ELIZABETH ARDEN, INC.
2400 SW 145 Avenue
Miramar, Florida 33027
(954) 364-6900
March 1, 2006
VIA EDGAR TRANSMISSION AND THE MAIL
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Mr. Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
100 F Street, N.E., Mail Stop 7010
Washington, D.C. 20549-7010
RE: Elizabeth Arden, Inc.
Form 10-K for the fiscal year ended June 30, 2005
Form 10-Q for the fiscal quarter ended September 30, 2005
File No. 1-6370
Dear Mr. Decker:
This letter sets forth the responses of Elizabeth Arden, Inc. (the
"Company" or "we" or "our") to the comments of the staff of the Securities
and Exchange Commission (the "Commission") contained in a letter to the
Company dated January 31, 2006. For ease of reference, each comment in the
Commission's letter is printed below and followed by the Company's response.
Form 10-K for the Fiscal Year Ended June 30, 2005
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Comment applicable to your overall filing
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1. Where a comment below requests additional disclosures or other revisions
to be made, please show us in your supplemental response what the
revisions will look like. These revisions should be included in your
future filings.
Company Response
----------------
We note the instructions regarding future filings. Our proposed
revisions are set forth in this letter, contained in our Quarterly
Report on Form 10-Q for the three months ended December 31, 2005, which
was filed with the Commission on February 9, 2006 (the "Second Quarter
Form 10-Q") and/or contained in future filings, as appropriate,
but are subject to change based on facts and circumstances at the time
we make future filings. Our proposed revisions in response to comments
11 and 12 of the staff's letter will be incorporated in an amendment to
our Form 8-K dated November 3, 2005, which we are prepared to file
following the staff's review of our responses.
Mr. Rufus Decker
Securities and Exchange Commission
March 1, 2006
Page 2 of 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, page 18
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Results of Operations, page 22
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Year Ended June 30, 2005 Compared to Year Ended January 31, 2004, page 23
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2. You have disclosed various components, which have contributed to
increases and decreases within your income statement line items,
including but not limited to, net sales, gross profit and SG&A. Some of
the components you have cited include the following:
o higher net sales,
o impact of foreign currency rates,
o lower supply chain distribution costs,
o higher incentive compensation costs, and
o higher advertising and product development costs.
Your disclosure should include additional details that explain the
reasons for each component you cite, which attributed to the change and
should also quantify the effect each of these components had on the
increases and decreases within the income statement line items,
including those components that offset one another. Please show us what
your revised MD&A disclosure for fiscal year ended June 30, 2005
compared to fiscal year ended January 31, 2004 and the five-month
transition period ended June 30, 2004 compared to five months ended June
28, 2003 will look like.
Company Response
----------------
The proposed revisions to the MD&A disclosure to be included in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2006 (the
"2006 Form 10-K") are as follows:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Year Ended June 30, 2005 Compared to Year Ended January 31, 2004
----------------------------------------------------------------
Net Sales. Net sales increased approximately 13.0% for the year
ended June 30, 2005 compared to the year ended January 31, 2004. The
sales increase was driven by approximately $120 million in sales related
to new fragrance product launches, including curious Britney Spears and
Elizabeth Arden Provocative Woman, the favorable impact of foreign
currency rates and approximately $11 million related to increased
skin care product sales globally and increased cosmetic product sales
internationally. These increases were partially offset by approximately
$31 million of lower sales of certain fragrances to certain U.S. retail
customers, primarily ardenbeauty and Red Door Revealed, which were
launched in the years ended January 31, 2003 and 2004, respectively.
Excluding the impact of foreign currency translation, net sales
increased 9.6%.
Gross Profit. Gross profit increased 22.5% for the year ended June
30, 2005 compared to the year ended January 31, 2004. The increase in
gross profit was principally due to higher net sales, including new
product launches, which contributed approximately $47 million of
additional gross profit, a 600 basis point increase in the proportion of
sales of owned and licensed brands,
Mr. Rufus Decker
Securities and Exchange Commission
March 1, 2006
Page 3 of 11
which have higher gross margins than distributed brands and contributed
$21 million to gross profit, the favorable impact of foreign currency
rates described above and lower supply chain distribution costs of
approximately $2 million, partially offset by approximately $1 million
of higher "gift with purchase" costs. Gross margins increased to 44.7%
in the year ended June 30, 2005 from 41.2% in the year ended January 31,
2004.
SG&A. Selling, general and administrative expenses increased 27.4%
for the year ended June 30, 2005 over the year ended January 31, 2004.
