December 31, 2000. Nosignificant event occurred in 2001 or 2002 and this reserveamount remained unchanged as of December 31, 2002.

Involving Inter Parfums / Inter Parfums Grand Public(1996 to 1998 fiscal years)In the first half of 1999, Inter Parfums SA and Inter ParfumsGrand Public were audited by the tax authorities for the years1996 to 1998. Following this audit, a first tax adjustment forthe 1996 fiscal year was issued in August 1999, and a second,for the 1997 and 1998 fiscal years, was issued in March 2000.

The accepted adjustments involved insignificant amounts forwhich reserve allocations were established in the 1999 and2000 financial statements, without any material impact.Acting on the advice of tax attorneys, the company initiatedlegal action to obtain full tax relief with regard to the formallycontested adjustments, which amounted to approximately € 2 million.

After several adjustments were progressively dropped by thetax authorities, the remaining formally contested adjustmentsnow total € 1.3 million.

Based on its regular year-end review, the company allocated€ 0.7 million to reserves as of December 31, 2000. Nosignificant event occurred in 2001 or 2002.

5.3.2 Brand-related and sales-related litigation

Brand-related litigationIn 1998, several sales-related and strategy-related legaldisputes over Jean Charles Brosseau’s license agreementwith Inter Parfums resulted in lawsuits before the ParisCommercial Court.

In a decision dated September 27, 1999, the ParisCommercial Court ruled in favor of Jean Charles Brosseau’srequest to terminate its license agreement and ordered InterParfums to pay the minimum contractually guaranteedroyalties plus € 0.6 million in damages and interest.

In light of events occurring in 2000 and in keeping withconservative accounting principles, the company, whichappealed the ruling in 1999, established a provision forcontingencies of € 0.7 million.

In a ruling dated February 23, 2001, the Paris Appellate Courtupheld Jean Charles Brosseau’s request to terminate thecompany’s license agreement (which had no material impacton 2001 sales). It ordered Inter Parfums to pay the minimumcontractually guaranteed royalties (for which reserves wereestablished in the accounts prepared on April 23, 2000),appointed an expert for the purpose of conducting furtheranalyses and ordered Inter Parfums to pay € 0.15 millionprovisionally to cover damages and interest. Since that date,the litigation remains pending, no significant event occurred in 2001 or 2002 and the reserve amount was unchanged as of December 31, 2002.

Sales-related litigationReserves were established in the financial statements for theyear ended December 31, 2001 in the amount of € 0.2 millionfor two sales-related lawsuits that arose during that year. Inlight of events occurring in 2002, the company established aprovision for contingencies of € 0.4 million in the accountsclosed on December 31, 2002.

To the best of the company’s knowledge, there are no otherclaims, litigation or extraordinary circumstances likely to have,or having recently had, a material impact on the company’sand the group’s financial position, earnings, sales or ongoingbusiness value.



2

5.4 Events occurring after the closingdate of the financial statements

No significant event has occurred since the closingdate of the financial statements.

5.5 Foreign exchange risk

5.5.1 General Strategy

Since 1995, Inter Parfums has chosen a conservativeapproach to managing its exchange rate risk, seeking only tohedge its exposure from operations and to maintain its grossmargins. Forward sales are carried out routinely, mainly on theU.S. dollar and the pound sterling, which in 2002 accounted for23% and 13% of total billings respectively, compared with 31%and 8% the previous year. In addition, the impact of sharp U.S.dollar parity fluctuations on the gross margin can be partiallyoffset through adjustments to the products’ sales prices.

5.5.2 Consolidated sales by currency

In % 2000 2001 2002

French franc 52.4 43.7 -US dollar 34.7 31.3 22.9Euro - 12.1 62.0Pound sterling 7.8 8.4 13.1Japanese yen 1.0 2.3 1.5German mark 3.0 1.6 -Belgian franc 0.4 0.3 -Canadian dollar 0.6 0.2 0.5Dutch guilder 0.1 0.1 -

Total 100.0 100.0 100.0

5.5.3 Hedges

The nominal amounts of all foreign currencieshedged as of December 31, 2002, valued at the closing rate,were:

In thousands 2000 2001 2002

Forward sales – nominal value at closing rate 18,448 19,353 14,525

Difference between market and book values (610) (11) 193

5.6 Interest rate risk

In October 2002, the company paid down a € 1.5 millionloan from Crédit Agricole.

