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Article by DailyStocks_admin    (11-24-08 10:25 AM)

Filed with the SEC from Nov 06 to Nov 12:

Elizabeth Arden (RDEN)
Shamrock Activist Value Fund has boosted its stake in Elizabeth Arden to 7.02% from 5.83%. It also said that it recently met with the company's representatives to discuss ideas to enhance long-term value for shareholders. Shamrock suggested that the beauty-products company implement a majority-voting standard for election of directors and separate the positions of chairman and chief executive officer. Shamrock now has 2.02 million shares, up from the approximately 1.68 million it reported owning on Oct. 27.
Shamrock is a California investment firm run by Roy E. Disney, a member of the founding family of the Walt Disney Co.
BUSINESS OVERVIEW

In addition to our owned and licensed fragrance brands, we distribute over 400 additional prestige fragrance brands, primarily in the United States, through distribution agreements and other purchasing arrangements.



We sell our prestige beauty products to retailers and other outlets in the United States and internationally, including;




U.S. department stores such as Macy’s, Dillard’s, Belk, JCPenney, Saks, Bloomingdales and Nordstrom;




U.S. mass retailers such as Wal-Mart, Target, Sears, Kohl’s, Walgreens, Rite-Aid and CVS; and




International retailers such as Boots, Debenhams, Sephora, Marionnaud, Hudson’s Bay, Shoppers Drug Mart, Myer, Douglas and various travel retail outlets such as Nuance, Heinemann and World Duty Free.



In the United States, we sell our Elizabeth Arden skin care and cosmetics products primarily in prestige department stores and our fragrances in department stores and mass retailers. We also sell our Elizabeth Arden fragrances, skin care and cosmetics products and other fragrance lines in approximately 90 countries worldwide through perfumeries, boutiques, department stores and travel retail outlets, such as duty free shops and airport boutiques, and on the internet.



Our operations are organized into the following reportable segments:




North America Fragrance — Our North America Fragrance segment sells fragrances to department stores, mass retailers and wholesalers in the United States, Canada and Puerto Rico. This segment also sells our Elizabeth Arden products in prestige department stores in Canada and Puerto Rico, and to other selected retailers.




International — Our International segment sells our portfolio of owned and licensed brands, including our Elizabeth Arden products, in approximately 90 countries outside of North America through perfumeries, boutiques, department stores and travel retail outlets worldwide.



Other — The Other reportable segment sells our Elizabeth Arden products in prestige department stores in the United States and through the Red Door beauty salons, which are owned and operated by an unrelated third party.



Financial information relating to our reportable segments is included in Note 18 to the Notes to Consolidated Financial Statements.



Our net sales to customers in the United States and in foreign countries (in U.S. dollars) and net sales as a percentage of consolidated net sales for the years ended June 30, 2008, 2007 and 2006, are listed in the following chart:

The financial results of our international operations are subject to volatility because of foreign currency exchange rate changes, inflation and changes in political and economic conditions in the countries in which we operate. The value of international assets is also affected by fluctuations in foreign currency exchange rates. For information on the breakdown of our long-lived assets in the United States and internationally and risks associated with our international operations, see Note 18 to the Notes to Consolidated Financial Statements.



Our principal executive offices are located at 2400 S.W. 145th Avenue, Miramar, Florida 33027, and our telephone number is (954) 364-6900. We maintain a website with the address www.elizabetharden.com. We are not including information contained on our website as part of, nor incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with or furnish such material to the Securities and Exchange Commission.



Information relating to corporate governance at Elizabeth Arden, Inc., including our Corporate Governance Guidelines and Principles, Code of Ethics for Directors and Executive and Finance Officers, Code of Business Conduct and charters for the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, is available on our website under the section “Corporate Info — Investor Relations — Corporate Governance.” We will provide the foregoing information without charge upon written request to Secretary, Elizabeth Arden, Inc., 2400 S.W. 145 th Avenue, Miramar, FL 33027.



Business Strategy



Our business strategy is to increase net sales, operating margins and earnings by (a) growing the sales of our existing brand portfolio, including the Elizabeth Arden brand, through new product

innovation and targeting additional demographics and geographic markets, (b) acquiring prestige beauty brands through licensing opportunities and acquisitions, (c) expanding the prestige fragrance category at mass retail customers in the U.S., and (d) implementing initiatives to improve our cost structure and working capital efficiencies.



We believe the Elizabeth Arden brand is one of the most widely recognized beauty brands in the world, and we intend to continue to invest behind and grow this brand on a global basis through brand innovation and increased penetration in certain international markets. In fiscal 2009, we plan to introduce a number of new Elizabeth Arden branded products, including (i) a new Elizabeth Arden fragrance, (ii) PREVAGE ® Body (a product under the PREVAGE ® franchise), (iii) a mineral-based foundation, and a number of other Elizabeth Arden branded skin care and color products. In addition, during fiscal 2009 we plan to launch a new fragrance under our Rocawear fragrance license, a new Juicy Couture fragrance and new fragrances under our Mariah Carey, Giorgio Beverly Hills, Badgley Mischka, GANT and Usher licenses.



We continue to pursue business efficiencies throughout our company, particularly in the supply chain, logistics and information technology areas to improve our cash flow, operating margins and profitability and to accommodate the anticipated growth of our business. In fiscal 2007, we commenced a comprehensive review of our global business processes to re-engineer our extended supply chain, logistics and transaction processing systems. We call this initiative our Global Efficiency Re-engineering initiative. This initiative includes (i) improvements in the efficiency of our supply chain and business processes, (ii) a migration to a shared services model to simplify transaction processing by consolidating our global transaction processing functions, and (iii) the implementation of an Oracle financial accounting and order processing system.



We continue to evaluate and invest in markets around the world that we believe have significant opportunities for growth of our products. For example, during the last three fiscal years, we have established sales affiliates in France, the Middle East (Dubai) and Greater China, where previously we had used distributors in those markets to sell our products. We are also focused on expanding sales of our products in developing markets including Latin America, Eastern Europe and India.



Recent License Agreements and Acquisitions



Effective June 9, 2008, we became the exclusive, global licensee for the sale, manufacture, distribution and marketing of the Liz Claiborne fragrance brands under a long-term agreement with Liz Claiborne, Inc. and certain of its affiliates. The Liz Claiborne fragrance portfolio consists of the Juicy Couture , Curve by Liz Claiborne, Lucky , Liz , Realities , Bora Bora and Mambo fragrances. In connection with the Liz Claiborne license agreement we also assumed a license for the Usher celebrity fragrances. We anticipate that the Liz Claiborne licensing arrangement will allow us to (i) increase our market share in our North America Fragrance segment, (ii) gain efficiencies from a larger fragrance business, particularly by leveraging our supply chain, logistics and sales organizations, (iii) increase our gross margins by converting existing North America mass customer sales from distribution margins to owned/licensed margins, and (iv) provide additional sales volume for our International segment.



During the fiscal years ended June 30, 2007 and 2006, we (i) entered into a license agreement with Procter & Gamble for the license of the Giorgio Beverly Hills fragrance brand, (ii) completed the acquisition of certain assets comprising the fragrance business of Sovereign Sales, LLC, a distributor of prestige fragrances to mass retail customers, allowing us to offer additional fragrance brands to our mass retail customers, and (iii) completed the acquisition of certain assets of Riviera Concepts Inc., including brand licenses for a number of fragrance brands, including Alfred Sung, HUMMER™, Badgley Mischka, Nannette Lepore and Bob Mackie.

Fragrance . We offer a wide variety of fragrance products for both men and women, including perfume, cologne, eau de toilette, eau de parfum, body spray and gift sets. Our fragrances are classified into the Elizabeth Arden branded fragrances, celebrity branded fragrances, designer branded fragrances, and lifestyle fragrances. Each fragrance is sold in a variety of sizes and packaging assortments. In addition, we sell bath and body products that are based on the particular fragrance, such as soaps, deodorants, body lotions, gels, creams and dusting powder, to complement the fragrance lines. We sell fragrance products worldwide, primarily to department stores, mass retailers, wholesalers, perfumeries, boutiques and travel retail outlets. We tailor the size and packaging of the fragrance to suit the particular target customer.



Skin Care . Our skin care lines are sold under the Elizabeth Arden name and include products such as moisturizers, creams, lotions and cleansers. Our core Elizabeth Arden branded products include Ceramide , PREVAGE ® , Eight Hour Cream , and Intervene . Our Ceramide skin care line targets women who are 40 and over. Intervene is our pre-emptive anti-aging skin care line, targeted to the 25 to 39 year old interested in fighting the signs of aging. PREVAGE ® is our premium cosmeceutical skin care line. We sell skin care products worldwide, primarily in prestige department and specialty stores, perfumeries and travel retail outlets.



Cosmetics . Under the Elizabeth Arden name, we offer a variety of cosmetics, including foundations, lipsticks, mascaras, eye shadows and powders. We offer these products in a wide array of shades and colors. Our strategy is to align our color offerings with our core skin care products. We use our cosmetic products to attract consumers to the beauty counters at department stores where the Elizabeth Arden fragrance and skin care products are also sold. We sell our cosmetics internationally and in the United States, primarily in prestige and specialty stores, perfumeries and travel retail outlets.



