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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

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 March 31, 2012

 

[  ]

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 (ss232.405 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  [X]      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
May 1, 2012

Common Stock, $.01 par value per share

 

29,371,024


 

ELIZABETH ARDEN, INC.

INDEX TO FORM 10-Q

 

PART I

 

FINANCIAL INFORMATION

   
         

Item 1.

 

Financial Statements

 

Page No.

 

 

Unaudited Consolidated Balance Sheets -- March 31, 2012 and June 30, 2011

 

3

 

 

 

 

Unaudited Consolidated Statements of Operations -- Three and nine months ended
March 31, 2012 and March 31, 2011

 

4

 

 

 

 

Unaudited Consolidated Statement of Shareholders' Equity -- Nine months ended
March 31, 2012

 

5

 

 

 

 

Unaudited Consolidated Statements of Cash Flow -- Nine months ended March 31, 2012
and March 31, 2011

 

6

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

7

 

 

Item 2.

 

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

 

17

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

Item 4.

 

Controls and Procedures

 

32

 

 

PART II

 

OTHER INFORMATION

   

Item 1A.

 

Risk Factors

 

32

Item 6.

 

Exhibits

 

33

 

 

Signatures

 

36

Exhibit Index

 

37

- 2 -


PART I      FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS

ELIZABETH ARDEN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

   

As of

   

   

March 31,
2012

   

June 30,
2011

   

ASSETS

                 

Current Assets

                 
 

Cash and cash equivalents

 

$

58,207

   

$

58,850

   
 

Accounts receivable, net

   

172,852

     

165,622

   
 

Inventories

   

272,532

     

246,514

   
 

Deferred income taxes

   

25,479

     

37,683

   
 

Prepaid expenses and other assets

   

41,971

     

45,725

   

   

Total current assets

   

571,041

     

554,394

   

Property and equipment, net

80,703

82,762

Exclusive brand licenses, trademarks and intangibles, net

   

221,738

     

184,758

   

Goodwill

   

21,054

     

21,054

   

Debt financing costs, net

   

7,809

     

8,740

   

Deferred income taxes

   

2,042

     

2,521

   

Other assets

   

5,850

     

608

   

   

Total assets

 

$

910,237

   

$

854,837

   

                     

LIABILITIES AND SHAREHOLDERS' EQUITY

                 

Current Liabilities

                 
 

Accounts payable - trade

 

$

65,764

   

$

47,951

   
 

Other payables and accrued expenses

   

94,982

     

117,546

   

   

Total current liabilities

   

160,746

     

165,497

   

Long-term Liabilities

                 
 

Long-term debt

   

250,000

     

250,000

   
 

Deferred income taxes and other liabilities

   

17,386

     

21,575

   

   

Total long-term liabilities

   

267,386

     

271,575

   

   

Total liabilities

   

428,132

     

437,072

   

Commitments and contingencies

                 

Shareholders' Equity

                 
 

Common stock, $.01 par value, 50,000,000 shares authorized; 33,705,412 and
   33,452,687 shares issued, respectively

   

337

     

334

   
 

Additional paid-in capital

   

339,761

     

327,226

   
 

Retained earnings

   

213,729

     

159,935

   
 

Treasury stock (4,353,200 shares at cost)

   

(74,871

)

   

(74,871

)

 
 

Accumulated other comprehensive income

   

3,149

     

5,141

   

   

Total shareholders' equity

   

482,105

     

417,765

   

   

Total liabilities and shareholders' equity

 

$

910,237

   

$

854,837

   

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

- 3 -


ELIZABETH ARDEN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except per share data)

Three Months Ended

Nine Months Ended

March 31,
2012

March 31,
2011

March 31,
2012

March 31,
2011

Net sales

$

239,279

$

231,296

$

972,739

$

921,750

Cost of goods sold:

    Cost of sales

118,781

115,597

489,548

481,934

    Depreciation related to cost of goods sold

906

1,224

3,850

3,714

        Total cost of goods sold

119,687

116,821

493,398

485,648

Gross profit

119,592

114,475

479,341

436,102

Operating expenses:

   Selling, general and administrative

104,582

102,915

371,480

349,354

    Depreciation and amortization

7,645

6,044

21,433

18,593

        Total operating expenses

112,227

108,959

392,913

367,947

Income from operations

7,365

5,516

86,428

68,155

Other expense

Interest expense, net

5,291

5,434

16,339

16,317

Debt extinguishment charges

--

6,468

--

6,468

Other expense, net

5,291

11,902

16,339

22,785

Income (loss) before income taxes

2,074

(6,386

)

70,089

45,370

(Benefit from) provision for income taxes

(117

)

(3,135

)

16,295

9,776

Net income (loss)

$

2,191

$

(3,251

)

$

53,794

$

35,594

Net income (loss) per common share:

    Basic

$

0.08

$

(0.12

)

$

1.85

$

1.29

    Diluted

$

0.07

$

(0.12

)

$

1.79

$

1.24

Weighted average number of common shares:

    Basic

29,116

28,130

29,017

27,543

    Diluted

30,069

28,130

29,997

28,666

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

   

Income

   

Equity

 

Balance as of July 1, 2011

   

33,453

   

$

334

   

$

327,226

   

$

159,935

     

(4,353

)

 

$

(74,871

)

 

$

5,141

   

$

417,765

 

Issuance of common stock upon exercise of options

390

4

5,254

--

--

--

--

5,258

Issuance of restricted stock, net of forfeitures

(177

)

(1

)

(2,098

)

--

--

--

--

(2,099

)

Issuance of common stock for employee stock purchase
   plan

   

39

     

--

     

958

                                     

958

 

Amortization of share-based awards

--

--

3,758

--

--

--

--

3,758

Excess tax benefit from share-based awards

   

--

     

--

     

4,663

     

--

     

--

     

--

     

--

     

4,663

 

Comprehensive Income:

                                                               

Net Income

--

--

--

53,794

--

--

--

53,794

Foreign currency translation adjustments

--

--

--

--

--

--

(3,536

)

(3,536

)

Disclosure of reclassification amounts, net of taxes

   

Unrealized hedging gain arising during the period

   

--

     

--

     

--

     

--

     

--

     

--

     

2,174

     

2,174

 
   

Less: reclassification adjustment for hedging losses
   included in net income

   

--

     

--

     

--

     

--

     

--

     

--

     

630

     

630

 

   

Net unrealized cash flow hedging gain

   

--

     

--

     

--

     

--

     

--

     

--

     

1,544

     

1,544

 

 

Total comprehensive income (loss)

   

--

     

--

     

--

     

53,794

     

--

     

--

     

(1,992

)

   

51,802

 

Balance as of March 31, 2012

   

33,705

   

$

337

   

$

339,761

   

$

213,729

     

(4,353

)

 

$

(74,871

)

 

$

3,149

   

$

482,105

 

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)

   

Nine Months Ended

 

   

March 31,
2012

   

March 31,
2011

 

Operating Activities:

               
 

Net income

 

$

53,794

   

$

35,594

 
 

Adjustments to reconcile net income to net cash provided by operating
   activities:

               
 

Depreciation and amortization

   

25,283

     

22,307

 
 

Amortization of senior note offering and credit facility costs

   

931

     

1,031

 
 

Amortization of share-based awards

   

3,758

     

3,627

 
 

Debt extinguishment charges

   

--

     

6,468

 
 

Deferred income taxes

   

11,883

     

7,021

 

   Changes in assets and liabilities, net of acquisitions:

               

Increase in accounts receivable

(8,915

)

(738

)

Increase in inventories

(27,323

)

(16,190

)

(Increase) decrease in prepaid expenses and other assets

(1,944

)

14,232

Increase (decrease) in accounts payable

19,023

(17,079

)

(Decrease) increase in other payables, accrued expenses and other liabilities

(26,075

)

2,459

Other

(84

)

455

   

Net cash provided by operating activities

   

50,331

     

59,187

 

Investing Activities:

               
 

Additions to property and equipment

   

(16,785

)

   

(18,526

)

 

Acquisition of intangibles and other assets

   

(43,900

)

   

(13,864

)

   

Net cash used in investing activities

   

(60,685

)

   

(32,390

)

Financing Activities:

               
 

Payments on short-term debt

   

--

     

(50,900

)

 

Proceeds from long-term debt

   

--

     

243,986

 
 

Repurchase of senior subordinated notes

   

--

     

(223,332

)

 

Proceeds from the exercise of stock options

   

5,258

     

19,943

 
 

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

   

958

     

794

 
 

Repurchase of common stock

   

--

     

(13,758

)

 

Financing fees paid

   

--

     

(2,362

)

 

Excess tax benefit from share-based awards

   

4,703

     

4,020

 

   

Net cash provided by (used in) financing activities

   

10,919

     

(21,609

)

Effect of exchange rate changes on cash and cash equivalents

   

(1,208

)

   

1,748

 

Net (decrease) increase in cash and cash equivalents

   

(643

)

   

6,936

 

Cash and cash equivalents at beginning of period

   

58,850

     

26,881

 

Cash and cash equivalents at end of period

 

$

58,207

   

$

33,817

 

Supplemental Disclosure of Non-Cash Information:

               
 

Additions to property and equipment (not included above)

 

$

384

   

$

230

 

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, 2011 (the "2011 Annual Report"), filed with the Commission.

