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EX-32 - SEC 906 CERTIFICATION OF CEO AND CFO - ELIZABETH ARDEN INCexh_32.htm
EX-31.2 - SEC 302 CERTIFICATION OF CFO - ELIZABETH ARDEN INCexh_31-2.htm
EX-31.1 - SEC 302 CERTIFICATION OF CEO - ELIZABETH ARDEN INCexh_31-1.htm
EX-10.17 - EXH 10.17 - AMENDED 2002 EMPLOYEE STOCK PURCHASE PLAN - ELIZABETH ARDEN INCexh_10-17.htm
EX-10.10 - EXH 10.10 - CREDIT FACILITY EXHIBITS AND SCHEDULES - ELIZABETH ARDEN INCexh_10-10.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[x]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2009

 

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number 1-6370

ELIZABETH ARDEN, INC.

(Exact name of registrant as specified in its charter)

Florida

        

59-0914138

(State or other jurisdiction of incorporation
or organization)

 

(I.R.S. Employer
Identification No.)

2400 S.W. 145 Avenue, Miramar, Florida

 

33027

(Address of principal executive offices)

 

(Zip Code)

(954) 364-6900

(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes  [X]      No  [  ]

 

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  [  ]      No  [  ]

 

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

     Large accelerated filer

[  ]

Accelerated filer

[X]

     Non-accelerated filer

[  ]  (Do not check if a smaller reporting company)

Smaller reporting company

[   ]

 

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

 

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

Class

     

Outstanding at
January 27, 2010

Common Stock, $.01 par value per share

 

28,981,210


ELIZABETH ARDEN, INC.

INDEX TO FORM 10-Q

PART I

 

FINANCIAL INFORMATION

   
         

Item 1.

 

Financial Statements

 

Page No.

 

 

Consolidated Balance Sheets -- December 31, 2009 and June 30, 2009

 

3

 

 

 

   

 

 

Consolidated Statements of Income -- Three and six months ended December 31, 2009 and December 31, 2008

 

4

 

 

 

   

 

 

Consolidated Statement of Shareholders' Equity -- Six months ended December 31, 2009

 

5

 

 

 

   

 

 

Consolidated Statements of Cash Flow -- Six months ended December 31, 2009 and December 31, 2008

 

6

 

 

 

   

 

 

Notes to Unaudited Consolidated Financial Statements

 

7

 

 

 

   

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

23

 

 

 

   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

36

 

 

 

   

Item 4.

 

Controls and Procedures

 

36

 

 

 

   

PART II

 

OTHER INFORMATION

   
         

Item 1A.

 

Risk Factors

 

38

         

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

38

         

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

39

 

 

 

   

Item 6.

 

Exhibits

 

40

 

 

 

   

Signatures

 

43

         

Exhibit Index

 

44

- 2 -


PART I      FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS

ELIZABETH ARDEN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

   

As of

 

December 31,
2009

June 30,
2009

ASSETS

 

(Unaudited)

     

Current Assets

             

 

Cash and cash equivalents

 

$

32,705

 

$

23,102

 

 

Accounts receivable, net

   

237,094

   

190,273

 

 

Inventories

   

264,712

   

318,535

 
 

Deferred income taxes

   

5,228

   

11,804

 
 

Prepaid expenses and other assets

   

45,943

   

50,024

 

     

Total current assets

   

585,682

   

593,738

 

Property and equipment, net

   

68,478

   

64,110

 

Exclusive brand licenses, trademarks and intangibles, net

   

183,925

   

186,321

 

Goodwill

   

21,054

   

21,054

 

Debt financing costs, net

   

4,132

   

4,705

 

Deferred income taxes

   

10,268

   

8,565

 

Other assets

   

1,161

   

594

 

     

Total assets

 

$

874,700

 

$

879,087

 

LIABILITIES AND SHAREHOLDERS' EQUITY

             

Current Liabilities

             

 

Short-term debt

 

$

66,000

 

$

115,000

 

 

Accounts payable - trade

   

98,731

   

121,413

 
 

Other payables and accrued expenses

   

110,354

   

70,168

 
 

Current portion of long-term debt

   

--

   

545

 

     

Total current liabilities

   

275,085

   

307,126

 

Long-term Liabilities

             

 

Long-term debt, net

   

223,517

   

223,366

 

 

Deferred income taxes and other liabilities

   

13,089

   

11,817

 

     

Total long-term liabilities

   

236,606

   

235,183

 

     

Total liabilities

   

511,691

   

542,309

 

Commitments and Contingencies

             

Shareholders' Equity

             
 

Common stock, $.01 par value per share, 50,000,000 shares authorized; 31,743,692
   
and 31,444,935 issued, respectively

   

317

   

316

 
 

Additional paid-in capital

   

289,321

   

285,847

 
 

Retained earnings

   

120,509

   

99,413

 
 

Treasury stock (2,760,482 and 2,728,329 shares at cost, respectively)

   

(47,708

)

 

(47,334

)

 

Accumulated other comprehensive income (loss)

   

570

   

(1,464

)

     

Total shareholders' equity

   

363,009

   

336,778

 

     

Total liabilities and shareholders' equity

 

$

874,700

 

$

879,087

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

- 3 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Amounts in thousands, except per share data)

Three Months Ended

Six Months Ended

December 31,
2009

December 31,
2008

December 31,
2009

December 31,
2008

Net sales

$

393,345

$

370,005

$

658,508

$

654,193

Cost of goods sold:

    Cost of sales

217,827

218,393

366,103

396,167

    Depreciation related to cost of goods sold

1,194

1,137

2,461

2,248

Total cost of goods sold

219,021

219,530

368,564

398,415

Gross profit

174,324

150,475

289,944

255,778

Operating expenses:

Selling, general and administrative

132,038

120,338

235,981

229,725

Depreciation and amortization

5,803

5,337

11,812

10,566

Total operating expenses

137,841

125,675

247,793

240,291

Income from operations

36,483

24,800

42,151

15,487

Interest expense, net

5,804

7,026

11,415

13,601

Income before income taxes

30,679

17,774

30,736

1,886

Provision for income taxes

9,623

4,108

9,640

736

Net income

$

21,056

$

13,666

$

21,096

$

1,150

Net income per common share:

Basic

$

0.75

$

0.49

$

0.75

$

0.04

Diluted

$

0.73

$

0.48

$

0.74

$

0.04

Weighted average number of common shares:

Basic

28,071

27,980

28,040

27,951

Diluted

28,707

28,648

28,591

28,778

The accompanying notes are an integral part of the unaudited consolidated financial statements.

- 4 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(Unaudited)

(Amounts in thousands)

   

Common Stock

   

Additional
Paid-in

   

Retained

   

Treasury Stock

   

Accumulated
Other
Comprehensive

   

Total
Shareholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Shares

   

Amount

   

(Loss) Income

   

Equity

 

Balance at July 1, 2009

   

31,445

   

$

316

   

$

285,847

   

$

99,413

     

(2,728

)

 

$

(47,334

)

 

$

(1,464

)

 

$

336,778

 

Issuance of restricted stock, net of forfeitures

   

150

     

1

                                             

1

 

Issuance of common stock for employee stock
   purchase plan

   

88

             

551

                                     

551

 

Issuance of common stock upon exercise of stock
   options

61

512

512

Amortization of share-based awards

                   

2,411

                                     

2,411

 

Repurchase of common stock

(32

)

(374

)

(374

)

Comprehensive income:

                                                               
 

Net income

                           

21,096

                             

21,096

 

 

Foreign currency translation adjustments

                                                   

2,571

     

2,571

 

 

Disclosure of reclassification amount, net of
   taxes (28% tax rate):

                                                               
   

Unrealized hedging loss arising during the
   period

                                                   

(653

)

   

(653

)

   

Less: reclassification adjustment for hedging
   losses included in net income

                                                   

116

     

116

 

   

Net unrealized cash flow hedging loss

                                                   

(537

)

   

(537

)

 

Total comprehensive income

                           

21,096

                     

2,034

     

23,130

 

Balance at December 31, 2009

   

31,744

   

$

317

   

$

289,321

   

$

120,509

     

(2,760

)

 

$

(47,708

)

 

$

570

   

$

363,009

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

- 5 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(Dollars in thousands)

   

Six Months Ended

 

   

December 31,
2009

   

December 31,
2008

 

Operating Activities:

               
 

Net income

 

$

21,096

   

$

1,150

 
 

Adjustments to reconcile net income to net cash used in operating
   activities:

               

Depreciation and amortization

14,273

12,814

 

Amortization of senior note offering and credit facility costs

   

733

     

719

 
 

Amortization of share-based awards

   

2,411

     

901

 
 

Deferred income taxes

   

5,348

     

(4,922

)

   Changes in assets and liabilities, net of acquisitions:

               
 

Increase in accounts receivable

   

(43,892

)

   

(18,622

)

 

Decrease in inventories

   

55,392

     

18,063

 
 

Decrease (increase) in prepaid expenses and other assets

   

1,573

     

(7,930

)

 

Decrease in accounts payable

   

(18,973

)

   

(17,886

)

 

Increase in other payables, accrued expenses and other liabilities

   

40,883

     

21,981

 
 

Other

   

(1,750

)

   

(8,359

)

   

Net cash provided by (used in) operating activities

   

77,094

     

(2,091

)

Investing Activities:

               
 

Additions to property and equipment

   

(17,832

)

   

(12,839

)

 

Acquisition of other assets

   

(333

)

   

(5,333

)

   

Net cash used in investing activities

   

(18,165

)

   

(18,172

)

                   

Financing Activities:

               
 

(Payments on) proceeds from short-term debt

   

(49,000

)

   

26,650

 
 

Payments on long-term debt

   

(545

)

   

(629

)

 

Payments under capital lease obligations

   

(1,139

)

   

(1,253

)

 

Proceeds from the exercise of stock options

   

512

     

510

 
 

Proceeds from the issuance of new common stock under the employee stock
   purchase plan

   

551

     

671

 
 

Repurchase of common stock

   

(374

)

   

(146

)

 

Financing fees paid

   

--

     

(863

)

   

Net cash (used in) provided by financing activities

   

(49,995

)

   

24,940

 

Effect of exchange rate changes on cash and cash equivalents

   

669

     

(1,937

)

Net increase in cash and cash equivalents

   

9,603

     

2,740

 

Cash and cash equivalents at beginning of period

   

23,102

     

26,396

 

Cash and cash equivalents at end of period

 

$

32,705

   

$

29,136

 

Supplemental Disclosure of Non-Cash Information:

               
 

Additions to property and equipment (not included above)

 

$

2,569

   

$

--

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

- 6 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.    BUSINESS AND BASIS OF PRESENTATION

          Elizabeth Arden, Inc. (the "Company" or "our") is a global prestige beauty products company that sells fragrances, skin care and cosmetic products to retailers in the United States and approximately 100 countries internationally.

          The unaudited consolidated financial statements include the accounts of the Company's wholly-owned domestic and international subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission") for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statement presentation and should be read in conjunction with the audited consolidated financial statements and related footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2009 (the "2009 Annual Report"), filed with the Commission.

          The consolidated balance sheet of the Company as of June 30, 2009 is derived from the financial statements included in the 2009 Annual Report but does not include all disclosures required by accounting principles generally accepted in the United States. The other consolidated financial statements presented in this quarterly report are unaudited but include all adjustments that are of a normal recurring nature that management considers necessary for the fair statement of the results for the interim periods. Results for interim periods are not necessarily indicative of results for the full fiscal year.

          To conform to the presentation of the three and six months ended December 31, 2009, certain reclassifications were made to the prior year's unaudited consolidated financial statements and the accompanying footnotes. Management has evaluated subsequent events through January 29, 2010, which is the date the financial statements were issued.

          During the three months ended December 31, 2009, the Company recorded out-of-period adjustments, which relate to the fiscal years ended 2001 to 2009, and the first quarter of fiscal 2010. Net sales and gross profit for the three months ended December 31, 2009 decreased by $2.7 million and $0.9 million, respectively. The Company did not adjust the prior periods as it concluded that such adjustments were not material to the current or prior periods' consolidated financial statements.

NOTE 2.    ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)/COMPREHENSIVE INCOME (LOSS)

          The Company's accumulated other comprehensive income (loss) shown on the accompanying consolidated balance sheets consists of foreign currency translation adjustments, which are not adjusted for income taxes since they relate to indefinite investments in non-U.S. subsidiaries, and the unrealized losses, net of taxes, related to the Company's foreign currency contracts.

          The components of accumulated other comprehensive income (loss) were as follows:

(Amounts in thousands)

December 31,
2009

June 30,
2009

Cumulative foreign currency translation adjustments

$

1,129

$

(1,442

)

Unrealized hedging loss, net of taxes

(559

)

(22

)

Accumulated other comprehensive income (loss)

$

570

$

(1,464

)

          The Company's comprehensive income consists of net income, foreign currency translation adjustments, which are not adjusted for income taxes since they relate to indefinite investments in non-U.S. subsidiaries, and the unrealized gains (losses), net of taxes, related to the Company's foreign currency contracts.

          The components of other comprehensive income were as follows:

(Amounts in thousands)

Three Months Ended

 

Six Months Ended

 

December 31,
2009

   

December 31,
2008

   

December 31,
2009

   

December 31,
2008

 

Net income

$

21,056

   

$

13,666

   

$

21,096

   

$

1,150

 

Foreign currency translation adjustments

 

634

     

(5,458

)

   

2,571

     

(10,043

)

Unrealized hedging gain (loss), net of taxes

 

(630

)

   

1,745

     

(537

)

   

15,208

 

Total comprehensive income

$

21,060

   

$

9,953

   

$

23,130

   

$

6,315

 

- 7 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.   INCOME PER SHARE

          Basic income per share is computed by dividing the net income by the weighted average number of shares of the Company's outstanding common stock, $.01 par value per share ("Common Stock"). The calculation of diluted income per share is similar to basic income per share except that the denominator includes potentially dilutive Common Stock such as stock options and non-vested restricted stock.

          The following table represents the computation of net income per share:

(Amounts in thousands, except per
share data)

 

Three Months Ended

   

Six Months Ended

 

   

December 31,
2009

   

December 31,
2008

   

December 31,
2009

   

December 31,
2008

 

Basic

                               
 

Net income

 

$

21,056

   

$

13,666

   

$

21,096

   

$

1,150

 

 

Weighted average shares outstanding

   

28,071

     

27,980

     

28,040

     

27,951

 

 

Net income per basic share

 

$

0.75

   

$

0.49

   

$

0.75

   

$

0.04

 

Diluted

                               
 

Net income

 

$

21,056

   

$

13,666

   

$

21,096

   

$

1,150

 

                                   
 

Weighted average shares outstanding

   

28,071

     

27,980

     

28,040

     

27,951

 

 

Potential common shares - treasury
   method

   

636

     

668

     

551

     

827

 

 

Weighted average shares and potential
   dilutive common shares

   

28,707

     

28,648

     

28,591

     

28,778

 

   

Net income per diluted share

 

$

0.73

   

$

0.48

   

$

0.74

   

$

0.04

 

          The following table shows the number of shares subject to option awards that were outstanding for the three and six months ended December 31, 2009 and 2008 that were not included in the diluted net income per share calculation because to do so would have been anti-dilutive:

   

Three Months Ended

   

Six Months Ended

 

   

December 31,
2009

   

December 31,
2008

   

December 31,
2009

   

December 31,
2008

 

Number of shares

   

1,866,594

     

1,900,844

     

2,859,012

     

1,566,876

 

NOTE 4.    RESTRUCTURING CHARGES

          In fiscal 2007, the Company commenced a comprehensive review of its global business processes to re-engineer its extended supply chain, distribution, logistics and transaction processing systems. In May 2008, the Company announced a decision to accelerate the re-engineering of its extended supply chain, distribution and logistics functions, as well as the realignment of other parts of its organization to better support its new business processes. This initiative also includes a migration to a shared services model to simplify transaction processing by consolidating the Company's primary global transaction processing functions and the implementation of a new financial accounting and order processing system. The Company refers to this initiative as the Global Efficiency Re-engineering initiative, or sometimes simply as the Initiative.

