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, 2012. 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 extensive product
portfolio includes the following:



Elizabeth        The Elizabeth Arden skin care brands: Visible Difference,
Arden Brand      Ceramide, Prevage, and Eight Hour Cream, Elizabeth Arden branded
                 lipstick, foundation and other color cosmetics products, and the
                 Elizabeth Arden fragrances: Red Door, Elizabeth Arden 5th
                 Avenue, and Elizabeth Arden green tea

Celebrity        The fragrance brands of Britney Spears, Elizabeth Taylor, Mariah
Fragrances       Carey, Taylor Swift, Justin Bieber, Nicki Minaj and Usher

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

Designer         Juicy Couture, Alfred Sung, BCBGMAXAZRIA, Ed Hardy, Geoffrey
Fragrances       Beene, Halston, John Varvatos, Kate Spade New York, Lucky,
                 Rocawear and True Religion

In addition to our owned and licensed fragrance brands, we distribute approximately 250 additional prestige fragrance brands, primarily in the United States, through distribution agreements and other purchasing arrangements.

In May 2012, we acquired the global licenses and certain related assets, including inventory, for the Ed Hardy, True Religion and BCBGMAXAZRIA fragrance brands from New Wave Fragrances, LLC. Prior to the acquisition, we had been acting as a distributor of the Ed Hardy, True Religion and BCBGMAXAZRIA fragrances to certain mid-tier and mass retailers in the North America. In June 2012, we also acquired the global licenses and certain assets related to the Justin Bieber and Nicki Minaj fragrance brands, including inventory of the Justin Bieber fragrances, from Give Back Brands LLC. Both of these transactions were accounted for as business combinations. We currently expect to incur pre-tax transition and other expenses related to the New Wave LLC and Give Back Brands LLC acquisitions in fiscal 2013 of approximately $14 million ($6.4 million will not require the use of cash in the current fiscal year), of which $13.5 million has been incurred through the six months ended December 31, 2012. These expenses primarily result from inventory purchased by us at a higher cost prior to the acquisitions, and other non-recurring expenses.

For ease of reference in this Form 10-Q, the acquisitions from New Wave LLC and Give Back Brands LLC are referred to herein on a collective basis as the 2012 acquisitions.

Our business strategy is currently focused on two important initiatives: the global repositioning of the Elizabeth Arden brand and expanding the market penetration of our prestige fragrance portfolio in international markets, especially in the large European fragrance market. We also intend to continue to increase net sales, operating margins and earnings by continuing to expand the prestige fragrance category at mass retail customers in North America and continuing to expand operating margins, working capital efficiency and return on invested capital. We believe that our focus on organic growth opportunities for our existing brands, new licensing opportunities and acquisitions, and new product innovation will assist us in achieving these goals.

We recently commenced the roll-out of a comprehensive brand repositioning for the Elizabeth Arden brand, which is designed to honor the heritage of the brand while modernizing the brand's presentation and increasing its relevance among target consumers. The brand repositioning includes a revised product assortment, improved product formulations, package redesign, counter redesign, new advertising and marketing vehicles, and enhanced beauty advisor support. The initial roll-out was limited to a number of flagship retail doors. We began shipping the new product assortment to retailers in June 2012 and replaced most of such flagship retail counters with the new counters during the second quarter of fiscal 2013. During the remainder of fiscal 2013, we plan to substantially complete the process of introducing our new product assortment to our prestige retail customers, and to also extend elements of the new advertising, marketing and beauty advisor programs to the next tier of approximately 200 retail doors globally. We expect to extend elements of the new advertising, marketing and beauty advisor programs to additional retail doors beyond fiscal 2013. Based on the results of the initial roll-out and plans for a more broad-based global roll-out, we may incur costs, expenses and capital expenditures in

future periods that could be material to those periods. The specific facts and circumstances of the global roll-out will impact the timing and amount of any such costs, expenses and capital expenditures. We currently expect to incur pre-tax non-recurring charges in fiscal 2013 of approximately $11 million associated with the Elizabeth Arden brand repositioning resulting from product assortment changes, of which $7.4 million has been incurred through the six months ended December 31, 2012.