The increase was principally due to approximately $54 million in
advertising, promotion and selling costs to support brand development
and sales, including for the curious Britney Spears and the Elizabeth
Arden Provocative Woman fragrance launches, the adverse impact of
foreign currency rates and approximately $5 million in higher incentive
compensation costs, primarily restricted stock awards, as the Company
has reduced the number of employee stock options granted and has
migrated towards more performance-based share awards, partially offset
by a $2.3 million restructuring charge in the year ended January 31,
2004 related to the consolidation of our U.S. distribution facilities,
which was announced in November 2003 and was substantially completed by
March 2004. The unfavorable impact of foreign currency exchange rates
contributed approximately $15.1 million to the increase in selling,
general and administrative expenses compared to the year ended January
31, 2004. The increase in selling, general and administrative expenses
as a percentage of net sales primarily reflects the increased
advertising and product development costs and unfavorable foreign
currency exchange rates. We intend to continue to increase our
advertising and product development costs in the fiscal year ending
June 30, 2006 to support brand growth, including new product launches.
Five-Month Transition Period Ended June 30, 2004 Compared to Five Months
Ended June 28, 2003
------------------------------------------------------------------------
Net Sales. Net sales increased approximately 8.6% for the five-
month transition period ended June 30, 2004 over the five months ended
June 28, 2003. The sales increase was driven by approximately $12
million of new product launches, primarily the Elizabeth Arden
Provocative Woman and the Red Door Revealed fragrances, approximately $9
million in increased fragrance sales to our mass retail customers, the
favorable impact of foreign currency rates, and an increase of
approximately $4 million in the travel retail business, which was
adversely affected by the severe acute respiratory syndrome (SARS)
epidemic in the prior period. The increase in net sales was partially
offset by approximately $6 million relating to both lower sales to a
U.S. department store account due to a change in that account's
merchandising strategy in the fragrance category and an increase in in-
store support costs at U.S. department stores associated with a new
fragrance launch. Excluding the impact of foreign currency translation,
net sales increased 4.9%.
Gross Profit. Gross profit increased 17.9% for the five-month
transition period ended June 30, 2004 over the five months ended June
28, 2003. The increase in gross profit was principally due to higher
net sales, including new product launches, that contributed
approximately $7 million in additional gross profit, a 600 basis point
increase in the proportion of sales of owned and licensed brands, which
have higher gross margins than distributed brands and contributed
approximately $5 million in gross profit, the favorable impact of
foreign currency rates described above and approximately $1 million in
lower supply chain and distribution costs. Gross margin
Mr. Rufus Decker
Securities and Exchange Commission
March 1, 2006
Page 4 of 11
increased to 39.6% for the five-month transition period ended June 30,
2004 from 36.5% for the five months ended June 28, 2003.
SG&A. Selling, general and administrative expenses increased 17.2%
for the five-month transition period ended June 30, 2004 over the five
months ended June 28, 2003. The increase was principally due to
approximately $7 million relating to the adverse impact of foreign
currency rates, approximately $5 million in additional advertising to
support new product launches, including the use of television and print
advertising for the Elizabeth Arden Provocative Woman and skinsimple
launches, approximately $1 million in higher product development costs,
approximately $2 million in costs associated with our change in fiscal
year end in June 2004 and a $1.3 million restructuring charge related to
the consolidation of our U.S. distribution facilities, which was
announced in November 2003 and was substantially completed by March
2004.
3. In Item 1 you disclosed that you launched various new products,
including a Britney Spears fragrance; curious, a new Elizabeth Arden
fragrance, Elizabeth Arden Provocative Woman, and new skin care and
color products during the fiscal year ended June 30, 2005. You also
disclosed various new products launched during the fiscal year ended
January 31, 2004, including a new Elizabeth Arden fragrance, Red Door
Revealed and new skin care and color products. Please expand your
disclosure to discuss the impact these products had on your net sales
and gross profit. Please also provide this expanded disclosure for the
five-month transition period ended June 30, 2004 compared to five months
ended June 28, 2003.
Company Response
----------------
Please see our response to the staff's comment 2 above, which contains
our proposed disclosure to be included in the 2006 Form 10-K.
Liquidity and Capital Resources, page 28
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4. Please revise your table of contractual cash obligations to include
estimated interest payments on your debt and estimated payments under
interest rate swap agreements. Because the table is aimed at increasing
transparency of cash flow, we believe these payments should be included
in the table. Please also disclose any assumptions you made to derive
these amounts.
Company Response
----------------
Attached as Schedule 1 is the proposed revision of the table of
contractual obligations based on the relevant data at the June 30, 2005
fiscal year end. We will incorporate such additional disclosures, to
the extent they continue to be applicable as of the future date, in the
table of contractual cash obligations in future filings beginning with
our 2006 Form 10-K. We note that interest on long-term debt is
obtainable from the information provided in Note 9 Long-Term Debt
contained on page 53 of our Annual Report on Form 10-K for the fiscal
year ended June 30, 2005 (the "2005 Form 10-K").
Mr. Rufus Decker
Securities and Exchange Commission
March 1, 2006
Page 5 of 11
Financial Statements
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Statements of Operations, page 40
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5. Your disclosure regarding the types of cost you include in your cost of
sales included in Note 1 to your financial statements does not include
royalty payments and licensing fees paid related to the products you
sell. Based on your disclosures, it does not appear that these costs
are included as a component in calculating your gross profit. In
addition, it also appears as though the amortization derived from your
intangible assets is not included as a component in calculating your
gross profit and alternatively is included in the line item depreciation
and amortization expense. Please tell us how you determined these costs
should not be included as a component in determining your gross profit.