          As a result of the acceleration of the Initiative, the implementation of the Oracle financial accounting and order processing system and the migration to a shared services transaction processing model, the Company has implemented a restructuring plan that will result in restructuring and one-time expenses, including severance, relocation, recruiting and temporary staffing expenditures. The Company currently estimates that these expenses will total $12.0 million to $14.0 million, before taxes, and expects that substantially all of these

- 8 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

expenses will have been incurred by the end of fiscal 2010. Through December 31, 2009, we have incurred a total of $11.2 million of expenses related to the Initiative, before taxes, which includes $6.2 million for Initiative-related restructuring and $5.0 million of other one time Initiative-related expenses. The following table summarizes the restructuring costs related to the Initiative.

(Amounts in thousands)

Six Months
Ended
December 31,
2009

Year
Ended
June 30,
2009

Year
Ended
June 30,
2008

Restructuring expenses under the Initiative

 

$

1,965

   

$

3,544

   

$

673

 

          Unrelated to the Initiative, for the six months ended December 31, 2009, the Company incurred approximately $0.4 million of other restructuring expenses, which was recorded in the fiscal quarter ended September 30, 2009. For the three and six months ended December 31, 2008, the Company incurred $0.9 million of other restructuring expenses unrelated to the Initiative.

          Aggregate amounts paid during the six months ended December 31, 2009 for restructuring were $3.1 million. All of the restructuring expenses discussed above are included in selling, general and administrative expenses in the Company's consolidated statements of operations and, as described in Note 14, have not been attributed to any of the Company's reportable segments and are included in unallocated corporate expenses. At December 31, 2009 and June 30, 2009, the Company had a restructuring liability of $0.3 million and $1.0 million, respectively.

NOTE 5.    NEW ACCOUNTING STANDARDS

Interim Disclosures About Fair Value of Financial Instruments

          In April 2009, the FASB issued an update to Codification Topic 825, Financial Instruments, amending the disclosure requirements under Topic 825 to require disclosures about the fair value of financial instruments for interim reporting periods in addition to the previously required annual disclosures. The interim reporting requirements under Codification Topic 825 were effective for the Company beginning July 1, 2009 and did not have a material impact on the Company's consolidated financial statements.

Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities

          In June 2008, the FASB issued an update to Codification Topic 260, Earnings Per Share, that addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The update to Codification Topic 260 requires unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) to be treated as participating securities and to be included in the computation of earnings per share pursuant to the two-class method. The revisions to Codification Topic 260 were effective for the Company beginning July 1, 2009 and did not have a material impact on the Company's consolidated financial statements.

Business Combinations

          In December 2007, the FASB issued an update to Codification Topic 805, Business Combinations, which significantly changes the accounting for business combinations in a number of areas, including the treatment of contingent consideration, pre-acquisition contingencies, transaction costs, restructuring costs and income taxes. The revisions to Codification Topic 805 were effective for acquisitions that occur after July 1, 2009 and did not have a material impact on the Company's consolidated financial statements.

Useful Life of Intangible Assets

          In April 2008, the FASB issued an update to Codification Topic 350, Intangible- Goodwill and Other, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This amendment is effective on a prospective basis to all intangible assets acquired and for disclosures on all intangible assets recognized on or after the beginning of the first annual period subsequent to December 15, 2008. Early adoption is prohibited. The amendment to Codification Topic 350 was effective for the Company beginning July 1, 2009 and did not have a material impact on the Company's consolidated financial statements.

- 9 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

          Codification Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The requirements for financial assets and liabilities under Codification Topic 820 became effective for the Company on July 1, 2008 and did not have a material impact on the Company's consolidated financial statements. For non-financial assets and liabilities, Codification Topic 820 was effective for the Company beginning July 1, 2009 and did not have a material impact on the Company's consolidated financial statements.

          In August 2009, the FASB issued an update to Codification Topic 820 that provides additional guidance on the fair value measurement of liabilities. Specifically, this update provides clarification in circumstances in which a quoted price in an active market is not available. The update to Codification Topic 820 was effective for the Company beginning July 1, 2009 and did not have a material impact on the Company's consolidated financial statements.

NOTE 6.    INVENTORIES

          The components of inventory were as follows:

(Amounts in thousands)

December 31,
2009

 

June 30,
2009

Raw materials

$

56,207

 

$

64,147

Work in progress

24,960

 

30,777

Finished goods

183,545

 

223,611

      Total

$

264,712

 

$

318,535

NOTE 7.    EXCLUSIVE BRAND LICENSES, TRADEMARKS AND INTANGIBLES, NET AND GOODWILL

          The following summarizes the cost basis amortization and weighted average estimated life associated with the Company's intangible assets:

(Amounts in thousands)

December 31,
2009

 

June 30,
2009

 

June 30, 2009
Weighted Average
Estimated Life

Elizabeth Arden brand trademarks

$

122,415

   

$

122,415

     

Indefinite

 

Exclusive brand licenses and related trademarks

 

84,714

     

82,417

     

18

 

Exclusive brand trademarks

 

43,377

     

43,202

     

11

 

Other intangibles (1)

 

20,330

     

20,330

     

17

 

Exclusive brand licenses, trademarks and intangibles, gross

 

270,836

     

268,364

         

Accumulated amortization:

   Exclusive brand licenses and related trademarks

 

(42,828

)

   

(39,913

)

       

   Exclusive brand trademarks

 

(37,679

)

   

(36,588

)

       

   Other intangibles

 

(6,404

)

   

(5,542

)

       

Exclusive brand licenses, trademarks and intangibles, net

$

183,925

   

$

186,321

         

(1)

Primarily consists of customer relationships, customer lists and non-compete agreements.

          Amortization expense was $2.4 million and $4.9 million for the three months and six months ended December 31, 2009, respectively as compared to $2.5 million and $4.8 million for three months and six months ended December 31, 2008, respectively. At December 31, 2009, the Company estimated annual amortization expense for its intangible assets for each of the next five fiscal years to be as shown in the following table. Future acquisitions, renewals or impairment events could cause these amounts to change.

- 10 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

   

(Amounts in millions)

Remainder of fiscal 2010

 

$4.4

2011

 

$7.0

2012

 

$5.7

2013

 

$5.0

2014

 

$4.1

          At December 31, 2009 and June 30, 2009, the Company had goodwill of $21.1 million recorded on its consolidated balance sheets. The entire amount of the goodwill in all periods presented relates to the North America Fragrance segment.

NOTE 8.    SHORT-TERM DEBT

          The Company has a $325 million revolving bank credit facility (the "Credit Facility") with a syndicate of banks, for which JPMorgan Chase Bank is the administrative agent, which generally provides for borrowings on a revolving basis, with a $25 million sub-limit for letters of credit. Under the terms of the Credit Facility, the Company may, at any time, increase the size of the Credit Facility up to $375 million without entering into a formal amendment requiring the consent of all of the banks, subject to the Company's satisfaction of certain conditions. The Credit Facility expires in December 2012.

          The Credit Facility is guaranteed by all of the Company's U.S. subsidiaries and is collateralized by a first priority lien on all of the Company's U.S., Canada and Puerto Rico accounts receivable and U.S. inventory. Borrowings under the Credit Facility are limited to 85% of eligible accounts receivable and 85% of the appraised net liquidation value of the Company's inventory, as determined pursuant to the terms of the Credit Facility; provided, however, that from August 15 to October 31 of each year the borrowing base may be temporarily increased by up to $25 million. The Company's obligations under the Credit Facility rank senior to the Company's 7 3/4% Senior Subordinated Notes due 2014 (the "7 3/4% Senior Subordinated Notes").

          The Credit Facility has only one financial maintenance covenant, which is a debt service coverage ratio that must be maintained at not less than 1.1 to 1 if average borrowing base capacity declines to less than $25 million ($35 million from December 1 through May 31). The Company's average borrowing base capacity during the quarter ended December 31, 2009, did not fall below the applicable thresholds noted above. Accordingly, the debt service coverage ratio did not apply for the quarter ended December 31, 2009. The Company was in compliance with all applicable covenants under the Credit Facility for the quarter ended December 31, 2009.

          Under the terms of the Credit Facility, the Company may pay dividends or repurchase Common Stock if the Company maintains borrowing base capacity of at least $25 million from June 1 to November 30, and at least $35 million from December 1 to May 31, after making the applicable payment. The Credit Facility restricts the Company from incurring additional non-trade indebtedness (other than refinancings and certain small amounts of indebtedness).

          Borrowings under the credit portion of the Credit Facility bear interest at a floating rate based on the "Applicable Margin," which is determined by reference to a specific financial ratio. At the Company's option, the Applicable Margin may be applied to either the London Interbank Offered Rate ("LIBOR") or the prime rate. The reference ratio for determining the Applicable Margin is a debt service coverage ratio. The Applicable Margin charged on LIBOR loans ranges from 1.00% to 1.75% and is 0% for prime rate loans, except that the Applicable Margin on the first $25.0 million of borrowings from August 15 to October 15 of each year, while the temporary increase in the Company's borrowing base is in effect, is 1.00% higher. At December 31, 2009, the Applicable Margin was 1.75% for LIBOR loans and 0% for prime rate loans. The commitment fee on the unused portion of the Credit Facility is 0.25%. For the six months ended December 31, 2009 and 2008, the weighted average annual interest rate on borrowings under the Credit Facility was 2.4% and 4.0%, respectively.

          At December 31, 2009, the Company had $66.0 million in outstanding borrowings and approximately $4.9 million in letters of credit outstanding under the Credit Facility, compared with $115.0 million in outstanding borrowings under the Credit Facility at June 30, 2009. As of December 31, 2009, the Company had approximately $266.1 million of eligible accounts receivable and inventories available as collateral under the Credit Facility and remaining borrowing availability of $200.1 million. The Company classifies the Credit Facility as short-term debt on its balance sheet because it expects to reduce outstanding borrowings over the next twelve months.

- 11 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.    LONG-TERM DEBT

          The Company's long-term debt consisted of the following:

(Amounts in thousands)

 

December 31,
2009

 

June 30,
2009

 

7 3/4% Senior Subordinated Notes due January 2014

 

$

225,000

 

$

225,000

 

Termination costs on interest rate swap, net

(1,483)

(1,634

)

Riviera Term Note

--

545

Total debt

   

223,517

   

223,911

 

   Less: Current portion of long-term debt

--

545

Total long-term debt

$

223,517

$

223,366

          In connection with the June 2006 acquisition of certain assets of Riviera Concepts Inc., the Company assumed a promissory note held by Riviera Concepts in the principal amount of approximately $3.4 million (the "Riviera Term Note"). The final installment was paid on July 15, 2009.

          At December 31, 2009 and June 30, 2009, the estimated fair value of the Company's 7 3/4% Senior Subordinated Notes and, at June 30, 2009, the estimated value of the Riviera Term Note, using available market information and interest rates was as follows:

(Amounts in thousands)

 

December 31,
2009

 

June 30,
2009

 

7 3/4% Senior Subordinated Notes due January 2014

 

$

220,500

 

$

193,500

 

Riviera Term Note

 

$

--

 

$

545

 

          The Company determined the estimated fair value amounts by using available market information and commonly accepted valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value, primarily due to the illiquid nature of the capital markets in which the 7 3/4% Senior Subordinated Notes are traded. Accordingly, the fair value estimates presented herein are not necessarily indicative of the amount that the Company or the debt holders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value.

NOTE 10.    COMMITMENTS AND CONTINGENCIES

          In connection with the August 2006 acquisition of certain assets comprising the fragrance business of Sovereign Sales LLC ("Sovereign"), $12 million of the purchase price was in the form of contingent consideration, the majority of which was to be paid in two installments over two years from the date of closing if certain financial targets and other conditions are satisfied. The conditions for the first, second and final installments were satisfied, and the Company recognized a liability of $6.3 million, $5.3 million and $0.3 million in the consolidated balance sheets at June 30, 2007, June 30, 2008 and June 30, 2009, respectively. The first installment was paid in September 2007, and the second installment was paid in July 2008. The final installment of contingent consideration of $0.3 million was paid in September 2009.

          The Company is a party to a number of legal actions, proceedings and claims. While any action, proceeding or claim contains an element of uncertainty and it is possible that the Company's cash flows and results of operations in a particular quarter or year could be materially affected by the impact of such actions, proceedings and claims, management of the Company believes that the outcome of such actions, proceedings or claims will not have a material adverse effect on the Company's business, prospects, results of operations, financial condition or cash flows.

NOTE 11.    FAIR VALUE MEASUREMENTS

          Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The

- 12 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

accounting standards also have established a fair value hierarchy, which prioritizes the inputs to valuation techniques used in measuring fair value into three broad levels as follows:

Level 1 -

Quoted prices in active markets for identical assets or liabilities

Level 2 -

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly

Level 3 -

Unobservable inputs based on the Company's own assumptions

          The Company's derivative assets and liabilities are currently comprised of foreign currency contracts. Fair values are based on market prices or determined using valuation models that use as their basis readily observable market data that is actively quoted and can be validated through external sources, including independent pricing services, brokers and market transactions.

          The following table presents the fair value hierarchy for those of the Company's financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2009:

(Amounts in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets

Foreign currency contracts

$

--

$

33

$

--

$

33

Liabilities

Foreign currency contracts

$

--

$

900

$

--

$

900

          As of June 30, 2009, the Company's foreign currency contracts were measured at fair value under Level 2 as an asset of $0.5 million and as a liability of $0.4 million. See Note 12 for a discussion of the Company's foreign currency contracts.

          Effective July 1, 2009, we adopted the accounting standards for fair value for non-financial assets and non-financial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. Non-financial assets and liabilities are recognized at fair value subsequent to initial recognition when they are deemed to be other-than-temporarily impaired. There were no non-financial assets and liabilities measured at fair value on a nonrecurring basis for the six months ended December 31, 2009.

NOTE 12.    DERIVATIVE FINANCIAL INSTRUMENTS

          The Company operates in several foreign countries, which exposes it to market risk associated with foreign currency exchange rate fluctuations. The Company's risk management policy is to hedge a significant portion of its forecasted net sales to reduce the exposure of the Company's foreign subsidiaries' revenues to fluctuations in currency rates using foreign currency forward contracts. The Company also hedges a significant portion of its forecasted inventory purchases to reduce the exposure of its Canadian and Australian subsidiary's cost of sales to such fluctuations. Additionally, when appropriate, the Company enters into and settles foreign currency contracts to reduce the exposure of the Company's foreign subsidiaries' net balance sheets to fluctuations in currency rates. The principal currencies hedged are British pounds, Euros, Canadian dollars and Australian dollars. The Company does not enter into derivative financial contracts for speculative or trading purposes. The Company's derivative financial instruments are recorded in the consolidated balance sheets at fair value determined using pricing models based on market prices or determined using valuation models that use as their basis readily observable market data that is actively quoted and can be validated through external sources, including independent pricing services, brokers and market transactions. Cash flows from derivative financial instruments are classified as cash flows from operating activities in the consolidated statements of cash flows.

