This discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and related notes contained in this quarterly report and the Consolidated Financial Statements and related notes and the Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended June 30, 2008. The results of operations for an interim period may not give a true indication of results for the year. In the following discussion, all comparisons are with the corresponding items in the prior year period.

Overview

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

Celebrity Fragrances Elizabeth Taylor's White Diamonds and Passion, curious Britney Spears, fantasy Britney Spears and Britney Spears believe, with Love...Hilary Duff, Danielle by Danielle Steel, M by Mariah Carey, and Usher

Lifestyle Fragrances Curve, Giorgio Beverly Hills, Lucky, PS Fine Cologne for

                     Men, Design and White Shoulders

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

In addition to our owned and licensed fragrance brands, we distribute 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 under Results of Operations -- Three Months Ended March 31, 2009 compared to Three Months Ended March 31, 2008), EBITDA margin (EBITDA divided by net sales), 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, in Part II, Item 1A, "Risk Factors" of this quarterly report, 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 license arrangement will, in the long term, allow us to (i) increase our market share in our North America Fragrance segment, particularly in department stores, (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 North America mass customer sales from distribution margins to owned/licensed margins, and (iv) provide additional sales volume for our International segment. The current challenging economic and retail environment has hindered our ability to fully realize these anticipated benefits.

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 (the 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 the 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 continue to implement 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 $3.0 million has been incurred to date and $1.1 million was incurred during the quarter ended March 31, 2009.

Given the difficult economic and retail environment, our priorities for the remainder of the fiscal year ending June 30, 2009 are to (i) reduce inventory in order to maximize cash flow, (ii) focus our advertising and promotional expenditures on the brands, markets and channels of distribution that provide the best return and eliminate marginal spending, (iii) re-assess new product innovation, and (iv) accelerate the business process re-engineering initiatives related to the Initiative.

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 61.0% 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.

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, 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 non-financial assets and non-financial 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 non-financial assets and liabilities, SFAS 157 will be effective for us on July 1, 2009. The adoption of SFAS 157 with respect to financial assets and liabilities did not have a material impact on our consolidated financial statements. See Note 14 to the Notes to Unaudited Consolidated Financial Statements. We are evaluating the impact on our consolidated financial statements of the application of SFAS 157 with respect to non-financial assets and liabilities.

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.

In accordance with Statement of Financial Accounting Standards No.142, Goodwill and Other Intangible Assets (SFAS 142), goodwill and intangible assets with indefinite lives are not amortized, but rather tested for impairment at least annually. We typically perform our annual impairment test during the fourth quarter of our fiscal year or more frequently if events or changes in circumstances indicate the carrying value of goodwill may not fully be recoverable. There is a two step process for impairment testing of goodwill. The first step, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. The second step, if necessary, measures the amount of the impairment. Owned trademarks that have been determined to have indefinite lives are not subject to amortization but are reviewed at least annually for potential impairment in accordance with SFAS 142, as mentioned above. The fair values are estimated and compared to their carrying values.

Since March 31, 2009, we completed our annual impairment testing of the Elizabeth Arden brand trademarks and goodwill. The analysis and assessments of these intangible assets indicated that no impairment adjustment was required as the estimated fair value of these intangible assets significantly exceeded their recorded carrying value. On April 1, 2009, the date of our annual impairment test, and subsequent to that date, our net book value exceeded our market capitalization. In management's judgment, a significant portion of the recent decline in our stock price is related to the deterioration of macroeconomic conditions, including substantial volatility of the capital markets, and is not reflective of the expected underlying cash flows of our reporting units. See Note 9 of the Notes to Unaudited Consolidated Financial Statements.

Due to the ongoing uncertainty in capital market conditions, which may continue to negatively impact our market value, we will continue to monitor and evaluate the expected future cash flows of our reporting units and the long-term trends of our market capitalization for the purposes of assessing the carrying value of our goodwill and indefinite-lived Elizabeth Arden trademarks, other trademarks and intangible assets. If market and economic conditions deteriorate further, this could increase the likelihood of future material non-cash impairment charges to our results of operations related to our goodwill, indefinite-lived Elizabeth Arden trademarks, other trademarks and intangible assets.