In September, 2012, we invested $5.5 million, including transaction costs, for a minority investment in Elizabeth Arden Salon Holdings, LLC, an unrelated entity whose subsidiaries operate the Elizabeth Arden Red Door Spas and the Mario Tricoci Hair Salons. In November 2012, we invested an additional $2.1 million. The investment was made with the intent of accelerating the growth of the spa business in parallel with the growth of the Elizabeth Arden brand and the Elizabeth Arden brand repositioning. The investment, which is in the form of a secured convertible note bearing interest at 2%, has been accounted for using the cost method and at December 31, 2012, is included in other assets on our unaudited consolidated balance sheet. Under the terms of the agreement with Salon Holdings, we are scheduled to invest an additional $2.1 million by May 1, 2013.

We continue to focus on (i) expanding gross margins through increased focus on product mix, improved pricing and reduced sales dilution, (ii) improving our sales and operations planning processes and our supply chain and logistics efficiency, and (iii) leveraging our overhead structure by increasing sales of our International segment. For fiscal 2013, we expect our gross margins to be approximately 35 to 60 basis points below our fiscal 2012 gross margins including an estimated negative impact of 180 basis points for costs associated with the Elizabeth Arden brand repositioning and the 2012 acquisitions. This 180 basis point gross margin impact represents a year over year increase of 140 basis points relating to these costs.

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, 2012 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."

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, 2012, approximately 59% of our net sales were made during the first half of our fiscal year. Due to product innovation and new product launches, the size and timing of certain orders from our customers, and additions or losses of brand distribution rights, sales, results of operations, working capital requirements and cash flows can vary significantly between quarters of the same and different years. As a result, we expect to experience variability in net sales, operating margin, net income, working capital requirements and cash flows on a quarterly basis. Increased sales of skin care and cosmetic products relative to fragrances may reduce the seasonality of our business.

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

Critical Accounting Policies and Estimates

As disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, 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, 2012, there have been no significant changes to the assumptions and estimates related to those critical accounting policies.

Foreign Currency Contracts

We operate in several foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. Our risk management policy is to enter into cash flow hedges to reduce a portion of the exposure of our foreign subsidiaries' revenues to fluctuations in currency rates using foreign currency contracts. We also enter into cash flow hedges for a portion of our forecasted inventory purchases to reduce the exposure of our Canadian and Australian subsidiaries' cost of sales to such fluctuations, as well as cash flow hedges for a portion of our subsidiaries' forecasted Swiss franc operating costs. The principal currencies hedged are British pounds, Euros, Canadian dollars, Australian dollars and Swiss francs. We do not enter into derivative financial contracts for speculative or trading purposes.

Changes to fair value of the foreign currency contracts are recorded as a component of accumulated other comprehensive income (loss) within shareholders' equity, to the extent such contracts are effective, and are recognized in net sales or cost of sales in the period in which the forecasted transaction affects earnings or the transactions are no longer probable of occurring. Changes to fair value of any contracts deemed to be ineffective would be recognized in earnings immediately. There were no amounts recorded in the three and six months ended December 31, 2012 or in fiscal 2012 relating to foreign currency contracts used to hedge forecasted revenues, forecasted cost of sales or forecasted operating costs resulting from hedge ineffectiveness.

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

The table below summarizes the effect of the pre-tax (loss) gain from our settled foreign currency contracts on the specified line items in our consolidated statements of income for the three and six months ended December 31, 2012 and 2011.

(Amounts in thousands)                     Three Months Ended                              Six Months Ended
                                  December 31,            December 31,           December 31,            December 31,
                                      2012                    2011                   2012                    2011
Net Sales                        $         (187 )        $          123         $          (190 )       $           67
Cost of Sales                              (213 )                  (179 )                  (351 )                 (798 )
Selling, general and
administrative                             (188 )                  (505 )                  (742 )                  583

Total pre-tax loss               $         (588 )                  (561 )       $        (1,283 )       $         (148 )

American Taxpayer Relief Act of 2012

On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law by the President of the United States. Under the provisions of the American Taxpayer Relief Act of 2012, the research and development tax credit that had expired December 31, 2011, was reinstated retroactively to January 1, 2012, and is now scheduled to expire on December 31, 2013. We will be required to record the impact of the extension of the research and development tax credit in the fiscal quarter beginning January 1, 2013. The impact of the extension of such tax credit is expected to result in a net tax benefit of approximately $0.5 million for the fiscal year ending June 30, 2013, of which $0.2 million will be recorded as a discrete item in the third quarter of fiscal 2013.