          Foreign currency contracts used to hedge forecasted revenues are designated as cash flow hedges. These contracts are used to hedge forecasted subsidiary revenues generally over approximately 12 to 18 months. Changes to fair value of the foreign currency contracts are recorded as a component of accumulated other comprehensive income (loss) within stockholders' equity, to the extent such contracts are effective, and are recognized in net sales in the period in which the forecasted transaction affects earnings. Changes to fair value of any contracts deemed to be ineffective would be recognized in earnings immediately. There were no amounts recorded in fiscal 2010 and 2009 relating to foreign currency contracts used to hedge forecasted revenues resulting from hedge ineffectiveness. As of December 31, 2009, the Company had notional amounts of 12.8 million British pounds under foreign currency contracts used to hedge forecasted revenues that expire between January 31, 2010 and May 30, 2011.

- 13 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

          Foreign currency contracts used to hedge forecasted cost of sales are designated as cash flow hedges. These contracts are used to hedge forecasted Canadian and Australian subsidiary cost of sales generally over approximately 12 to 18 months. Changes to fair value of the foreign currency contracts are recorded as a component of accumulated other comprehensive income (loss) within stockholders' equity, to the extent such contracts are effective, and are recognized in cost of sales in the period in which the forecasted transaction affects earnings. Changes to fair value of any contracts deemed to be ineffective would be recognized in earnings immediately. There were no amounts recorded in fiscal 2010 and 2009 relating to foreign currency contracts used to hedge forecasted cost of sales resulting from hedge ineffectiveness. As of December 31, 2009, the Company had notional amounts of 10.4 million Canadian dollars and 12.8 million Australian dollars under foreign currency contracts used to hedge forecasted cost of sales that expire between January 31, 2010 and May 30, 2011.

          When appropriate, the Company also enters into and settles foreign currency contracts for Euros, British pounds and Canadian dollars to reduce exposure of the Company's foreign subsidiaries' net balance sheets to fluctuations in foreign currency rates. These contracts are used to hedge balance sheet exposure generally over one month and are settled before the end of the month in which they are entered into. Changes to fair value of the forward contracts are recognized in selling, general and administrative expense in the period in which the contracts expire. For the three and six months ended December 31, 2009, the Company recorded a charge of $53,000 and $212,000, respectively in selling, general and administrative expenses related to these contracts. For the three and six months ended December 31, 2008, the Company recorded a benefit of $2.1 million and $2.9 million, respectively in selling, general and administrative expenses related to these contracts. As of December 31, 2009, there were no such foreign currency contracts outstanding. There were no amounts recorded in fiscal 2010 and 2009 relating to foreign currency contracts to hedge subsidiary balance sheets resulting from hedge ineffectiveness.

 

Fair Value of Derivative Instruments

 

(Amounts in thousands)

Asset Derivatives
As of December 31,
2009

 

Liability Derivatives
As of December 31,
2009

 

 

Balance
Sheet
Location

 

Fair
Value

   

Balance
Sheet
Location

 

Fair
Value

 

Derivatives designated as effective hedges

                     

Foreign Exchange Contracts

Other assets

 

$

33

   

Other payables

 

$

900

 

Total

   

$

33

       

$

900

 

          As of June 30, 2009, the Company's foreign currency contracts were measured at fair value as an asset of $0.5 million and as a liability of $0.4 million.

          The following tables illustrate the fair value of outstanding foreign currency contracts and the gains (losses) associated with the settlement of these contracts:

          Gain (Loss) Recognized in OCI on Derivatives, Net of Tax (Effective Portion):

(Amounts in thousands)

Three Months Ended

 

Six Months Ended

 

December 31,
2009

   

December 31,
2008

   

December 31,
2009

   

December 31,
2008

 

Currency Contracts-Sales

$

(414

)

 

$

1,503

   

$

369

   

$

14,719

 

Currency Contracts - Cost of Sales

 

(216

)

   

242

     

(906

)

   

489

 

Total

$

(630

)

 

$

1,745

   

$

(537

)

 

$

15,208

 

- 14 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

          Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion):

(Amounts in thousands)

Three Months Ended

 

Six Months Ended

 

December 31,
2009

   

December 31,
2008

   

December 31,
2009

   

December 31,
2008

 

Currency Contracts-Sales (1)

$

21

   

$

5,862

   

$

15

   

$

6,219

 

Currency Contracts- Cost of Sales (2)

 

(164

)

   

460

     

(177

)

   

449

 

Total

$

(143

)

 

$

6,322

   

$

(162

)

 

$

6,668

 

(1)   Recorded in net sales on the consolidated statements of income.

(2)   Recorded in cost of sales on the consolidated statements of income.

NOTE 13.    CONDENSED CONSOLIDATING FINANCIAL INFORMATION

          The following condensed financial statements as of December 31, 2009 and June 30, 2009, and for the three and six months ended December 31, 2009 and 2008, show the consolidated financial statements of the Company, and, in separate financial statements, the financial statements of those subsidiaries that are guarantors of the 7 3/4% Senior Subordinated Notes, plus, in each case, the financial statements of non-guarantor entities, elimination adjustments and the consolidated total. The Company's subsidiaries, DF Enterprises, Inc., FD Management, Inc., Elizabeth Arden International Holding, Inc., Elizabeth Arden (Financing), Inc., RDEN Management, Inc. and Elizabeth Arden Travel Retail, Inc., are guarantors of the 7 3/4% Senior Subordinated Notes. Equity income of the guarantor subsidiaries is included in other expense (income), net. All subsidiaries listed in this note are wholly-owned subsidiaries of the Company and their guarantees are joint and several, full and unconditional. All information presented is in thousands.

[Remainder of Page Intentionally Left Blank]

- 15 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheet

As of December 31, 2009

   

Company

 

Non-
Guarantors

 

7 3/4%
Senior
Subordinated
Notes
Guarantors

 

Eliminations

 

Total

 

ASSETS

                               

Current Assets:

                               
 

Cash and cash equivalents

 

$

7,999

 

$

24,689

 

$

17

 

$

--

 

$

32,705

 
 

Accounts receivable, net

   

130,799

   

106,295

   

--

   

--

   

237,094

 
 

Inventories

   

185,722

   

78,990

   

--

   

--

   

264,712

 
 

Intercompany receivable

   

39,169

   

10,802

   

280,568

   

(330,539

)

 

--

 
 

Deferred income taxes

   

6,738

   

(1,510

)

 

--

   

--

   

5,228

 
 

Prepaid expenses and other assets

   

29,850

   

16,055

   

38

   

--

   

45,943

 

   

Total current assets

   

400,277

   

235,321

   

280,623

   

(330,539

)

 

585,682

 

                                 

Property and equipment, net

   

47,056

   

21,422

   

--

   

--

   

68,478

 

Other Assets:

                               
 

Investment in subsidiaries

   

314,968

   

--

   

9,136

   

(324,104

)

 

--

 
 

Exclusive brand licenses, trademarks and
   intangibles, net

   

28,376

   

6,165

   

149,384

   

--

   

183,925

 
 

Goodwill

   

21,054

   

--

   

--

   

--

   

21,054

 
 

Debt financing costs, net

   

4,132

   

--

   

--

   

--

   

4,132

 
 

Other

   

10,473

   

936

   

11

   

9

   

11,429

 

   

Total other assets

   

379,003

   

7,101

   

158,531

   

(324,095

)

 

220,540

 

   

Total assets

 

$

826,336

 

$

263,844

 

$

439,154

 

$

(654,634

)

$

874,700

 

                                 

LIABILITIES AND
SHAREHOLDERS' EQUITY

                               

Current Liabilities:

                               
 

Short-term debt

 

$

66,000

 

$

--

 

$

--

 

$

--

 

$

66,000

 
 

Accounts payable - trade

   

79,546

   

19,185

   

--

   

--

   

98,731

 
 

Intercompany payable

   

21,091

   

62,060

   

256,509

   

(339,660

)

 

--

 
 

Other payables and accrued expenses

   

60,807

   

49,114

   

439

   

(6

)

 

110,354

 

   

Total current liabilities

   

227,444

   

130,359

   

256,948

   

(339,666

)

 

275,085

 

                                 
 

Long-term debt

   

223,517

   

--

   

--

   

--

   

223,517

 
 

Deferred income taxes and other liabilities

   

12,366

   

723

   

--

   

--

   

13,089

 

   

Total liabilities

   

463,327

   

131,082

   

256,948

   

(339,666

)

 

511,691

 

                                 

Shareholders' Equity

 

Common stock

   

317

   

--

   

--

   

--

   

317

 
 

Additional paid-in capital

   

289,321

   

9,136

   

197,411

   

(206,547

)

 

289,321

 
 

Retained earnings (accumulated deficit)

   

120,509

   

122,937

   

(15,205

)

 

(107,732

)

 

120,509

 
 

Treasury stock

   

(47,708

)

 

--

   

--

   

--

   

(47,708

)

 

Accumulated other comprehensive income

   

570

   

689

   

--

   

(689

)

 

570

 

   

Total shareholders' equity

   

363,009

   

132,762

   

182,206

   

(314,968

)

 

363,009

 

   

Total liabilities and shareholders' equity

 

$

826,336

 

$

263,844

 

$

439,154

 

$

(654,634

)

$

874,700

 

- 16 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheet

As of June 30, 2009

   

Company

 

Non-
Guarantors

 

7 3/4%
Senior
Subordinated
Notes
Guarantors

 

Eliminations

 

Total

 

ASSETS

                               

Current Assets:

                               
 

Cash and cash equivalents

 

$

1,936

 

$

20,969

 

$

197

 

$

--

 

$

23,102

 
 

Accounts receivable, net

   

104,939

   

85,334

   

--

   

--

   

190,273

 
 

Inventories

   

225,721

   

92,814

   

--

   

--

   

318,535

 
 

Intercompany receivable

   

47,704

   

4,632

   

269,819

   

(322,155

)

 

--

 
 

Deferred income taxes

   

12,706

   

(902

)

 

--

   

--

   

11,804

 
 

Prepaid expenses and other assets

   

35,794

   

13,649

   

581

   

--

   

50,024

 

   

Total current assets

   

428,800

   

216,496

   

270,597

   

(322,155

)

 

593,738

 

                                 

Property and equipment, net

   

42,990

   

21,120

   

--

   

--

   

64,110

 

Other Assets:

                               
 

Investment in subsidiaries

   

298,411

   

--

   

9,136

   

(307,547

)

 

--

 

Exclusive brand licenses, trademarks and
   intangibles, net

28,967

6,598

150,756

--

186,321

 

Goodwill

   

21,054

   

--

   

--

   

--

   

21,054

 
 

Debt financing costs, net

   

4,705

   

--

   

--

   

--

   

4,705

 
 

Other

   

10,287

   

(1,146

)

 

11

   

7

   

9,159

 

   

Total other assets

   

363,424

   

5,452

   

159,903

   

(307,540

)

 

221,239

 

   

Total assets

 

$

835,214

 

$

243,068

 

$

430,500

 

$

(629,695

)

$

879,087

 

                                 

LIABILITIES AND
SHAREHOLDERS' EQUITY

                               

Current Liabilities:

                               
 

Short-term debt

 

$

115,000

 

$

--

 

$

--

 

$

--

 

$

115,000

 
 

Accounts payable - trade

   

102,952

   

18,461

   

--

   

--

   

121,413

 
 

Intercompany payable

   

9,165

   

71,042

   

251,076

   

(331,283)

   

--

 
 

Other payables and accrued expenses

   

36,576

   

33,593

   

--

   

(1)

   

70,168

 
 

Current portion of long-term debt

   

545

   

--

   

--

   

--

   

545

 

   

Total current liabilities

   

264,238

   

123,096

   

251,076

   

(331,284)

   

307,126

 

                                 
 

Long-term debt

   

223,366

   

--

   

--

   

--

   

223,366

 
 

Deferred income taxes and other liabilities

   

10,832

   

985

   

--

   

--

   

11,817

 

   

Total liabilities

   

498,436

   

124,081

   

251,076

   

(331,284)

   

542,309

 

                                 

Shareholders' Equity

 

Common stock

   

316

   

--

   

--

   

--

   

316

 
 

Additional paid-in capital

   

285,847

   

9,136

   

197,411

   

(206,547

)

 

285,847

 
 

Retained earnings (accumulated deficit)

   

99,413

   

111,193

   

(17,987

)

 

(93,206

)

 

99,413

 
 

Treasury stock

   

(47,334

)

 

--

   

--

   

--

   

(47,334

)

 

Accumulated other comprehensive loss

   

(1,464

)

 

(1,342

)

 

--

   

1,342

   

(1,464

)

   

Total shareholders' equity

   

336,778

   

118,987

   

179,424

   

(298,411

)

 

336,778

 

   

Total liabilities and shareholders' equity

 

$

835,214

 

$

243,068

 

$

430,500

 

$

(629,695

)

$

879,087

 

- 17 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Statement of Income

Three Months Ended December 31, 2009

   

Company

 

Non-
Guarantors

 

7 3/4%
Senior
Subordinated
Notes
Guarantors

 

Eliminations

 

Total

 

Net sales

 

$

258,616

 

$

134,729

 

$

4,158

 

$

(4,158

)

$

393,345

 

Cost of goods sold:

                               

    Cost of sales

   

156,407

   

61,420

   

--

   

--

   

217,827

 

    Depreciation related to cost of goods sold

   

1,021

   

173

   

--

   

--

   

1,194

 

        Total cost of goods sold

   

157,428

   

61,593

   

--

   

--

   

219,021

 

Gross profit

   

101,188

   

73,136

   

4,158

   

(4,158

)

 

174,324

 

Selling, general and administrative costs

77,295

59,305

(404

)

(4,158

)

132,038

Depreciation and amortization

   

2,858

   

2,177

   

768

   

--

   

5,803

 

Income from operations

   

21,035

   

11,654

   

3,794

   

--

   

36,483

 

Other expense (income):

                               
 

Interest expense (income)

   

5,777

   

221

   

(194

)

 

--

   

5,804

 
 

Other

   

(11,815

)

 

(349

)

 

1,455

   

10,709

   

--

 

Income before income taxes

   

27,073

   

11,782

   

2,533

   

(10,709

)

 

30,679

 

Provision for income taxes

   

6,017

   

2,664

   

942

   

--

   

9,623

 

Net income

 

$

21,056

 

$

9,118

 

$

1,591

 

$

(10,709

)

$

21,056

 

 

 

Statement of Income

Six Months Ended December 31, 2009

   

Company

 

Non-
Guarantors

 

7 3/4%
Senior
Subordinated
Notes
Guarantors

 

Eliminations

 

Total

 

Net sales

 

$

426,290

 

$

232,218

 

$

7,382

 

$

(7,382

)

$

658,508

 

Cost of goods sold:

                               

    Cost of sales

   

258,115

   

107,988

   

--

   

--

   

366,103

 

