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

Overview

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

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

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

                     White Shoulders

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

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

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

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

In fiscal 2007, we commenced a comprehensive review of our global business processes to re-engineer our extended supply chain, distribution, logistics and transaction processing systems. We refer to this initiative as the Global Efficiency Re-engineering initiative, or sometimes simply as the Initiative. In May 2008, we announced an acceleration of the re-engineering of our extended supply chain, distribution and logistics functions, as well as the realignment of other parts of our organization to better support our new business processes.

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

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

Seasonality

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

Critical Accounting Policies and Estimates

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

Results of Operations

     The following discussion compares the historical results of operations for
the three months ended September 30, 2009 and 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

                                                        September 30,                          September 30,
                                                             2009                                   2008

Net sales                                     $      265,164        100.0 %             $      284,187      100.0 %
Cost of sales                                        148,277         55.9                      177,773       62.6
   Gross profit                                      116,887         44.1                      106,414       37.4
Selling, general and administrative
expenses                                             103,943         39.2                      109,388       38.5
Depreciation and amortization                          7,276          2.7                        6,339        2.2
   Income (loss) from operations                       5,668          2.1                       (9,313 )     (3.3 )
Interest expense, net                                  5,611          2.1                        6,575        2.3
   Income (loss) before income taxes                      57           --                      (15,888 )     (5.6 )
Provision for (benefit from) income
taxes                                                     17           --                       (3,372 )     (1.2 )
   Net income (loss)                                      40           --                      (12,516 )     (4.4 )

Other data
                                                                                                       )
EBITDA and EBITDA margin (1)                  $       12,944          4.9 %             $       (2,974 (2)   (1.0 )%

(1) For a definition of EBITDA and a reconciliation of net income (loss) to EBITDA, see "EBITDA" under Results of Operations -- Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008. EBITDA margin represents EBITDA divided by net sales.

(2) 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) related to the Liz Claiborne license agreement due to Liz Claiborne inventory that was purchased at a higher cost prior to the June 2008 effective date of the license agreement and transition expenses associated with the license.

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

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

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

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 income (loss) before income taxes. Included in unallocated corporate expenses are (i) adjustments to eliminate intercompany mark-up, (ii) employee incentive costs, (iii) restructuring charges, and (iv) costs related to the Initiative. Unallocated corporate expenses for the three months ended September 30, 2008 also include $19.1 million of expenses ($15.4 million of which did not require the use of cash) related to our Liz Claiborne license agreement due to Liz Claiborne inventory that was purchased at a higher cost prior to the June 2008 effective date of the license agreement, and transition expenses. Restructuring charges and costs related to the Initiative are also 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 any intersegment sales.

The following table is a comparative summary of our net sales and segment profit (loss) by reportable segment for the three months ended September 30, 2009 and 2008 and reflects the basis of presentation described in Note 14 -- "Segment Data and Related Information" to the Notes to Unaudited Consolidated Financial Statements for all periods presented.

       (Amounts in thousands)                       Three Months Ended

                                             September 30,       September 30,
                                                 2009                2008

       Segment Net Sales:
         North America Fragrance            $       168,133     $       177,560
         International                               85,228              94,426
         Other                                       11,803              12,201

       Total                                $       265,164     $       284,187

       Segment Profit (Loss):
         North America Fragrance            $        27,635     $        31,899
         International                                  631              (6,588 )
         Other                                         (675 )              (880 )

       Total                                $        27,591     $        24,431

       Reconciliation:
         Segment Profit                     $        27,591     $        24,431
         Less:
           Depreciation and Amortization              7,276               6,339
           Interest expense                           5,611               6,575
           Unallocated Corporate Expenses            14,647              27,405

       Income (Loss) Before Income Taxes    $            57     $       (15,888 )

Net Sales. Net sales decreased by 6.7% or $19.0 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008. Excluding the unfavorable impact of foreign currency translation, net sales decreased by 5.0% or $14.2 million. In addition to the unfavorable impact of foreign currency translation, the lower net sales were principally due to customers, primarily in North America and Europe, continuing to reduce replenishment orders to lower inventory and lower sales to travel retail outlets due to a reduction in passenger traffic at airports. Incremental net sales related to the current year launch of the new Juicy Couture fragrance, Couture Couture, and the continued roll out of the prior year launch of Viva La Juicy were more than offset by reduced sales of other brands, primarily Elizabeth Arden branded products and distributed brands.