Results of Operations

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

                                                  Three Months Ended                                     Nine Months Ended

                                         March 31,                  March 31,                  March 31,                  March 31,
                                           2009                        2008                       2009                       2008

Net sales                        $ 203,471      100.0 %      $ 210,554     100.0 %      $ 857,663     100.0 %      $ 904,786     100.0 %
Cost of sales                      115,796       56.9          119,800      56.9          511,962      59.7          528,792      58.4
   Gross profit                     87,675       43.1           90,754      43.1          345,701      40.3          375,994      41.6
Selling, general and
administrative
  expenses                          86,398       42.5           83,004      39.4          316,123      36.9          294,837      32.6
Depreciation and amortization        6,392        3.1            6,298       3.0           19,205       2.2           18,461       2.0
   (Loss) income from
   operations                       (5,115 )(2)  (2.5 )(2)       1,452 (2)   0.7 (2)       10,373 (3)   1.2 (3)       62,696 (3)   6.9 (3)
Interest expense, net                5,643        2.8            6,067       2.9           19,244       2.2           21,821       2.4
   (Loss) income before income
   taxes                           (10,758 )     (5.3 )         (4,615 )    (2.2 )         (8,871 )    (1.0 )         40,875       4.5
(Benefit from) provision for
income
  taxes                             (7,054 )     (3.5 )           (803 )    (0.4 )         (6,317 )    (0.7 )         10,538       1.2
   Net (loss) income                (3,704 )     (1.8 )         (3,812 )    (1.8 )         (2,554 )    (0.3 )         30,337       3.4

Other data
EBITDA and EBITDA margin (1)     $   1,277 (2)    0.6 %(2)   $   7,750 (2)   3.7 %(2)   $  29,578 (3)   3.4 %(3)   $  81,157 (3)   9.0 %(3)

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

(2) The three months ended March 31, 2009 include $1.0 million related to implementation of our new Oracle accounting and order processing systems and $1.1 million of restructuring expenses related to the Initiative. No such expenses were incurred during the three months ended March 31, 2008. In addition, the three months ended March 31, 2009 and 2008 include $0.1 million and $1.1 million, respectively, of restructuring expenses that are not related to the Initiative. For the three months ended March 31, 2009 and 2008, the various expenses described above reduced operating margin by 1.0% and 0.5%, respectively, and EBITDA margin by 1.1% and 0.5%, respectively.

(3) The nine months ended March 31, 2009 include (i) $23.3 million of expenses related to the Liz Claiborne license agreement ($18.9 million of which did not require the use of cash in the current period) due to Liz Claiborne inventory that was purchased at a higher cost prior to the June 2008 effective date of the license agreement and transition expenses, (ii) $1.7 million related to implementation of our new Oracle accounting and order processing systems, and (iii) $2.3 million of restructuring expenses related to the Initiative. In addition, the nine months ended March 31, 2009 and 2008 include $1.0 million and $2.1 million, respectively, of restructuring expenses that are not related to the Initiative. For the nine months ended March 31, 2009 and 2008, the various expenses described above reduced operating margin by 3.3% and 0.3%, respectively, and EBITDA margin by 3.4% and 0.2%, respectively.

Our operations are organized into the following reportable segments:

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

- 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.

Segment profit excludes depreciation and amortization, interest expense and unallocated corporate expenses, which are shown in the table below reconciling segment profit to consolidated net (loss) income before income taxes. Included in unallocated corporate expenses are (i) adjustments to eliminate intercompany mark-up, (ii) employee incentive costs, (iii) restructuring charges, and (iv) costs related to the Initiative. Unallocated corporate expenses for the nine months ended March 31, 2009, also include $23.3 million of expenses related to the recent Liz Claiborne license agreement ($18.9 million of which did not require the use of cash in the current period), due to Liz Claiborne inventory that was purchased at a higher cost prior to the June 2008 effective date of the license agreement and transition expenses. No expenses related to the Liz Claiborne license agreement were incurred during the three months ended March 31, 2009. Restructuring charges, costs related to the Initiative and expenses related to the Liz Claiborne license agreement are recorded in unallocated corporate expenses as these decisions are centrally directed and controlled, and are not included in internal measures of segment operating performance. 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 and nine months ended March 31, 2009 and 2008 and reflects the basis of presentation described in Note 17 -- "Segment Data and Related Information" to the Notes to Unaudited Consolidated Financial Statements for all periods presented.