    Depreciation related to cost of goods sold

   

2,165

   

296

   

--

   

--

   

2,461

 

        Total cost of goods sold

   

260,280

   

108,284

   

--

   

--

   

368,564

 

Gross profit

   

166,010

   

123,934

   

7,382

   

(7,382

)

 

289,944

 

Selling, general and administrative costs

   

139,629

   

104,450

   

(716

)

 

(7,382

)

 

235,981

 

Depreciation and amortization

   

5,873

   

4,404

   

1,535

   

--

   

11,812

 

Income from operations

   

20,508

   

15,080

   

6,563

   

--

   

42,151

 

Other expense (income):

                               
 

Interest expense (income)

   

11,374

   

430

   

(389

)

 

--

   

11,415

 
 

Other

   

(16,283

)

 

(764

)

 

2,521

   

14,526

   

--

 

Income before income taxes

   

25,417

   

15,414

   

4,431

   

(14,526

)

 

30,736

 

Provision for income taxes

   

4,321

   

3,670

   

1,649

   

--

   

9,640

 

Net income

 

$

21,096

 

$

11,744

 

$

2,782

 

$

(14,526

)

$

21,096

 

- 18 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Statement of Income

Three Months Ended December 31, 2008

   

Company

 

Non-
Guarantors

 

7 3/4%
Senior
Subordinated
Notes
Guarantors

 

Eliminations

 

Total

 

Net sales

 

$

239,876

 

$

130,129

 

$

4,002

 

$

(4,002

)

$

370,005

 

Cost of goods sold:

                               

    Cost of sales

   

151,928

   

66,465

   

--

   

--

   

218,393

 

    Depreciation related to cost of goods sold

   

978

   

159

   

--

   

--

   

1,137

 

        Total cost of goods sold

   

152,906

   

66,624

   

--

   

--

   

219,530

 

Gross profit

   

86,970

   

63,505

   

4,002

   

(4,002

)

 

150,475

 

Selling, general and administrative costs

   

74,188

   

50,455

   

(303

)

 

(4,002

)

 

120,338

 

Depreciation and amortization

   

2,941

   

1,643

   

753

   

--

   

5,337

 

Income from operations

   

9,841

   

11,407

   

3,552

   

--

   

24,800

 

Other expense (income):

                               
 

Interest expense (income)

   

7,021

   

307

   

(302

)

 

--

   

7,026

 
 

Other

   

(12,084

)

 

(416

)

 

1,470

   

11,030

   

--

 

Income before income taxes

   

14,904

   

11,516

   

2,384

   

(11,030

)

 

17,774

 

Provision for income taxes

   

1,238

   

2,008

   

862

   

--

   

4,108

 

Net income

 

$

13,666

 

$

9,508

 

$

1,522

 

$

(11,030

)

$

13,666

 

 

Statement of Income

Six Months Ended December 31, 2008

   

Company

 

Non-
Guarantors

 

7 3/4%
Senior
Subordinated
Notes
Guarantors

 

Eliminations

 

Total

 

Net sales

 

$

417,014

 

$

237,179

 

$

7,346

 

$

(7,346

)

$

654,193

 

Cost of goods sold:

                               

    Cost of sales

   

275,363

   

120,804

   

--

   

--

   

396,167

 

    Depreciation related to cost of goods sold

   

1,940

   

308

   

--

   

--

   

2,248

 

        Total cost of goods sold

   

277,303

   

121,112

   

--

   

--

   

398,415

 

Gross profit

   

139,711

   

116,067

   

7,346

   

(7,346

)

 

255,778

 

Selling, general and administrative costs

137,247

100,462

(638

)

(7,346

)

229,725

Depreciation and amortization

   

5,714

   

3,346

   

1,506

   

--

   

10,566

 

(Loss) income from operations

   

(3,250

)

 

12,259

   

6,478

   

--

   

15,487

 

Other expense (income):

                               
 

Interest expense (income)

   

13,578

   

627

   

(604

)

 

--

   

13,601

 
 

Other

   

(14,508

)

 

155

   

2,556

   

11,797

   

--

 

(Loss) income before income taxes

   

(2,320

)

 

11,477

   

4,526

   

(11,797

)

 

1,886

 

(Benefit from) provision for income taxes

   

(3,470

)

 

2,570

   

1,636

   

--

   

736

 

Net income

 

$

1,150

 

$

8,907

 

$

2,890

 

$

(11,797

)

$

1,150

 

- 19 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Statement of Cash Flows

 

Six Months Ended December 31, 2009

 

   

Company

 

Non-
Guarantors

 

7 3/4%
Senior
Subordinated
Notes
Guarantors

 

Eliminations

 

Total

 

Operating activities:

                               

Net cash provided by operating activities

 

$

46,890

 

$

23,422

 

$

6,785

 

$

(3

)

$

77,094

 

Investing activities:

                               
 

Additions to property and equipment

   

(13,613

)

 

(4,219

)

 

--

   

--

   

(17,832

)

 

Acquisition of other assets

   

(333

)

 

--

   

--

   

--

   

(333

)

Net cash used in investing activities

   

(13,946

)

 

(4,219

)

 

--

   

--

   

(18,165

)

Financing activities:

                               
 

Payments on short-term debt

   

(49,000

)

 

--

   

--

   

--

   

(49,000

)

 

Payments on long-term debt

   

(545

)

 

--

   

--

   

--

   

(545

)

 

Payments under capital lease obligations

   

(1,139

)

 

--

   

--

   

--

   

(1,139

)

 

Proceeds from the exercise of stock options

   

512

   

--

   

--

   

--

   

512

 
 

Proceeds from the issuance of common stock under the
   employee stock purchase plan

   

551

   

--

   

--

   

--

   

551

 
 

Repurchase of common stock

   

(374

)

 

--

   

--

   

--

   

(374

)

 

Net change in intercompany obligations

   

22,445

   

(15,483

)

 

(6,965

)

 

3

   

--

 

Net cash used in financing activities

   

(27,550

)

 

(15,483

)

 

(6,965

)

 

3

   

(49,995

)

Effect of exchange rate changes on cash and cash equivalents

   

669

   

--

   

--

   

--

   

669

 

Net increase (decrease) in cash and cash equivalents

   

6,063

   

3,720

   

(180

)

 

--

   

9,603

 

Cash and cash equivalents at beginning of period

   

1,936

   

20,969

   

197

   

--

   

23,102

 

Cash and cash equivalents at end of period

 

$

7,999

 

$

24,689

 

$

17

 

$

--

 

$

32,705

 

       

Condensed Statement of Cash Flows

 

Six Months Ended December 31, 2008

 

   

Company

 

Non-
Guarantors

 

7 3/4%
Senior
Subordinated
Notes
Guarantors

 

Eliminations

 

Total

 

Operating activities:

                               

Net cash provided by (used in) operating activities

 

$

10,388

 

$

(20,951

)

$

6,401

 

$

2,071

 

$

(2,091

)

Investing activities:

                               
 

Additions to property and equipment

   

(6,328

)

 

(6,511

)

 

--

   

--

   

(12,839

)

 

Acquisition of other assets

   

(5,333

)

 

--

   

--

   

--

   

(5,333

)

Net cash used in investing activities

   

(11,661

)

 

(6,511

)

 

--

   

--

   

(18,172

)

Financing activities:

                               
 

Proceeds from short-term debt

   

26,650

   

--

   

--

   

--

   

26,650

 
 

Payments on long-term debt

   

(629

)

 

--

   

--

   

--

   

(629

)

 

Payments under capital lease obligations

   

(1,253

)

                   

(1,253

)

 

Proceeds from the exercise of stock options

   

510

   

--

   

--

   

--

   

510

 
 

Financing fees paid

   

(863

)

                   

(863

)

 

Proceeds from the issuance of common stock under the
   employee stock purchase plan

   

671

   

--

   

--

   

--

   

671

 
 

Repurchase of common stock

   

(146

)

 

--

   

--

   

--

   

(146

)

 

Net change in intercompany obligations

   

(20,264

)

 

28,838

   

(6,503

)

 

(2,071

)

 

--

 

Net cash provided by (used in) financing activities

   

4,676

   

28,838

   

(6,503

)

 

(2,071

)

 

24,940

 

Effect of exchange rate changes on cash and cash equivalents

   

(1,937

)

 

--

   

--

   

--

   

(1,937

)

Net increase (decrease) in cash and cash equivalents

   

1,466

   

1,376

   

(102

)

 

--

   

2,740

 

Cash and cash equivalents at beginning of period

   

3,487

   

22,801

   

108

   

--

   

26,396

 

Cash and cash equivalents at end of period

 

$

4,953

 

$

24,177

 

$

6

 

$

--

 

$

29,136

 

- 20 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14.    Segment Data and Related Information

          Reportable operating segments include components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the "Chief Executive") in deciding how to allocate resources and in assessing performance. As a result of the similarities in the procurement, marketing and distribution processes for all of the Company's products, much of the information provided in the consolidated financial statements is similar to, or the same as, that reviewed on a regular basis by the Chief Executive.

          The Company's operations are organized into the following reportable segments:

North America Fragrance - The North America Fragrance segment sells the Company's portfolio of owned, licensed and distributed fragrances to department stores, mass retailers and distributors in the United States, Canada and Puerto Rico. This segment also sells the Company's Elizabeth Arden products in prestige department stores in Canada and Puerto Rico and to other selected retailers. This segment also includes the Company's e-commerce business.

International - The International segment sells the Company's portfolio of owned and licensed brands, including the Elizabeth Arden products, in approximately 100 countries outside of North America through perfumeries, boutiques, department stores and travel retail outlets worldwide.

Other - The Other reportable segment sells the Company's Elizabeth Arden products in prestige department stores in the United States and through the Red Door beauty salons, which are owned and operated by an unrelated third party that licenses the Elizabeth Arden and Red Door trademarks from the Company for use in its salons.

          The Chief Executive evaluates segment profit based upon income from operations, which represents earnings before income taxes, interest expense and depreciation and amortization charges. The accounting policies for each of the reportable segments are the same as those described in the Company's 2009 Annual Report under Note 1 -- "General Information and Summary of Significant Accounting Policies." The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; thus, no additional information regarding assets and liabilities of the Company's reportable segments is produced for the Chief Executive or included herein.

          Segment profit (loss) excludes depreciation and amortization, interest expense, debt extinguishment charges and unallocated corporate expenses, which are shown in the table reconciling segment profit (loss) to consolidated income (loss) before income taxes. Included in unallocated corporate expenses are (i) adjustments to eliminate intercompany mark-up, (ii) employee incentive costs, (iii) restructuring charges, (iv) costs related to the Initiative and, (v) costs related to the Liz Claiborne license agreement. These expenses are recorded in unallocated corporate expenses as these items are centrally directed and controlled and are not included in internal measures of segment operating performance. The Company does not have any intersegment sales.

- 21 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          The following table is a comparative summary of the Company's net sales and segment profit (loss) by reportable segment for the three and six months ended December 31, 2009 and 2008:

(Amounts in thousands)

Three Months Ended

 

Six Months Ended

 

December 31, 2009

   

December 31, 2008

   

December 31, 2009

   

December 31, 2008

 

Segment Net Sales:

                             

    North America Fragrance

$

262,515

   

$

248,188

   

$

430,647

   

$

425,748

 

    International

 

118,149

     

111,499

     

203,377

     

205,925

 

    Other

 

12,681

     

10,318

     

24,484

     

22,520

 

Total

$

393,345

   

$

370,005

   

$

658,508

   

$

654,193

 

Segment Profit (Loss):

                             

    North America Fragrance

$

52,578

   

$

37,038

   

$

80,213

   

$

68,937

 

    International

 

8,759

     

8,309

     

9,390

     

1,720

 

    Other

(2,969

)

(4,157

)

(3,644

)

(5,038

)

Total

$

58,368

   

$

41,190

   

$

85,959

   

$

65,619

 

Reconciliation:

                             

    Segment Profit

$

58,368

   

$

41,190

   

$

85,959

   

$

65,619

 

    Less:

                             

        Depreciation and Amortization

 

(6,997

)

   

(6,474

)

   

(14,273

)

   

(12,814

)

        Interest Expense, net

 

(5,804

)

   

(7,026

)

   

(11,415

)

   

(13,601

)

        Unallocated Corporate Expenses (1)

 

(14,888

)

(2)

 

(9,916

)(3)

   

(29,535

)

(4)

 

(37,318

)(5)

Income Before Income Taxes

$

30,679

   

$

17,774

   

$

30,736

   

$

1,886

 

(1)

Unallocated corporate expenses include (i) adjustments to eliminate intercompany mark-up, (ii) employee incentive costs, (iii) restructuring charges, (iv) costs related to the Initiative, and (v) costs related to the Liz Claiborne license agreement. Excluding items addressed below in footnotes (2) and (3), unallocated corporate expenses for the three months ended December 31, 2009 increased as compared to the prior year period primarily due to higher incentive compensation costs. Excluding items addressed below in footnotes (4) and (5), unallocated corporate expenses for the six months ended December 31, 2009 increased as compared to the prior year period primarily due to higher intercompany mark-up eliminations.

(2)

Amounts for the three months ended December 31, 2009, include $1.1 million of restructuring charges related to the Initiative and $0.9 million of expenses related to the implementation of an Oracle accounting and order processing system.

(3)

In May 2008, the Company entered into an exclusive long-term global licensing agreement for the Liz Claiborne fragrance brands, which became effective on June 9, 2008. Amounts for the three months ended December 31, 2008, include (i) $4.2 million ($3.5 million of which did not require the use of cash) related to the Company's Liz Claiborne license agreement due to Liz Claiborne inventory that was purchased at a higher cost prior to the June 2008 effective date of the license agreement, (ii) $0.3 million of restructuring expenses related to the Initiative, (iii) $0.9 million of restructuring expenses not related to the Initiative, and (iv) $0.6 million of expenses related to the implementation of an Oracle accounting and order processing system.

(4)

Amounts for the six months ended December 31, 2009, include (i) $2.0 million of restructuring expenses related to the Initiative, (ii) $0.4 million of restructuring expenses not related to the Initiative, and (iii) $1.6 million of expenses related to the implementation of an Oracle accounting and order processing system.

(5)

Amounts for the six months ended December 31, 2008, include (i) $23.3 million of expenses ($18.9 million of which did not require the use of cash) related to the Company's Liz Claiborne license agreement due to Liz Claiborne inventory that was purchased at a higher cost prior to the June 2008 effective date of the license agreement, (ii) $1.2 million of restructuring expenses related to the Initiative, (iii) $0.9 million of restructuring expenses not related to the Initiative, and (iv) $0.8 million of expenses related to the implementation of an Oracle accounting and order processing system.

- 22 -


ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          This discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and related notes contained in this quarterly report and the Consolidated Financial Statements and related notes and the Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended June 30, 2009. The results of operations for an interim period may not give a true indication of results for the year. In the following discussion, all comparisons are with the corresponding items in the prior year period.