North America Fragrance
Net sales decreased by 5.3% or $9.4 million. Excluding the unfavorable impact of foreign currency translation, net sales decreased by 5.1% or $9.0 million. The decline in net sales was primarily due to a weak economic environment and certain customers continuing to reduce basic stock replenishment orders to lower inventory levels. A decline in sales of distributed brands was partially offset by higher sales of the Juicy Couture, Britney Spears and Mariah Carey fragrance brands.

International
Net sales decreased by 9.7% or $9.2 million. Excluding the unfavorable impact of foreign currency translation, net sales decreased by 5.1 % or $4.8 million, primarily due to Elizabeth Arden branded products. The sales declines included $4.9 million of lower net sales to distributor markets and travel retail outlets due to a reduction in passenger traffic, as well as lower sales in Europe. Partially offsetting these declines were higher sales in the Asia Pacific region and incremental sales due to the launch of the Alberta Ferretti fragrance.

Other
Net sales decreased by 3.3% or $0.4 million.

Gross Margin. For the three months ended September 30, 2009 and 2008, gross margins were 44.1% and 37.4%, respectively. Gross margin for the three months ended September 30, 2008 included $16.4 million of charges ($15.4 million of which did not require the use of cash) primarily related to the Liz Claiborne inventory purchased prior to the June 2008 effective date of the Liz Claiborne license agreement. In addition, gross margin in the current year period benefited from a higher proportion of sales of owned and licensed brands, which have higher gross margins as compared to distributed brands.

SG&A. Selling, general and administrative expenses decreased 5.0%, or $5.4 million, for the three months ended September 30, 2009, compared to the three months ended September 30, 2008. The decrease was principally due to (i) transition expenses of $2.7 million in the prior year period related to the license of the Liz Claiborne fragrance brands, (ii) lower general and administrative expenses of $2.1 million for the three months ended September 30, 2009, principally due to lower incentive compensation costs, and (iii) lower sales overhead expenses of $1.6 million. Additionally, the current year period benefited from a $1.3 million favorable impact of foreign currency translation of our international affiliates' balance sheets as compared to a loss in the prior year period of $2.1 million. These decreases were partially offset by higher advertising and promotion costs of $2.8 million. For the three months ended September 30, 2009 and 2008, total share-based compensation cost charged against income for all stock plans was $1.3 million and $1.4 million, respectively.

Segment Profit

North America Fragrance
Segment profit decreased 13.4% or $4.3 million. The decrease in segment profit was mostly due to lower sales and higher advertising and promotion costs.

International
Segment profit was $0.6 million compared to a loss of $6.6 million for the three months ended September 30, 2008. The improvement in segment results was primarily due to improved gross margins due to a higher proportion of basic product sales, which have higher gross margins as compared to promotional products. In addition, selling, general and

administrative expenses were lower compared to the three months ended September 30, 2008, primarily due to the favorable impact of foreign currency translation of our international affiliates' balance sheets and lower overhead costs. The improved gross margin and reduced selling, general and administrative expenses were partially offset by lower sales.

Other
Segment loss decreased by $0.2 million from the prior year period primarily due to improved gross margins.

Interest Expense. Interest expense, net of interest income, decreased 14.7%, or $1.0 million, for the three months ended September 30, 2009, compared to the three months ended September 30, 2008. The decrease was due to lower average interest rates under our revolving bank credit facility and lower average borrowings under such credit facility during the current year period.