                                      Three Months Ended              Nine Months Ended

                                   March 31,      March 31,      March 31,        March 31,
(Amounts in thousands)                2009           2008           2009             2008

Segment Net Sales:
  North America Fragrance          $  120,056     $  114,481     $  545,804       $  552,682
  International                        75,210         85,711        281,135          308,789
  Other                                 8,205         10,362         30,724           43,315

Total                              $  203,471     $  210,554     $  857,663       $  904,786

Segment Profit:
  North America Fragrance          $   20,845     $   17,296     $   89,782       $   86,565
  International                        (4,549 )       (4,939 )       (2,829 )         22,562
  Other                                (5,576 )       (1,446 )      (10,614 )         (4,085 )

Total                              $   10,720     $   10,911     $   76,339       $  105,042

Reconciliation:
  Segment Profit                   $   10,720     $   10,911     $   76,339       $  105,042
  Less:
    Depreciation and Amortization       6,392          6,298         19,205           18,461
    Interest Expense, net               5,643          6,067         19,244           21,821
    Unallocated Corporate Expenses      9,443          3,161         46,761 (1)       23,885

  (Loss) Income Before Income
Taxes                              $  (10,758 )   $   (4,615 )   $   (8,871 )     $   40,875

(1) In May 2008, we entered into an exclusive long-term global licensing agreement for the Liz Claiborne fragrance brands, which became effective on June 9, 2008. Amounts shown for the nine months ended March 31, 2009 reflect $23.3 million of expenses related to the Liz Claiborne license agreement ($18.9 million of which did not require the use of cash in the current period), due to Liz Claiborne inventory that was purchased at a higher cost prior to the June 2008 effective date of the license agreement and transition expenses. No such expenses were incurred during the three months ended March 31, 2009.

Net Sales. Net sales decreased 3.4%, or $7.1 million, for the three months ended March 31, 2009, compared to the three months ended March 31, 2008. Pricing changes had an immaterial effect on net sales. Excluding the unfavorable impact of foreign currency translation, net sales increased 1.3%, or $2.8 million. The decrease in net sales is primarily due to the unfavorable impact of foreign currency translation and lower sales to travel retail outlets due to a sharp reduction in passenger traffic at airports, as well as to distributor markets. The sales declines affected most distributed and owned or licensed fragrance brands and our skin care and color products. These declines were partially offset by $16.2 million in sales of fragrances launched since the prior year period, including the Juicy Couture fragrances Viva La Juicy and Dirty English, the Elizabeth Arden fragrance Pretty, and the 9IX Rocawear fragrance. Additionally, net sales of other Liz Claiborne fragrance brands and the Usher fragrance brands, which we distributed in the prior year period but now manufacture, increased $19.6 million as a result of the June 2008 Liz Claiborne license agreement.

Net sales increased by 4.9%, or $5.6 million. Excluding the unfavorable impact of foreign currency translation, net sales increased 6.5%, or $7.4 million. The higher net sales were primarily due to 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, which collectively generated a total of $9.7 million of net sales for this segment. Net sales of other Liz Claiborne fragrance brands and the Usher fragrance brands, which we distributed in the prior year period but now manufacture, increased $17.7 million as a result of the June 2008 Liz Claiborne license agreement. These increases were mostly offset by declines in net sales across our brand portfolio and customer base, and attributable to continued weakness in the North American economy and the related credit constraints of several of our customers.

Net sales decreased 12.3%, or $10.5 million. Excluding the unfavorable impact of foreign currency translation, International net sales decreased 2.8%, or $2.4 million. The sales declines were primarily a result of the unfavorable impact of foreign currency translation, $6.4 million of lower sales to travel retail outlets due to a sharp reduction in passenger traffic at airports, and lower sales to distributor markets associated with credit constraints and continued weakness in the global economy. Partially offsetting the decrease were approximately $3.3 million of increased fragrance sales of Liz Claiborne fragrances internationally.

Gross Margin. For the three months ended March 31, 2009 and 2008, gross margins were 43.1%. Increased net sales of Liz Claiborne brands, which as licensed brands reflect higher gross margins than when they were distributed brands, were offset by lower net sales in higher margin international markets and the unfavorable impact of foreign currency translation.

SG&A. Selling, general and administrative expenses increased 4.1%, or $3.4 million, for the three months ended March 31, 2009, compared to the three months ended March 31, 2008. The increase was principally due to higher advertising costs of $3.0 million primarily to support fragrance launches and higher royalty costs of $2.0 million, primarily related to the recently licensed Liz Claiborne fragrance brands. Partially offsetting the increases were lower sales promotion and direct selling costs of approximately $2.1 million. We also incurred costs of $2.1 million related to restructuring expenses and implementation expenses for our new Oracle accounting and order processing system compared to $1.1 million of restructuring expenses in the prior year period.

. . .