          The consolidated balance sheet of the Company as of June 30, 2011 is derived from the financial statements included in the 2011 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.

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

          The Company's accumulated other comprehensive income 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 gains (losses), net of taxes, related to the Company's foreign currency contracts.

          The components of accumulated other comprehensive income were as follows:

(Amounts in thousands)

March 31,
2012

June 30,
2011

Cumulative foreign currency translation adjustments

$

3,012

$

6,548

Unrealized hedging gains (losses), net of taxes

137

(1,407

)

Accumulated other comprehensive income

$

3,149

   

$

5,141

   

          The Company's comprehensive income (loss) consists of net income (loss), 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 (loss) were as follows:

(Amounts in thousands)

Three Months Ended

 

Nine Months Ended

 

March 31,
2012

   

March 31,
2011

   

March 31,
2012

   

March 31,
2011

 

Net income (loss)

$

2,191

   

$

(3,251

)

 

$

53,794

   

$

35,594

 

Foreign currency translation adjustments

 

2,101

     

792

     

(3,536

)

   

6,909

 

Unrealized hedging (loss) gain, net of taxes

 

(488

)

   

(694

)

   

1,544

     

(2,010

)

Total comprehensive income (loss)

$

3,804

   

$

(3,153

)

 

$

51,802

   

$

40,493

 

- 7 -


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

NOTE 3.    INCOME (LOSS) PER SHARE

          Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of the Company's outstanding common stock, $.01 par value per share ("Common Stock"). The calculation of net income (loss) per diluted share is similar to basic net income (loss) per share except that the denominator includes potentially dilutive Common Stock equivalents, such as stock options and non-vested restricted stock or restricted stock units. For the three months ended March 31, 2011, diluted loss per share equals basic loss per share as the assumed exercise of stock options, non-vested restricted stock and the assumed purchases under the employee stock purchase plan would have an anti-dilutive effect.

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

(Amounts in thousands, except
per share data)

 

Three Months Ended

   

Nine Months Ended

 

   

March 31,
2012

     

March 31,
2011

     

March 31,
2012

     

March 31,
2011

 

Basic

                               
 

Net income (loss)

 

$

2,191

   

$

(3,251

)

 

$

53,794

   

$

35,594

 

 

Weighted average shares outstanding

   

29,116

     

28,130

     

29,017

     

27,543

 

 

Net income (loss) per basic share

 

$

0.08

   

$

(0.12

)

 

$

1.85

   

$

1.29

 

Diluted

                               
 

Net income (loss)

 

$

2,191

   

$

(3,251

)

 

$

53,794

   

$

35,594

 

                                   
 

Weighted average shares outstanding

   

29,116

     

28,130

     

29,017

     

27,543

 
                                   
 

Potential common shares - treasury
   method

   

953

     

--

     

980

     

1,123

 

 

Weighted average shares and potential
   dilutive common shares

   

30,069

     

28,130

     

29,997

     

28,666

 

   

Net income (loss) per diluted share

 

$

0.07

   

$

(0.12

)

 

$

1.79

   

$

1.24

 

          The following table shows the number of Common Stock equivalents subject to option awards that were outstanding for the three and nine months ended March 31, 2012 and 2011 that were not included in the diluted net income (loss) per share calculation because to do so would have been anti-dilutive:

(Amounts in thousands)

 

Three Months Ended

   

Nine Months Ended

 

   

March 31,
2012

     

March 31,
2011

     

March 31,
2012

     

March 31,
2011

 

Number of shares

   

--

     

2,337

     

--

     

523

 

NOTE 4.    NEW ACCOUNTING STANDARDS

Goodwill Impairment Measurements

          In September 2011, the Financial Accounting Standards Board ("FASB") issued an update to Topic 350, Intangibles - Goodwill and Other, which is intended to simplify how an entity tests goodwill for impairment. The amendments will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The changes to Codification Topic 350 are effective for the Company beginning July 1, 2012, with early adoption permitted. The Company anticipates it will adopt the updated guidance in Topic 350 for its annual impairment test to be performed during the fourth quarter of the current fiscal year and adoption of the updated guidance is not expected to have a material impact on the Company's consolidated financial statements or disclosures.

- 8 -


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

Fair Value Measurements

          In May 2011, the FASB and the International Accounting Standards Board ("IASB") issued new guidance on fair value measurement and disclosure requirements. This update will supersede most of the guidance in Topic 820, Fair Value Measurements and Disclosures. Many of the changes to Topic 820, Fair Value Measurements and Disclosures are clarifications of existing guidance or wording changes to align with International Financial Reporting Standards. The update does not extend the use of fair value accounting, but does provide guidance on how it should be applied where it is already required or permitted under current U.S. generally accepted accounting principles. The changes to Topic 820 were adopted on January 1, 2012 and did not have a material impact on the Company's consolidated financial statements or disclosures.

Comprehensive Income

          In June 2011, the FASB issued an update to Topic 220, Comprehensive Income, which will supersede some of the guidance in Topic 220. This update requires companies to present comprehensive income in either one or two consecutive financial statements and eliminates the option under current accounting standards that permits the presentation of other comprehensive income in the statement of changes in equity. Subsequently in December 2011, the FASB issued an additional update to Topic 220 that defers certain disclosure requirements originally included in the June 2011 update. In particular, the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income has been deferred. The changes to Topic 220 will be effective for the Company beginning July 1, 2012 and will be applied retrospectively. The changes do not have a material impact on the Company's consolidated financial statements, although they will require changing the Company's presentation and disclosure of comprehensive income.

NOTE 5.    INVENTORIES

          The components of inventory were as follows:

(Amounts in thousands)

 

March 31,
2012

 

June 30,
2011

 

Raw materials

 

$

53,973

 

$

55,614

 

Work in progress

   

19,584

   

21,996

 

Finished goods

198,975

168,904

Total

$

272,532

$

246,514

NOTE 6.    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)

March 31,
2012

 

June 30,
2011

 

June 30, 2011
Weighted Average
Estimated Life

Elizabeth Arden brand trademarks

$

122,415

   

$

122,415

     

Indefinite

 

Exclusive brand licenses and related trademarks

 

86,822

     

86,755

     

17

 

Exclusive brand trademarks

 

100,132

     

55,832

     

14

 

Other intangibles (1)

 

19,930

     

20,330

     

17

 

Exclusive brand licenses, trademarks and intangibles, gross

 

329,299

     

285,332

         

Accumulated amortization:

                     

   Exclusive brand licenses and related trademarks

 

(55,169

)

   

(51,006

)

       

   Exclusive brand trademarks

 

(43,745

)

   

(41,121

)

       

   Other intangibles

 

(8,647

)

   

(8,447

)

       

Exclusive brand licenses, trademarks and intangibles, net

$

221,738

   

$

184,758

         

(1)

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

- 9 -


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

          On August 10, 2011, the Company amended its long-term license agreement with Liz Claiborne, Inc. and certain of its affiliates and acquired all of the U.S. and international trademarks for the Curve fragrance brands as well as trademarks for certain other smaller fragrance brands. The amendment also established a lower effective royalty rate for the remaining licensed fragrance brands, including Juicy Couture and Lucky Brand fragrances, reduced the future minimum guaranteed royalties for the term of the license, and required a pre-payment of royalties for the remainder of calendar 2011. The Company paid Liz Claiborne, Inc. and its affiliates $58.4 million in cash in connection with this transaction. The Company capitalized $43.9 million of the $58.4 million cash paid as exclusive brand trademarks and the balance was recorded as a prepaid asset associated with the settlement of royalties for the remainder of calendar year 2011 and the buy-down of future royalties.

          At March 31, 2012, the Company had goodwill of $21.1 million recorded on its consolidated balance sheet. The entire amount of the goodwill in all periods presented relates to the North America segment. The amount of goodwill recorded on the consolidated balance sheet at March 31, 2012 did not change from the prior year end balance as the Company did not record any additions or impairments during the three and nine months ended March 31, 2012.

          Amortization expense was $2.5 million and $2.2 million for the three months ended March 31, 2012 and 2011, respectively, and $7.4 million and $7.0 million for the nine months ended March 31, 2012 and 2011, respectively. At March 31, 2012, the Company estimated annual amortization expense for the Company's intangible assets for each of the next five fiscal years to be as shown in the following table. Future acquisitions, renewals, business circumstances or impairment events could cause these amounts to change.

   

(Amounts in millions)

Remainder of fiscal 2012

 

$2.6

2013

 

$9.2

2014

 

$8.2

2015

 

$7.7

2016

 

$7.4

NOTE 7.    OTHER PAYABLES AND ACCRUED EXPENSES

          A summary of the Company's other payables and accrued expenses is as follows:

(Amounts in thousands)

 

March 31,
2012

 

June 30,
2011

 

Accrued advertising, promotion and royalties

 

$

33,521

 

$

33,718

 

Accrued employee-related benefits

   

24,370

   

34,379

 

Accrued interest

1,162

8,528

Other accruals

35,929

40,921

Total other payables and accrued expenses

$

94,982

$

117,546

NOTE 8.    SHORT-TERM DEBT

          The Company has a $300 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. 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 January 2016.