5.7 Human resource data

5.7.1 Employees by category

Number of employeesas of December 31 2000 2001 2002

Officers and managers 28 28 29Non-supervisory staff 27 32 33

Total 55 60 62

5.7.2 Employees by department

Number of employeesas of December 31 2000 2001 2002

Executive management 2 2 2Marketing & Operations 15 16 17Export 12 12 12France 15 19 19Finance & Administration 11 11 12

Total 55 60 62

5.7.3 Wages and benefits

In € thousands 2000 2001 2002

Total wages and benefits 4,242 4,999 5,318

of which: members of the Management Committee (including benefits) 983 1,082 1,085



67



company history


2Company history Summarized annual report 2002 Inter Parfums

69

■ Inter Parfums is founded in France by Philippe Benacinand Jean Madar

■ Start of development of mass market perfume business

■ Jean Philippe Fragrances is founded in the United States

■ Development of selective perfumes business begins withthe signature of a license agreement for the Régine’s brand

■ Jean Philippe Fragrances goes public on the Nasdaqin the United States

■ License agreement for the use of the Burberry brand is signed

■ Inter Parfums is listed on the over the counter market of the Paris Stock Exchange

■ Acquisition of Molyneux and Weil brands

■ Acquisition of Parfums Jean Desprez and Jean Desprez

■ Launch of Burberry London line of perfumes

■ Company’s listing moved from the Hors-Cote to the Second Marché of the Paris Stock Exchange, with a capital increase

■ Disposal of Jean Desprez brand

■ Change of corporate names, as “Parfums Jean Desprez”becomes “Inter Parfums Trademark” and “Jean Desprez”becomes “Inter Parfums Grand Public”

■ Launch of Burberry Weekend line of perfumes

■ License agreement signed to use the S.T. Dupont brand

■ Launch of S.T. Dupont Paris line of perfumes

■ License agreement signed for the use of the Paul Smith brand

■ License agreement signed for the use of the Christian Lacroix brand

■ Jean Philippe Fragrances, the parent company of Inter Parfums, changes its name to Inter Parfums Inc.

■ LV Capital (LVMH Group) acquires a minority interest in Inter Parfums Inc.

■ Launch of Eau de Parfum line by Christian Lacroix

■ Burberry license agreement extended

■ Launch of S.T. Dupont Signature line of perfumes

■ License agreement signed for the use of the Celine brand

■ Launch of Paul Smith line of perfumes

■ Launch of Burberry Touch line of perfumes

■ Launch of Eau Florale by Christian Lacroix line of perfumes

■ Launch of Celine line of perfumes

■ Launch of Burberry Baby Touch line of perfumes

■ Launch of Christian Lacroix Bazar line of perfumes

■ Launch of S.T. Dupont Essence Pure line of perfumes

■ Launch of Paul Smith Extrême line of perfumes

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awards,nominationsand other distinctions



71

Awards, nominationsand other distinctions

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Awards for products

■ Oscar for packaging for the Christian Lacroix Eau de Parfum line (IFEC)

■ Oscar for best men’s perfume of the year in France for the Paul Smith for Men line (Cosmétique magazine)

■ Oscar for best men’s perfume of the year in the U.K. for the Paul Smith for Men line (Fragrance Foundation)

■ Oscar for best men’s perfume of the year in the U.S. for the Burberry Touch for Men line(Fragrance Foundation)

■ Oscar for the best men’s packaging of the year in the U.S. for the Burberry Touch for Men line(Fragrance Foundation)

■ Oscar for best men’s perfume of the year in Europe for the Paul Smith for Men line (Fragrance Foundation)

■ Award for best men’s perfume for the Paul Smith for Men line (Forme de luxe)

■ Oscar for best line of skin care and bath products for the Burberry Touch bath line (Cosmétique magazine)

■ Flacon d’Or for the Celine pour Homme line (Marionnaud)

Nominations and awards for financial communication and performance

■ Crystal Award for transparency in financial information(French National Association of Statutory Auditors, theCompagnie Nationale des Commissaires aux Comptes)

■ Nomination for the award for the best annual report (La Vie Financière)

■ Prize for international growth Grand Prize for Entrepreneurs (Ernst & Young - l’Entreprise)

■ Oscar for financial performance (Cosmétique Magazine)

■ Nomination for the award for innovation (KPMG - La Tribune)

■ Nomination for the award for creative audacity(Fimalac - Journal des Finances)

■ Nomination for the award for creative audacity(Fimalac - Journal des Finances)

Flacon d’Or 2002

Celine pour homme line

Prize for international growth

(Grand Prize for Entrepreneurs - Ernst & Young -

L’Entreprise)

Oscar 2002

Burberry Touch

bath line

Oscar 2001

Paul Smith for Men line

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