Company Response
----------------
The Company accounts for royalty costs and amortization expense based on
evaluating the facts and circumstances of the related royalty
arrangements and intangible assets. The Company's specific current
accounting treatment is as follows:
Royalty costs related to the use of technology, formulations
or patented ingredients that are consumed in the manufacturing of
products process and which are payable upon production of a unit
of inventory containing that item are includable in inventoriable
costs and are recognized as a component of cost of goods sold when
the goods are sold. Royalty costs related to the use of technology,
formulations or patented ingredients that are consumed in the
manufacturing of products process but which are payable upon the
sale of the unit of inventory are a direct period cost which is
classified as a component of cost of goods sold. As of June 30,
2005, royalty costs in these two categories were not material.
As a result of recent licensing agreements entered into by the
Company, beginning in the year ended June 30, 2006, such costs are
expected to be more significant, and the Company will include a
statement of the Company's current accounting treatment in the cost
of goods sold footnote for the 2006 Form 10-K as described below.
Royalty costs related to the use of a trademarked name and/or
a person's image, whether in the product packaging or advertising and
promotional materials, are accrued and payable upon the sale of a
unit of finished goods inventory and are reflected as a component of
selling, general and administrative expenses. Such royalty costs
were approximately 3.7%, 2.9%, 4.2%, and 1.3% of selling, general and
administrative expenses for the fiscal years ended June 30, 2003,
2004 and 2005, and the five month transition period ended June 30,
2004, respectively. The Company believes that these costs are
promotional in nature and are similar in substance and nature to
rights fees paid to models and/or celebrities to advertise and
promote our products. Our license agreements typically provide
that the artists or persons whose names are being licensed provide
their time to create advertising and to promote the sale of the
finished goods and that the product formulation and
Mr. Rufus Decker
Securities and Exchange Commission
March 1, 2006
Page 6 of 11
specific packaging concepts are created by and belong to the Company
upon termination of the licenses. The substance of these
transactions is the nature of the goods and services received by the
Company.
Beginning with our 2006 Form 10-K, we will revise the cost of sales and
selling, general and administrative costs in the Notes to Consolidated
Financial Statements to read as follows:
Cost of Sales. Included in cost of sales are the costs of
products sold, the cost of gift with purchase items provided to
customers, royalty costs related to patented technology,
ingredients or formulations, and warehousing, distribution and
supply chain costs. The major components of warehousing,
distribution and supply chain costs include salary and related
benefit costs for employees in the warehousing, distribution and
supply chain areas and facility related costs in these areas.
Selling, General and Administrative Costs. Included in selling,
general and administrative expenses are salary and related benefit
costs of our employees in the finance, information technology,
legal, human resources, sales and marketing areas, facility related
costs for our administrative functions, costs paid to consultants
and third party providers for related services, royalty costs
related to trademarked names or images, and advertising and
promotion costs not paid directly to our customers.
The Company believes that the amortization of intangible assets as a
component of the depreciation and amortization line item caption within
the statement of income is proper for the following reasons:
o Such costs are not considered inventoriable as they are
not assets incident to or necessary for production or
manufacturing. The value in the intangibles principally relates
to our ability to market and sell the products, which is more
akin to a selling cost.
o FASB Statement of Concepts 5, "Recognition ad Measurement in
Financial Statements of Business Enterprises" paragraphs 85 and
86, recognizes that some expenses such as depreciation and
insurance expense are allocated by systematic and rational
procedures to the periods during which the related assets are
expected to provide benefits, while expenses such as cost of
goods sold are matched with revenues. They are recognized upon
recognition of revenues that result directly and jointly from
the same transactions or other events as the expenses.
o FASB Statement of Concepts 6, "Elements of Financial Statements"
paragraphs 146-149, further elaborates on this. Specifically,
paragraph 149 states "...many assets yield their benefits to an
entity over several periods, for example, prepaid insurance,
buildings, and various kinds of equipment. Expenses resulting
from their use are normally allocated to the periods of their
estimated useful lives (the periods over which they are expected
to provide benefits) by a "systematic and rational" allocation
procedure, for example, by
Mr. Rufus Decker
Securities and Exchange Commission
March 1, 2006
Page 7 of 11
recognizing depreciation or other amortization. Although the
purpose of expense allocation is the same as that of other
expense recognition - to reflect the using up of assets as a
result of transactions or other events or circumstances affecting
an entity - allocation is applied if causal relations are
generally, but not specifically, identified. For example, wear
and tear from use is known to be a major cause of the expense
called depreciation, but the amount of depreciation caused by
wear and tear in a period normally cannot be measured. Those
expenses are not related directly to either specific revenues or
particular periods. Usually no traceable relationship exists,
and they are recognized by allocating costs to periods in which
assets are expected to be used and are related only indirectly to
the revenues that are recognized in the same period."