          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. accounts receivable and 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 Company's borrowing base may be temporarily increased by up to $25 million.

          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 September 1 through

- 10 -


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

January 31). The Company's average borrowing base capacity during the quarter ended March 31, 2012, did not fall below the applicable thresholds noted above. Accordingly, the debt service coverage ratio did not apply for the quarter ended March 31, 2012.

          Under the terms of the Credit Facility, the Company may pay dividends or repurchase Common Stock if it maintains borrowing base capacity of at least $25 million from February 1 to August 31, and at least $35 million from September 1 to January 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 an "Applicable Margin" which is determined by reference to a debt service coverage ratio. At the Company's option, the Applicable Margin may be applied to either the London InterBank Offered Rate ("LIBOR") or the base rate. The Applicable Margin charged on LIBOR loans ranges from 1.75% to 2.50% and ranges from 0.25% to 1.0% for base 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 the Company's borrowing base is in effect, is 1.0% higher. The Company is required to pay an unused commitment fee ranging from 0.375% to 0.50% based on the quarterly average unused portion of the Credit Facility.

          At March 31, 2012, the Applicable Margin was 1.75% for LIBOR loans and 0.25% for prime rate loans. The commitment fee on the unused portion of the Credit Facility at March 31, 2012 was 0.50%. For the nine months ended March 31, 2012 and 2011, the weighted average annual interest rate on borrowings under the Credit Facility was 2.1% and 2.2%, respectively.

          At March 31, 2012, the Company had no outstanding borrowings and approximately $4.8 million in letters of credit outstanding under the Credit Facility compared with no borrowings and approximately $5.6 million in letters of credit outstanding under the Credit Facility at June 30, 2011. At March 31, 2012, based on eligible accounts receivable and inventory available as collateral, approximately $124 million could be borrowed under the Credit Facility. In periods when there are outstanding borrowings, 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.

NOTE 9.    INCOME TAXES

          The pre-tax income (loss) from the Company's domestic and international operations consisted of the following for the three months ended March 31, 2012 and 2011:

(Amounts in thousands)

Three Months Ended

 

March 31,
2012

   

March 31,
2011

 

Domestic pre-tax loss

$

(4,695

)

$

(11,375

)

Foreign pre-tax income

 

6,769

     

4,989

 

Total income (loss) before income taxes

$

2,074

$

(6,386

)

Effective tax rate

5.6

%

49.1

%

          The effective rate for the periods shown above were based on the Company's expectation of full year earnings contributions from its domestic and foreign operations, plus the impact of discrete items reported during each respective period. The effective tax rate in the current year period was lower as compared to the prior year period due to a shift in the ratio of earnings contributions between jurisdictions and additional net tax benefit adjustments recorded on a discrete basis in the current year period. The effective rate for the three months ended March 31, 2012 included discrete net tax benefit adjustments totaling $0.6 million, primarily related to changes in R&D tax credit estimates. The prior year effective tax rate included discrete tax adjustments totaling a net tax benefit of $0.5 million related to changes in estimates and tax rates for certain entities. The effective tax rate for the full fiscal year ended June 30, 2011 was 17.4%.

          The pre-tax income from our domestic and international operations consisted of the following for the nine months ended March 31, 2012 and 2011:

- 11 -


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

(Amounts in thousands)

Nine Months Ended

 

March 31,
2012

   

March 31,
2011

 

Domestic pre-tax income

$

29,509

   

$

6,074

 

Foreign pre-tax income

 

40,580

     

39,296

 

Total income before income taxes

$

70,089

$

45,370

Effective tax rate

23.2

%

21.6

%

          The effective tax rate for periods shown above were based on the Company's expectation of full year earnings contributions from our domestic and foreign operations. Discrete items did not have a material impact on the effective tax rates for the nine months ended March 31, 2012 and 2011. The effective tax rate for the full fiscal year ended June 30, 2011 was 17.4%.

NOTE 10.    COMMITMENTS AND CONTINGENCIES

The Company is a party to a number of legal actions, proceedings, audits, tax audits, claims and disputes, arising in the ordinary course of business, including those with current and former customers over amounts owed. While any action, proceeding, audit or claim contains an element of uncertainty and may materially affect the Company's cash flows and results of operations in a particular quarter or year, based on current facts and circumstances, the Company's management believes that the outcome of such actions, proceedings, audits, claims and disputes 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 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

          At March 31, 2012 and June 30, 2011, the estimated fair value of the Company's 7 3/8% Senior Notes using available market information and interest rates was as follows:

(Amounts in thousands)

 

March 31,
2012

   

June 30,
2011

 

7 3/8% Senior Notes due March 2021 (Level 2)

 

$

268,425

   

$

260,625

 

          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 3/8% Senior Notes are traded. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value.

          The Company's derivative assets and liabilities are currently composed 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.

- 12 -


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

          The following table presents the fair value hierarchy for those of the Company's financial assets and liabilities related to foreign currency contracts that were measured at fair value on a recurring basis as of March 31, 2012 and June 30, 2011:

(Amounts in thousands)

 

March 31, 2012

   

June 30, 2011

 

   

Asset

   

Liability

   

Asset

   

Liability

 

Level 2

 

$

649

   

$

498

   

$

--

   

$

1,978

 

Total

 

$

649

   

$

498

   

$

--

   

$

1,978

 

          See Note 12 for a discussion of the Company's foreign currency contracts.

          Accounting standards require non-financial assets and liabilities to be recognized at fair value subsequent to initial recognition when they are deemed to be other-than-temporarily impaired. As of March 31, 2012, the Company did not have any non-financial assets and liabilities measured at fair value.

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 enter into cash flow hedges to reduce a portion of the exposure of the Company's foreign subsidiaries' revenues to fluctuations in currency rates using foreign currency forward contracts. The Company also enters into cash flow hedges for a portion of its forecasted inventory purchases to reduce the exposure of its Canadian and Australian subsidiaries' cost of sales to such fluctuations as well as cash flow hedges for a portion of its subsidiaries' forecasted Swiss franc operating costs. The principal currencies hedged are British pounds, Euros, Canadian dollars, Australian dollars and Swiss francs. 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 subsidiaries' revenues generally over approximately 12 to 24 months. Changes to fair value of the foreign currency contracts are recorded as a component of accumulated other comprehensive income within shareholders' equity to the extent such contracts are effective, and are recognized in net sales in the period in which the forecasted transaction affects earnings or the transactions are no longer probable of occurring. Changes to fair value of any contracts deemed to be ineffective would be recognized in earnings immediately. There were no amounts recorded in the three and nine months ended March 31, 2012 or in fiscal 2011 relating to foreign currency contracts used to hedge forecasted revenues resulting from hedge ineffectiveness. As of March 31, 2012, the Company had notional amounts of 15.5 million British pounds and 7.2 million Euros under foreign currency contracts used to hedge forecasted revenues that expire between April 30, 2012 and May 31, 2013.

          Foreign currency contracts used to hedge forecasted cost of sales or operating costs are designated as cash flow hedges. These contracts are used to hedge forecasted Canadian and Australian subsidiaries' cost of sales or subsidiaries' Swiss franc operating costs generally over approximately 12 to 24 months. Changes to fair value of the foreign currency contracts are recorded as a component of accumulated other comprehensive income within shareholders' equity, to the extent such contracts are effective, and are recognized in cost of sales or selling, general and administrative expenses in the period in which the forecasted transaction affects earnings or the transactions are no longer probable of occurring. Changes to fair value of any contracts deemed to be ineffective would be recognized in earnings immediately. There were no amounts recorded in the three and nine months ended March 31, 2012 or in fiscal 2011 relating to foreign currency contracts used to hedge forecasted cost of sales or operating costs resulting from hedge ineffectiveness. As of March 31, 2012, the Company had notional amounts under foreign currency contracts of (i) 12.3 million Canadian dollars and 1.3 million Australian dollars used to hedge forecasted cost of sales, and (ii) 15.1 million Swiss francs to hedge forecasted operating costs that expire between April 30, 2012 and May 31, 2013.

          When appropriate, the Company also enters into and settles foreign currency contracts for Euros, British pounds, Canadian dollars and Australian dollars to reduce exposure of the Company's foreign subsidiaries' balance sheets to fluctuations in foreign

- 13 -


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

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 nine months ended March 31, 2012, the Company recorded a loss of $0.6 million and a gain of $11,000, respectively in selling, general and administrative expenses related to these contracts. For the three and nine months ended March 31, 2011, the Company recorded losses of $1.1 million and $2.9 million, respectively, in selling, general and administrative expenses related to these contracts. As of March 31, 2012, there were no such foreign currency contracts outstanding. There were no amounts recorded in the three and nine months ended March 31, 2012 or in fiscal 2011 relating to foreign currency contracts to hedge subsidiary balance sheets resulting from hedge ineffectiveness.