Overview

          We are a global prestige beauty products company with an extensive portfolio of prestige fragrance, skin care and cosmetics brands. Our branded products include the Elizabeth Arden fragrances: Red Door, Elizabeth Arden 5th Avenue, Elizabeth Arden Provocative Woman, Elizabeth Arden green tea, Pretty Elizabeth Arden, and Elizabeth Arden Mediterranean; the Elizabeth Arden skin care brands: Ceramide, Eight Hour Cream, Intervene, and PREVAGE®; and the Elizabeth Arden branded lipstick, foundation and other color cosmetics products. Our prestige fragrance portfolio also includes the following celebrity, lifestyle and designer fragrance brands:

Celebrity Fragrances

The fragrance brands of Elizabeth Taylor, Britney Spears, Hilary Duff, Danielle Steel, Mariah Carey and Usher

Lifestyle Fragrances

Curve, Giorgio Beverly Hills, Lucky, PS Fine Cologne and White Shoulders

Designer Fragrances

Juicy Couture, Badgley Mischka, Rocawear, Alberta Ferretti, Alfred Sung, Nannette Lepore, Geoffrey Beene, Halston, Bob Mackie, and GANT

          In addition to our owned and licensed fragrance brands, we distribute approximately 300 additional prestige fragrance brands, primarily in the United States, through distribution agreements and other purchasing arrangements.

          Our business strategy is to increase net sales, operating margins and earnings by (a) increasing the sales of the Elizabeth Arden brand through new product innovation, targeting fast-growing geographical markets and leveraging our strength in skin care, (b) increasing the sales of our prestige fragrance portfolio internationally and through licensing opportunities and acquisitions, (c) expanding the prestige fragrance category at mass retail customers in North America, and (d) implementing initiatives to improve our gross margin, cost structure, working capital efficiency, and return on invested capital, as well as improving the effectiveness of our marketing and selling expenditures.

          We manage our business by evaluating net sales, EBITDA (as defined later in this discussion), EBITDA margin, segment profit and working capital utilization (including monitoring our levels of inventory, accounts receivable, operating cash flow and return on invested capital). We encounter a variety of challenges that may affect our business and should be considered as described in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended June 30, 2009 and in the section of this quarterly report captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Forward-Looking Information and Factors That May Affect Future Results."

          In fiscal 2007, we commenced a comprehensive review of our global business processes to re-engineer our extended supply chain, distribution, logistics and transaction processing systems. We refer to this initiative as the Global Efficiency Re-engineering initiative, or sometimes simply as the Initiative. In May 2008, we announced an acceleration of the re-engineering of our extended supply chain, distribution and logistics functions, as well as the realignment of other parts of our organization to better support our new business processes. As a result of the Initiative, we expect gross margins to improve by 200 to 250 basis points by the end of fiscal 2010 as compared to the prior fiscal year. We expect to use a portion of this anticipated margin improvement to support our key brands and drive brand innovation and improved profitability.

          In connection with the Initiative, in July 2009 we completed the first phase of the implementation of an Oracle financial accounting system (general ledger and accounts payable) in accordance with our projected timeline. We plan to complete the remaining portion of the financial accounting system as well as the order processing system in the second half of fiscal 2010. The system is intended to improve key transaction processes and accommodate the anticipated growth of our business. We expect this infrastructure investment to simplify our transaction processing by utilizing a common platform to centralize our primary global transaction processing functions.

          As a result of the acceleration of the Initiative, the implementation of the Oracle financial accounting and order processing system, and the migration to a shared services transaction processing model, we have implemented a restructuring plan that will result in restructuring and one-time expenses, including severance, relocation, recruiting and temporary staffing expenditures. We currently

- 23 -


estimate that these expenses will total approximately $12.0 million to $14.0 million, before taxes, and expect that substantially all of these expenses will have been incurred by the end of fiscal 2010. Through December 31, 2009, we have incurred a total of $11.2 million of expenses related to the Initiative, before taxes, which includes $6.2 million for Initiative-related restructuring and $5.0 million of other one time Initiative-related expenses. See Note 4 to Notes to Unaudited Consolidated Financial Statements.

Seasonality

          Our operations have historically been seasonal, with higher sales generally occurring in the first half of our fiscal year as a result of increased demand by retailers in anticipation of and during the holiday season. For the year ended June 30, 2009, approximately 61% of our net sales were made during the first half of our fiscal year. Due to product innovations and new product launches, the size and timing of certain orders from our customers, and additions or losses of brand distribution rights, sales, results of operations, working capital requirements and cash flows can vary significantly between quarters of the same and different years. As a result, we expect to experience variability in net sales, operating margin, net income, working capital requirements and cash flows on a quarterly basis. Increased sales of skin care and cosmetic products relative to fragrances may reduce the seasonality of our business.

          We experience seasonality in our working capital, with peak inventory levels normally from July to October and peak receivable balances normally from September to December. Our working capital borrowings are also seasonal and are normally highest in the months of September, October and November. During the months of December, January and February of each year, cash is normally generated as customer payments on holiday season orders are received.

Critical Accounting Policies and Estimates

          As disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. We base our estimates on historical experience and other factors that we believe are most likely to occur. Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known. Our most critical accounting policies relate to revenue recognition, provisions for inventory obsolescence, allowances for sales returns, markdowns and doubtful accounts, intangible and long-lived assets, income taxes, hedging contracts and share-based compensation. Since June 30, 2009, there have been no significant changes to the assumptions and estimates related to those critical accounting policies.

Foreign Currency Contracts

          We operate in several foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. Our risk management policy is to hedge a significant portion of our forecasted net sales to reduce the exposure of our foreign subsidiaries' revenues to fluctuations in currency rates using foreign currency forward contracts. We also hedge a significant portion of our forecasted inventory purchases to reduce the exposure of our Canadian and Australian subsidiaries' cost of sales to such fluctuations. Additionally, when appropriate, we enter into and settle foreign currency contracts to reduce the exposure of our foreign subsidiaries' net balance sheets to fluctuations in currency rates. The principal currencies hedged are British pounds, Euros, Canadian dollars and Australian dollars. We do not enter into derivative financial contracts for speculative or trading purposes.

          Changes to fair value of the foreign currency contracts are recorded as a component of accumulated other comprehensive income (loss) within stockholders' equity, to the extent such contracts are effective, and are recognized in net sales or cost of sales in the period in which the forecasted transaction affects earnings. Changes to fair value of any contracts deemed to be ineffective would be recognized in earnings immediately. There were no amounts recorded in fiscal years 2010 or 2009 relating to foreign currency contracts used to hedge forecasted revenues or forecasted cost of sales resulting from hedge ineffectiveness.

          When appropriate, we also enter into and settle foreign currency contracts for Euros, British pounds and Canadian dollars to reduce exposure of our foreign subsidiaries' net balance sheets to fluctuations in foreign currency rates. These contracts are used to hedge balance sheet exposure generally over one month and are settled before the end of the month in which they are entered into. Changes to fair value of the forward contracts are recognized in selling, general and administrative expense in the period in which the contracts expire.

- 24 -


          The table below summarizes the effect of the pre-tax gain (loss) from our settled foreign currency contracts on the specified line items in our consolidated statements of income for the three and six months ended December 31, 2009 and December 31, 2008.

(Amounts in thousands)

Three Months Ended

   

Six Months Ended

 

 

December 31,
2009

   

December 31,
2008

   

December 31,
2009

   

December 31,
2008

 

    Net Sales

$

21

   

$

5,862

   

$

15

   

$

6,219

 

    Cost of Sales

 

(164

)

   

460

     

(177

)

   

449

 

    Selling, general and administrative

 

(53

)

   

2,102

     

(212

)

   

2,944

 

Total pre-tax (loss) gain

$

(196

)

 

$

8,424

   

$

(374

)

 

$

9,612

 

Results of Operations

          The following discussion compares the historical results of operations for the three and six months ended December 31, 2009 and December 31, 2008. Results of operations as a percentage of net sales were as follows (dollar amounts in thousands; percentages may not add due to rounding):

Three Months Ended

Six Months Ended

December 31,
2009

December 31,
2008

December 31,
2009

December 31,
2008

Net sales

$

393,345

100.0

%

$

370,005

100.0

%

$

658,508

100.0

%

$

654,193

100.0

%

Cost of sales

217,827

55.4

218,393

59.0

366,103

55.6

396,167

60.6

Depreciation in cost of sales

1,194

0.3

1,137

0.3

2,461

0.4

2,248

0.3

Gross profit

174,324

44.3

150,475

40.7

289,944

44.0

255,778

39.1

Selling, general and administrative
   expenses

132,038

33.6

120,338

32.5

235,981

35.8

229,725

35.1

Depreciation and amortization

5,803

1.5

5,337

1.4

11,812

1.8

10,566

1.6

Income from operations

36,483

9.3

24,800

6.7

42,151

6.4

15,487

2.4

Interest expense, net

5,804

1.5

7,026

1.9

11,415

1.7

13,601

2.1

Income before income taxes

30,679

7.8

17,774

4.8

30,736

4.7

1,886

0.3

Provision for income taxes

9,623

2.4

4,108

1.1

9,640

1.5

736

0.1

Net income

21,056

5.4

13,666

3.7

21,096

3.2

1,150

0.2

Other data

EBITDA and EBITDA margin (1)

$

43,480

11.1

%

$

31,274

(2)

8.5

%

$

56,424

8.6

%

$

28,301

(2)

4.3

%

(1)

For a definition of EBITDA and a reconciliation of net income to EBITDA, see "EBITDA" under Results of Operations -- Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008 and Six Months Ended December 31, 2009 compared to Six Months Ended December 31, 2008. EBITDA margin represents EBITDA divided by net sales.

(2)

The three and six months ended December 31, 2008 include $4.2 million and $23.3 million of expenses, respectively (of which, $3.5 million and $18.9 million, respectively, did not require the use of cash) related to the Liz Claiborne license agreement due to Liz Claiborne inventory that was purchased at a higher cost prior to the June 2008 effective date of the license agreement, and transition expenses.

          Our operations are organized into the following reportable segments:

North America Fragrance - Our North America Fragrance segment sells our portfolio of owned, licensed and distributed fragrances to department stores, mass retailers and distributors in the United States, Canada and Puerto Rico. This segment also sells our Elizabeth Arden products in prestige department stores in Canada and Puerto Rico, and to other selected retailers. This segment also includes our e-commerce business.

International - Our International segment sells our portfolio of owned and licensed brands, including our Elizabeth Arden products, in approximately 100 countries outside of North America through perfumeries, boutiques, department stores and travel retail outlets worldwide.

Other- Our Other reportable segment sells our Elizabeth Arden products in prestige department stores in the United States and through the Red Door beauty salons, which are owned and operated by an unrelated third party that licenses the Elizabeth Arden and Red Door trademarks from us for use in its salons.

- 25 -


          Segment profit (loss) excludes depreciation and amortization, interest expense and unallocated corporate expenses, which are shown in the table below reconciling segment profit (loss) to consolidated net income before income taxes. Included in unallocated corporate expenses are (i) adjustments to eliminate intercompany mark-up, (ii) employee incentive costs, (iii) restructuring charges, (iv) costs related to the Initiative, and (v) costs related to the Liz Claiborne license agreement. These expenses are recorded in unallocated corporate expenses as these items are centrally directed and controlled and are not included in internal measures of segment operating performance. We do not have any intersegment sales.

          The following table is a comparative summary of our net sales and segment profit by reportable segment for the three and six months ended December 31, 2009 and 2008 and reflects the basis of presentation described in Note 14 -- "Segment Data and Related Information" to the Notes to Unaudited Consolidated Financial Statements for all periods presented.

(Amounts in thousands)

Three Months Ended

   

Six Months Ended

 

 

December 31, 2009

   

December 31, 2008

   

December 31, 2009

   

December 31, 2008

 

Segment Net Sales:

                             

    North America Fragrance

$

262,515

   

$

248,188

   

$

430,647

   

$

425,748

 

    International

 

118,149

     

111,499

     

203,377

     

205,925

 

    Other

 

12,681

     

10,318

     

24,484

     

22,520

 

Total

$

393,345

   

$

370,005

   

$

658,508

   

$

654,193

 

Segment Profit (Loss):

                             

    North America Fragrance

$

52,578

   

$

37,038

   

$

80,213

   

$

68,937

 

    International

 

8,759

     

8,309

     

9,390

     

1,720

 

    Other

(2,969

)

(4,157

)

(3,644

)

(5,038

)

    Less:

                             

        Depreciation and Amortization

 

(6,997

)

   

(6,474

)

   

(14,273

)

   

(12,814

)

        Interest Expense, net

 

(5,804

)

   

(7,026

)

   

(11,415

)

   

(13,601

)

        Unallocated Corporate Expenses (1)

 

(14,888

)

(2)

 

(9,916

)(3)

   

(29,535

)

(4)

 

(37,318

)(5)

Income Before Income Taxes

$

30,679

   

$

17,774

   

$

30,736

   

$

1,886

 

(1)

Unallocated corporate expenses include (i) adjustments to eliminate intercompany mark-up, (ii) employee incentive costs, (iii) restructuring charges, (iv) costs related to the Initiative, and (v) costs related to the Liz Claiborne license agreement. Excluding items addressed below in footnotes (2) and (3), unallocated corporate expenses for the three months ended December 31, 2009, increased as compared to the prior year period primarily due to higher incentive compensation costs. Excluding items addressed below in footnotes (4) and (5), unallocated corporate expenses for the six months ended December 31, 2009 increased as compared to the prior year period primarily due to higher intercompany mark-up eliminations.

(2)

Amounts for the three months ended December 31, 2009, include $1.1 million of restructuring charges primarily related to the Initiative and $0.9 million of expenses related to the implementation of an Oracle accounting and order processing system.

(3)

In May 2008, we entered into an exclusive long-term global licensing agreement for the Liz Claiborne fragrance brands, which became effective on June 9, 2008. Amounts for the three months ended December 31, 2008, include (i) $4.2 million ($3.5 million of which did not require the use of cash) related to the Liz Claiborne license agreement due to Liz Claiborne inventory that was purchased at a higher cost prior to the June 2008 effective date of the license agreement, (ii) $0.3 million of restructuring expenses related to the Initiative, (iii) $0.9 million of restructuring expenses not related to the Initiative, and (iv) $0.6 million of expenses related to the implementation of an Oracle accounting and order processing system.

(4)

Amounts for the six months ended December 31, 2009, include (i) $2.0 million of restructuring expenses related to the Initiative, (ii) $0.4 million of restructuring expenses not related to the Initiative, and (iii) $1.6 million of expenses related to the implementation of an Oracle accounting and order processing system.

(5)

Amounts for the six months ended December 31, 2008, include (i) $23.3 million of expenses ($18.9 million of which did not require the use of cash) related to the Liz Claiborne license agreement due to Liz Claiborne inventory that was purchased at a higher cost prior to the June 2008 effective date of the license agreement, (ii) $1.2 million of restructuring expenses related to the Initiative, (iii) $0.9 million of restructuring expenses not related to the Initiative, and (iv) $0.8 million of expenses related to the implementation of an Oracle accounting and order processing system.

- 26 -


Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008

          Net Sales.    Net sales increased by 6.3% or $23.3 million for the three months ended December 31, 2009, compared to the three months ended December 31, 2008. Excluding the favorable impact of foreign currency translation, net sales increased by 3.3% or $12.1 million. Net sales of the Juicy Couture fragrances increased by $17.7 million due to the current year launch of the new Juicy Couture fragrance, Couture Couture. Sales of Britney Spears fragrances also increased by $10.5 million.