Provision for/benefit from Income Taxes. The effective tax rate, which is calculated as a percentage of the income or loss before income taxes for the three months ended September 30, 2009, was 31.2 % compared to 21.2% for the three months ended September 30, 2008. The increase in the effective tax rate was mainly due to the $19.1 million of inventory charges and transition expenses ($15.4 million of which did not require the use of cash) recognized in the prior year period related to the Liz Claiborne license agreement, which resulted in higher income from operations in the U.S. in the current year period. Our U.S. operations have a higher effective tax rate than our international operations.

Net Income/loss. Net income for the three months ended September 30, 2009, was $40,000, compared to a loss of $12.5 million for the three months ended September 30, 2008. The increase in net income was primarily the result of $19.1 million of inventory charges and transition expenses ($15.4 million of which did not require the use of cash) recognized in the prior year period related to the Liz Claiborne license agreement, other lower selling, general and administrative expenses of $2.7 million and lower interest expense of $1.0 million in the current year period, partially offset by the impact of lower net sales and a higher effective tax rate.

EBITDA. EBITDA (net income plus the provision for income taxes (or net loss less the benefit from income taxes), plus interest expense, plus depreciation and amortization expense) increased by approximately $16.0 million to $12.9 million for the three months ended September 30, 2009, compared to a loss of $3.0 million for the three months ended September 30, 2008. The increase in EBITDA was primarily the result of $19.1 million of high cost inventory charges and transition expenses recognized in the prior year period related to the Liz Claiborne license agreement as discussed above and other lower selling, general and administrative expenses of $2.7 million in the current year period, partially offset by the impact of lower net sales.

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

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

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

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

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

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

  (Amounts in thousands)                                  Three Months Ended

                                                   September 30,       September 30,
                                                       2009                2008

  Net income (loss)                               $            40     $       (12,516 )
  Plus:
      Provision for (benefit from) income taxes                17              (3,372 )
      Interest expense, net                                 5,611               6,575
      Depreciation and amortization                         7,276               6,339

              EBITDA                              $        12,944     $        (2,974 )


Liquidity and Capital Resources

    (Amounts in thousands)                            Three Months Ended

                                               September 30,       September 30,
                                                   2009                2008

    Net cash used in operating activities     $       (59,901 )   $       (94,539 )
    Net cash used in investing activities              (9,159 )           (12,888 )
    Net cash provided by financing activities          68,971             109,431
    Net increase in cash and cash equivalents             393               1,122

Cash Flows. For the three months ended September 30, 2009, net cash used in operating activities was $59.9 million, as compared to net cash used in operating activities of $94.5 million for the three months ended September 30, 2008. This decrease in cash used in operating activities was principally due to lower inventory levels resulting from the Initiative.

For the three months ended September 30, 2009, net cash used in investing activities of $9.2 million was composed of $8.8 million of capital expenditures and the $0.3 million payment of the remaining installment of contingent consideration associated with our acquisition of the fragrance business of Sovereign Sales, LLC. For the three months ended September 30, 2008, net cash used in investing activities of $12.9 million was composed of $7.6 million of capital expenditures and the $5.3 million payment of the second installment of contingent consideration associated with our acquisition of the fragrance business of Sovereign Sales.

For the three months ended September 30, 2009, net cash provided by financing activities was $69.0 million, as compared to $109.4 million for the three months ended September 30, 2008. During the three months ended September 30, 2009, borrowings under our credit facility increased by $69.9 million to $184.9 million at September 30, 2009. During the three months ended September 30, 2008, borrowings under our credit facility increased by $110.5 million to $229.5 million at September 30, 2008.

Interest paid during the three months ended September 30, 2009, included $8.7 million of interest payments on the 7 3/4% senior subordinated notes due 2014 and $1.0 million of interest paid on the borrowings under our credit facility. Interest paid during the three months ended September 30, 2008, included $8.7 million of interest payments on the 7 3/4% senior subordinated notes and $1.8 million of interest paid on the borrowings under our credit facility.

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

We have a revolving $325 million credit facility with a syndicate of banks, for which JPMorgan Chase Bank is the administrative agent, which generally provides for borrowings on a revolving basis, with a $25 million sub-limit for letters of credit. Under the terms of the credit facility we may, at any time, increase the size of the credit facility up to $375 million without entering . . .