The Company amortizes its intangible assets such as trademarks and
licenses under a rational and systematic method (straight-line method)
over the estimated useful life of the related asset as such assets are
only indirectly related to the revenues that are recognized in the same
period, consistent with paragraph 149 above.
Paragraphs B180 of SFAS No. 142 "Goodwill and Other Intangible Assets"
discusses how under the 1999 Exposure Draft "...charges for the
amortization or impairment of intangible assets continue to be displayed
on a pretax basis in line items as deemed appropriate by the reporting
entity, as they traditionally had been displayed." Paragraph B184
further goes on to state "... the Board reaffirmed its conclusion in the
1999 Exposure Draft that the charges related to other intangible assets
should continue to be displayed on a pretax basis as a component of
income from continuing operations."
As the Company has consistently displayed amortization expense as a
separate component line item on the income statement, the Company
believes the accounting classification currently used is appropriate
based on the above accounting literature and facts and circumstances as
they currently exist. Furthermore, neither SFAS No. 142 nor the
predecessor standard APB Opinion No. 17 requires any other accounting
treatment.
Statements of Shareholders' Equity, page 41
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6. Please revise your statements of shareholders' equity to include on the
face of the statement the reclassification adjustments made to your
comprehensive income during the periods. Similarly, please also include
the related income tax effects allocated to each component of other
comprehensive income. Alternatively, you may disclose this in a note to
your financial statements. Refer to paragraphs 20 and 25 of SFAS 130.
Company Response
----------------
Attached as Schedule 2 is the proposed revision of the statements of
shareholders's equity set forth in the 2005 Form 10-K revised to include
on the face of the statements the reclassification adjustments made to
our comprehensive income and related income tax effects allocated to the
appropriate components of other comprehensive income. Beginning with
our Second Quarter Form 10-Q filed with the Commission on February 9,
2006, the statements of shareholders' equity are
Mr. Rufus Decker
Securities and Exchange Commission
March 1, 2006
Page 8 of 11
being revised to include on the face of the statements the
reclassification adjustments made to our comprehensive income and
related income tax effects allocated to the appropriate components of
other comprehensive income.
Notes to Financial Statements
- -----------------------------
1. General Information and Summary of Significant Accounting Policies,
page 44
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Advertising and Promotional Costs, page 46
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7. You disclosed here and on page 10 that you enter into cooperative
advertising programs with your retailers. You also disclosed that these
costs are a component of your advertising and promotional costs, which
are expensed as incurred. Please also disclose the portion of your
advertising and promotional costs that represent cooperative advertising
for each period presented. Please also discuss in MD&A any significant
estimates resulting from your cooperative advertising programs. Refer
to EITF 01-9.
Company Response
----------------
Advertising and promotional costs paid directly to customers for goods
and services provided, primarily co-op advertising and certain direct
selling costs are expensed as incurred and are recorded as a reduction
of sales. Advertising and promotional costs not paid directly to
our customers are expensed as incurred and recorded as a component of
cost of goods sold (in the case of free goods given to customers) or
selling, general and administrative expenses. The Company does not make
estimates relating to cooperative advertising since the commitments with
retailers are known. Cooperative advertising programs are approximately
10-13% of total advertising and promotional costs incurred by the
Company during the periods presented. In order to clarify the wording
of the related note, the Company proposes to modify the related note in
the 2006 Form 10-K to read as follows:
Advertising and Promotional Costs. Advertising and
promotional costs paid directly to customers for goods and
services provided, primarily co-op advertising and certain direct
selling costs are expensed as incurred and are recorded as a
reduction of sales. Advertising and promotional costs
not paid directly to our customers are expensed as incurred and
recorded as a component of cost of goods sold (in the case of free
goods given to customers) or selling, general and administrative
expenses. Total advertising and promotional costs were
approximately $269.3 million, $87.9 million, $200.0 million and
$183.8 million during the year ended June 30, 2005, the five-month
transition period ended June 30, 2004 and the years ended January
31, 2004 and 2003, respectively. Such costs include promotions,
direct selling, co-op advertising and media placement.
Mr. Rufus Decker
Securities and Exchange Commission
March 1, 2006
Page 9 of 11
4. Accounts Receivable, Net, page 50
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8. Based on your disclosure, it appears as though your allowance for sales
returns decreased by over 50% from January 31, 2004 to June 30, 2005 and
decreased by over 20% from January 31, 2003 to January 31, 2004. Please
expand your disclosure to discuss the business reasons for changes in
your allowance for sales returns between January 31, 2003 and January
31, 2004 and between January 31, 2004 and June 30, 2005.