Trademarks, Licenses and Patents



We own or have rights to use the trademarks necessary for the manufacturing, marketing, distribution and sale of numerous fragrance, cosmetic and skin care brands, including Elizabeth Arden’s Red Door, Red Door Revealed, Elizabeth Arden 5th Avenue , Elizabeth Arden Provocative Woman, Elizabeth Arden Mediterranean, Plump Perfect, Intervene, Millennium , White Shoulders, Halston , Z-14 , PS Fine Cologne for Men, Design and Wings . These trademarks are registered or have pending applications in the United States and in certain of the countries in which we sell these product lines. We consider the protection of our trademarks to be important to our business.



We are the exclusive worldwide trademark licensee for a number of fragrance brands including:




the Elizabeth Taylor fragrances White Diamonds and Elizabeth Taylor’s Passion;




the Liz Claiborne fragrances Curve , Realities , Lucky , Mambo and Bora Bora ;




the Juicy Couture fragrances Juicy Couture, Dirty English and Viva la Juicy;



the Mariah Carey fragrance M by Mariah Carey;




the Usher fragrances ;




the Alfred Sung fragrances SUNG Alfred Sung , SHI Alfred Sung and JEWEL Alfred Sung ;




the designer fragrance brands of Badgley Mischka, Alberta Ferretti, Rocawear, Nanette Lepore, Bob Mackie, Geoffrey Beene and Halston;




the Britney Spears fragrances curious Britney Spears, fantasy Britney Spears and Britney Spears believe;




the Hilary Duff fragrance with Love…Hilary Duff ;




the Danielle Steel fragrance Danielle by Danielle Steel ; and




the Giorgio fragrances Giorgio Beverly Hills and Giorgio Red .



We are the exclusive worldwide licensee for the PREVAGE ® skin care line for retail outlets. The Elizabeth Taylor license agreement terminates in October 2022 and is renewable by us, at our sole option, for unlimited 20-year periods. The Britney Spears license terminates in December 2009 and is renewable by us, at our sole option, for a five-year term. The PREVAGE ® license terminates in December 2010 and is renewable by us for unlimited five-year terms if certain sales targets are achieved. The license agreement with Liz Claiborne Inc. and its affiliates relating to the Liz Claiborne and Juicy Couture fragrances terminates in December 2017, and is renewable by us for two additional five-year terms, provided specified conditions are met. The other license agreements have terms ranging from 2009 to 2045 and beyond, and, typically, have renewal terms dependent on sales targets being achieved.



We also have the right under various exclusive distributor and license agreements and arrangements to distribute other fragrances in various territories and to use the registered trademarks of third parties in connection with the sale of these products.



Certain of our skin care and cosmetic products and the PREVAGE ® skin care line incorporate patented or patent-pending formulations. In addition, several of our packaging methods, packages, components and products are covered by design patents, patent applications and copyrights. Substantially all of our trademarks and all of our patents are held by us or by one of our wholly-owned United States subsidiaries.



Sales and Distribution



We sell our prestige beauty products to retailers in the United States, including department stores such as Macy’s, Dillard’s, Saks, JCPenney, Belk, Bloomingdales and Nordstrom; specialty stores such as Ulta and Sephora and mass retailers such as Wal-Mart, Target, Sears, Kohl’s, Walgreens, Rite-Aid and CVS; and to international retailers such as Boots, Debenhams, Sephora, Marionnaud, Hudson’s Bay, Shoppers Drug Mart, Myer, Douglas and various travel retail outlets such as Nuance, Heinemann and World Duty Free. We also sell products to independent fragrance, cosmetic, gift and other stores and through our e-commerce site at www.elizabetharden.com. We currently sell our skin care and cosmetics products in North America primarily in prestige department and specialty stores. We also sell our fragrances, skin care and cosmetic products in approximately 90 other countries worldwide through department stores, perfumeries, pharmacies, specialty retailers, and other retail shops and “duty free” and travel retail locations. In certain countries, we maintain a dedicated sales force that solicits orders and provides customer service. In other countries and jurisdictions, we sell our products through local distributors under contractual arrangements. We manage our operations outside of North America from our offices in Geneva, Switzerland.



We also sell our Elizabeth Arden products in the Elizabeth Arden 5 th Avenue store in New York, which we operate, and in Red Door beauty salons, which are owned and operated by an unrelated third party. In addition to the sales price of our products sold to the operator of these salons, we receive a licensing fee based on the net sales from each of the salons for the use of the “Elizabeth Arden” or “Red Door” trademarks.



Our sales and marketing support staff and personnel are organized by customer account. Our sales force routinely visits retailers to assist in the merchandising, layout and stocking of selling areas. In the U.S., we have a sales force for Elizabeth Arden branded products that are sold in prestige distribution. For many of our mass retailers in the United States and Canada, we sell basic products in special packaging that deter theft and permit the products to be sold in open displays. Our fulfillment capabilities enable us to reliably process, assemble and ship small orders on a timely basis. We use this ability to assist our customers in their retail distribution through “drop shipping” directly to their stores and by fulfilling their sales of beauty products over the Internet.



As is customary in the beauty industry, we do not generally have long-term or exclusive contracts with any of our retail customers. Sales to customers are generally made pursuant to purchase orders. We believe that our continuing relationships with our customers are based upon our ability to provide a wide selection and reliable source of prestige beauty products, our expertise in marketing and new product introduction, and our ability to provide value-added services, including our category management services, to U.S. mass retailers.



Our ten largest customers accounted for approximately 39% of net sales for the year ended June 30, 2008. The only customer that accounted for more than 10% of our net sales during that period was Wal-Mart (including Sam’s Club), which accounted for approximately 15% of our consolidated net sales and approximately 25% of our North America Fragrance segment net sales. The loss of or a significant adverse change in our relationship with any of our largest customers could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.



The industry practice for businesses that market beauty products has been to grant certain retailers, subject to our authorization and approval, the right to either return merchandise or to receive a markdown allowance for certain products. We establish estimated return reserves and markdown allowances at the time of sale based upon historical and projected experience, economic trends and changes in customer demand. Our reserves and allowances are reviewed and updated as needed during the year, and additions to these reserves and allowances may be required. Additions to our reserves and allowances may have a negative impact on our financial results. We have a dedicated sales organization to sell returned products that are saleable.


CEO BACKGROUND

E. Scott Beattie has served as Chairman of the Board of Directors since April 2000, as our President and Chief Executive Officer since August 2006, as our Chief Executive Officer since March 1998 and as a member of our Board of Directors since January 1995. Mr. Beattie also served as our President from April 1997 to March 2003, as our Chief Operating Officer from April 1997 to March 1998, and as our Vice Chairman of the Board of Directors and Assistant Secretary from November 1995 to April 1997. Mr. Beattie is a director of Object Video, Inc., an information technology company. Mr. Beattie is also a director and a member of the Executive Committee of The Personal Care Products Council and a member of the advisory board of the Ivey Business School.



Stephen J. Smith has served as our Executive Vice President and Chief Financial Officer since May 2001. Previously, Mr. Smith was with PricewaterhouseCoopers LLP, an international professional services firm, as partner from October 1993 until May 2001, and as manager from July 1987 until October 1993.



L. Hoy Heise has served as our Executive Vice President and Chief Information Officer since November 2007, as our Executive Vice President, Chief Information Officer and Operations Planning from March 2006 to November 2007, and as our Senior Vice President and Chief Information Officer from May 2004 to February 2006. From February 2003 to April 2004, Mr. Heise was the founder and principal of his own technology consulting firm. From June 1999 until May 2001, Mr. Heise was Senior Vice President of Gartner, an information technology research firm. Prior to that time, Mr. Heise worked in various management and consulting capacities for Renaissance Worldwide, a global provider of business process improvement and information technology consulting services.



Michael H. Lombardi has served as our Executive Vice President, Package Design and Innovation since November 2007, as our Executive Vice President, Operations from April 2004 to October 2007, as our Senior Vice President, Operations from January 2001 to March 2004, and as Senior Vice President, Marketing/Supply Chain Operations with the Elizabeth Arden Company, a division of Unilever N.V., from April 1999 to January 2001. Prior to joining the Elizabeth Arden Company, Mr. Lombardi worked in various management capacities for Chesebrough Ponds, Inc.



Oscar E. Marina has served as our Executive Vice President, General Counsel and Secretary since April 2004, as our Senior Vice President, General Counsel and Secretary from March 2000 to March 2004, and as our Vice President, General Counsel and Secretary from March 1996 to March 2000. From October 1988 to March 1996, Mr. Marina was an attorney with the law firm of Steel Hector & Davis L.L.P. in Miami, becoming a partner of the firm in January 1995.



Elizabeth Park has served as our Executive Vice President, Skin Care & Color Marketing and General Manager — Arden U.S., since April 2006 and as our Senior Vice President, Global Marketing from May 2005 to March 2006. Prior to joining our company, Ms. Park was Senior Vice President Marketing U.S.A. for Lancôme, a division of L’Oreal Products from March 2003 to March 2005. From July 1995 to July 2002, Ms. Park held several marketing management positions with The Estee Lauder Companies.



Ronald L. Rolleston has served as our Executive Vice President, Global Fragrance Marketing since April 2006, as our Executive Vice President, Global Marketing from April 2003 to March 2006, as our Executive Vice President, Global Marketing and Prestige Sales from April 2002 to April 2003, as our Senior Vice President, Global Marketing from October 2001 to January 2002, and as our Senior Vice President, Prestige Sales from March 1999 to January 2001. Mr. Rolleston served as President of Paul Sebastian, Inc., a fragrance manufacturer, from September 1997 to January 1999. Mr. Rolleston served as Executive Vice President of Global Marketing of the Elizabeth Arden Company from January 1995 to March 1997 and as the General Manager of Europe for the Calvin Klein Cosmetics Company from May 1990 to September 1994.