Results of Operations

The following discussion compares the historical results of operations for the
three and six months ended December 31, 2012 and 2011. Results of operations as
a percentage of net sales were as follows (dollar amounts in thousands;
percentages may not add due to rounding):



                                                   Three Months Ended                                     Six Months Ended
                                        December 31,               December 31,               December 31,               December 31,
                                            2012                       2011                       2012                       2011
Net sales                           $ 467,919       100.0 %    $ 429,926       100.0 %    $ 812,460       100.0 %    $ 733,460       100.0 %
Cost of sales                         229,966        49.2        211,012        49.1        425,577        52.4        370,767        50.6
Depreciation in cost of sales           1,487         0.3          1,601         0.4          3,018         0.4          2,944         0.4
Gross profit (1)                      236,466        50.5        217,313        50.5        383,865        47.2        359,749        49.0
Selling, general and
administrative expenses               163,253        34.9        148,451        34.5        292,660        36.0        266,898        36.4
Depreciation and amortization           9,372         2.0          7,070         1.6         18,501         2.3         13,788         1.8
Income from operations (1)             63,841        13.6         61,792        14.4         72,704         8.9         79,063        10.8
Interest expense, net                   6,424         1.4          5,786         1.4         12,622         1.5         11,048         1.5
Income before income taxes             57,417        12.3         56,006        13.0         60,082         7.4         68,015         9.3
Provision for income taxes             12,608         2.7         13,635         3.1         13,089         1.6         16,412         2.3
Net income                             44,809         9.6         42,371         9.9         46,993         5.8         51,603         7.0

Other data
EBITDA and EBITDA margin (2)        $  74,700        16.0 %    $  70,463        16.4 %    $  94,223        11.6 %    $  95,795        13.1 %

(1) For the three months ended December 31, 2012, gross profit includes $1.9 million of inventory-related costs primarily for inventory purchased by us from New Wave Fragrances LLC and Give Back Brands LLC prior to the acquisition of licenses and certain other assets from those companies and other transition costs, and $3.6 million of non-recurring product changeover costs related to the repositioning of the Elizabeth Arden brand. In addition, income from operations includes $0.3 million of non-recurring product changeover expenses, related to the repositioning of the Elizabeth Arden brand that were recorded in selling, general and administrative expenses. For the six months ended December 31, 2012, gross profit includes $13.2 million of inventory-related costs ($6.4 million of which did not require the use of cash in the current period) primarily for inventory purchased by us from New Wave Fragrances LLC and Give Back Brands LLC prior to the acquisition of licenses and certain other assets from those companies and other transition costs, and $7.0 million of non-recurring product changeover costs related to the repositioning of the Elizabeth Arden brand. In addition, income from operations includes $0.3 million in transition costs associated with the 2012 acquisitions and $0.4 million of non-recurring product changeover expenses related to the repositioning of the Elizabeth Arden brand that were recorded in selling, general and administrative expenses.

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

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

• North America - Our North America segment sells our portfolio of owned, licensed and distributed brands, including the Elizabeth Arden products, to department stores, mass retailers and distributors in the United States, Canada and Puerto Rico, and also includes the Company's direct to consumer business, which is composed of our Elizabeth Arden branded retail outlet stores and global e-commerce business. This segment also sells the Elizabeth Arden products through the Red Door beauty salons and spas, which are owned and operated by a third party in which we have a minority investment that licenses the Elizabeth Arden and Red Door trademarks from us for use in its salons and spas.

• International - Our International segment sells our portfolio of owned and licensed brands, including our Elizabeth Arden products, to perfumeries, boutiques, department stores, travel retail outlets and distributors in approximately 120 countries outside of North America.

Segment profit excludes depreciation and amortization, interest expense, consolidation and elimination adjustments and unallocated corporate expenses, which are shown in the table reconciling segment profit to consolidated income before income taxes. Included in unallocated corporate expenses are
(i) restructuring charges that are related to an announced plan,
(ii) restructuring costs for corporate operations and (iii) acquisition-related costs including transition costs. These expenses are recorded in unallocated corporate expenses as these items are centrally directed and controlled and are not included in internal measures of segment operating performance. We do not have any intersegment sales.

The following table is a comparative summary of our net sales and segment profit by operating segment for the three and six months ended December 31, 2012 and 2011 and reflects the basis of presentation described in Note 13 - "Segment Data and Related Information" to the Notes to Unaudited Consolidated Financial Statements for all periods presented.