Company Response
----------------
The ending balance of the allowance for sales returns was approximately
16% lower as of June 30, 2005 compared to January 31, 2004, as a result
of the seasonality of the Company's business since the Company generally
receives and processes most of the holiday season returns in January,
February and March. The ending balance of the allowance for sales
Returns was approximately 35% lower as of January 31, 2004 compared to
January 31, 2003, mainly as a result of the Company's decision to sell
less promotional sets and products to customers that have return
privileges. Since 2003, the Company's allowances for sales returns and
returns received have been fairly consistent on a year-to-year basis.
Accordingly, unless circumstances change, we do not believe that we will
need to discuss business reasons for changes in the allowance for sales
returns in the 2006 Form 10-K.
17. Geographic Information, page 83
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9. Please expand your disclosure to include net sales attributable to
individual foreign countries, if material. Refer to paragraph 38(a) of
SFAS 131.
Company Response
----------------
There is no country outside of the United States where net sales
generally exceed 5% of the total net sales of the Company. Because net
sales in the United Kingdom for the five-month transition period ended
June 30, 2004 were 5.4% of total net sales of the Company, we will
identify separately net sales in the United Kingdom in the geographic
information note in the 2006 Form 10-K, as well as any other country
where such materiality threshold is achieved in the future. In addition,
we attach as Schedule 3 the revised disclosure for Note 17 to the Notes
to Consolidated Financial Statements of the 2005 Form 10-K. The staff
should note that we have been presenting net sales for our three largest
foreign countries in Item 1 of the Annual Report on Form 10-K so that
readers can get a general understanding of the magnitude of sales by
country even though not material to the total Company net sales.
Mr. Rufus Decker
Securities and Exchange Commission
March 1, 2006
Page 10 of 11
Form 10-Q for the Fiscal Quarter Ended September 30, 2005
- ---------------------------------------------------------
Comments applicable to your overall filing
- ------------------------------------------
10. Please address the comments above in your interim Forms 10-Q as well.
Company Response
----------------
Where applicable, the Company has incorporated its responses to the
comments in the Second Quarter Form 10-Q filed on February 9, 2006 and
will incorporate its responses to the comments in future filings of
quarterly reports on Form 10-Q.
Form 8-K filed on November 3, 2005
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11. Your statement of operations data included in your Form 8-K contains a
line item, for adjusted net income before giving effect to the adoption
of SFAS 123(R). You have included a footnote stating that this is a
non-GAAP financial measure and why you feel as though it is an important
metric in understanding your operating performance. Please revise your
Form 8-K to include a reconciliation of this line item to net income.
Refer to Regulation G and Item (1)e(1)(i)(B) of Regulation S-K.
Company Response
----------------
We have revised the Form 8-K filed on November 3, 2005 to include a
reconciliation of net income before giving effect to the adoption of
SFAS 123R to net income. Attached as Schedule 4 to this letter is our
proposed amendment to Form 8-K, which we propose to file following the
staff's review of our response. The staff should note that we included
the reconciliation in the Form 8-K filed on February 2, 2006 containing
our earnings release for the quarter ended December 31, 2005.
12. Your discussion regarding your first quarter results, stock repurchase
plan, and your outlook includes free cash flow and financial measures,
which exclude compensation costs related to SFAS 123(R) and charges
related to debt extinguishment charges, which are non-GAAP financial
measures. Please expand your disclosure to include the following:
o a discussion which details why the presentation of each
of these non-GAAP financial measure provides useful
information to investors regarding your financial
condition and results of operations
o a reconciliation and discussion regarding each of these
non-GAAP financial measures to the most directly comparable
financial measure calculated and presented in accordance with
GAAP, and
o disclosure stating your free cash flow may not be comparable
to those of other entities, as not all companies and analysts
calculate this non-GAAP measure in the same manner.
Please refer to Regulation G and Item 10(e)(1)(i) of Regulation S-K.
Mr. Rufus Decker
Securities and Exchange Commission
March 1, 2006
Page 11 of 11
Company Response
----------------
We have revised the Form 8-K filed on November 3, 2005 to include our
response to the staff's comments. Please see the attached Schedule 4
containing our proposed amendment to the Form 8-K, which we propose to
file following the staff's review of our responses. The staff should
note that, where appropriate, we included the staff's comments to the
relevant sections of the Form 8-K filed on February 2, 2006 containing
our earnings release for the quarter ended December 31, 2005.
Based upon the responses provided and the incorporation of certain
additional disclosure items in our Quarterly Report on Form 10-Q for the
three months ended December 31, 2005, as filed with the Commission on
February 9, 2006, and prospectively, we believe that the Company has
satisfied the staff's requests.
The Company acknowledges that: the Company is responsible for the
adequacy and accuracy of the disclosure items in our filings; staff comments
or changes to disclosure in response to staff comments do not foreclose the
Commission from taking any action with respect to the filing; and the Company
may not assert staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United
States.
Please direct additional questions or comments to me at (203) 462-5739.
by facsimile number is (203) 462-5798.