Joel B. Ronkin has served as our Executive Vice President, General Manager — North America Fragrances since July 2006, as our Executive Vice President and Chief Administrative Officer from April 2004 to June 2006, as our Senior Vice President and Chief Administrative Officer from February 2001 through March 2004, and as our Vice President, Associate General Counsel and Assistant Secretary from March 1999 through January 2001. From June 1997 through March 1999, Mr. Ronkin served as the Vice President, Secretary and General Counsel of National Auto Finance Company, Inc., an automobile finance company. From May 1992 to June 1997, Mr. Ronkin was an attorney with the law firm of Steel Hector & Davis L.L.P. in Miami, Florida.



Jacobus A. J. Steffens has served as our Executive Vice President, General Manager — International since March 2004 and as our Senior Vice President, General Manager — International from January 2001 through February 2004. Before joining the company, Mr. Steffens worked in various management capacities for divisions of Unilever N.V., including as the Chief Information Officer of Unilever’s European Ice Cream & Frozen Foods division from January 1997 to December 2000, as the Controller Global Marketing & Creative at the Elizabeth Arden Company from January 1992 to December 1995 and in various financial roles for Unilever’s Quest International Flavours and Fragrances division from the end of 1986 to December 1991.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview



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

In addition to our owned and licensed fragrance brands, we distribute over 400 additional prestige fragrance brands, primarily in the United States, through distribution agreements and other purchasing arrangements.



Our business strategy is to increase net sales, operating margins and earnings by (a) growing the sales of our existing brand portfolio, including the Elizabeth Arden brand, through new product innovation and targeting additional demographics and geographic markets, (b) acquiring prestige beauty brands through licensing opportunities and acquisitions, (c) expanding the prestige fragrance category at mass retail customers in the U.S. and (d) implementing initiatives to improve our cost structure and working capital efficiencies. We manage our business by evaluating net sales, EBITDA (as defined in Note 7 under Item 6 “Selected Financial Data”), EBITDA margin, segment profit and working capital utilization (including monitoring our levels of inventory, accounts receivable and operating cash flow). We encounter a variety of challenges that may affect our business and should be considered as described in Item 1A “Risk Factors” and in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Information and Factors That May Affect Future Results.”



Effective June 9, 2008, we became the exclusive, global licensee for the sale, manufacture, distribution and marketing of the Liz Claiborne fragrance brands under a long-term license agreement with Liz Claiborne, Inc. and certain of its affiliates. The Liz Claiborne fragrance portfolio consists of the Juicy Couture , Curve by Liz Claiborne, Lucky , Liz , Realities , Bora Bora and Mambo fragrances. In connection with the Liz Claiborne license agreement we also assumed a license for the Usher celebrity fragrances. We anticipate that the Liz Claiborne licensing arrangement will allow us to (i) increase our market share in our North America Fragrance segment, (ii) gain efficiencies from a larger fragrance business, particularly by leveraging our supply chain, logistics and sales organizations, (iii) increase our gross margins by converting existing North America mass customer sales from distribution margins to owned/licensed margins, and (iv) provide additional sales volume for our International segment.

In fiscal 2008, we incurred expenses related to the Liz Claiborne transaction of $19.6 million, before taxes. In addition, in connection with this license we discontinued certain brands and products resulting in a product discontinuation charge of $7.4 million, before taxes. During fiscal 2009, we expect to incur transition expenses relating to the Liz Claiborne licensing agreement of approximately $3.5 to $4.5 million, primarily during the quarter ending September 30, 2008. In addition, we anticipate that our gross margins for the first half of fiscal 2009 will be impacted by expenses relating to Liz Claiborne inventory that we purchased at a higher cost prior to the effective date of the license agreement. We expect this charge to be approximately $19.0 million, before taxes, of which $15.4 million is expected to be recorded during the quarter ending September 30, 2008.



In fiscal 2007, we commenced a comprehensive review of our global business processes to re-engineer our extended supply chain, logistics and transaction processing systems. We call this initiative our Global Efficiency Re-engineering initiative. In May 2008, we announced that we had decided to accelerate the re-engineering of our extended supply chain functions as well as the realignment of other parts of our organization to better support our new business processes.



In connection with our Global Efficiency Re-engineering initiative, we are also migrating to an Oracle financial accounting and order processing system to improve key transaction processes and accommodate anticipated growth of our business. We expect this infrastructure investment to simplify our transaction processing by utilizing a common platform to centralize all of our global transaction processing functions.



As a result of the acceleration of the re-engineering of our extended supply chain functions and the implementation of the Oracle financial accounting and order processing system, we are implementing a restructuring plan that will result in restructuring and one-time expenses, including severance, relocation, recruiting and temporary staffing expenditures. We expect these expenses to be incurred primarily in fiscal years 2009 and 2010 and currently estimate that they will total $12.0 million to $14.0 million before taxes, of which $0.7 million was recorded in the fourth quarter of fiscal 2008.



Critical Accounting Policies and Estimates



The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those consolidated 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. Actual results could differ from those estimates. If these changes result in a material impact to the consolidated financial statements, their impact is disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and/or in the “Notes to the Consolidated Financial Statements.” The disclosures below also note situations in which it is reasonably likely that future financial results could be affected by changes in these estimates and assumptions. The term “reasonably likely” refers to an occurrence that is more than remote but less than probable in the judgment of management.



Our most critical accounting policies and estimates are described in detail below. See Note 1 to the Notes to Consolidated Financial Statements — “General Information and Summary of Significant Accounting Policies,” for a discussion of these and other accounting polices.



Accounting for Acquisitions and Intangible Assets. We have accounted for our acquisitions under the purchase method of accounting for business combinations. Under the purchase method of accounting, the costs, including transaction costs, are allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

The judgments made in determining the estimated fair value and expected useful lives assigned to each class of assets and liabilities acquired can significantly affect net income. For example, different classes of assets will have useful lives that differ, and the useful life of property, plant, and equipment acquired will differ substantially from the useful life of brand licenses and trademarks. Consequently, to the extent a longer-lived asset is ascribed greater value under the purchase method than a shorter-lived asset net income in a given period may be higher.



Determining the fair value of certain assets and liabilities acquired is judgmental in nature and often involves the use of significant estimates and assumptions. One of the areas that requires more judgment is determining the fair value and useful lives of intangible assets. In this process, we often obtain the assistance of third party valuation firms for certain intangible assets.



Our intangible assets consist of exclusive brand licenses, trademarks and other intellectual property, customer relationships and lists, non-compete agreements and goodwill. The value of these assets is exposed to future adverse changes if we experience declines in operating results or experience significant negative industry or economic trends. We review indefinite-lived intangible assets and goodwill for impairment at least annually. All of our intangibles are reviewed for impairment or reconsideration of the useful life assigned as circumstances dictate using the guidance of applicable accounting literature. An impairment loss is recognized to the extent the carrying amount of the asset exceeds its estimated fair value. Factors used to estimate the fair value and useful life of intangible assets include historical and expected future revenues and profitability and the discounted future cash flows related to the asset.



Because the fair value and estimated useful life of an intangible asset is a subjective estimate, it is reasonably likely that circumstances may cause the estimate to change. For example, if we discontinue or experience a decline in the profitability of one or more of our brands, the value of the intangible assets associated with those brands or their useful lives may decline, or, certain intangible assets, such as the Elizabeth Arden brand trademarks, may no longer be classified as an indefinite-lived asset, which could result in additional charges to net income.



We have determined that the Elizabeth Arden trademarks have indefinite useful lives, as cash flows from the use of the trademarks are expected to be generated indefinitely. During the quarter ended June 30, 2008, we performed our annual impairment testing of these assets with the assistance of a third party valuation firm. The analyses and assessments of these assets and our goodwill indicated that no impairment adjustments were required.



Depreciation and Amortization. Depreciation and amortization is provided over the estimated useful lives of the assets using the straight line method. Periodically, we review the lives assigned to our long-lived assets and adjust the lives, as circumstances dictate. Because estimated useful life is a subjective estimate, it is reasonably likely that circumstances may cause the estimate to change. For example, if we experience significant declines in net sales in certain channels of distribution, it could affect the estimated useful life of certain of our long-lived assets, such as counters or trade fixtures, which could result in additional charges to net income.



Long-Lived Assets. We review for the impairment of long-lived assets to be held and used whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. An impairment loss is recognized to the extent the carrying amount of the asset exceeds its estimated fair value. Because the fair value is a subjective estimate, it is reasonably likely that circumstances may cause the estimate to change. The same circumstances that could affect the estimated useful life of a long-lived asset, as discussed above, could cause us to change our estimate of the fair value of that asset, which could result in additional charges to net income. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Revenue Recognition. Sales are recognized when title and risk of loss transfers to the customer, the sales price is fixed or determinable and collectibility of the resulting receivable is probable. Sales are recorded net of estimated returns, markdowns and other allowances. The provision for sales returns and markdowns represents management’s estimate of future returns and markdowns based on historical experience and considering current external factors and market conditions.