North America Fragrance

          Net sales increased by 5.8% or $14.3 million. Excluding the favorable impact of foreign currency translation, net sales increased by 5.3 % or $13.1 million. The increase in net sales was primarily due to higher sales of the Juicy Couture fragrance brands resulting from the current year launch of Couture Couture. Also contributing to the increase were higher sales of Britney Spears and Mariah Carey fragrance brands, partially offset by a decline in sales of Elizabeth Arden fragrance and skin care products.

International

          Net sales increased by 6.0% or $6.6 million. Excluding the favorable impact of foreign currency translation, net sales decreased by 3.1% or $3.4 million.

Other

          Net sales increased by 22.9% or $2.4 million due to higher sales of Elizabeth Arden fragrance and color cosmetic products.

          Gross Margin.    For the three months ended December 31, 2009 and 2008, gross margins were 44.3% and 40.7%, respectively. Gross margin for the three months ended December 31, 2008 included $3.5 million of charges (which did not require the use of cash) related to the higher cost Liz Claiborne inventory purchased prior to the June 2008 effective date of the Liz Claiborne license agreement. In addition, gross margin in the current year period benefited from a higher proportion of sales of owned and licensed brands, which reflect higher gross margins as compared to distributed brands, and favorable currency impacts, as well as improved operating efficiencies due to the Initiative.

          SG&A.   Selling, general and administrative expenses increased 9.7%, or $11.7 million, for the three months ended December 31, 2009, compared to the three months ended December 31, 2008. The increase was principally due to (i) higher total advertising and sales promotion expenses of $4.7 million primarily due to new product launch activity in the current year period, (ii) higher royalty expenses of $2.5 million due to higher sales of licensed brands, and (iii) higher general and administrative expenses of $4.0 million for the three months ended December 31, 2009. The increase in general and administrative expenses was principally due to higher payroll costs of $6.8 million, including incentive compensation costs, as the prior year period included a reversal of $2.0 million of previously recognized costs relating to the performance based restricted stock grants made in August 2006 and August 2007. Partially offsetting this increase were transition expenses of $0.7 million in the prior year period related to the Liz Claiborne license agreement and a favorable impact of $1.0 million related to foreign currency translation of our international affiliates' balance sheets as compared to the prior year. For the three months ended December 31, 2009, total share-based compensation cost charged against income for all stock plans was $1.2 million compared to a credit against income of $0.5 million for the three months ended December 31, 2008. For the three months ended December 31, 2009, restructuring and one-time costs under the Initiative totaled $2.0 million as compared to $0.9 million for the three months ended December 31, 2008.

Segment Profit

North America Fragrance

          Segment profit increased 42.0% or $15.5 million. The increase in segment profit was due to higher sales and improved gross margins resulting from a higher proportion of sales of owned and licensed brands, which reflect higher gross margins as compared to distributed brands, and lower distribution and freight costs.

International

          Segment profit increased 5.4% or $0.5 million. The improvement in segment profit was primarily due to the impact of favorable foreign currency translation and improved gross margins due to a higher proportion of basic product sales, which have higher gross margins as compared to promotional products. Selling, general and administrative expenses were $7.8

- 27 -


million higher compared to the three months ended December 31, 2008, primarily due to higher total advertising and sales promotion expenses to support new product launch activity partially offset by the favorable impact of the foreign currency translation of our international affiliates' balance sheets as compared to the prior year period.

Other

          Segment loss decreased by $1.2 million from the prior year period primarily due to higher sales and improved gross margins.

          Interest Expense.    Interest expense, net of interest income, decreased 17.4%, or $1.2 million, for the three months ended December 31, 2009, compared to the three months ended December 31, 2008. The decrease was due to lower average interest rates under our revolving bank credit facility and lower average borrowings under such credit facility during the current year period.

          Provision for Income Taxes.    Our effective tax rate, which is calculated as a percentage of the income or loss before income taxes, for the three months ended December 31, 2009, was 31.4 % compared to 23.1% for the three months ended December 31, 2008. The pre-tax income for our domestic and international operations was $18.7 million and $12.0 million, respectively for the three months ended December 31, 2009. The pre-tax income for our domestic and international operations was $6.1 million and $11.7 million, respectively, for the three months ended December 31, 2008. The increase in the effective tax rate was mainly due to higher income from operations in the U.S. in the current year period, which has a higher effective tax rate than our international operations.

          Net Income.    Net income for the three months ended December 31, 2009, was $21.1 million, compared to $13.7 million for the three months ended December 31, 2008. The increase in net income was primarily the result of higher sales and improved gross margins, and lower interest expense of $1.2 million in the current year period, partially offset by higher selling, general and administrative expenses of $11.7 million and a higher effective tax rate.

          EBITDA.     EBITDA (net income plus the provision for income taxes (or net loss less the benefit from income taxes), plus interest expense, plus depreciation and amortization expense) increased by approximately $12.2 million to $43.5 million for the three months ended December 31, 2009, compared to $31.3 million for the three months ended December 31, 2008. The increase in EBITDA was primarily the result of higher net sales and improved gross margins, partially offset by higher selling, general and administrative expenses in the current year period.

          EBITDA should not be considered as an alternative to operating income (loss) or net income (loss) (as determined in accordance with generally accepted accounting principles) as a measure of our operating performance or to net cash provided by operating, investing or financing activities (as determined in accordance with generally accepted accounting principles) or as a measure of our ability to meet cash needs. We believe that EBITDA is a measure commonly reported and widely used by investors and other interested parties as a measure of a company's operating performance and debt servicing ability because it assists in comparing performance on a consistent basis without regard to capital structure (particularly when acquisitions are involved), depreciation and amortization, or non-operating factors such as historical cost. Accordingly, as a result of our capital structure, we believe EBITDA is a relevant measure. This information has been disclosed here to permit a more complete comparative analysis of our operating performance relative to other companies and of our debt servicing ability. EBITDA may not, however, be comparable in all instances to other similar types of measures. 

          In addition, EBITDA has limitations as an analytical tool, including the fact that:

it does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;

it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;

it does not reflect any cash income taxes that we may be required to pay; and

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and these measures do not reflect any cash requirements for such replacements.

- 28 -


          The following is a reconciliation of net income, as determined in accordance with generally accepted accounting principles, to EBITDA

(Amounts in thousands)

Three Months Ended

 

 

December 31,
2009

   

December 31,
2008

 

Net income

$

21,056

   

$

13,666

 

Plus:

             
 

Provision for income taxes

 

9,623

     

4,108

 
 

Interest expense, net

 

5,804

     

7,026

 
 

Depreciation in cost of sales

 

1,194

     

1,137

 
 

Depreciation and amortization

 

5,803

     

5,337

 

   

EBITDA

$

43,480

   

$

31,274

 

Six Months Ended December 31, 2009 Compared to Six Months Ended December 31, 2008

          Net Sales.    Net sales increased by 0.7% or $4.3 million for the six months ended December 31, 2009, compared to the six months ended December 31, 2008. Excluding the favorable impact of foreign currency translation, net sales decreased by 0.3% or $2.1 million. Net sales of the Juicy Couture fragrances increased by $27.6 million due to the current year launch of the new Juicy Couture fragrance, Couture Couture, and the continued roll out of the prior year launch of Viva La Juicy. Aggregate sales of Britney Spears and Mariah Carey fragrances also increased by $16.7 million. Our International segment also benefited from incremental sales due to the launch of the Alberta Ferretti fragrance. These increases were partially offset by $15.3 million in reduced sales of distributed brands and $8.2 million of lower sales of Elizabeth Arden branded products, substantially all of which is due to retailer de-stocking that occurred in the first quarter of our current fiscal year.

North America Fragrance

          Net sales increased by 1.2% or $4.9 million. Excluding the favorable impact of foreign currency translation, net sales increased by 1.0% or $4.1 million. The increase in net sales was primarily due to higher sales of the Juicy Couture fragrance brands, in particular due to the current year launch of Couture Couture and the continued roll out of the prior year launch of Viva La Juicy. Also contributing to the increase were higher sales of Britney Spears and Mariah Carey fragrance brands, partially offset by a decline in sales of distributed brands and Elizabeth Arden skin care and fragrance products.

International

          Net sales decreased by 1.2% or $2.5 million. Excluding the favorable impact of foreign currency translation, net sales decreased by 4.0 % or $8.2 million. A decrease in sales of Elizabeth Arden fragrance and skin care products was offset by higher sales of the Juicy Couture fragrance brands, in particular due to the current year launch of Couture Couture. The current year period also benefited from incremental sales due to the launch of the Alberta Ferretti fragrance and higher sales of Britney Spears fragrance brands.

Other

          Net sales increased by 8.7% or $2.0 million due to higher sales of Elizabeth Arden fragrance and color cosmetic products.

          Gross Margin.    For the six months ended December 31, 2009 and 2008, gross margins were 44.0% and 39.1%, respectively. Gross margin for the six months ended December 31, 2008 included $19.9 million of charges ($18.9 million of which did not require the use of cash) related to the higher cost Liz Claiborne inventory purchased prior to the June 2008 effective date of the Liz Claiborne license agreement. In addition, gross margin in the current year period benefited from a higher proportion of sales of owned and licensed brands, which reflect higher gross margins as compared to distributed brands and favorable currency impacts, as well as improved operating efficiencies due to the Initiative.

- 29 -


          SG&A.   Selling, general and administrative expenses increased 2.7%, or $6.3 million, for the six months ended December 31, 2009, compared to the six months ended December 31, 2008. The increase was principally due to higher total advertising and sales promotion expenses of $8.1 million primarily due to new product launch activity in the current year period and higher royalty expenses of $2.8 million due to higher sales of licensed brands. Partially offsetting this increase were lower general and administrative expenses of $4.3 million. The decrease in general and administrative expenses was principally due to a (i) $0.6 million favorable impact of foreign currency translation of our affiliates' balance sheets as compared to a loss in the prior year period of $3.7 million and (ii) transition expenses of $3.4 million in the prior year period related to the Liz Claiborne license agreement, partially offset by higher payroll costs of $5.2 million, including incentive compensation costs, as the prior year amount included a reversal of $2.0 million of previously recognized costs relating to the performance based restricted stock grants made in August 2006 and August 2007. For the six months ended December 31, 2009, restructuring and one-time costs under the Initiative totaled $3.6 million as compared to $2.0 million for the six months ended December 31, 2008.

Segment Profit

North America Fragrance

          Segment profit increased 16.4% or $11.3 million. The increase in segment profit was mostly due to higher sales and improved gross margins due to a higher proportion of sales of owned and licensed brands, which reflect higher gross margins as compared to distributed brands.

International

         Segment profit increased by $7.7 million. The improvement in segment results was primarily due to improved gross margins due to a higher proportion of basic product sales, which have higher gross margins as compared to promotional sales and favorable currency impacts, partially offset by higher selling, general and administrative expenses.

Other

          Segment loss decreased by $1.4 million from the prior year period primarily due to higher sales and improved gross margins.

         Interest Expense.    Interest expense, net of interest income, decreased 16.1%, or $2.2 million, for the six months ended December 31, 2009, compared to the six months ended December 31, 2008. The decrease was due to lower average interest rates under our revolving bank credit facility and lower average borrowings under such credit facility during the current year period.

          Provision for Income Taxes.    The effective tax rate, which is calculated as a percentage of the income or loss before income taxes for the six months ended December 31, 2009, was 31.4 % compared to 39.0% for the six months ended December 31, 2008. The pre-tax income for our domestic and international operations was $15.0 million and $15.7 million, respectively, for the six months ended December 31, 2009. The pre-tax loss for our domestic operations was $10 million and the pre-tax income for our international operations was $11.9 million for the six months ended December 31, 2008. The decrease in the effective tax rate was mainly due to the domestic pre-tax loss in the prior year and changes in earnings contributions from our worldwide affiliates as our worldwide affiliates generally have lower tax rates than our domestic operations.

          Net Income.    Net income for the six months ended December 31, 2009, was $21.1 million compared to $1.2 million for the six months ended December 31, 2008. The increase in net income was primarily the result of higher sales and improved gross margins, and lower interest expense of $2.2 million in the current year period, partially offset by higher selling, general and administrative expenses.

          EBITDA.     EBITDA (net income plus the provision for income taxes (or net loss less the benefit from income taxes), plus interest expense, plus depreciation and amortization expense) increased by approximately $28.1 million to $56.4 million for the six months ended December 31, 2009, compared to $28.3 million for the six months ended December 31, 2008. The increase in EBITDA was primarily the result of higher sales and improved margins, partially offset by higher selling, general and administrative expenses of $6.3 million in the current year period.

- 30 -


          The following is a reconciliation of net income, as determined in accordance with generally accepted accounting principles, to EBITDA:

(Amounts in thousands)

Six Months Ended

 

 

December 31,
2009

   

December 31,
2008

 

Net income

$

21,096

   

$

1,150

 

Plus:

             
 

Provision for income taxes

 

9,640

     

736

 
 

Interest expense, net

 

11,415

     

13,601

 
 

Depreciation in cost of sales

 

2,461

     

2,248

 
 

Depreciation and amortization

 

11,812

     

10,566

 

   

EBITDA

$

56,424

   

$

28,301

 

Liquidity and Capital Resources

(Amounts in thousands)

Six Months Ended

 

 

December 31,
2009

   

December 31,
2008

 

Net cash provided by (used in) operating activities

$

77,094

   

$

(2,091

)

Net cash used in investing activities

 

(18,165

)

   

(18,172

)

Net cash (used in) provided by financing activities

 

(49,995

)

   

24,940

 

Net increase in cash and cash equivalents

 

9,603

     

2,740

 

         Cash Flows.     For the six months ended December 31, 2009, net cash provided by operating activities was $77.1 million, as compared to net cash used in operating activities of $2.1 million for the six months ended December 31, 2008. This improvement in cash used in operating activities was principally due to lower inventory levels resulting from the Initiative, higher net income, and the timing of payments to vendors, partially offset by higher receivables.

          For the six months ended December 31, 2009, net cash used in investing activities of $18.2 million was composed of $17.8 million of capital expenditures and the $0.3 million payment of the remaining installment of contingent consideration associated with our acquisition of the fragrance business of Sovereign Sales, LLC. For the six months ended December 31, 2008, net cash used in investing activities of $18.2 million was composed of $12.8 million of capital expenditures and the $5.3 million payment of the second installment of contingent consideration associated with our acquisition of the fragrance business of Sovereign Sales. The increase in capital expenditures for the six months ended December 31, 2009 is primarily due to the implementation of our new accounting and order processing system.

          For the six months ended December 31, 2009, net cash used in financing activities was $50.0 million, as compared to net cash provided by financing activities of $24.9 million for the six months ended December 31, 2008. During the six months ended December 31, 2009, borrowings under our credit facility decreased by $49.0 million to $66.0 million at December 31, 2009. During the six months ended December 31, 2008, borrowings under our credit facility increased by $26.7 million to $145.7 million at December 31, 2008.

          Interest paid during the six months ended December 31, 2009, included $8.7 million of interest payments on the 7 3/4% senior subordinated notes due 2014 and $2.1 million of interest paid on the borrowings under our credit facility. Interest paid during the six months ended December 31, 2008, included $8.7 million of interest payments on the 7 3/4% senior subordinated notes and $5.2 million of interest paid on the borrowings under our credit facility.