Very truly yours,
/s/ Stephen J. Smith
--------------------
Executive Vice President
and Chief Financial Officer
SCHEDULE 1
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DEBT AND CONTRACTUAL FINANCIAL OBLIGATIONS AND COMMITMENTS. At June 30, 2005, our
long-term debt and financial obligations and commitments by due date were as follows:
---------------- Payments Due by Period ----------------
Less than More than
Total 1 Year 1-3 Years 3-5 Years 5 Years
-------- --------- --------- --------- ---------
(Amounts in thousands)
Long-Term Debt, including
current portion $233,802 $ -- $ -- $ -- $233,802
Interest payments on
long-term debt 138,163 14,097 28,194 33,684 62,188
Interest payments on SWAP
agreement and other (2) 16,635 4,375 8,750 3,260 250
Operating lease obligations 66,724 12,096 27,047 15,170 12,411
Purchase Obligations (1) 231,716 158,505 60,461 11,250 1,500
Other long-term obligations 3,245 -- 3,245 -- --
-------- -------- -------- -------- --------
Total $690,285 $189,073 $127,697 $ 63,364 $310,151
======== ======== ======== ======== ========
(1) Consists of purchase commitments for finished goods, raw materials, components,
advertising, promotional items, minimum royalty guarantees, insurance, services
pursuant to legally binding obligations, including fixed or minimum obligations and
estimates of such obligations subject to variable price provisions.
(2) Assumes current interest rate of 7.75% and termination of SWAP agreement in
January 2009, and minimum obligations under our credit facility.
SCHEDULE 2
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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
Accumulated
Retained Other
Additional Earnings Comprehensive
Common Stock Paid-in (Accumulated Treasury (Loss)
Shares Amount Capital Deficit) Stock Income
------ ------ ---------- ------------ -------- -------------
Balance at January 31, 2002 18,578 $ 186 $ 85,919 $ 35,191 $(6,541) $ (2,348)
------ ----- ---------- ------------ ------- ------------
Issuance of common stock upon
exercise of stock options 79 1 600 -- -- --
Issuance of common stock upon
exercise of warrants 147 1 -- -- -- --
Issuance of restricted stock,
net of forfeitures -- -- 3,199 -- 4,365 --
Amortization of unearned
deferred compensation,
net of forfeitures -- -- -- -- -- --
Repurchase of common stock -- -- -- -- (160) --
Accretion and dividend on
Series D preferred stock -- -- -- (3,653) -- --
Tax benefit from exercise of
stock options -- -- 64 -- -- --
Comprehensive income:
Net income -- -- -- 18,150 -- --
Foreign currency translation -- -- -- -- -- 2,353
------ ----- ---------- ------------ ------- ------------
Total comprehensive income -- -- -- 18,150 -- 2,353
------ ----- ---------- ------------ ------- ------------
Balance at January 31, 2003 18,804 188 89,782 49,688 (2,336) 5
Issuance of common stock upon
exercise of stock options 350 4 3,130 -- -- --
Offering of common stock, net
of costs 3,667 36 62,667 -- -- --
Issuance of common stock for
employee stock purchase plan 45 1 552 -- -- --
Common stock issued to an
independent contractor 34 -- 669 -- -- --
Accretion and dividend on
Series D preferred stock -- -- -- (3,502) -- --
Conversion of Series D
preferred stock and
accelerated accretion 2,083 21 26,906 (18,584) -- --
Issuance of restricted stock,
net of forfeitures -- -- 958 -- 1,710 --
Repurchase of common stock -- -- -- -- (662) --
Amortization of unearned
deferred compensation, net of
forfeitures -- -- -- -- -- --
Tax benefit from exercise of
stock options -- -- 1,210 -- -- --
Comprehensive income:
Net income -- -- -- 2,036 -- --
Foreign currency translation -- -- -- -- -- 2,209
------ ----- ---------- ------------ ------- ------------
Total comprehensive income -- -- -- 2,036 -- 2,209
------ ----- ---------- ------------ ------- ------------
Balance at January 31, 2004 24,983 250 185,874 29,638 (1,288) 2,214
RESTUBBED TABLE
CONTINUED FROM ABOVE
Unearned Total
Deferred Shareholders'
Compensation Equity
------------ --------------
Balance at January 31, 2002 $ (473) $ 111,934
------------ --------------
Issuance of common stock upon
exercise of stock options -- 601
Issuance of common stock upon
exercise of warrants -- 1
Issuance of restricted stock,
net of forfeitures (7,166) 398
Amortization of unearned
deferred compensation,
net of forfeitures 2,156 2,156
Repurchase of common stock -- (160)
Accretion and dividend on
Series D preferred stock -- (3,653)
Tax benefit from exercise of
stock options -- 64
Comprehensive income:
Net income -- 18,150
Foreign currency translation -- 2,353
------------ --------------
Total comprehensive income -- 20,503
------------ --------------
Balance at January 31, 2003 (5,483) 131,844
------------ --------------
Issuance of common stock upon
exercise of stock options -- 3,134
Offering of common stock, net
of costs -- 62,703
Issuance of common stock for
employee stock purchase plan -- 553
Common stock issued to an
independent contractor -- 669
Accretion and dividend on
Series D preferred stock -- (3,502)