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

(Amounts in thousands)

Fair Value of Derivative Instruments
Designated as Effective Hedges

Balance Sheet Location

March 31,
2012

   

June 30,
2011

 

Other assets

$

649

   

$

--

 

Other payables

498

1,978

(Loss) Gain Recognized in Other Comprehensive Income on Derivatives, Net of Tax (Effective Portion)

(Amounts in thousands)

Three Months Ended

 

Nine Months Ended

 

March 31,
2012

   

March 31,
2011

   

March 31,
2012

   

March 31,
2011

 

Currency Contracts-Sales

$

(778

)

 

$

(549

)

 

$

(213

)

 

$

(699

)

Currency Contracts - Cost of Sales

 

(186

)

   

(145

)

   

1,357

     

(1,311

)

Currency Contracts - Selling, general
   and administrative expenses

 

476

     

--

     

400

     

--

 

Total

$

(488

)

 

$

(694

)

 

$

1,544

   

$

(2,010

)

(Loss) Gain Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)

(Amounts in thousands)

Three Months Ended

 

Nine Months Ended

 

March 31,
2012

   

March 31,
2011

   

March 31,
2012

   

March 31,
2011

 

Currency Contracts - Sales (1)

$

113

   

$

(255

)

 

$

180

   

$

(560

)

Currency Contracts - Cost of Sales (2)

 

(342

)

   

(717

)

   

(1,140

)

   

(1,413

)

Currency Contracts - Selling, general
   and administrative expenses (3)

 

13

     

--

     

13

     

--

 

Total

$

(216

)

 

$

(972

)

 

$

(947

)

 

$

(1,973

)

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

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

(3)   Recorded in selling, general and administrative expenses on the consolidated statements of operations.

- 14 -


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

NOTE 13.    SEGMENT DATA AND RELATED INFORMATION

          Operating segments, as defined by Codification Topic 280, Segment Reporting, 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 two operating segments, which also comprise the Company's reportable segments:

North America - The North America segment sells the Company's portfolio of owned, licensed and distributed brands, including the Elizabeth Arden products, to department stores, mass retailers and distributors in the United States, Canada and Puerto Rico, and also includes the Company's direct to consumer business, which is composed of the Elizabeth Arden branded retail outlet stores and the Company's global e-commerce business. This segment also sells the Elizabeth Arden products 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.

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 to perfumeries, boutiques, department stores, travel retail outlets and distributors.

          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 operating segments are the same as those described in the 2011 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 operating segments is produced for the Chief Executive or included herein.

          Segment profit (loss) excludes depreciation and amortization, interest expense, consolidation and elimination adjustments 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) restructuring charges that are related to an announced plan, (ii) costs related to the Company's Global Efficiency Re-engineering initiative, which was substantially completed in fiscal 2011 (the "Initiative"), and (iii) restructuring costs for corporate operations. 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. The following table is a comparative summary of the Company's net sales and segment profit (loss) by operating segment for the three and nine months ended March 31, 2012 and 2011:

- 15 -


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

(Amounts in thousands)

Three Months Ended

   

Nine Months Ended

 

 

March 31,
2012

   

March 31,
2011

   

March 31,
2012

   

March 31,
2011

 

Segment Net Sales:

                             

    North America

$

145,154

   

$

142,755

   

$

625,215

   

$

607,854

 

    International

 

94,125

     

88,541

     

347,524

     

313,896

 

Total

$

239,279

   

$

231,296

   

$

972,739

   

$

921,750

 

Segment Profit (Loss):

                             

    North America

$

20,818

   

$

18,112

   

$

105,133

   

$

83,160

 

    International

 

(4,932

)

   

(5,742

)

   

8,975

     

9,064

 

Total

$

15,886

   

$

12,370

   

$

114,108

   

$

92,224

 

Reconciliation:

                             

    Segment Profit

$

15,886

   

$

12,370

   

$

114,108

   

$

92,224

 

    Less:

                             

        Depreciation and Amortization

 

8,551

     

7,268

     

25,283

     

22,307

 

        Interest Expense, net

 

5,291

     

5,434

     

16,339

     

16,317

 

        Consolidation and Elimination
           Adjustments

 

(30

)

   

(414

)

   

2,397

     

593

 

        Unallocated Corporate Expenses

 

--

     

6,468

(1)

   

--

     

7,637

(2)

Income (Loss) Before Income Taxes

$

2,074

$

(6,386

)

$

70,089

$

45,370

(1)

Amount for the three months ended March 31, 2011, represents debt extinguishment charges.

(2)

Amounts for the nine months ended March 31, 2011, include (i) $0.3 million of restructuring expenses related to the Initiative, (ii) $0.5 million of restructuring expenses for corporate operations, not related to the Initiative, (iii) $0.3 million of expenses related to the implementation of an Oracle accounting and order processing system, and (iv) $6.5 million of debt extinguishment charges.

- 16 -


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, 2011. 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 green tea and Pretty Elizabeth Arden; the Elizabeth Arden skin care brands: Ceramide, Eight Hour Cream, Visible Difference 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 fragrances:

Celebrity Fragrances

The fragrance brands of Britney Spears, Elizabeth Taylor, Mariah Carey, Taylor Swift and Usher

Lifestyle Fragrances

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

Designer Fragrances

Juicy Couture, Kate Spade New York, John Varvatos, Rocawear, Alberta Ferretti, Halston, Geoffrey Beene, Alfred Sung, Bob Mackie and Lucky

          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. On August 10, 2011, we amended our long-term license agreement with Liz Claiborne, Inc. and certain of its affiliates and acquired all of the U.S. and international trademarks for the Curve fragrance brands as well as trademarks for certain other smaller fragrance brands. The amendment established a lower effective royalty rate for the remaining licensed fragrance brands, including Juicy Couture and Lucky Brand fragrances, reduced the future minimum guaranteed royalties for the term of the license, and required a pre-payment of royalties for the remainder of calendar 2011. We paid Liz Claiborne, Inc. and its affiliates $58.4 million in cash in connection with this transaction. We capitalized $43.9 million of the $58.4 million cash paid as exclusive brand trademarks and the balance was recorded as a prepaid asset associated with the settlement of royalties for the remainder of calendar year 2011 and the buy-down of future royalties. See Note 6 to the Notes to Unaudited Financial Statements.

          Our business strategy is to increase net sales, operating margins and earnings by (a) increasing the sales of the Elizabeth Arden brand through leveraging the global awareness of the Elizabeth Arden brand name and the Red Door spa heritage, targeting fast-growing geographical markets, and focusing on our skin care expertise and classic products, such as our Eight Hour cream, Ceramide skin care products and Red Door fragrance, (b) increasing the sales of our prestige fragrance portfolio internationally, particularly in the large European fragrance market, and through licensing opportunities and acquisitions, (c) expanding the prestige fragrance category at mass retail customers in North America and expanding our market share in both prestige and mass retail channels, (d) continuing to expand operating margins, working capital efficiency and return on invested capital, and (e) capitalizing on the growth potential of our global brands by focusing on both organic growth opportunities as well as those achieved through new product innovation.

          Over the next twelve months we will roll out a comprehensive brand repositioning for the Elizabeth Arden brand, which is designed to honor the heritage of the brand while modernizing the brand's presentation and increasing its relevance among target consumers. The brand repositioning includes product reformulation, package redesign and counter redesign as well as SKU rationalization. The initial roll-out will be to a limited number of retail doors and is targeted for completion by the end of September 2012. Based on the results of the initial roll-out, plans for a more broad-based global roll-out will be finalized, and depending on the timing and extent of that broader roll-out, we may incur costs, expenses and capital expenditures in future periods that could be material to those periods. The specific facts and circumstances of the global roll-out will impact the timing and amount of any such costs, expenses and capital expenditures.

- 17 -


          In fiscal 2012, we intend to continue to focus on expanding gross margins through increased focus on product mix, improved pricing and reduced sales dilution, continuing our focus on improving our sales and operations planning processes and our supply chain and logistics efficiency and leveraging our overhead structure by increasing sales of our International segment. We expect our fiscal 2012 gross margin to improve an additional 200 to 250 basis points over our fiscal 2011 gross margin. We expect to use a portion of this anticipated margin improvement to support organic growth of our key brands, including through the Elizabeth Arden brand repositioning, and drive improved profitability.

          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, 2011 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."

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, 2011, approximately 59% of our net sales were made during the first half of our fiscal year. Due to product innovation 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 March. 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, 2011, 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, 2011, there have been no significant changes to the assumptions and estimates related to these 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 enter into cash flow hedges to reduce a portion of the exposure of our foreign subsidiaries' revenues to fluctuations in currency rates using foreign currency forward contracts. We also enter into cash flow hedges for a portion of our forecasted inventory purchases to reduce the exposure of our Canadian and Australian subsidiaries' cost of sales to such fluctuations, as well as cash flow hedges for a portion of our subsidiaries' forecasted Swiss franc operating costs. The principal currencies hedged are British pounds, Euros, Canadian dollars, Australian dollars and Swiss francs. 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 within shareholders' 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 or the transactions are no longer probable of occurring. Changes to fair

- 18 -


value of any contracts deemed to be ineffective would be recognized in earnings immediately. There were no amounts recorded in the three and nine months ended March 31, 2012 or in fiscal 2011 relating to foreign currency contracts resulting from hedge ineffectiveness.

          When appropriate, we also enter into and settle foreign currency contracts for Euros, British pounds, Canadian dollars and Australian dollars to reduce exposure of our foreign subsidiaries' 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.

          The table below summarizes the effect of the pre-tax loss from our settled foreign currency contracts on the specified line items in our unaudited consolidated statements of operations for the three and nine months ended March 31, 2012 and 2011.