          At December 31, 2009, we had approximately $32.7 million of cash, of which $24.7 million was held outside of the United States. Of the cash held outside of the U.S., $9.7 million was considered cash in excess of local operating requirements and could have been repatriated to the U.S. without restriction or tax effect. The balance of such cash held outside the U.S., approximately $15.0 million, was needed to meet local working capital requirements and therefore considered permanently reinvested in the applicable local subsidiary.

         Future Liquidity and Capital Needs.    Our principal future uses of funds are for working capital requirements, including brand development and marketing expenses, new product launches, additional brand acquisitions or product licensing and distribution arrangements, capital expenditures and debt service. In addition, we may use funds to repurchase our common stock and senior subordinated notes. We have historically financed our working capital needs primarily through internally generated funds, our credit facility and external financing. We collect cash from our customers based on our sales to them and their respective payment terms.

- 31 -


          We have a revolving $325 million credit facility with a syndicate of banks, for which JPMorgan Chase Bank is the administrative agent, which generally provides for borrowings on a revolving basis, with a $25 million sub-limit for letters of credit. Under the terms of the credit facility we may, at any time, increase the size of the credit facility up to $375 million without entering into a formal amendment requiring the consent of all of the banks, subject to our satisfaction of certain conditions. The credit facility expires in December 2012.

          The credit facility is guaranteed by all of our U.S. subsidiaries and is collateralized by a first priority lien on all of our U.S., Canada and Puerto Rico accounts receivable and U.S. inventory. Borrowings under the credit facility are limited to 85.0% of eligible accounts receivable and 85.0% of the appraised net liquidation value of our inventory, as determined pursuant to the terms of the credit facility; provided, however, that from August 15 to October 31 of each year our borrowing base may be temporarily increased by up to $25 million. Our obligations under the credit facility rank senior to our 7 3/4% senior subordinated notes due 2014.

          The credit facility has only one financial maintenance covenant, which is a debt service coverage ratio that must be maintained at not less than 1.1 to 1 if average borrowing base capacity declines to less than $25 million ($35 million from December 1 through May 31). Our average borrowing base capacity during the quarter ended December 31, 2009, did not fall below the applicable thresholds noted above. Accordingly, the debt service coverage ratio did not apply for the quarter ended December 31, 2009. We were in compliance with all applicable covenants under the credit facility for the quarter ended December 31, 2009.

          Under the terms of the credit facility, we may pay dividends or repurchase Common Stock if we maintain borrowing base capacity of at least $25 million from June 1 to November 30, and at least $35 million from December 1 to May 31, after making the applicable payment. The credit facility restricts us from incurring additional non-trade indebtedness (other than refinancings and certain small amounts of indebtedness).

          Borrowings under the credit portion of the credit facility bear interest at a floating rate based on the "Applicable Margin," which is determined by reference to a specific financial ratio. At our option, the Applicable Margin may be applied to either the London InterBank Offered Rate (LIBOR) or the prime rate. The reference ratio for determining the Applicable Margin is a debt service coverage ratio. The Applicable Margin charged on LIBOR loans ranges from 1.00% to 1.75% and is 0% for prime rate loans, except that the Applicable Margin on the first $25 million of borrowings from August 15 to October 31 of each year, while the temporary increase in our borrowing base is in effect, is 1.00% higher. At December 31, 2009, the Applicable Margin was 1.75% for LIBOR loans and 0% for prime rate loans. The commitment fee on the unused portion of the credit facility is 0.25%. For the six months ended December 31, 2009 and 2008, the weighted average annual interest rate on borrowings under the credit facility was 2.4% and 4.0%, respectively. The interest rates payable by us on our 7 3/4% senior subordinated notes and on borrowings under our revolving credit facility are not impacted by credit rating agency actions.

          At December 31, 2009, we had (i) $66.0 million in borrowings and $4.9 million in letters of credit outstanding under the credit facility, (ii) $266.1 million of eligible accounts receivable and inventories available as collateral under the credit facility, and (iii) remaining borrowing availability of $200.1 million. The borrowing availability under the credit facility typically declines in the second half of our fiscal year as our higher accounts receivable balances resulting from holiday season sales are likely to decline due to cash collections.

          At December 31, 2009, we had outstanding $225.0 million aggregate principal amount of 7 3/4% senior subordinated notes. The 7 3/4% senior subordinated notes are guaranteed by our U.S. subsidiaries. The indenture pursuant to which the 7 3/4% senior subordinated notes were issued provides that such notes will be our senior subordinated obligations. The 7 3/4% senior subordinated notes rank junior to all of our existing and future senior indebtedness, including indebtedness under the credit facility, and pari passu in right of payment to all of our senior subordinated indebtedness. Interest on the 7 3/4% senior subordinated notes is payable semi-annually on February 15 and August 15 of each year. The indenture generally permits us (subject to the satisfaction of a fixed charge coverage ratio and, in certain cases, also a net income test) to incur additional indebtedness, pay dividends, purchase or redeem our common stock or redeem subordinated indebtedness. The indenture generally limits our ability to create liens, merge or transfer or sell assets. The indenture also provides that the holders of the 7 3/4% senior subordinated notes have the option to require us to repurchase their notes in the event of a change of control involving us (as defined in the indenture).

          Based upon our internal projections, we believe that existing cash and cash equivalents, internally generated funds and borrowings under our credit facility will be sufficient to cover debt service, working capital requirements and capital expenditures for the next twelve months, other than additional working capital requirements that may result from further expansion of our operations through acquisitions of additional brands or licensing or distribution arrangements. A further deterioration in the economic and retail environment, however, could cause us to fail to satisfy the financial maintenance covenant under our credit facility that applies only in the event we do not have the requisite average borrowing base capacity as set forth under the credit facility. In such an event, we would not be allowed to borrow under

- 32 -


the credit facility and may not have access to the capital necessary for our business. In addition, a default under our credit facility that causes acceleration of the debt under this facility could trigger a default under our outstanding 7 3/4% senior subordinated notes. In the event we are not able to borrow under our credit facility, we would be required to develop an alternative source of liquidity. There is no assurance that we could obtain replacement financing or what the terms of such financing, if available, would be.

          We have discussions from time to time with manufacturers and owners of prestige fragrance brands regarding our possible acquisition of additional exclusive licensing and/or distribution rights. We currently have no material agreements or commitments with respect to any such acquisition, although we periodically execute routine agreements to maintain the confidentiality of information obtained during the course of discussions with such manufacturers and brand owners.

         Repurchases of Common Stock.    On November 5, 2008, our board of directors authorized us to extend our existing $80 million common stock repurchase program through November 30, 2010. As of December 31, 2009, we had repurchased 2,558,391 shares of common stock on the open market under the stock repurchase program, at an average price of $16.91 per share, at a cost of $43.3 million, including sales commissions, leaving $36.7 million available for additional common stock repurchases under the program. During the three and six months ended December 31, 2009, we purchased 32,153 shares of common stock on the open market under the stock repurchase program at an average price of $11.61 per share and at a cost of $0.4 million, including sales commissions. The acquisition of these shares by us was accounted for under the treasury method.

New Accounting Standards

Interim Disclosures About Fair Value of Financial Instruments

          In April 2009, the FASB issued an update to Codification Topic 825, Financial Instruments, amending the disclosure requirements under Topic 825 to require disclosures about the fair value of financial instruments for interim reporting periods in addition to the previously required annual disclosures. The interim reporting requirements under Codification Topic 825 were effective for us beginning July 1, 2009 and did not have a material impact on our consolidated financial statements.

Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities

          In June 2008, the FASB issued an update to Codification Topic 260, Earnings Per Share, that addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The update to Codification Topic 260 requires unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) to be treated as participating securities and to be included in the computation of earnings per share pursuant to the two-class method. The revisions to Codification Topic 260 were effective for us beginning July 1, 2009 and did not have a material impact on our consolidated financial statements.

Business Combinations

          December 2007, the FASB issued an update to Codification Topic 805, Business Combinations, which significantly changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, pre-acquisition contingencies, transaction costs, restructuring costs and income taxes. The revisions to Codification Topic 805 were effective for acquisitions that occur after July 1, 2009 and did not have a material impact on our consolidated financial statements.

Useful Life of Intangible Assets

          In April 2008, the FASB issued an update to Codification Topic 350, Intangible- Goodwill and Other, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This amendment is effective on a prospective basis to all intangible assets acquired and for disclosures on all intangible assets recognized on or after the beginning of the first annual period subsequent to December 15, 2008. Early adoption is prohibited. The amendment to Codification Topic 350 was effective for us beginning July 1, 2009 and did not have a material impact on our consolidated financial statements.

- 33 -


Fair Value Measurements

          Codification Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The requirements for financial assets and liabilities under Codification Topic 820 became effective for us on July 1, 2008 and did not have a material impact on our consolidated financial statements. For non-financial assets and liabilities, Codification Topic 820 was effective for us beginning July 1, 2009 and did not have a material impact on our consolidated financial statements.

          In August 2009, the FASB issued an update to Codification Topic 820 that provides additional guidance on the fair value measurement of liabilities. Specifically, this update provides clarification in circumstances in which a quoted price in an active market is not available. The update to Codification Topic 820 was effective for us beginning July 1, 2009 and did not have a material impact on our consolidated financial statements.

- 34 -


Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results

The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management's plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "will" and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products, future performance or results of current and anticipated products, sales efforts, expenses and/or cost savings, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, and financial results. A list of factors that could cause our actual results of operations and financial condition to differ materially is set forth below, and these factors are discussed in greater detail under Item 1A -- "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended June 30, 2009:

*

factors affecting our relationships with our customers or our customers' businesses, including the absence of contracts with customers, our customers' financial condition, and changes in the retail, fragrance and cosmetic industries, such as the consolidation of retailers and the associated closing of retail doors, as well as retailer inventory control practices, including, but not limited to, levels of inventory carried at point of sale and practices used to control inventory shrinkage;

*

risks of international operations, including foreign currency fluctuations, hedging activities, economic and political consequences of terrorist attacks, unfavorable changes in U.S. or international tax laws or regulations, diseases and pandemics, and political instability in certain regions of the world;

*

our reliance on third-party manufacturers for substantially all of our owned and licensed products and our absence of contracts with suppliers of distributed brands and components for manufacturing of owned and licensed brands;

*

delays in shipments, inventory shortages and higher costs of production due to the loss of or disruption in our distribution facilities or at key third party manufacturing or fulfillment facilities that manufacture or provide logistic services for our products;

*

our ability to respond in a timely manner to changing consumer preferences and purchasing patterns and other international and domestic conditions and events that impact retailer and/or consumer confidence and demand, such as the current global recession;

*

our ability to protect our intellectual property rights;

*

the success, or changes in the timing or scope, of our new product launches, advertising and merchandising programs;

*

the quality, safety and efficacy of our products;

*

the impact of competitive products and pricing;

*

our ability to (i) implement our growth strategy and acquire or license additional brands or secure additional distribution arrangements, (ii) successfully and cost-effectively integrate acquired businesses or new brands, and (iii) finance our growth strategy and our working capital requirements;

*

our level of indebtedness, our ability to realize sufficient cash flows from operations to meet our debt service obligations and working capital requirements, and restrictive covenants in our revolving credit facility and the indenture for our 7 3/4% senior subordinated notes;

*

changes in product mix to less profitable products;

*

the retention and availability of key personnel;

*

changes in the legal, regulatory and political environment that impact, or will impact, our business, including changes to customs or trade regulations or accounting standards or critical accounting estimates;

*

the success of, and costs associated with, our Global Efficiency Re-engineering initiative, including our transition to a turnkey manufacturing process and our implementation of a new Oracle financial accounting and order processing system, and related restructuring plan;

*

the potential for significant impairment charges relating to our trademarks, goodwill or other intangible assets that could result from a number of factors, including downward pressure on our stock price; and

*

other unanticipated risks and uncertainties.

          We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

- 35 -


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

          As of December 31, 2009, we had approximately $66.0 million in borrowings outstanding under our revolving credit facility. Borrowings under our revolving credit facility are seasonal, with peak borrowings typically in the months of September, October and November. Borrowings under the credit facility are subject to variable rates and, accordingly, our earnings and cash flow will be affected by changes in interest rates. Based upon our average borrowings under our revolving credit facility during the six months ended December 31, 2009, and assuming there had been a two percentage point (200 basis point) change in the average interest rate for these borrowings, it is estimated that our interest expense for the six months ended December 31, 2009 would have increased or decreased by approximately $1.6 million. See Note 8 to the Notes to Unaudited Consolidated Financial Statements.

Foreign Currency Risk

          We sell our products in approximately 100 countries around the world. During the three and six months ended December 31, 2009, we derived approximately 34% and 35%, respectively, of our net sales from our international operations. We conduct our international operations in a variety of different countries and derive our sales in various currencies including the Euro, British pound, Swiss franc, Canadian dollar and Australian dollar, as well as the U.S. dollar. Most of our skin care and cosmetic products are produced in third-party manufacturing facilities located in the U.S. Our operations may be subject to volatility because of currency changes, inflation and changes in political and economic conditions in the countries in which we operate. With respect to international operations, our sales, cost of goods sold and expenses are typically denominated in a combination of local currency and the U.S. dollar. Our results of operations are reported in U.S. dollars. Fluctuations in currency rates can affect our reported sales, margins, operating costs and the anticipated settlement of our foreign denominated receivables and payables. A weakening of the foreign currencies in which we generate sales relative to the currencies in which our costs are denominated, which is primarily the U.S. dollar, may adversely affect our ability to meet our obligations and could adversely affect our business, prospects, results of operations, financial condition or cash flows. Our competitors may or may not be subject to the same fluctuations in currency rates, and our competitive position could be affected by these changes.

          As of December 31, 2009, we had notional amounts of 12.8 million British pounds under open foreign currency contracts that expire between January 31, 2010 and May 30, 2011 to reduce the exposure of our foreign subsidiary revenues to fluctuations in currency rates. As of December 31, 2009, we had notional amounts of 10.4 million Canadian dollars and 12.8 million Australian dollars under open foreign currency contracts that expire between January 31, 2010 and May 30, 2011 to reduce the exposure of our foreign subsidiary cost of sales to fluctuations in currency rates. We have designated each qualifying foreign currency contract as a cash flow hedge. The gains and losses of these contracts will only be recognized in earnings in the period in which the forecasted transaction affects earnings. The realized loss, net of taxes, recognized during the three and six months ended December 31, 2009 from settled contracts was approximately $102,000 and $116,000, respectively. At December 31, 2009, the unrealized loss, net of taxes, associated with these open contracts of approximately $559,000 is included in accumulated other comprehensive income (loss) in our consolidated balance sheet. See Note 12 to the Notes to Unaudited Consolidated Financial Statements.

          When appropriate, we also enter into and settle foreign currency contracts for Euros, British pounds and Canadian dollars to reduce the exposure of our foreign subsidiaries' net balance sheets to fluctuations in foreign currency rates. As of December 31, 2009, there were no such foreign currency contracts outstanding. The realized loss, net of taxes, recognized during the three and six months ended December 31, 2009 from the settlement of the contracts, was approximately $15,000 and $135,000, respectively.

          We do not utilize foreign exchange contracts for trading or speculative purposes. There can be no assurance that our hedging operations or other exchange rate practices, if any, will eliminate or substantially reduce risks associated with fluctuating exchange rates.