(Amounts in thousands)                      Three Months Ended                            Six Months Ended
                                   December 31,            December 31,         December 31,            December 31,
                                       2012                    2011                 2012                    2011
Segment Net Sales:
North America                     $      311,077          $      287,095       $      542,634          $      480,061
International                            156,842                 142,831              269,826                 253,399

Total                             $      467,919          $      429,926       $      812,460          $      733,460


Segment Profit:
North America                     $       53,542          $       53,965       $       90,350          $       84,315
International                             23,508                  18,203               18,270                  13,907
Less:
Depreciation and Amortization             10,859                   8,671               21,519                  16,732
Interest Expense, net                      6,424                   5,786               12,622                  11,048
Consolidation and Elimination
Adjustments                                  415                   1,705                  868                   2,427
Unallocated Corporate
Expenses (1)                               1,935 (1)                  -                13,529 (2)                  -

Income Before Income Taxes        $       57,417          $       56,006       $       60,082          $       68,015

(1) Amounts for the three months ended December 31, 2012, include $1.9 million of inventory-related costs recorded in cost of sales primarily for inventory purchased by the Company from New Wave Fragrances LLC and Give Back Brands LLC prior to the acquisition of licenses and other assets from those companies, and other transition costs.

(2) Amounts for the six months ended December 31, 2012, include $13.2 million of inventory-related costs ($6.4 million of which did not require the use of cash in the current period) recorded in cost of sales primarily for inventory purchased by the Company from New Wave Fragrances LLC and Give Back Brands LLC prior to the acquisition of licenses and other assets from those companies, and other transition costs. In addition, included in selling, general and administrative expenses are $0.3 million in transition expenses associated with such acquisitions.

In light of the repositioning of the Elizabeth Arden brand commencing in fiscal 2013, we are providing the following additional net sales information relating to the following product categories: the Elizabeth Arden Brand (skin care, cosmetics and fragrances) and Celebrity, Lifestyle, Designer and Other Fragrances.

(Amounts in thousands)                     Three Months Ended                         Six Months Ended
                                    December 31,         December 31,         December 31,         December 31,
                                        2012                 2011                 2012                 2011
Net Sales:
Elizabeth Arden Brand              $      147,957       $      143,568       $      256,436       $      257,866
Celebrity, Lifestyle, Designer
and Other Fragrances                      319,962              286,358              556,024              475,594

Total                              $      467,919       $      429,926       $      812,460       $      733,460

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

Net Sales. Net sales increased by 8.8%, or $38.0 million, for the three months ended December 31, 2012, compared to the three months ended December 31, 2011. Excluding the unfavorable impact of foreign currency, net sales increased by 9.1%, or $39.2 million. Pricing changes had an immaterial effect on net sales. The following is a discussion of net sales by segments and product categories.

Segment Net Sales:

North America

Net sales increased by 8.4%, or $24.0 million. The impact of foreign currency was not material. Net sales of licensed and non-Elizabeth Arden branded products increased by $33.7 million. The increase includes higher net sales of (i) $20.6 million of the brands acquired in the 2012 acquisitions, (ii) $16.2 million due to the launches of Justin Bieber's Girlfriend, Pink Friday Nicki Minaj and Ed Hardy Skull & Roses fragrances, and (iii) $15.8 million from higher sales of the Juicy Couture and Taylor Swift fragrances. Partially offsetting these increases were lower sales of various other owned and licensed brands, including $8.7 million of lower sales of Mariah Carey, Britney Spears and Curve fragrances. Net sales for Elizabeth Arden branded products decreased by $3.4 million, primarily due to lower net sales of skin care products. Net sales of distributed brands were $6.4 million lower than the prior year period.

International

Net sales increased by 9.8%, or $14.0 million. Excluding the unfavorable impact of foreign currency, net sales increased by 10.9%, or $15.6 million. Net sales for Elizabeth Arden branded products increased by $7.8 million, due to higher sales of skin care and fragrance products. Net sales of licensed and non-Elizabeth Arden branded products increased an aggregate of $6.5 million primarily due to higher sales of Justin Bieber and Taylor Swift fragrances, partially offset by lower sales of $9.1 million of Britney Spears, Mariah Carey and Juicy Couture fragrances. Our international results were led by higher net sales of $8.1 million in Europe and $3.3 million in the Asia Pacific region.

Product Category Net Sales:

Elizabeth Arden Brand

Net sales increased by 3.1%, or $4.4 million, due to higher sales of skin care products and fragrance products. Excluding the unfavorable impact of foreign currency, net sales increased by 3.8%, or $5.4 million. Net sales for skin care products increased by 4.3%, or $2.8 million primarily due to higher sales of Prevage and Visible Difference. Net sales of fragrances increased 2.1%, or $1.3 million, primarily due to higher sales of Red Door fragrances.

Celebrity, Lifestyle, Designer and Other Fragrances

. . .