(Amounts in thousands)

Three Months Ended

   

Nine Months Ended

 

 

March 31,
2012

   

March 31,
2011

   

March 31,
2012

   

March 31,
2011

 

    Net Sales

$

113

   

$

(255

)

 

$

180

   

$

(560

)

    Cost of Sales

 

(342

)

   

(717

)

   

(1,140

)

   

(1,413

)

    Selling, general and administrative

 

(580

)

   

(1,076

)

   

3

     

(2,882

)

Total pre-tax loss

$

(809

)

 

$

(2,048

)

 

$

(957

)

 

$

(4,855

)

Results of Operations

          The following discussion compares the historical results of operations for the three and nine months ended March 31, 2012 and 2011. 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

Nine Months Ended

March 31,
2012

March 31,
2011

March 31,
2012

March 31,
2011

Net sales

$

239,279

100.0

%

$

231,296

100.0

%

$

972,739

100.0

%

$

921,750

100.0

%

Cost of sales

118,781

49.6

115,597

50.0

489,548

50.3

481,934

52.3

Depreciation in cost of sales

906

0.4

1,224

0.5

3,850

0.4

3,714

0.4

Gross profit

119,592

50.0

114,475

49.5

479,341

49.3

436,102

47.3

Selling, general and administrative
   expenses

104,582

43.7

102,915

44.5

371,480

38.2

349,354

37.9

Depreciation and amortization

7,645

3.2

6,044

2.6

21,433

2.2

18,593

2.0

Income from operations

7,365

3.1

5,516

2.4

86,428

8.9

68,155

7.4

Interest expense, net

5,291

2.2

5,434

2.4

16,339

1.7

16,317

1.8

Debt extinguishment charges

--

--

6,468

2.8

--

--

6,468

0.7

Income (loss) before income taxes

2,074

0.9

(6,386

)

(2.8

)

70,089

7.2

45,370

4.9

(Benefit from) provision for
   income taxes

(117

)

--

(3,135

)

(1.4

)

16,295

1.7

9,776

1.0

Net income (loss)

2,191

0.9

(3,251

)

(1.4

)

53,794

5.5

35,594

3.9

Other data

EBITDA and EBITDA margin (1)

$

15,916

6.7

%

$

6,316

2.7

%

$

111,711

11.5

%

$

83,994

9.1

%

(1)

For a definition of EBITDA and a reconciliation of net income (loss) to EBITDA, see "EBITDA" under Results of Operations -- Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011 and under Nine Months Ended March 31, 2012 compared to Nine Months Ended March 31, 2011. EBITDA margin represents EBITDA divided by net sales.

- 19 -


          Our operations are organized into the following two operating segments, which also comprise our reportable segments:

North America - Our North America segment sells our portfolio of owned, licensed and distributed brands, including our Elizabeth Arden products, to department stores, mass retailers and distributors in the United States, Canada and Puerto Rico, and also includes our direct to consumer business, which is composed of our Elizabeth Arden branded retail outlet stores and global e-commerce business. This segment also sells our Elizabeth Arden products 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.

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 to perfumeries, boutiques, department stores, travel retail outlets and distributors.

          Segment profit (loss) excludes depreciation and amortization, interest expense, consolidation and elimination adjustments and unallocated corporate expenses, which are shown in the table reconciling segment profit (loss) to consolidated income before income taxes. Included in unallocated corporate expenses are (i) restructuring charges that are related to an announced plan, (ii) costs related to our Global Efficiency Re-engineering Initiative, which was substantially completed in fiscal 2011, and (iii) restructuring costs for corporate operations. 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 (loss) by operating segment for the three and nine months ended March 31, 2012 and 2011 and reflects the basis of presentation described in Note 13 -- "Segment Data and Related Information" to the Notes to Unaudited Consolidated Financial Statements for all periods presented.

(Amounts in thousands)

Three Months Ended

   

Nine Months Ended

 

 

March 31,
2012

   

March 31,
2011

   

March 31,
2012

   

March 31,
2011

 

Segment Net Sales:

                             

    North America

$

145,154

   

$

142,755

   

$

625,215

   

$

607,854

 

    International

 

94,125

     

88,541

     

347,524

     

313,896

 

Total

$

239,279

   

$

231,296

   

$

972,739

   

$

921,750

 

Segment Profit (Loss):

                             

    North America

$

20,818

   

$

18,112

   

$

105,133

   

$

83,160

 

    International

 

(4,932

)

   

(5,742

)

   

8,975

     

9,064

 

    Less:

                             

        Depreciation and Amortization

 

8,551

     

7,268

     

25,283

     

22,307

 

        Interest Expense, net

 

5,291

     

5,434

     

16,339

     

16,317

 

        Consolidation and Elimination
           Adjustments

 

(30

)

   

(414

)

   

2,397

     

593

 

        Unallocated Corporate Expenses (1)

 

--

     

6,468

(1)

   

--

     

7,637

(2)

Income (Loss) Before Income Taxes

$

2,074

   

$

(6,386

)

 

$

70,089

   

$

45,370

 

(1)

Amount for the three months ended March 31, 2011, represents debt extinguishment charges.

(2)

Amounts for the nine months ended March 31, 2011, include (i) $0.3 million of restructuring expenses related to the Global Efficiency Re-engineering initiative, (ii) $0.5 million of restructuring expenses for corporate operations, not related to the Global Efficiency Re-engineering initiative, (ii) $0.3 million of expenses related to the implementation of an Oracle accounting and order processing system, and (iv) $6.5 million of debt extinguishment charges.

- 20 -


Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011

          Net Sales.    Net sales increased by 3.5% or $8.0 million for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. Excluding the unfavorable impact of foreign currency, net sales increased by 3.9% or $9.1 million. Net sales of licensed and other owned products increased by $3.8 million primarily due to the launches of the Taylor Swift fragrance Wonderstruck and higher sales of Curve fragrances. Partially offsetting these increases were lower sales of Mariah Carey and Usher fragrances. Net sales for Elizabeth Arden branded products decreased by $1.3 million as lower sales of color cosmetic products, due in part to higher product innovation activity in the prior year, were partially offset by higher fragrance sales. Sales of distributed brands were approximately $4.7 million higher than the prior year period. Pricing changes had an immaterial effect on net sales.

North America

          Net sales increased by 1.7% or $2.4 million. Foreign currency had an immaterial impact on net sales for the quarter. Net sales of licensed and other owned products increased by $3.8 million primarily due to the launch of the Taylor Swift fragrance Wonderstruck and higher sales of Curve fragrances. Partially offsetting these increases were lower sales of Mariah Carey and Usher fragrances. Net sales for Elizabeth Arden branded products decreased by $6.6 million as lower sales of skin care products and color cosmetics were partially offset by higher fragrance sales. Sales of distributed brands were $4.6 million higher than the prior year period. Higher sales to mass customers led our North America results.

International

          Net sales increased by 6.3% or $5.6 million, led primarily by higher sales of $4.8 million in Europe. Excluding the unfavorable impact of foreign currency, net sales increased by 7.4% or $6.5 million. Net sales of Elizabeth Arden branded products increased by $5.4 million as higher sales of skin care products and fragrances were partially offset by lower sales of color cosmetic products. Net sales of licensed and other owned products were relatively flat as higher sales from the launch of the Taylor Swift fragrance Wonderstruck in select markets in the Asia Pacific region were partially offset by lower sales of Juicy Couture fragrances.

          Gross Margin.    For the three months ended March 31, 2012 and 2011, gross margins were 50.0% and 49.5%, respectively. Gross margin in the current year period benefited from improved operating efficiencies, including lower freight and distribution costs, partially offset by higher promotional activity.

          SG&A.   Selling, general and administrative expenses increased 1.6%, or $1.7 million, for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. The increase was due to higher marketing and sales expenses of $6.3 million, partially offset by lower general and administrative expenses of $4.6 million. The increase in marketing and sales expenses was primarily due to higher (i) sales promotion, creative and other advertising, and development and direct selling expenses of $6.5 million, and (ii) marketing and sales overhead expenses of $2.1 million, partially offset by lower trade advertising expenses of $1.2 million and lower royalty expenses of $1.2 million due primarily to the amendment of the license agreement with Liz Claiborne (see Note 6 -- "Exclusive Brand Licenses, Trademarks and Intangibles, Net, and Goodwill" to the Notes to Unaudited Consolidated Financial Statements). The decrease in general and administrative expenses was principally due to lower incentive compensation costs of $3.9 million and the favorable impact of foreign currency translation of certain of our affiliates' balance sheets as the current year included gains of $0.2 million compared to losses of $0.8 million in the prior year period. For the three months ended March 31, 2012 and 2011 total share-based compensation cost charged against income for all stock plans was $1.3 million and $1.1 million, respectively.

Segment Profit

North America

          Segment profit increased 14.9% or $2.7 million. The increase in segment profit was due to higher gross profit, partially offset by higher selling, general and administrative expenses as further discussed above.

International

          Segment loss decreased 14.1% or $0.8 million. The decrease in segment loss was due to higher gross profit, partially offset by higher selling, general and administrative expenses as further discussed above.