Allowances for Sales Returns and Markdowns. As is customary in the prestige beauty business, we grant certain of our customers, subject to our authorization and approval, the right to either return product or to receive a markdown allowance. Upon sale, we record a provision for product returns and markdowns estimated based on our historical and projected experience, economic trends and changes in customer demand. Because there is considerable judgment used in evaluating the allowance for returns and markdowns, it is reasonably likely that actual experience will differ from our estimates. If, for example, customer demand for our products is lower than estimated, additional provisions for returns or markdowns may be required resulting in a charge to income in the period in which the determination was made. As a percentage of gross sales, our expense for returns and markdowns was 7.0%, 6.4% and 6.7% for the fiscal years ending June 30, 2008, 2007 and 2006, respectively. A hypothetical 5% change in the value of our allowance for sales returns and markdowns as of June 30, 2008 would result in a $0.7 million change to net income.



Allowances for Doubtful Accounts Receivable. We maintain allowances for doubtful accounts to cover uncollectible accounts receivable, and we evaluate our accounts receivable to determine if they will ultimately be collected. This evaluation includes significant judgments and estimates, including an analysis of receivables aging and a customer-by-customer review for large accounts. It is reasonably likely that actual experience will differ from our estimates, which may result in an increase or decrease in the allowance for doubtful accounts. If, for example, the financial condition of our customers deteriorates resulting in an impairment of their ability to pay, additional allowances may be required, resulting in a charge to income in the period in which the determination was made. A hypothetical 5% change in the value of our allowance for doubtful accounts receivable as of June 30, 2008 would result in a $0.2 million change to net income.



Provisions for Inventory Obsolescence. We record a provision for estimated obsolescence and shrinkage of inventory. Our estimates consider the cost of inventory, forecasted demand, the estimated market value, the shelf life of the inventory and our historical experience. Because of the subjective nature of this estimate, it is reasonably likely that circumstances may cause the estimate to change. If, for example, demand for our products declines or if we decide to discontinue certain products, we may need to increase our provision for inventory obsolescence which would result in additional charges to net income. A hypothetical 5% change in the value of our provision for inventory obsolescence as of June 30, 2008 would result in a $1.3 million change to net income.



Hedge Contracts. We have designated each qualifying foreign currency contract we have entered into as a cash flow hedge. Unrealized gains or losses, net of taxes, associated with these contracts are included in accumulated other comprehensive income on the balance sheet. Gains and losses will only be recognized in earnings in the period in which the contracts expire.



Share-Based Compensation . All share-based payments to employees, including the grants of employee stock options, are recognized in the consolidated financial statements based on their fair values, but only to the extent that vesting is considered probable. Compensation cost for awards that vest will not be reversed if the awards expire without being exercised. The fair value of stock options is determined using the Black-Scholes option-pricing model. The fair value of the market-based restricted stock awards is determined using a Monte Carlo simulation model, and the fair value of all other restricted stock awards is based on the closing price of our common stock on the date of grant. Compensation costs for awards are amortized using the straight-line method. Option pricing model input assumptions such as expected term, expected volatility and risk-free interest rate impact the fair value estimate. Further, the forfeiture rate impacts the amount of aggregate compensation. These assumptions are subjective and generally require significant analysis and judgment to develop.

When estimating fair value, some of the assumptions are based on or determined from external data and other assumptions may be derived from our historical experience with share-based arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.



We rely on our historical experience and post-vested termination activity to provide data for estimating our expected term for use in determining the fair value of our stock options. We currently estimate our stock volatility by considering our historical stock volatility experience and other key factors. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the input to the Black-Scholes model. We estimate forfeitures using our historical experience. Our estimates of forfeitures will be adjusted over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from their estimates. Because of the significant amount of judgment used in these calculations, it is reasonably likely that circumstances may cause the estimate to change. If, for example, actual forfeitures are lower than our estimate, additional charges to net income may be required.



Income Taxes and Valuation Reserves. A valuation allowance may be required to reduce deferred tax assets to the amount that is more likely than not to be realized. We consider projected future taxable income and ongoing tax planning strategies in assessing a potential valuation allowance. In the event we determine that we may not be able to realize all or part of our deferred tax asset in the future, or that new estimates indicate that a previously recorded valuation allowance is no longer required, an adjustment to the deferred tax asset would be charged or credited to net income in the period in which such determination was made.



In accordance with the Financial Accounting Standards Board (“FASB”) Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”), we recognize in our consolidated financial statements the impact of a tax position if it is more likely than not that such position will be sustained on audit based on its technical merits. While we believe that our assessments of whether our tax positions are more likely than not to be sustained are reasonable, each assessment is subjective and requires the use of significant judgments. As a result, one or more of such assessments may prove ultimately to be incorrect, which could result in a change to net income.

RESULTS OF OPERATIONS

Our operations are organized into the following reportable segments:




North America Fragrance — Our North America Fragrance segment sells fragrances to department stores, mass retailers and wholesalers in the United States, Canada and Puerto Rico. This segment also sells our Elizabeth Arden products in prestige department stores in Canada and Puerto Rico, and to other selected retailers.




International — Our International segment sells our portfolio of owned and licensed brands, including our Elizabeth Arden products, in approximately 90 countries outside of North America through perfumeries, boutiques, department stores and travel retail outlets worldwide.




Other — The Other reportable segment sells our Elizabeth Arden products in prestige department stores in the United States and through the Red Door beauty salons, which are owned and operated by an unrelated third party.



Our segment reporting has been revised in accordance with the FASB Statement of Financial Accounting Standards No. 131, “ Disclosures about Segments of an Enterprise and Related Information .” Prior to June 30, 2008, we reported our operations under one reporting segment. Financial information relating to our reportable segments is included in Note 18 to the Notes to Consolidated Financial Statements.



Segment profit excludes depreciation and amortization, interest expense, debt extinguishment charges and unallocated corporate expenses, as shown in the table reconciling segment profit to consolidated income before income taxes. Included in unallocated corporate expenses are (i) adjustments to eliminate intercompany mark-up, (ii) employee incentive costs, and (iii) restructuring charges. Unallocated corporate expenses, including unallocated sales allowances, for fiscal 2008 also include $27.0 million of expenses related to the Liz Claiborne license agreement, including product discontinuation charges, as discussed above. The Company does not have any intersegment sales.

Year Ended June 30, 2008 Compared to Year Ended June 30, 2007



Net Sales. Net sales increased 1.2%, or $13.6 million, for the year ended June 30, 2008, compared to the year ended June 30, 2007. The increase resulted largely from increased sales of $44.1 million due to (i) the fragrance launch of M by Mariah Carey and (ii) increased sales of the Giorgio Beverly Hills brands resulting from the license agreement signed in December 2006, and (iii) increased sales of Elizabeth Arden branded skin care products of $17.0 million. These increases were mostly offset by a weakening retail environment which contributed to a decline in sales of certain other fragrance brands and higher sales allowances given primarily to certain of our European customers. Excluding the favorable impact of foreign currency translation, net sales decreased 0.4%. Pricing changes had an immaterial effect on net sales.

North America Fragrance



Net sales decreased by 1.0%, or $7.2 million, primarily due to a weak retail environment. The lower net sales were partially offset by increased sales of $23.6 million due to (i) the fragrance launch of M by Mariah Carey and (ii) increased sales of the Giorgio Beverly Hills brands, and increased sales of certain Elizabeth Arden branded skin care products of $11.9 million.



International



Net sales increased by 9.2%, or $33.7 million, primarily as a result of increased sales of $20.5 million due to (i) the fragrance launch of M by Mariah Carey and (ii) increased sales of the Giorgio Beverly Hills brands, and an increase of $14.3 million over the prior year of sales of Elizabeth Arden branded skin care and color products. Net sales were adversely affected by higher sales allowances given primarily to European mass market customers to increase sales of certain older brands and in response to a weakening retail environment. Excluding the impact of foreign currency translation, International net sales increased 4.2%.



Gross Profit . Gross profit increased by 1.0% for the year ended June 30, 2008, compared to the year ended June 30, 2007, primarily due to the higher sales. Included in gross profit were $15.0 million of costs related to the Liz Claiborne license agreement, including product discontinuation charges.



SG&A . Selling, general and administrative expenses increased 8.1%, or $29.5 million, for the year ended June 30, 2008, compared to the year ended June 30, 2007. The increase was principally due to (i) expenses related to the Liz Claiborne license agreement of $12.1 million, (ii) higher advertising, promotional and royalty costs of $12.4 million mainly related to new product launches, and (iii) higher marketing and sales overhead costs of $6.4 million mainly related to our European operations, e-commerce activities and the Fifth Avenue store in New York City. These amounts include a portion of the aggregate unfavorable effect of foreign currency translation of $11.6 million. The increases were partially offset by lower employee incentive compensation of $11.5 million, as compared to the prior fiscal year. We also incurred costs related to our Global Efficiency Re-engineering initiative and restructuring expenses, which mostly offset prior period restructuring expenses and transition costs related to the acquisition of certain assets of Riviera Concepts Inc. in June 2006 and the acquisition of the fragrance business of Sovereign Sales, LLC in August 2006.



Segment Profit



North America Fragrance



Segment profit increased 0.4%, or $0.5 million, primarily due to improved gross margins as a result of a higher proportion of our net sales coming from owned and licensed fragrance brands, which traditionally operate at higher gross margins than our distributed fragrances. This increase was mostly offset by higher general and administrative expenses.