ITEM 4.    CONTROLS AND PROCEDURES

          Our Chairman, President and Chief Executive Officer and the Company's Executive Vice President and Chief Financial Officer, who are the principal executive officer and principal financial officer, respectively, have evaluated the effectiveness and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based upon such evaluation, they have concluded that, as of the Evaluation Date, our disclosure controls and procedures are functioning effectively.

- 36 -


          During July 2009, we completed the first phase of the implementation of an Oracle financial accounting system (general ledger and accounts payable) in accordance with our projected timeline. We plan to complete the implementation of the remaining portion of the financial accounting system, as well as an order processing system, in the second half of fiscal 2010. As part of this implementation, we also migrated to a shared services model for our primary global transaction processing functions. As a result of these activities, internal controls related to user security, account structure and hierarchy, system reporting and approval procedures have been, or will be, modified and redesigned to conform with and support the new financial accounting and order processing system and the new shared services model. Management is currently reviewing and evaluating the design of key controls in the new Oracle financial accounting system and the accuracy of the data conversion that is taking place during the implementation and thus far has not uncovered a control deficiency or combination of control deficiencies that management believes meet the definition of a material weakness in internal control over financial reporting.

          Management believes that it has taken the necessary steps to monitor and maintain appropriate internal controls during this period of change and that internal controls are being enhanced by the new financial accounting system, however, it has not completed its testing of the operating effectiveness of all key controls in the new financial accounting system. As such, there is a risk that control deficiencies may exist that have not yet been identified and that could constitute, individually or in combination, a material weakness. In addition, the implementation is ongoing and difficulties may still arise as we complete the implementation of the remaining portion of the financial accounting system as well as the order processing system in the second half of fiscal 2010.

          There have been no other changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are likely to materially affect, our internal control over financial reporting.

- 37 -


PART II.   OTHER INFORMATION

ITEM 1A.    RISK FACTORS

          Risk factors describing the major risks to our business can be found under Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009. There has been no material change in our risk factors from those previously discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

          This table provides information with respect to our purchases of shares of our common stock, $.01 par value per share, during the three months ended December 31, 2009.

Issuer Purchases of Equity Securities

   

(a)

 

(b)

 

(c)

 

(d)

 

Period

 

Total Number
of Shares
Purchased

 

Average
Price Paid
Per Share

 

Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs (1)

 

Approximate
Dollar Value
that May Yet
Be Purchased
Under the
Plans or
Programs (2)

 

October 1, 2009 through October 31, 2009

 

--

   

N/A

 

--

 

$

37,115,550

 

November 1, 2009 through November 30, 2009

 

32,153

 

$

11.61

 

32,153

 

$

36,742,313

 

December 1, 2009 through December 31, 2009

 

--

   

N/A

 

--

 

$

36,742,313

 

Totals

 

32,153

 

$

11.61

 

32,153

 

$

36,742,313

 

(1)   On November 5, 2008, our board of directors authorized us to extend our existing $80 million stock repurchase program through November 30, 2010. The stock repurchase program was set to expire on November 30, 2008. The extension of the stock repurchase program was announced on November 6, 2008. All shares purchased during the quarter ended December 31, 2009 were purchased on the open market.

(2)   Amounts reflect the remaining dollar value of shares that may be purchased under the stock repurchase program described above.

- 38 -


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)

 

The Annual Meeting of Shareholders (the "Annual Meeting") of the Company was held on November 12, 2009, in Miramar, Florida.

     

(b)

 

The following directors were elected at the Annual Meeting:

       
     

E. Scott Beattie

     

Fred Berens

     

Maura J. Clark

     

Richard C. W. Mauran

     

William M. Tatham

     

J. W. Nevil Thomas

     

Paul West

     

(c)

 

The shareholders voted at the Annual Meeting on the following matters:

 

1.

The vote on the election of directors to serve until the next annual meeting of shareholders or until their successors are duly elected and qualified was as follows:

         

Votes Cast

         

For

 

Withheld

     

E. Scott Beattie

 

26,781,302

 

364,388

     

Fred Berens

 

16,706,445

 

10,439,245

     

Maura J. Clark

 

26,812,005

 

333,685

     

Richard C. W. Mauran

 

26,818,138

 

327,552

     

William M. Tatham

 

18,718,932

 

8,426,758

     

J. W. Nevil Thomas

 

18,718,384

 

8,427,306

     

Paul West

 

26,818,342

 

327,348

 

2.

The vote on the ratification of the appointment of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2010, was as follows:

Votes Cast

       

Broker

   

For

 

Against

 

Non-Votes

 

Abstentions

26,725,531

 

0

 

0

 

7,870

- 39 -


ITEM 6.    EXHIBITS

Exhibit
Number

 

Description

3.1

 

Amended and Restated Articles of Incorporation of the Company dated November 17, 2005 (incorporated herein by reference to Exhibit 3.1 filed as part of the Company's Form 10-Q for the quarter ended December 31, 2005 (Commission File No. 1-6370)).

3.2

 

Amended and Restated By-laws of the Company (incorporated herein by reference to Exhibit 3.1 filed as part of the Company's Form 8-K dated October 27, 2009 (Commission File No. 1-6370)).

4.1

 

Indenture dated as of January 13, 2004, among the Company and FD Management, Inc., DF Enterprises, Inc., Elizabeth Arden International Holding, Inc., RDEN Management, Inc., Elizabeth Arden (Financing), Inc., Elizabeth Arden Travel Retail, Inc., as guarantors, and HSBC Bank USA, as trustee (incorporated herein by reference to Exhibit 4.3 to the Company's Form 10-K for the year ended January 31, 2004 (Commission File No. 1-6370)).

10.1

 

Second Amended and Restated Credit Agreement dated as of December 24, 2002 among the Company, JPMorgan Chase Bank, as administrative agent, Fleet National Bank, as collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.1 filed as part of the Company's Form 8-K dated December 30, 2002 (Commission File No. 1-6370)).

10.2

 

First Amendment to Second Amended and Restated Credit Agreement dated as of February 25, 2004, among the Company, JPMorgan Chase Bank, as administrative agent, Fleet National Bank, as collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.5 filed as part of the Company's Form 10-K for the year ended January 31, 2004 (Commission File No. 1-6370)).

10.3

 

Second Amendment to Second Amended and Restated Credit Agreement dated as of June 2, 2004, among the Company, JPMorgan Chase Bank, as administrative agent, Fleet National Bank, as collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.6 to the Company's Form 10-Q for the quarter ended May 1, 2004 (Commission File No. 1-6370)).

10.4

 

Third Amendment to Second Amended and Restated Credit Agreement dated as of September 30, 2004, among the Company, JPMorgan Chase Bank, as administrative agent, Fleet National Bank, as collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.1 filed as part of the Company's Form 8-K dated October 1, 2004 (Commission File No. 1-6370)).

10.5

 

Fourth Amendment to Second Amended and Restated Credit Agreement dated as of November 2, 2005, among the Company, JPMorgan Chase Bank, as administrative agent, Bank of America, N. A. (successor in interest by merger to Fleet National Bank), as the collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.8 filed as part of the Company's Form 10-Q for the quarter ended September 30, 2005 (Commission File No. 1-6370)).

10.6

 

Fifth Amendment to Second Amended and Restated Credit Agreement dated as of August 11, 2006, among the Company, JPMorgan Chase Bank, as administrative agent, Bank of America, N. A. (successor in interest by merger to Fleet National Bank), as the collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.7 filed as part of the Company's Form 10-K for the year ended June 30, 2006 (Commission File No.1-6370)).

10.7

 

Sixth Amendment to Second Amended and Restated Credit Agreement dated as of August 15, 2007, among the Company, JPMorgan Chase Bank, as administrative agent, Bank of America, N. A. (successor in interest by merger to Fleet National Bank), as the collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 10.7 filed as part of the Company's Form 10-K for the year ended June 30, 2007 (Commission File No. 1-6370)).

10.8

 

Seventh Amendment to Second Amended and Restated Credit Agreement dated as of November 13, 2007, among the Company, JPMorgan Chase Bank, as administrative agent, Bank of America, N. A. (successor in interest by merger to Fleet National Bank), as the collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 10.8 filed as part of the Company's Form 10-Q for the quarter ended December 31, 2007 (Commission File No. 1-6370)).

- 40 -


 

Exhibit
Number

 

Description

10.9

 

Eighth Amendment to Second Amended and Restated Credit Agreement dated as of July 21, 2008, among the company, JPMorgan Chase Bank, as administrative agent, Bank of America, N. A. (successor in interest by merger to Fleet National Bank), as the collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 10.1 filed as part of the Company's Form 8-K dated July 21, 2008 (Commission File No. 1-6370)).

10.10 *

 

Exhibits to the Second Amended and Restated Credit Agreement dated as of December 24, 2002, among the company, JPMorgan Chase Bank, as administrative agent, Bank of America, N. A. (successor in interest by merger to Fleet National Bank), as the collateral agent, and the banks listed on the signature pages thereto, as amended through the Eighth Amendment thereto dated as of July 21, 2008. (Portions of this exhibit have been omitted pursuant to a request for confidential treatment).

10.11

 

Amended and Restated Security Agreement dated as of January 29, 2001, made by the Company and certain of its subsidiaries in favor of Fleet National Bank, as administrative agent (incorporated herein by reference to Exhibit 4.5 filed as part of the Company's Form 8-K dated January 23, 2001 (Commission File No. 1-6370)).

10.12

 

Amended and Restated Deed of Lease dated as of January 17, 2003, between the Company and Liberty Property Limited Partnership (incorporated herein by referenced to Exhibit 10.5 filed as a part of the Company's Form 10-Q for the quarter ended April 26, 2003 (Commission File No. 1-6370)).

10.13 +

 

2004 Stock Incentive Plan, as amended and restated (incorporated herein by reference to Exhibit 10.12 filed as part of the Company's Form 10-Q for the quarter ended December 31, 2007 (Commission File No. 1-6370)).

10.14 +

 

2004 Non-Employee Director Stock Option Plan, as amended (incorporated herein by reference to Exhibit 10.2 filed as part of the Company's Form 10-Q for the quarter ended September 30, 2006 (Commission File No. 1-6370)).

10.15 +

 

2000 Stock Incentive Plan, as amended (incorporated herein by reference to Exhibit 10.14 filed as part of the Company's Form 10-Q for the quarter ended December 31, 2007 (Commission File No. 1-6370)).

10.16 +

 

1995 Stock Option Plan, as amended (incorporated herein by reference to Exhibit 10.4 filed as part of the Company's Form 10-Q for the quarter ended September 30, 2006 (Commission File No. 1-6370)).

10.17 *

 

Amended 2002 Employee Stock Purchase Plan.

10.18 +

 

Non-Employee Director Stock Option Plan, as amended (incorporated herein by reference to Exhibit 10.6 filed as part of the Company's Form 10-Q for the quarter ended September 30, 2006 (Commission File No. 1-6370)).

10.19 +

 

Form of Nonqualified Stock Option Agreement for stock option awards under the Company's Non-Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.8 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).

10.20 +

 

Form of Incentive Stock Option Agreement for stock option awards under the Company's 1995 Stock Option Plan (incorporated herein by reference to Exhibit 10.9 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).

10.21 +

 

Form of Nonqualified Stock Option Agreement for stock option awards under the Company's 1995 Stock Option Plan (incorporated herein by reference to Exhibit 10.10 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).

10.22 +

 

Form of Stock Option Agreement for stock option awards under the Company's 2000 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.11 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).

10.23 +

 

Form of Restricted Stock Agreement for service-based restricted stock awards (one-year vesting) under the Company's 2000 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.12 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).

- 41 -


Exhibit
Number

 

Description

10.24 +

 

Form of Restricted Stock Agreement for the performance-based restricted stock awards under the Company's 2000 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.13 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).

10.25 +

 

Form of Stock Option Agreement for stock option awards under the Company's 2004 Non-Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.14 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).

10.26 +

 

Form of Restricted Stock Agreement for the market-based restricted stock awards under the Company's 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.15 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).

10.27 +

 

Form of Stock Option Agreement for stock option awards under the Company's 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.19 filed as a part of the Company's Form 10-K for the year ended June 30, 2005 (Commission File No. 1-6370)).

10.28 +

 

Form of Restricted Stock Agreement for the restricted stock awards under the Company's 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.20 filed as a part of the Company's Form 10-K for the year ended June 30, 2005 (Commission File No. 1-6370)).

10.29 +

 

2005 Management Bonus Plan, as amended (incorporated herein by reference to Exhibit 10.28 filed as part of the Company's Form 10-Q for the quarter ended December 31, 2007 (Commission File No. 1-6370)).

10.30 +

 

2005 Performance Bonus Plan, as amended (incorporated herein by reference to Exhibit 10.29 filed as part of the Company's Form 10-Q for the quarter ended December 31, 2007 (Commission File No. 1-6370)).

10.31 +

 

Elizabeth Arden, Inc. Severance Policy (incorporated herein by reference to Exhibit 10.31 filed as part of the Company's Form 10-K for the year ended June 30, 2007 (Commission File No. 1-6370)).

10.32 +

 

Form of Restricted Stock Agreement for service-based restricted stock awards (three-year vesting period) under the Company's 2000 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.32 filed as part of the Company's Form 10-K for the year ended June 30, 2007 (Commission File No. 1-6370)).

10.33 +

 

Termination Agreement between Elizabeth Arden International S.à.r.l. and Jacobus A. J. Steffens dated November 5, 2008 (incorporated herein by reference to Exhibit 10.32 filed as part of the Company's Form 10-Q for the quarter ended December 31, 2008 (Commission File No. 1-6370)).

10.34 +

 

Form of Indemnification Agreement for Directors and Officers of Elizabeth Arden, Inc. (incorporated by reference to Exhibit 10.1 filed as part of the Company's Form 8-K dated August 11, 2009 (Commission File No. 1-6370)).

31.1 *

 

Section 302 Certification of Chief Executive Officer.

31.2 *

 

Section 302 Certification of Chief Financial Officer.

32 *

 

Section 906 Certifications of the Chief Executive Officer and the Chief Financial Officer.

+ Management contract or compensatory plan or arrangement.
* Filed herewith.

- 42 -


SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

   

ELIZABETH ARDEN, INC.

     

Date: January 29, 2010

 

/s/ E. Scott Beattie

 

 

E. Scott Beattie

 

 

Chairman, President and Chief Executive Officer

   

(Principal Executive Officer)

     

Date:  January 29, 2010

 

/s/ Stephen J. Smith

 

 

Stephen J. Smith

 

 

Executive Vice President and Chief Financial Officer

   

(Principal Financial and Accounting Officer)

     

- 43 -


EXHIBIT INDEX

Exhibit
Number

Description

10.10

 

Exhibits to the Second Amended and Restated Credit Agreement dated as of December 24, 2002, among the company, JPMorgan Chase Bank, as administrative agent, Bank of America, N. A. (successor in interest by merger to Fleet National Bank), as the collateral agent, and the banks listed on the signature pages thereto, as amended through the Eighth Amendment thereto dated as of July 21, 2008. (Portions of this exhibit have been omitted pursuant to a request for confidential treatment).

10.17

 

Amended 2002 Employee Stock Purchase Plan.

31.1

 

Section 302 Certification of Chief Executive Officer.

31.2

 

Section 302 Certification of Chief Financial Officer.

32

 

Section 906 Certifications of the Chief Executive Officer and the Chief Financial Officer.

- 44 -