- 21 -


          Interest Expense.    Interest expense, net of interest income, decreased 2.6%, or $0.1 million, for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. The decrease resulted from lower average borrowings under our revolving bank credit facility during the current year period and higher interest income.

          Debt Extinguishment Charges.    During the three months ended March 31, 2011, we recorded $6.5 million in debt extinguishment charges related to the purchase and redemption of our previously outstanding 7 3/4% senior subordinated notes and the amendment of our revolving bank credit facility.

          Benefit From Income Taxes.   The pre-tax income (loss) from our domestic and international operations consisted of the following for the three months ended March 31, 2012 and 2011:

(Amounts in thousands)

Three Months Ended

 

March 31,
2012

   

March 31,
2011

 

Domestic pre-tax loss

$

(4,695

)

$

(11,375

)

Foreign pre-tax income

 

6,769

     

4,989

 

Total income (loss) before income taxes

$

2,074

$

(6,386

)

Effective tax rate

5.6

%

49.1

%

          For interim reporting, the effective tax rate is based on expected full year reported earnings and considers earnings contribution by tax jurisdiction. As facts and circumstances change during the fiscal year which could impact the full year expected earnings or the earnings contribution by tax jurisdiction, the effective tax rate is adjusted in the period in which such changes become known. Additionally, discrete items which could impact the effective tax rate are reported in the interim period incurred.

          The effective rate for the periods shown above were based on our expectation of full year earnings contributions from our domestic and foreign operations, plus the impact of discrete items reported during each respective period. The effective tax rate in the current year period was lower as compared to the prior year period due to a shift in the ratio of earnings contributions between jurisdictions and additional net tax benefit adjustments recorded on a discrete basis in the current year period. The effective rate for the three months ended March 31, 2012 included discrete net tax benefit adjustments totaling $0.6 million, primarily related to changes in R&D tax credit estimates. The prior year effective tax rate included discrete tax adjustments totaling a net tax benefit of $0.5 million related to changes in estimates and tax rates for certain entities. The effective tax rate for the full fiscal year ended June 30, 2011 was 17.4%.

          A substantial portion of our consolidated taxable income is typically generated in Switzerland, where our international operations are headquartered and managed, and is taxed at a significantly lower effective tax rate than our domestic taxable income. As a result, any material shift in the relative proportion of our consolidated taxable income that is generated between the United States and Switzerland could have a material effect on our consolidated effective tax rate. We currently expect our effective tax rate for the year ending June 30, 2012 to be higher than the prior year's effective tax rate due to higher forecasted full year earnings contribution from our domestic operations in the current fiscal year.

          Net Income.    Net income for the three months ended March 31, 2012, was $2.2 million compared to a net loss of $3.3 million for the three months ended March 31, 2011. The increase in net income was primarily due to higher current year net sales and improved gross margins, partially offset by higher selling, general and administrative expenses. Additionally, we incurred debt extinguishment charges of $6.5 million in the prior year period.

          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 $9.6 million to $15.9 million for the three months ended March 31, 2012, compared to $6.3 million for the three months ended March 31, 2011. The increase in EBITDA was primarily the result of higher current year net sales and improved gross margins, partially offset by higher selling, general and administrative expenses in the current year period. Additionally, we incurred debt extinguishment charges of $6.5 million in the prior year period.

- 22 -


          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.

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

(Amounts in thousands)

Three Months Ended

 

 

March 31,
2012

   

March 31,
2011

 

Net income (loss)

$

2,191

   

$

(3,251

)

Plus:

             
 

Benefit from income taxes

 

(117

)

   

(3,135

)

 

Interest expense, net

 

5,291

     

5,434

 
 

Depreciation in cost of sales

 

906

     

1,224

 
 

Depreciation and amortization

 

7,645

     

6,044

 

   

EBITDA

$

15,916

   

$

6,316

(1)

(1)   Includes $6.5 million of debt extinguishment charges.

Nine Months Ended March 31, 2012 Compared to Nine Months Ended March 31, 2011

          Net sales increased by 5.5% or $51.0 million for the nine months ended March 31, 2012, compared to the nine months ended March 31, 2011. Excluding the favorable impact of foreign currency, net sales increased by 4.5% or $41.7 million. Net sales for Elizabeth Arden branded products increased by $26.7 million due to higher sales in all product categories, primarily led by higher sales of skin care products. Net sales of licensed and other owned products increased by $12.4 million primarily due to the launches of the Taylor Swift fragrance Wonderstruck and the John Varvatos fragrance Star USA as well as higher sales of Curve and Elizabeth Taylor fragrances. Partially offsetting these increases were lower sales of Mariah Carey, Britney Spears and Usher fragrances, as well as lower sales of Juicy Couture fragrances due in part to the prior year launch of Peace, Love & Juicy Couture. Sales of distributed brands were $11.3 million higher than the prior year period. Pricing changes had an immaterial effect on net sales.

- 23 -


North America

          Net sales increased by 2.9% or $17.4 million. Excluding the favorable impact of foreign currency, net sales increased by 2.7% or $16.5 million. Net sales of Elizabeth Arden branded products increased by $4.7 million due to higher sales of fragrances and skin care products. Net sales of licensed and other owned products increased by $1.5 million due to the launches of the Taylor Swift fragrance Wonderstruck and the John Varvatos fragrance Star USA as well as higher sales of Curve and Elizabeth Taylor fragrances. Partially offsetting these increases were lower sales of Juicy Couture, Mariah Carey Usher and Britney Spears fragrances. Sales of distributed brands were $11.0 million higher than the prior year period. Higher sales to both mass and department store customers led our North America results.

International

          Net sales increased by 10.7% or $33.6 million. Excluding the favorable impact of foreign currency, net sales increased by 8.0% or $25.2 million. Net sales of Elizabeth Arden branded products increased by $22.0 million due to higher sales in all product categories, primarily led by higher sales of skin care products. Net sales of licensed and other owned products increased by $11.0 million primarily due to higher sales of Juicy Couture and John Varvatos fragrances and the launch of the Taylor Swift fragrance Wonderstruck in select markets in the Asia Pacific region. Our international results were led by higher sales of $13.5 million in Europe and $12.7 million in travel retail and distributor markets.

          Gross Margin.    For the nine months ended March 31, 2012 and 2011 gross margins were 49.3% and 47.3%, respectively. Gross margin in the current year period benefited from a higher proportion of sales of Elizabeth Arden products, primarily skin care products which have higher gross margins, as well as improved operating efficiencies, including lower freight and distribution costs.

          SG&A.    Selling, general and administrative expenses increased 6.3%, or $22.1 million, for the nine months ended March 31, 2012, compared to the nine months ended March 31, 2011. The increase was due to higher marketing and sales expenses of $19.6 million and higher general and administrative expenses of $2.5 million. The increase in marketing and sales expenses was primarily due to higher (i) sales promotion, trade and creative advertising, and direct selling and development expenses of $16.4 million, (ii) marketing and sales overhead expenses of $5.9 million, and (iii) media expenses of $2.2 million, partially offset by lower royalty expenses of $6.1 million primarily due to the amendment of the license agreement with Liz Claiborne (see Note 6 - "Exclusive Brand Licenses, Trademarks and Intangibles, Net, and Goodwill" to the Notes to Unaudited Consolidated Financial Statements). The increase in general and administrative expenses was principally due to (i) higher payroll related costs of $5.3 million, and (ii) the unfavorable impact of foreign currency translation of certain of our affiliates' balance sheets as the current year included losses of $4.0 million compared to gains of $0.5 million in the prior year period, partially offset by lower incentive compensation costs of $4.2 million and lower professional services costs of $1.6 million. The nine months ended March 31, 2011 also included total restructuring and Global Efficiency Re-engineering Initiative-related one-time costs of $1.4 million. For the nine months ended March 31, 2012 and 2011, total share-based compensation cost charged against income for all stock plans was $3.8 million and $3.6 million, respectively.

Segment Profit

North America

          Segment profit increased 26.4% or $22.0 million. The increase in segment profit was due to higher gross profit, partially offset by higher selling, general and administrative expenses as further described above.

International

          Segment profit was relatively flat. Higher selling, general and administrative expenses were offset by higher gross profit as further described above.

Interest Expense.    Interest expense, net of interest income, was relatively flat for the nine months ended March 31, 2012, compared to the nine months ended March 31, 2011. Higher long-term debt in the current year period as a result of the higher aggregate principal amount of our 7 3/8% senior notes issued in January 2011, as compared to the 7 3/4% senior subordinated notes that were outstanding during the prior year period, was offset by lower average borrowings under our revolving bank credit facility during the current year period and higher interest income.

Debt Extinguishment Charges.    During the nine months ended March 31, 2011, we recorded $6.5 million in debt extinguishment charges related to the purchase and redemption of the 7 3/4% senior subordinated notes and the amendment of our revolving bank credit facility.

- 24 -


          Provision for Income Taxes.    The pre-tax income from our domestic and international operations consisted of the following for the nine months ended March 31, 2012 and 2011:

(Amounts in thousands)

Nine Months Ended

 

March 31,
2012

   

March 31,
2011

 

Domestic pre-tax income

$

29,509

   

$

6,074

 

Foreign pre-tax income

 

40,580

     

39,296

 

Total income before income taxes

$

70,089

$

45,370

Effective tax rate

23.2

%

21.6

%

          For interim reporting, the effective tax rate is based on expected full year reported earnings and considers earnings contribution by tax jurisdiction. As facts and circumstances change during the fiscal year which could impact the full year expected earnings or the earnings contribution by tax jurisdiction, the effective tax rate is adjusted in the period in which such changes become known. Additionally, discrete items which could impact the effective tax rate are reported in the interim period incurred.