International



Segment profit decreased 21.4%, or $4.6 million, as higher net sales were more than offset by increased selling, general and administrative expenses primarily due to higher advertising, promotional and royalty costs mainly related to new product launches, higher marketing and sales overhead costs and the unfavorable impact of foreign currency translation.



Interest Expense . Interest expense, net of interest income, decreased by 5.5% for the year ended June 30, 2008, compared to the year ended June 30, 2007. The decrease is primarily a result of lower interest rates under our credit facility .



Provision for Income Taxes . A provision for income taxes of $1.5 million was recorded for the year ended June 30, 2008, compared to $7.5 million for the year ended June 30, 2007. The decrease

in the provision for income taxes was due to lower income from operations generated in the year ended June 30, 2008 mostly in the U.S. and primarily as the result of $27.0 million in Liz Claiborne related expenses, including product discontinuation charges. The effective tax rate calculated as a percentage of income before income taxes for the year ended June 30, 2008 was 7.2%, compared to 16.7% for the year ended June 30, 2007. The decrease in the effective tax rate is due to a significant loss being incurred in the U.S., which has a higher tax rate than our international operations, primarily as a result of the Liz Claiborne related expenses, including product discontinuation charges. See Note 13 to the Notes to Consolidated Financial Statements.



Net Income. Net income decreased by 46.7% to $19.9 million for the year ended June 30, 2008, as compared to $37.3 million for the year ended June 30, 2007. The decrease in net income was mainly driven by the Liz Claiborne related expenses discussed above, including product discontinuation charges.



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) decreased by 25.1%, or $24.7 million, to $73.8 million for the year ended June 30, 2008 compared to $98.5 million for the year ended June 30, 2007. The decrease in EBITDA was primarily the result of $27.0 million in Liz Claiborne related expenses, including product discontinuation charges, incurred in fiscal 2008. For a reconciliation of net income to EBITDA for the years ended June 30, 2008 and 2007, see Note 7 under Item 6 “Selected Financial Data.”


MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview

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

In addition to our owned and licensed fragrance brands, we distribute over 400 additional prestige fragrance brands, primarily in the United States, through distribution agreements and other purchasing arrangements.

Our business strategy is to increase net sales, operating margins and earnings by (a) growing the sales of our existing brand portfolio, including the Elizabeth Arden brand, through new product innovation and targeting additional demographics and geographic markets, (b) acquiring prestige beauty brands through licensing opportunities and acquisitions, (c) expanding the prestige fragrance category at mass retail customers in the U.S., and (d) implementing initiatives to improve our cost structure and working capital efficiencies. 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 and operating cash flow). We encounter a variety of challenges that may affect our business and that should be considered as described in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended June 30, 2008 and in the section of this quarterly report captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results."

Effective June 9, 2008, we became the exclusive, global licensee for the sale, manufacture, distribution and marketing of the Liz Claiborne fragrance brands under a long-term license agreement with Liz Claiborne, Inc. and certain of its affiliates. The Liz Claiborne fragrance portfolio consists of the Juicy Couture, Curve by Liz Claiborne, Lucky, Liz, Realities, Bora Bora and Mambo fragrances. In connection with the Liz Claiborne license agreement we also assumed a license for the Usher celebrity fragrances. We anticipate that the Liz Claiborne licensing arrangement will allow us to (i) increase our market share in our North America Fragrance segment, (ii) gain efficiencies from a larger fragrance business, particularly by leveraging our supply chain, logistics and sales organizations, (iii) increase our gross margins by converting existing North America mass customer sales from distribution margins to owned/licensed margins, and (iv) provide additional sales volume for our International segment.

During fiscal 2009, we expect to incur transition expenses relating to the Liz Claiborne license agreement of approximately $3.5 to $4.5 million, before taxes, of which $3.7 million were recorded during the quarter ended September 30, 2008. In addition, we anticipate that our gross margins for the first half of fiscal 2009 will be impacted by expenses relating to Liz Claiborne inventory that we purchased at a higher cost prior to the effective date of the license agreement. We expect this charge to be approximately $19.0 million, before taxes, $15.4 million of which was recorded but did not require the use of cash during the quarter ended September 30, 2008.

In fiscal 2007, we commenced a comprehensive review of our global business processes to re-engineer our extended supply chain, logistics and transaction processing systems. We call this initiative our Global Efficiency Re-engineering initiative. In May 2008, we announced that we had decided to accelerate the re-engineering of our extended supply chain functions as well as the realignment of other parts of our organization to better support our new business processes.

In connection with our Global Efficiency Re-engineering initiative, we are also migrating to an Oracle financial accounting and order processing system to improve key transaction processes and accommodate anticipated growth of our business. We expect this infrastructure investment to simplify our transaction processing by utilizing a common platform to centralize all of our global transaction processing functions.

As a result of the acceleration of the re-engineering of our extended supply chain functions and the implementation of the Oracle financial accounting and order processing system, we are implementing a restructuring plan that will result in restructuring and one-time expenses, including severance, relocation, recruiting and temporary staffing expenditures. We expect these expenses to be incurred primarily in fiscal years 2009 and 2010 and currently estimate that they will total $12.0 million to $14.0 million before taxes, of which $2.0 million has been incurred to date and $1.1 million was incurred during the quarter ended September 30, 2008.

Seasonality

Our operations have historically been seasonal, with higher sales generally occurring in the first half of the fiscal year (July through December) as a result of increased demand by retailers in anticipation of, and during, the holiday season. During the fiscal year ended June 30, 2008, approximately 61% of our net sales were made during the first half of the 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 between quarters of the same and different years. As a result, we expect to experience variability in net sales, operating margin, net income, working capital requirements and cash flows on a quarterly basis. Increased sales of skin care and cosmetic products relative to fragrances may reduce the seasonality of our business.

We experience seasonality in our working capital, with peak inventory levels normally from July to October and peak receivable balances normally from September to December. Our working capital borrowings are also seasonal and are normally highest in the months of September, October and November. During the months of December, January, 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, 2008, 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, 2008, other than the adoption of Statement of Financial Accounting Standards No.157, Fair Value Measurements , as described below, there have been no significant changes to the assumptions and estimates related to those critical accounting policies.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position 157-2 which delayed the effective date of SFAS 157 for those nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis until fiscal years beginning after November 15, 2008. With respect to financial assets and liabilities, SFAS 157 became effective for us on July 1, 2008. For nonfinancial assets and nonfinancial liabilities, SFAS 157 will be effective for us on July 1, 2009. The adoption of SFAS 157 did not have a material impact on our consolidated financial statements. See Note 12 to the Notes to Unaudited Consolidated Financial Statements .

Results of Operations

The following discussion compares the historical results of operations for the three months ended September 30, 2008 and September 30, 2007.

Our segment reporting has been revised in accordance with the FASB Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information . Prior to June 30, 2008, we reported our operations under one reporting segment. Effective June 30, 2008, we changed our segment reporting and, accordingly, amounts shown for the quarter ended September 30, 2007, have been revised to conform to the current period presentation. See Note 14 to the Notes to Unaudited Consolidated Financial Statements.

Segment profit excludes depreciation and amortization, interest expense and unallocated corporate expenses, which are shown in the table below reconciling segment profit to consolidated (loss) income before income taxes. Included in unallocated corporate expenses are (i) adjustments to eliminate intercompany mark-up, (ii) employee incentive costs, and (iii) restructuring charges. Unallocated corporate expenses for the three months ended September 30, 2008, include $19.1 million of expenses ($15.4 million of which did not require the use of cash in the current period) related to our recent Liz Claiborne license agreement due to inventory that we purchased at a higher cost prior to the June 2008 effective date of the license agreement and transition expenses. We do not have intersegment sales.

The following table is a comparative summary of our net sales and segment profit by reportable segment for the three months ended September 30, 2008 and 2007 and reflects the basis of presentation described in Note 14 -- "Segment Data and Related Information" to the Notes to Unaudited Consolidated Financial Statements for all periods presented.

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

Net Sales . Net sales increased 4.6%, or $12.4 million, for the three months ended September 30, 2008, compared to the three months ended September 30, 2007. The higher net sales are primarily due to (i) $23.5 million of increased sales of the Liz Claiborne fragrance brands that we distributed in the prior year period, and of the Mariah Carey and Usher fragrance brands, (ii) $10.9 million of sales of fragrances launched since the prior year period, including the Juicy Couture fragrances, Viva La Juicy and Dirty English and the 9IX Rocawear fragrance, and (iii) $2.9 million of increased sales of skin care products. These increases were partially offset by a decline in sales of distributed and certain owned or licensed fragrance brands. Pricing changes and foreign currency translation had an immaterial effect on net sales.

North America Fragrance

Net sales increased by 9.0%, or $14.7 million. The higher net sales were primarily due to (i) $21.8 million of increased sales of the Liz Claiborne, Mariah Carey and Usher fragrance brands, (ii) $10.1 million of sales resulting from sales of fragrances launched since the prior year period, including the Juicy Couture fragrances, Viva La Juicy and Dirty English and the 9IX Rocawear fragrance, and (iii) $2.4 million of increased sales of skin care products. This increase was partially offset by a decline in sales of distributed and certain owned or licensed fragrance brands.

International

Net sales increased by 0.7%, or $0.6 million. Higher fragrance sales in our travel retail business and higher skin care product sales in China were mostly offset by lower fragrance sales in Europe, particularly in the United Kingdom, and in Australia. Excluding the unfavorable impact of foreign currency translation, International net sales increased 1.3%.