Conversion of Series D
preferred stock and
accelerated accretion -- 8,343
Issuance of restricted stock,
net of forfeitures (2,668) --
Repurchase of common stock -- (662)
Amortization of unearned
deferred compensation, net of
forfeitures 2,422 2,422
Tax benefit from exercise of
stock options -- 1,210
Comprehensive income:
Net income -- 2,036
Foreign currency translation -- 2,209
------------ --------------
Total comprehensive income -- 4,245
------------ --------------
Balance at January 31, 2004 (5,729) 210,959
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
Accumulated
Retained Other
Additional Earnings Comprehensive
Common Stock Paid-in (Accumulated Treasury (Loss)
Shares Amount Capital Deficit) Stock Income
------ ------ ---------- ------------ -------- -------------
Balance at January 31, 2004 24,983 250 $ 185,874 $ 29,638 $ (1,288) $ 2,214
Issuance of common stock upon
exercise of stock options 397 4 4,081 -- -- --
Offering of common stock,
net of costs 232 2 2,638 -- 1,523 --
Accretion and dividend on
Series D preferred stock -- -- -- (762) -- --
Issuance of common stock for
employee stock purchase plan 39 1 647 -- -- --
Conversion of Series D
preferred stock and
accelerated accretion 2,318 23 30,621 (19,090) -- --
Issuance of restricted stock,
net of forfeitures 201 2 4,775 -- (235) --
Repurchase of restricted stock -- -- (435) -- -- --
Amortization of unearned
deferred compensation, net of
forfeitures -- -- -- -- -- --
Tax benefit from exercise of
stock options -- -- 690 -- -- --
Comprehensive loss:
Net loss -- -- -- (31,843) -- --
------------
Foreign currency translation
adjustments -- -- -- -- -- 481
------------
Disclosure of reclassification
amounts, net of taxes (8% tax
rate):
Unrealized hedging gains
arising during the period -- -- -- -- -- 144
Less: reclassification
adjustment for hedging gains
included in net loss -- -- -- -- -- (33)
------------
Net unrealized cash flow
hedging gain 111
------------
Total comprehensive loss -- -- -- (31,843) -- 592
------ ----- ---------- ------------ ------- ------------
Balance at June 30, 2004 28,170 $ 282 $ 228,891 $ (22,057) $ -- $ 2,806
------ ----- ---------- ------------ ------- ------------
Issuance of common stock upon
exercise of stock options 566 6 5,734 -- -- --
Issuance of common stock for
employee stock purchase plan 85 1 1,509 -- -- --
Common stock issued to an
independent contractor -- -- 801 -- -- --
Issuance of restricted stock,
net of forfeitures 436 4 10,331 -- -- --
Mark to market of performance-
based restricted stock -- -- 329 -- -- --
Amortization of unearned
deferred compensation, net of
forfeitures -- -- -- -- -- --
Tax benefit from exercise of
stock options and other stock
awards -- -- 2,395 -- -- --
Other -- -- (71) -- -- --
Comprehensive income:
Net income -- -- -- 37,604 -- --
------------
Foreign currency translation
adjustments -- -- -- -- -- 22
------------
Disclosure of reclassification
amounts, net of taxes (8% tax
rate):
Unrealized hedging gains
arising during the period -- -- -- -- -- 4,974
Less: reclassification
adjustment for hedging
losses included in net
income -- -- -- -- -- (2,072)
------------
Net unrealized cash flow
hedging gain -- -- -- -- -- 2,902
------------
Total comprehensive income -- -- -- 37,604 -- 2,924
------ ----- ---------- ------------ ------- ------------
Balance at June 30, 2005 29,257 $ 293 $ 249,919 $ 15,547 $ -- $ 5,730
====== ===== ========== ============ ======= ============
RESTUBBED TABLE
CONTINUED FROM ABOVE
Unearned Total
Deferred Shareholders'
Compensation Equity
------------ -------------
Balance at January 31, 2004 $ (5,729) $ 210,959
Issuance of common stock upon
exercise of stock options -- 4,085
Offering of common stock,
net of costs -- 4,163
Accretion and dividend on
Series D preferred stock -- (762)
Issuance of common stock for
employee stock purchase plan -- 648
Conversion of Series D
preferred stock and
accelerated accretion -- 11,554
Issuance of restricted stock,
net of forfeitures (4,542) --
Repurchase of restricted stock -- (435)
Amortization of unearned
deferred compensation, net of
forfeitures 2,409 2,409
Tax benefit from exercise of
stock options -- 690
Comprehensive loss:
Net loss -- (31,843)
------------
Foreign currency translation
adjustments -- 481
------------
Disclosure of reclassification
amounts, net of taxes (8% tax
rate):
Unrealized hedging gains
arising during the period -- 144
Less: reclassification
adjustment for hedging gains
included in net loss -- (33)
------------
Net unrealized cash flow
hedging gain -- 111
------------
Total comprehensive loss -- (31,251)
------------
Balance at June 30, 2004 $ (7,862) $ 202,060
------------ ------------
Issuance of common stock upon
exercise of stock options -- 5,740
Issuance of common stock for
employee stock purchase plan -- 1,510
Common stock issued to an
independent contractor -- 801
Issuance of restricted stock,
net of forfeitures (10,335) --
Mark to market of performance-
based restricted stock (329) --