          The effective tax rate for periods shown above were based on our expectation of full year earnings contributions from our domestic and foreign operations. Discrete items did not have a material impact on the effective tax rates for the nine months ended March 31, 2012 and 2011. The effective tax rate for the full fiscal year ended June 30, 2011 was 17.4%.

          A substantial portion of our consolidated taxable income is typically generated in Switzerland, where our international operations are headquartered and managed, and is taxed at a significantly lower effective tax rate than our domestic taxable income. As a result, any material shift in the relative proportion of our consolidated taxable income that is generated between the United States and Switzerland could have a material effect on our consolidated effective tax rate. We currently expect our effective tax rate for the year ending June 30, 2012 to be higher than the prior year's effective tax rate due to higher forecasted full year earnings contribution from our domestic operations in the current fiscal year.

          Net Income.    Net income for the nine months ended March 31, 2012, was $53.8 million compared to $35.6 million for the nine months ended March 31, 2011. The increase in the net income was primarily due to higher current year net sales and improved gross margins, partially offset by higher selling, general and administrative expenses. Additionally, we incurred debt extinguishment charges of $6.5 million in the prior year period.

 

          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 $27.7 million to $111.7 million for the nine months ended March 31, 2012, compared to $84.0 million for the nine months ended March 31, 2011. The increase in EBITDA was primarily the result of higher current year net sales and improved gross margins, partially offset by higher selling, general and administrative expenses in the current year period. Additionally, we incurred debt extinguishment charges of $6.5 million in the prior year period.

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

(Amounts in thousands)

Nine Months Ended

 

 

March 31,
2012

   

March 31,
2011

 

Net income

$

53,794

   

$

35,594

 

Plus:

             
 

Provision for income taxes

 

16,295

     

9,776

 
 

Interest expense, net

 

16,339

     

16,317

 
 

Depreciation in cost of sales

 

3,850

     

3,714

 
 

Depreciation and amortization

 

21,433

     

18,593

 

   

EBITDA

$

111,711

   

$

83,994

(1)

(1)   Includes $6.5 million of debt extinguishment charges.

- 25 -


Liquidity and Capital Resources

          The following chart summarizes our cash flows (outflows) from operating, investing and financing activities for the nine months ended March 31, 2012 and 2011:

(Amounts in thousands)

Nine Months Ended

 

 

March 31,
2012

   

March 31,
2011

 

Net cash provided by operating activities

$

50,331

   

$

59,187

 

Net cash used in investing activities

 

(60,685

)

   

(32,390

)

Net cash provided by (used in) in financing activities

 

10,919

     

(21,609

)

Net (decrease) increase in cash and cash equivalents

 

(643

)

   

6,936

 

Operating Activities

          Cash used by our operating activities is driven by net income adjusted for non-cash expenses and changes in working capital. The following chart illustrates our net cash provided by operating activities for the nine months ended March 31, 2012 and 2011:

(Amounts in thousands)

Nine Months Ended

 

March 31,
2012

March 31,
2011

Net income including adjustments to reconcile to net cash provided by operating activities

$

95,649

   

$

76,048

 

Net change in assets and liabilities, net of acquisitions ("working capital changes")

 

(45,318

)

   

(16,861

)

Net cash provided by operating activities

$

50,331

$

59,187

          For the nine months ended March 31, 2012, net cash provided by operating activities was $50.3 million, as compared to $59.2 million for the nine months ended March 31, 2011. Net income adjusted for non-cash items increased by $19.6 million as compared to the prior year. Working capital changes utilized cash of $45.3 million in the current year period as compared to $16.9 million in the prior year. The increase in cash utilized by working capital changes primarily related to (i) higher cash payments and lower accruals in the current year period as compared to prior year incentive compensation payments and expenses, (ii) the timing of payments for advertising and promotional activities, (iii) a larger increase in accounts receivable due to the increase in sales in the current year, (iv) the timing of interest payments as a result of our debt refinancing completed in the third quarter of fiscal 2011, and (v) lower hedging payables compared to the prior year. These increases were partially offset by higher accounts payable, primarily due to the timing of payments to vendors, and higher inventory purchases.

Investing Activities

          The following chart illustrates our net cash used in investing activities for the nine months ended March 31, 2012 and 2011:

(Amounts in thousands)

Nine Months Ended

 

March 31,
2012

March 31,
2011

Additions to property and equipment

$

(16,785

)

$

(18,526

)

Acquisition of intangible and other assets

(43,900

)

(13,864

)

Net cash used in investing activities

$

(60,685

)

 

$

(32,390

)

          For the nine months ended March 31, 2012, net cash used in investing activities of $60.7 million was composed of (i) $16.8 million of capital expenditures, and (ii) $43.9 million related to the acquisition of trademarks for the Curve fragrance brands and certain other smaller fragrance brands and the amendment of the license agreement with Liz Claiborne. For the nine months ended March 31, 2011, net cash used in investing activities of $32.4 million was composed of (i) $18.5 million of capital expenditures, and (ii) approximately $13.9 million of payments related to the acquisition of the PREVAGE® trademarks and related patents and the

- 26 -


global license agreement with John Varvatos Apparel Corp. for the manufacture, distribution and marketing of John Varvatos fragrances. The decrease in capital expenditures for the nine months ended March 31, 2012 is primarily due to expenditures incurred in the prior year period for leasehold improvements.

Financing Activities

          The following chart illustrates our net cash provided by (used in) financing activities for the nine months ended March 31, 2012 and 2011:

(Amounts in thousands)

Nine Months Ended

 

March 31,
2012

March 31,
2011

Payments on short-term debt

$

--

$

(50,900

)

Proceeds from long-term debt

--

243,986

Repurchase of senior subordinated notes

--

(223,332

)

Proceeds from the exercise of stock options

5,258

19,943

Repurchase of common stock

-

(13,758

)

All other financing activities

5,661

2,452

Net cash provided by (used in) financing activities

$

10,919

   

$

(21,609

)

          For the nine months ended March 31, 2012, net cash provided by financing activities was $10.9 million, as compared to net cash used in financing operations of $21.6 million for the nine months ended March 31, 2011. During the third quarter of fiscal 2011, the Company issued $250 million aggregate principal amount of 7 3/8% senior notes due March 2021. Concurrently with the offering of the 7 3/8% senior notes, the Company commenced a cash tender offer and consent solicitation for any and all of its $220 million of outstanding 7 3/4% senior subordinated notes due January 2014. All of the outstanding 7 3/4% senior subordinated notes were either purchased or redeemed during the third quarter of fiscal 2011.

          At March 31, 2012, borrowings under our credit facility remained unchanged from a zero balance at June 30, 2011. At March 31, 2011, borrowings under our credit facility decreased by $50.9 million to $8.1 million from the balance at June 30, 2010. Proceeds from the exercise of stock options were $5.3 million in the current year period as compared to $19.9 million in the prior year period. Repurchases of common stock in the prior year period were $13.8 million and included approximately $1.2 million for the settlement of shares that were repurchased at the end of fiscal 2010 under our share repurchase program.

          Interest paid during the nine months ended March 31, 2012, included $21.2 million of interest payments on the 7 3/8% senior notes due 2021, due to the timing of interest payments following the issuance of such notes in January 2011, and $1.7 million of interest paid on the borrowings under our credit facility. Interest paid during the nine months ended March 31, 2011, included $16.0 million of interest payments on our previously outstanding 7 3/4% senior subordinated notes and $2.0 million of interest paid on the borrowings under our credit facility.

          At March 31, 2012, we had approximately $58.2 million of cash, of which $53.7 million was held outside of the United States primarily in Switzerland and South Africa. The cash held outside the U.S. 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 and product 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 material amounts of our common stock and senior notes through open market purchases, privately negotiated transactions or otherwise, depending upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. 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.

          We have a $300 million revolving 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. See Note 8 to the Notes to Unaudited Consolidated Financial Statements. 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 January 2016.

- 27 -


          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. accounts receivable and inventory. Borrowings under the credit facility are limited to 85% of eligible accounts receivable and 85% 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.

          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 September 1 through January 31). Our average borrowing base capacity for the quarter ended March 31, 2012 did not fall below the applicable thresholds noted above. Accordingly, the debt service coverage ratio did not apply for the quarter ended March 31, 2012. We were in compliance with all applicable covenants under the credit facility for the quarter ended March 31, 2012.

          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 February 1 to August 31, and at least $35 million from September 1 to January 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 an "Applicable Margin" which is determined by reference to a debt service coverage ratio. At our option, the Applicable Margin may be applied to either the London InterBank Offered Rate (LIBOR) or the base rate. The Applicable Margin charged on LIBOR loans ranges from 1.75% to 2.50% and ranges from 0.25% to 1.0% for base 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 1.0% higher. We are required to pay an unused commitment fee ranging from 0.375% to 0.50% based on the quarterly average unused portion of the credit facility. The interest rates payable by us on our 7 3/8% senior notes and on borrowings under our revolving credit facility are not impacted by credit rating agency actions.