Gross Margin . For the three months ended September 30, 2008 and 2007, gross margins were 37.4% and 39.1%, respectively. The lower gross margin in the current year period is primarily due to $16.4 million of charges ($15.4 million of which did not require the use of cash) incurred in the three months ended September 30, 2008, related to the high cost Liz Claiborne inventory purchased prior to the June 2008 effective date of the recent Liz Claiborne license agreement and Liz Claiborne-related transition expenses, partially offset by current period sales of the Liz Claiborne fragrance brands that are now licensed brands. Our owned and licensed brands carry higher gross margins than our distributed brands. Prior to the effectiveness of the Liz Claiborne license agreement, sales of the Liz Claiborne fragrance brands were recorded as distributed brand sales.

SG&A. Selling, general and administrative expenses increased 18.3%, or $16.9 million, for the three months ended September 30, 2008, compared to the three months ended September 30, 2007. The increase was principally due to higher advertising, promotional and royalty costs of $10.9 million and transition expenses of $2.7 million related to the recently licensed Liz Claiborne fragrance brands. We also incurred costs of $1.1 million related to our Global Efficiency Re-engineering initiative and restructuring expenses, which mostly offset prior period restructuring expenses.

Segment Profit

North America Fragrance

Segment profit increased 55.5%, or $11.4 million, primarily due to the higher sales volumes and improved gross margins attributed to the recently licensed Liz Claiborne fragrance brands, which carry higher gross margins than our distributed fragrance brands. These increases were partially offset by $8.4 million of higher advertising, promotional and royalty costs to support the Liz Claiborne fragrance brands and the 9IX Rocawear fragrance launch.

International

Segment profit decreased $10.8 million, primarily due to lower gross margins mostly related to customer mix particularly in the United Kingdom and Australia, as well as higher distribution and freight costs. Also contributing to the decrease were increased sales overhead costs and the unfavorable impact of foreign currency translation.

Interest Expense. Interest expense, net of interest income, decreased 12.2%, or $1.0 million, for the three months ended September 30, 2008, compared to the three months ended September 30, 2007. The decrease is due to lower interest rates under our revolving bank credit facility, partially offset by higher average borrowings under such credit facility.

(Benefit from) Provision for Income Taxes. A benefit from income taxes of $3.4 million was recorded for the three months ended September 30, 2008, compared to a provision for income taxes of $0.1 million for the three months ended September 30, 2007 primarily due to lower income from operations, which was mainly driven by the high cost inventory charges and transition expenses related to the Liz Claiborne license agreement. The estimated annual effective tax rate calculated as a percentage of income before income taxes used for the three months ended September 30, 2008 was 21.2%, compared to 24.9% for the three months ended September 30, 2007. The decrease in the estimated annual effective tax rate is mainly due to anticipated changes in earnings contributions from our worldwide affiliates as our worldwide affiliates generally have lower tax rates than our U.S. operations.

Net (Loss) Income. Net loss for the three months ended September 30, 2008 was approximately $12.5 million compared to net income of $0.4 million for the three months ended September 30, 2007. The decrease in net income was mainly driven by $19.1 million of high cost inventory charges and transition expenses related to the recent Liz Claiborne license agreement.

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) decreased by $16.9 million, to ($3.0) million for the three months ended September 30, 2008 compared to $13.9 million for the three months ended September 30, 2007. The decrease in EBITDA was primarily the result of $19.1 million of high cost inventory charges and transition expenses related to the Liz Claiborne license agreement as discussed above. A

CONF CALL

Allison Malkin

Before we begin if you have not received a copy of Elizabeth Arden’s press release, please call 203-682-8200 and we’ll send one out to you. Also please note that this call is being broadcast live over the Internet and you can access the call at www.elizabetharden.com.

Before we begin I’d like to remind you that some of the comments on this call as either prepared remarks or in response to your questions may contain forward-looking statements that are made pursuant to the Safe Harbor provision of the Securities Litigation Reform Act of 1995. Such information is subject to risks and uncertainties that could cause actual results to differ materially from the statements as described in the press release and on Elizabeth Arden’s most recent annual report on Form 10K filed with the SEC. We direct all listeners to that report.

Also, some of the information that may be contained in our earnings releases or comments made on this or other calls may constitute non-GAAP financial information under the SEC’s Regulation G. Reconciliation of such information to the most comparable financial measure prepared in accordance with Generally Accepted Accounting Principles may be found on our website at www.elizabetharden.com.

The information in this call is accurate only as of the date discussed and investors should not assume that the statements made in this call remain operative at a later time. Finally, Elizabeth Arden undertakes no obligation to update any information discussed on this call.

I would now like to turn the call over to Scott Beattie, Chairman and CEO of Elizabeth Arden.

E. Scott Beattie

Welcome everyone to our fourth quarter and fiscal year-end conference call. Today joining me is Joel Ronkin our Executive VP of our North American Fragrance unit, Steve Smith our Executive VP and Chief Financial Officer, and Marcey Becker our Senior VP of Finance.

Today’s agenda is first of all I’ll provide a summary of our Q4 performance specifically of our international business unit and the global brand performance of the Elizabeth Arden beauty brand. I’ll also provide strategical review of the recently completed Liz Claiborne transaction and a discussion and overview of our 2009 outlook.

Joel will then provide a review of our Q4 and fiscal year performance for the North American Fragrance business which represents about 60% of our total revenues and an update of the integration of the Liz Claiborne business and outlook for his business going forward through 2009, and that will include not only the fragrance launches that we have plans for throughout the year but also some of his strategic initiatives that are driving the performance of his business.

Steve Smith will then provide a review of the 2009 fiscal year-end financial results including a more detailed review of the one-time charges that we incurred during fiscal 08 and some of the one-time charges related to the Liz Claiborne transaction that will affect us during 2009 fiscal year.

In terms of our overall corporate performance for the year, our North American business was essentially flat. I think in absolute percentages was down 1.5%. Our mass business was essentially flat for the year and the US department store business is down about 14%. Internationally that was the strong growth driver for us and I think for the rest of our industry as well. We had a very strong growth in international markets during the first half of the year. Just to remind you, it was almost 20% growth in international for the first two quarters of the year and then we saw declining growth particularly in Europe during the second half of the year. Overall Europe was up 6.6% and APO and the rest of the international business was up 15%.

What we see particularly during the second half of the year is obviously continued weakness in the North American consumer but with a slight decline in that weakness in the department stores. We’re seeing somewhat improvement during the fourth quarter in our department store business in North America. But we expect continued weakness with the US consumer certainly for the first half of our fiscal year Q1 and Q2 and that’s been factored in to our guidance.

A few positive elements in this difficult environment are overall EA brand during the fourth quarter was up 2.5% and we do have certain accounts particularly within our North American mass business that are performing well which Joel will go into more detail with.

On an international basis as I mentioned we’re seeing slowing growth during the second half of the year. The Asia Pacific business which includes our travel, retail and distributor business, that’s about 50% of our total international business. The other 50% would be our European based business. There’s kind of a tale of two stories there. Our travel/retail/distributor business which includes markets like South America and Mexico, Eastern Europe and so on was very strong. For the year it was up 26%; China was up 21% for the year; and travel/retail was up 10% for the year. In terms of Europe was up 2.2% for the fourth quarter and 6.6% for the year but on a constant dollar basis was down slightly. What we’re seeing is weakness in the UK/Spain particularly but some of the other European markets that are smaller for us and we expect that to continue during the first half of 09.

We do see continued strong growth in the rest of the international business particularly travel/retail in Asia driven by China and we’re seeing great performance of the Elizabeth Arden brand in those markets. The Elizabeth Arden brand on a global basis for the year was up 2.5% but internationally it was up 6% and was really pulled down by a weak department store business here in the US.

Most encouraging though was the performance of our skin care portfolio. As you might recall from previous discussions we’ve really focused the Elizabeth Arden skin care and color business around three main pillars: The ceremite anti-aging regime which both has skin care and a color foundation business, the Intervene business which is a skin care and color program targeted at the younger Elizabeth Arden customer, and then the Prevage business which is our cosmeseutical offering. The Prevage business on a global basis was up 15% for the year; ceremite was up 16%; and Intervene although it is a very small business overall was up 45%. In our overall color business despite the fact that we had a number of returns resulting in repositioning the color business with new innovation was up 3%. We’re very pleased with the global skin care performance.

The overall Arden brand was pulled down slightly because of the weakness of the fragrance category and more than anything it was difficult comps because we haven’t launched a new Elizabeth Arden fragrance for over two years. That will change this year. We’re very excited about a new fragrance launch for Elizabeth Arden that will come out this spring. It’s been very well received by our organization and preliminary projections are very positive for the second half, particularly in the international business. So that will help drive the overall Elizabeth Arden performance during 2009.

The second topic I’d like to just briefly discuss is again to just reinforce the strategic rationale of the Liz Claiborne fragrance brand licensing deal. Joel will go into much more detail with regard to the individual brands and the launch schedules, but I’d just like to walk through the rationale for us in acquiring this license. As you might recall we prior to this transaction were the distributors of the Liz Claiborne brands here in the US and the mass retail channel.

The normal course is we convert from a distributor relationship to an owned relationship. The impact for our business is that we have improved control over the distribution of the brands as well as improved control over the inventory management. Obviously by consolidating the inventory production and management into our organization as opposed to us having inventory and Claiborne having inventory will improve the efficiency of that inventory management. It will also allow us to further invest in the brands both in the mass channel as well as in the department store channel and drive additional growth for these businesses internationally. And we’re very excited about the opportunity to improve the international distribution and growth of particularly the Juicy Couture fragrance.

In terms of our overall business we expect our owned versus distributed brand mix to move from about 75% in 2008 to about 85% in 2009. That will help drive improved gross margins and as I said improve the control and management of the brands.

One other real key opportunity for us is the improved productivity of our North American fragrance sales force and I’ll let Joel go into more detail about the economics and opportunity to improve the performance of our brands when he goes through that.

In 2009 what we expect overall for our business is modest growth in our base business on a global basis. We expect to see the continued weakness with the US consumer. We do expect to see continued growth in our international business with the exception of certain of the European markets which we see weakness in. But our growth is going to be modest across our existing brand portfolio and obviously significant double-digit growth as a result of the integration of the Liz Claiborne brand portfolio. We see improved department store productivity and economics particularly in our fragrance department store business here in North America.

And I’m very confident that we’ll see continued improvement in our EBITDA margins and our cash flow performance as a result of leveraging the supply chain and logistics and efficiency implementation that we have. I’d like to go through briefly right now an overview of those two initiatives.

As we stated in our press release we expect between $10 million and $12 million of earnings improvement driven by the global supply chain re-engineering initiatives. That’s been factored into our guidance. We announced at the end of Q3 that we would take a $12 million to $14 million restructuring charge which we would take over the next 12 to 18 months. As you see from our press release we’ve drawn down $3 million against that $12 million to $14 million in restructuring charge during the fourth quarter and that essentially results in the alignment of the organizational group within supply chain and logistics and leadership of that group. We’re on track for our cash flow and earnings savings for 09 and we expect those savings to continue to be very accretive to EPS and cash flow as we move into 2010 and 2011.

In terms of the J.D. Edwards project we’ve completed the preliminary planning stage with Oracle and IBM assisting us in that. That involves the functional design and redesign of certain of our business processes to adopt to the J.D. Edwards implementation. We don’t expect any modifications to the J.D. Edwards system. As Steve will go through it’s really the conversion of our global financial accounting and order to cash business functions so it’s quite straight forward in the implementation. We’ve fully implemented this J.D. Edwards solution in our China business and it’s working very effectively so we’re very comfortable with the plan to convert to the J.D. Edwards financial accounting system by July of 09 and then the order to cash system by January of 2010. This will provide us with a global transaction processing and financial accounting system that will dramatically improve the processing efficiency and many of our business processes which will help drive down on a global basis our general and administrative overhead and will help drive profitability and cash flows in 2010, 2011 and beyond.

So on that note I will hand it over to Joel Ronkin who will go through a review of the Liz Claiborne brand portfolio and the North American fragrance business.

Joel B. Ronkin

I’m going to briefly comment on the North American fragrance group overall, the addition of the Claiborne brand to our portfolio, the highlights from the new launches that we have which really is an unprecedented level of launches, as well as comment on the outlook for the first half of fiscal 2009. As Scott mentioned the North American fragrance group currently comprises about 60% of our overall company sales. It includes our department store fragrance business in the US, our mass business in the US, our e-commerce business which is growing very well, and our businesses in Canada and Puerto Rico.

For the fourth quarter our net sales for this group were down mid-single digits as compared with last year. For the full year as Scott mentioned we were down ever so slightly to 1.5% and this is roughly consistent with the flat retail sales we have seen in our various channels over this past fiscal year. The North American mass business experienced a decline in net sales in the fourth quarter as compared with last year and flat sales for the fiscal year. The general trends that we saw in the third quarter continued into the fourth quarter with chain drug retailers flat to up in retail sales including a couple of retailers up double digits in our brands particularly CVS and Kohl’s and mass volume retailers a bit lower. These second half trends were similar to what we saw throughout the year as well with again chain drug retailers in the high single digits as far as retail sales and mass volume retailers showing declines of single digits.

Now on a positive note, each year we measure our prestige fragrance share versus mass fragrance share both in terms of retail dollars as well as shelf space in the mass market. And what we found this past year was that prestige fragrances grew in terms of both dollars as well as shelf space the past year which is a very strong indicator of future growth. In a minute I’ll talk about our outlook more specifically for the upcoming fiscal year. Now for the full fiscal year, the department store fragrance business was down 7% in net sales which is consistent with the weakness that we experienced throughout the year. On a positive note retail sales in the prestige channel did tend to get a bit better in the April through June months than the January through March months. That being said, department store buyers and in fact all buyers at this point are taking a cautious view as far as inventory levels.

Now as far as this upcoming fiscal year, we are very excited about the license agreement we signed with Liz Claiborne for their fragrances. The integration is very much on track; all of the inventory has been transferred to our facilities; we’re already receiving and shipping orders of Claiborne products from our Roanoke warehouse facility; we have combined the Arden and Claiborne department sales forces in the US; and we were fortunate in that process to be able to strengthen our sales team by taking many of the best Claiborne sales people with many of the best Arden sales people and really maintain the overall same number of people. We’re also very pleased that the Claiborne marketing team which has been responsible for so many successful brand launches is now located in our New York offices including Art Spiro who is the President of Liz Claiborne’s fragrance business and who will lead the development of these brands globally going forward.

Now let me just go through some of the brands. Juicy Couture which is of course the usually successful and trendsetting designer brand was the biggest launch ever at Bloomingdales at its debut in 2006 and ranked in the Top 10 women’s brands ever since the launch in all department stores. Juicy is currently the number six ranked women’s fragrance in department stores. And we just launched the men’s brand under the Juicy name called Dirty English and it launched at number one at Bloomingdales this spring and is in the Top 5 launch brand for the season. We’re also very excited about a new women’s brand we’ll launch in the fall, Viva la Juicy which I’ll comment on in just a second when I talk about our new launches.

Other brands in the Liz Claiborne portfolio include Usher’s men’s and women’s fragrances. This celebrity fragrance was launched last year and achieved the number one spot among men’s fragrances for the fall season. It ranked number 14 for the full year and is currently ranked fourth overall in department stores. Hopefully you guys have seen the Macy’s commercials that feature Usher with Martha Stewart and his fragrance. He’s always promoting the fragrance. In addition we’ll be launching Limited Edition Usher brands for men and women this fall in prestige department stores and we expect those to help drive growth of the franchise.

The Liz Claiborne brands also include the iconic Curve brand for men and women. That brand was introduced in 1996 and the Curve men’s brand has ranked as the number one men’s brand for at least the last seven years which is as long as we’ve been monitoring overall ranks in the mass market. Now of course it’s nice that we have the number one women’s brand as well, White Diamonds, which has been number one for as long as we’ve been able to track that as well. So we now have the number one ladies’ brand as well as the number one men’s brand at mass market and they’re number one by a fairly wide margin.

There are other brands in the Liz Claiborne portfolio including Lucky brand, Reality’s Bora Bora and Mambo. We really believe that the Lucky brand which has continued to be a Top 10 ranked brand in mass for the last five years has great potential for growth. Overall in the mass channel Liz Claiborne’s men’s brands hold seven of the Top 50 retail sales rankings including as I mentioned the number one ranked brand Curve while the women’s brands hold five of the Top 50 rankings. So this meshes very well with what we already had a high number of the Top 50 brands on both ladies and less so on men’s but still a strong performance on the men’s side.

In addition to improved profitability the addition of the Liz Claiborne fragrances to our own portfolio has many strategic benefits for us. Let me just go through a few of them for you guys.

The increased gross margin will allow us to better invest behind our brand to provide more support to our retail partners. Probably the most significant impact of this acquisition will be to our prestige department store business. In this channel adding the Claiborne business allows us to better leverage our sales infrastructure and provide more in-store and advertising support behind our brands.

We’re going to over double our business this year while keeping overheads roughly flat. This will of course allow us improved profitability but perhaps more importantly reinvest behind our brands. Also, our primary approach at Arden in driving retail sales in department stores before the acquisition was really using national and co-op advertising. On the other hand, Claiborne really drove their business through the extensive use of in-store selling assistants as well as co-op advertising. So combining all of our brands together as one business will be able to utilize those selling assistants to support all of our brands including our existing brands like the White Diamonds and Mariah Careys as well as to increase our national advertising support behind our entire brand portfolio.

In this process we’ll be doubling our sell-through coverage at department stores from 1,000 doors to 2,000 doors and we’re also of course becoming more important as a company with retailers in the prestige department store channel and will give us more opportunities to partner with them.

I’ve talked a lot about the Claiborne impact to the US business but perhaps an even greater opportunity are the Claiborne brands’ impact on our international business. I think Scott had alluded before to the fact that Juicy is a great opportunity for our international business and one of the things that we see as a real value added for us and for Claiborne is that Claiborne before did not have an international structure. They operated strictly through third party distributors. We have a significant international infrastructure and have our own offices and significant sales and marketing staff in the key international markets. So we don’t need to operate through distributors and we believe we’ll be able to much better perform in those markets. The Juicy franchise we’re working with the apparel organization to expand internationally as they expand their apparel business. We also have high hopes that the Usher and Curve brands will perform particularly strong in international markets like Europe.

Now we had in our guidance modest expectations for the Liz Claiborne brands internationally and that’s largely because we’re transitioning out of the distributor arrangements into an arrangement where we sell directly from our affiliates as well as the fact that we want to build these brands properly.