          At March 31, 2012, the Applicable Margin was 1.75% for LIBOR loans and 0.25% for prime rate loans. The commitment fee on the unused portion of the credit facility at March 31, 2012 was 0.50%. For the nine months ended March 31, 2012 and 2011, the weighted average annual interest rate on borrowings under the credit facility was 2.1% and 2.2%, respectively.

          At March 31, 2012, we had no borrowings and $4.8 million in letters of credit outstanding under the credit facility. At March 31, 2012, based on eligible accounts receivable and inventory available as collateral, approximately $124 million could be borrowed under the credit facility. 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 March 31, 2012, we had outstanding $250 million aggregate principal amount of 7 3/8% senior notes due March 2021. Interest on the 7 3/8% senior notes accrues at a rate of 7.375% per annum and is payable semi-annually on March 15 and September 15 of every year. The 7 3/8% senior notes rank pari passu in right of payment to indebtedness under our credit facility and any other senior debt, and will rank senior to any future subordinated indebtedness; provided, however, that the 7 3/8% senior notes are effectively subordinated to the credit facility to the extent of the collateral securing the credit facility. The indenture applicable to the 7 3/8% senior notes 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 3/8% senior 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). The 7 3/8% senior notes initially will not be guaranteed by any of our subsidiaries but could become guaranteed in the future by any domestic subsidiary of ours that guarantees or incurs certain indebtedness in excess of $10 million.

          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 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

- 28 -


would not be allowed to borrow under 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 3/8% senior 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 trademark, 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. There is no assurance that we will be able to negotiate successfully for any such future acquisitions or that we will be able to obtain acquisition financing or additional working capital financing on satisfactory terms for further expansion of our operations.

          Repurchases of Common Stock.    On November 2, 2010, our board of directors authorized the repurchase of an additional $40 million of our common stock under the terms of an existing $80 million common stock repurchase program and extended the term of the stock repurchase program from November 30, 2010 to November 30, 2012. As of March 31, 2012, we had repurchased 4,029,201 shares of common stock on the open market under the stock repurchase program since its inception in November 2005, at an average price of $16.63 per share and at a cost of approximately $67.0 million, including sales commissions, leaving approximately $53.0 million available for additional repurchases under the program. There were no share repurchases during the three and nine months ended March 31, 2012.

- 29 -


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, 2011:

*

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, disruptions in travel, unfavorable changes in U.S. or international laws or regulations, diseases and pandemics, and political instability in certain regions of the world;

*

our reliance on license agreements with third parties for the rights to sell many of our prestige fragrance brands;

*

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 domestic or global recessions or economic uncertainty;

*

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 3/8% senior 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, laws or regulations relating to ingredients or other chemicals or raw materials contained in products or packaging, or accounting standards or critical accounting estimates;

*

the success of our Elizabeth Arden brand repositioning efforts;

*

the success of our Global Efficiency Re-engineering Initiative, including our transition to a turnkey manufacturing process and our new financial accounting and order processing system;

*

our ability to effectively implement, manage and maintain our global information systems;

*

our reliance on certain third parties for certain outsourced business services, including information technology operations and employee benefit plan administration;

*

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.

- 30 -


          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.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

          As of March 31, 2012, we had no 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 nine months ended March 31, 2012, 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 nine months ended March 31, 2012 would have increased or decreased by approximately $0.8 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 nine months ended March 31, 2012, we derived approximately 45% and 40%, respectively, of our net sales from our operations outside the U.S. 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 March 31, 2012, we had notional amounts of 15.5 million British pounds and 7.2 million Euros under open foreign currency contracts that expire between April 30, 2012 and May 31, 2013 to reduce the exposure of our foreign subsidiary revenues to fluctuations in currency rates. As of March 31, 2012, the Company had notional amounts under foreign currency contracts of (i) 12.3 million Canadian dollars and 1.3 million Australian dollars used to hedge forecasted cost of sales, and (ii) 15.1 million Swiss francs to hedge forecasted operating costs that expire between April 30, 2012 and May 31, 2013.

          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 or the transactions are no longer probable of occurring. The realized loss, net of taxes, recognized during the three and nine months ended March 31, 2012 from settled contracts was approximately $0.1 million and $0.6 million, respectively. At March 31, 2012, the unrealized gain, net of taxes, associated with these open contracts of approximately $0.6 million is included in accumulated other comprehensive income in our consolidated balance sheet. See Notes 2 and 12 to the Notes to Unaudited Consolidated Financial Statements.

          When appropriate, we also enter into and settle foreign currency contracts for Euros, British pounds, Canadian dollars and Australian dollars to reduce the exposure of our foreign subsidiaries' balance sheets to fluctuations in foreign currency rates. As of March 31, 2012, there were no such foreign currency contracts outstanding. The realized loss, net of taxes, recognized during the three months ended March 31, 2012 was $0.5 million, and the realized gain, net of taxes, recognized during the nine months ended March 31, 2012 was $30,000, from the settlement of these contracts.

- 31 -


          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 our 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.

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

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, 2011. 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, 2011.

- 32 -


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 21, 2011, respecting Elizabeth Arden, Inc.'s 7 3/8% Senior Notes due 2021, among Elizabeth Arden, Inc. and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the Company's Form 8-K dated January 21, 2011 (Commission File No. 1-6370)).

10.1

 

Third Amended and Restated Credit Agreement, dated as of January 21, 2011, among Elizabeth Arden, Inc., as borrower, JP Morgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as collateral agent and syndication agent, Wells Fargo Capital Finance, LLC, HSBC Bank USA, N.A. and U.S. Bank National Association, as co-documentation agents, JPMorgan Chase Bank, N.A., and Bank of America, N.A. as joint lead arrangers, and the other lenders party thereto (incorporated herein by reference to Exhibit 10.1 filed as part of the Company's Form 8-K dated January 21, 2011 (Commission File No. 1-6370)).

10.2

 

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 (n/k/a Bank of America, N.A.), 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)).

10.3

 

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)).

10.4+

 

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)).

10.5+

 

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)).

10.6+

 

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)).

10.7+

 

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)).

10.8+

 

2011 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 4.3 filed as part of the Company's Form S-8, Registration No. 333-177839, dated November 9, 2011 (Commission File No. 1-6370)).

- 33 -


 

Exhibit
Number

 

Description

10.9+

 

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)).

10.10+

 

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)).

10.11+

 

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)).

10.12+

 

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)).

10.13+

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)).

10.14+

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)).

10.15+

 

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)).

10.16+

 

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)).

10.17+

 

Elizabeth Arden, Inc. Severance Policy, as amended and restated on May 4, 2010 (incorporated herein by reference to Exhibit 10.31 filed as part of the Company's Form 10-Q for the quarter ended March 31, 2010 (Commission File No. 1-6370)).

10.18+

 

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)).

10.19+

 

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)).

10.20+

 

Elizabeth Arden, Inc. 2010 Stock Award and Incentive Plan (incorporated by reference to Exhibit 4.3 filed as part of the Company's Form S-8, Registration No. 333-170287, filed on November 2, 2010 (Commission File No. 1-6370)).

10.21+

 

Form of Restricted Stock Agreement for service-based stock awards under the Company's 2010 Stock Award and Incentive Plan (incorporated herein by reference to Exhibit 10.35 filed as part of the Company's Form 10-Q for the quarter ended September 30, 2010 (Commission File No. 1-6370)).

10.22+

 

Form of Restricted Stock Unit Agreement for restricted stock unit awards under the Company's 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.22 filed as part of the Company's Form 10-Q for the quarter ended September 30, 2011 (Commission File No. 1-6370))

- 34 -


Exhibit
Number

 

Description

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.

101.INS **

 

XBRL Instance Document

101.SCH **

 

XBRL Taxonomy Extension Schema Document

101.CAL **

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF **

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB **

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE **

 

XBRL Taxonomy Extension Presentation Linkbase Document

+

 

Management contract or compensatory plan or arrangement.

*

 

Filed herewith.

**

 

Filed herewith as Exhibit 101 are the following documents formatted in XBRL (Extensible Business Reporting Language):
(i) unaudited condensed consolidated balance sheets as of March 31, 2012 and June 30, 2011, (ii) unaudited condensed consolidated statements of operations for the three and nine months ended March 31, 2012 and 2011, respectively, (iii) unaudited condensed consolidated statements of cash flows for the nine months ended March 31, 2012 and 2011, respectively, and (iv) the notes to the unaudited condensed consolidated financial statements, tagged as blocks of text. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

- 35 -


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: May 4, 2012

 

/s/ E. Scott Beattie

 

 

E. Scott Beattie

 

 

Chairman, President and Chief Executive Officer

   

(Principal Executive Officer)

     

Date:  May 4, 2012

 

/s/ Stephen J. Smith

 

 

Stephen J. Smith

 

 

Executive Vice President and Chief Financial Officer

   

(Principal Financial and Accounting Officer)

     

- 36 -


EXHIBIT INDEX

Exhibit
Number

 

Description

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.

101.INS

 

XBRL Instance Document.

101.SCH

 

XBRL Taxonomy Extension Schema Document.

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document.

- 37 -