Now from a supply chain and logistics perspective we’ll have more leverage with suppliers to help drive lower costs. We’re obviously going to put more volume through our logistics and supply chain infrastructures which makes them more efficient and reduces freight, it reduces processing costs per order for ourselves as well as our retail partners, and it’s important to note that these efficiencies are on top of the efficiencies we had already planned as a result of the reduction in customization of our product offerings and improved forecasting.

I mentioned before that we had an unprecedented launch schedule in department stores and let me mention just a few of them. One is Mariah Carey’s Luscious Pink which already has shipped into department stores and hopefully you’ll see the visuals soon. The retail reception to this brand has been very positive but it’s still too early to tell.

Viva la Juicy that I referred to earlier under the Juicy franchise we expect to be a very, very strong brand for us. The marketing and selling support for this brand will be significant; it will be authentically Juicy. The reaction has been great. It’s already performing very well at Bloomingdales and at Nordstrom’s.

We also are going to launch new additions of the Usher brands for men and women called Usher UR and that will happen in September. It’s going to be well timed because he is doing a lot of activities out in the media with his new album that just released in June. So far our orders that we’ve received are above expectations so we’re hopeful that will continue.

Rocawear 99 which is the first brand in the Rocawear men’s fragrance portfolio is something we’re very excited about. You may recall that Rocawear is a fashion label that was started by music mogul and business man Jay Z. It’s really considered a lifestyle designer brand. It’s edgy and urban and celebrates the hip hop culture. It’s targeted to a multi-ethnic man aged 16 to 30 who are urban culture fans who also enjoy his music. The support for the launch is designed to capture the consumer in his environment with video, scent strips and targeted magazines, radio and text messaging and social networking. We really think the campaign as well as the packaging is extremely innovative.

So you can see our launches are very balanced. We have three women’s launches and two men’s launches, three of which are “celebrity” brands and two of which are designer brands. We expect these launches to constitute about 30% of our sales at department stores for fiscal 2009 and needless to say we’re very focused on delivering successful launches for these brands right now.

I also thought it would be important to touch on one of our existing franchises, the Britney franchise. Overall her brand portfolio is holding up very well. We actually exceeded budget for the fiscal year with the brands performing particularly well outside the US. For the year global sales were down mid-single digits. We’re also very encouraged with the various initiatives Britney and her management team are working on and we’re working closely with them to find creative ways to further grow our Britney brands. You’ll also see the Britney Spears Believe brand cascading into mass in the next month or so and we expect it to perform very well.

And finally let me just touch on our outlook for 2009. Our expectation for the first half of fiscal 2009 is that the current weak retail environment will continue with modest declines overall in retail sales. The weak economy is helping us however with our mass channel where consumer traffic is picking up and that should translate into stronger performance during the holiday season in that channel. There is a complicating factor in the first half view this year which is we have one less shopping week between Thanksgiving and Christmas compared to last year.

In our prestige business we’ll offset the retail environment with all the strong launch activity I just talked about as well as better in-store support of our existing brands. In our mass channel there is significant opportunity for growth although last year we worked with a number of our largest mass retail accounts to drive the growth of this category and are implementing a number of initiatives this year to create better awareness for the category as many consumers don’t even realize prestige fragrances are sold in those channels. And we’ve also worked to improve the in-store look. This includes better visuals, signage and displays and also better and more systematic placement of our holiday programs in preferred locations within those stores.

So overall we expect sales growth for the North American fragrances business to be largely consistent with the guidance provided by the company for the year which is 12.5% to 14% sales growth. That will largely be driven by the Claiborne brands addition, our new launches, better performance in the category with these new initiatives, as well as the cascading of a number of new brands that we both own and distribute into mass retailers for this holiday season.

With that I’ll turn it over to Steve Smith our CFO.

Stephen J. Smith

I’ll provide an overview of our fiscal 2008 results, update you on our re-engineering projects, and provide comments on our outlook for 2009.

In the fourth fiscal quarter we incurred expenses of approximately $20 million related to the Liz Claiborne licensing agreement. $13 million was for the reimbursement of advertising, marketing and brand development activities incurred by Liz from which we will benefit as brand owners going forward as well as transition expenses. As Joel and Scott mentioned we expect to be largely complete with the transition in our first quarter of 2009. We will continue to require certain planning and purchasing functions for several months during our peak season although the majority of the transition expenses which are estimated between $3.5 million and $4.5 million will be incurred primarily in the first quarter of our fiscal year.

We also recorded non-cash charges related to the Liz Claiborne inventory. Because we were a distributor of their brands we owned inventory at the time of the transaction at a higher cost. We are adjusting the carrying value of this inventory to that of a brand owner from that of a distributor. We recorded $6.7 million in June and the adjustment for fiscal 2009 is approximately $19 million, about $15.5 million of which is expected to be recorded in the first quarter and the remainder in the second quarter. We will break this charge out when we report our results. Again I would like to emphasize that this is a non-cash charge and as we sell the inventory in the future we will recover the margin.

Additionally as a result of adding the Liz Claiborne brands to our product portfolio we reviewed our brand portfolio and discontinued certain marginal brands and products to allow the company to focus on those brands with the best growth and profit potential. Total charges associated with this were $7.5 million of which $4.7 million is non-cash. Adjusted for these charges gross margin would have been 42% for the fiscal year an increase of 110 basis points versus the prior year. Gross margins are expected to approximate +/- 45% in fiscal 2009 again excluding the adjustment for the higher Liz cost inventory as over 80% of our sales are now coming from owned brands and the savings from our supply chain initiatives that are on track and which we will begin to realize through earnings.

Excluding the charges SG&A expense as a percentage of net sales would have been 33% versus 32% for the full fiscal year. Advertising and promotional expenses for the year which is about half of our total SG&A costs increased by 8.4% or about 80 basis points to 16.7% of net sales and that really accounts for the SG&A increase. We expect total SG&A expenses to increase in fiscal 2009 to approximately 35% as a percentage of net sales reflecting additional investments in our existing brand portfolio, launch activity, and now owning the Liz brands.

Cash flow from operations was $50 million on an adjusted basis, $8 million on a reported basis due to approximately $42 million of cash used for Liz related items. Inventory ended the year at $409 million and that includes $45 million of net incremental inventory due to the Claiborne transaction or $364 million on an adjusted basis. This is a reduction of $16 million as compared to the prior year. We do expect inventory to decline in fiscal 2009 by $50 million to $70 million. This reduction will be achieved by the $19 million re-valuation of Liz inventory, being able to reduce Liz inventory further as a result of now having logistics through one US location and the savings from our supply chain initiatives. DSOs were flat with the prior year at 69 days.

We are committed to improving our EBITDA margin and return on invested capital. I believe we can improve our EBITDA margin by 40 to 90 basis points in fiscal 2009 at 9.5% to 10%. The credit facility had a balance as of June 30, 2008 of $119 million and that includes $42 million of borrowings in June related to the Liz agreement, so it was $77 million on an adjusted basis. In July we completed an amendment to the credit facility to accommodate the incremental working capital for the Liz brands. As part of the amendment we increased the size of the facility by $75 million to $325 million. While we don’t currently expect to utilize the entire facility for working capital needs, we’re able to attract extra liquidity due to our solid credit profile and asset based strong banking relationships. This extra liquidity will provide us additional flexibility with respect to share buy-backs and acquisitions. There is no change to the current pricing of LIBOR +125 basis points and the amendment fee was not significant. The Maturity date remains at December 31, 2012.

I’d like to spend a few minutes providing an update on our global efficiency engineering project. The restructuring costs and charges that we outlined on our previous call of $12 million to $14 million are still on track and as planned. The work we have begun to implement the JDE financial system platform continues to progress according to plan. We believe it is important to understand that this initiative should not be viewed as an ERP implementation. We’re implementing new financial accounting and order processing systems which greatly reduces implementation risks and our planning and implementation activities to date have not identified any unexpected issues.

We also continue to see positive results from the supply chain initiatives to reduce costs and working capital and that has been reflected in our guidance. Savings of $10 million to $12 million through fiscal 2009 are also on track. We do expect to reinvest a portion of these savings in our brand portfolio and business during the year.

As far as the capital expenditures we are currently expecting cap ex for the implementation of J.D. Edwards to be about $25 million. The increase from our April call primarily relates to hardware, software and implementation project expenditures that are related to the JDE effort other than the base hardware and software costs that was a basis of the amounts reported on our prior call. It is not what we would call scope [inaudible] or cost overruns. From a cash perspective $14.5 million is expected to be funded in fiscal 2009 which includes $3 million that was originally scheduled for fiscal 2008. For fiscal 2009 we expect total capital expenditures to be in the $40 million range. As a result of increased cap ex our depreciation and amortization for the next fiscal year is expected to increase by about $2.5 million over 2008. Interest expense however is expected to remain flat as the increased borrowings for the incremental Claiborne fragrance working capital will be offset by inventory reductions. Our annual EPS guidance assumes an effective tax rate of 28% and 29.2 million shares outstanding.

As Joel mentioned we have a number of fall launches which will impact the SG&A expenses in the first fiscal quarter and again as always we manage our business on six-month horizons with many of our initiatives having even longer planning horizons.

With that I’ll turn it back to Scott.

E. Scott Beattie

We’re available to answer any questions now.

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