Amortization of unearned
deferred compensation, net of
forfeitures 6,237 6,237
Tax benefit from exercise of
stock options and other stock
awards -- 2,395
Other -- (71)
Comprehensive income:
Net income -- 37,604
------------
Foreign currency translation
adjustments -- 22
------------
Disclosure of reclassification
amounts, net of taxes (8% tax
rate):
Unrealized hedging gains
arising during the period -- 4,974
Less: reclassification
adjustment for hedging
losses included in net
income -- (2,072)
------------
Net unrealized cash flow
hedging gain -- 2,902
------------
Total comprehensive income -- 40,528
------------ ------------
Balance at June 30, 2005 $ (12,289) $ 259,200
============ ============
SCHEDULE 3
- ----------
Five Months
(Amounts in thousands) Year Ended Ended Years Ended January 31,
June 30, 2005 June 30, 2004 2004 2003
------------- ------------- ---------- ---------
Net sales:
United States $571,374 $130,267 $548,430 $509,467
United Kingdom 45,628 12,518 38,123 34,991
Other International 303,536 79,999 227,872 207,583
-------- -------- -------- --------
Total $920,538 $222,784 $814,425 $752,041
======== ======== ======== ========
SCHEDULE 4 DRAFT
- ----------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 2, 2005
ELIZABETH ARDEN, INC.
(Exact name of registrant as specified in its charter)
Florida 1-6370 59-0914138
--------------- ------------ -------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
2400 SW 145 Avenue, Miramar, Florida 33027
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 364-6900
14100 N.W. 60th Avenue, Miami Lakes, Florida 33014
-------------------------------------------------------------
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions (see General Instruction A.2.):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act
(17 CFR 240.14a-12(b))
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Explanatory Note: This Amended Current Report on Form 8-K amends the Current
Report on Form 8-K filed on November 3, 2005 as follows: The press release
furnished as Exhibit 99.1 is amended to include footnotes that reconcile the
non-generally accepted accounting principles ("non-GAAP") measures of (i)
free cash flow and (ii) net income and net income per diluted share excluding
compensation costs related to FAS 123R and debt extinguishment charges to the
related generally accepted accounting principles measures of cash flow from
operations and net income and net income per diluted share, respectively.
The footnotes also explain why the presentation of these non-GAAP measures
provide useful information to investors about the Company's financial
condition and limitations on the use of free cash flow.
SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS
- ------------------------------------------------
Item 1.01 Entry into a Material Definitive Agreement
On November 2, 2005, Elizabeth Arden, Inc. (the "Company") entered into
the fourth amendment (the "Amendment") to its Second Amended and
Restated Credit Agreement between JPMorgan Chase Bank, as administrative
agent, Bank of America (formerly Fleet National Bank) as collateral agent,
and the banks listed on the signature pages thereto (the "Credit Facility").
The Amendment (i) extends the maturity of the Credit Facility to December
2010 from June 2009, (ii) reduces the interest rates and commitment fees
based on the Company's debt service coverage ratio, (iii) permits the Company
to increase the size of the Credit Facility by up to $100 million without the
consent of all the banks, and (iv) permits the Company to pay cash dividends
on the common stock, par value $.01 per share (the "Common Stock"),
repurchase Common Stock or make other distributions to the common
shareholders if the Company maintains borrowing availability after the
applicable payment of at least $25 million from June 1 to November 30 and at
least $35 million from December 1 to May 31.
SECTION 2 - FINANCIAL INFORMATION
- ---------------------------------
Item 2.02 Results of Operations and Financial Condition
On November 3, 2005, the Company issued a press release to (i) announce
the financial results for the first quarter year ended September 30, 2005;
(ii) provide net sales and earnings per diluted share guidance for the second
quarter ended December 31, 2005 and for the fiscal year ended June 30, 2006;
and (iii) to announce the share repurchase program set forth below under Item
8.01 Other Events.
A copy of the press release is furnished as Exhibit 99.1 to this Form
8-K.
SECTION 8 - OTHER EVENTS
- ------------------------
Item 8.01 Other Events
On November 3, 2005, the Board of Directors of the Company approved a
share repurchase program of up to $40 million of the Common Stock through
March 31, 2007.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
- ---------------------------------------------
Item 9.01 Financial Statements and Exhibits
(c) Exhibits
99.1 Press release dated November 3, 2005.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELIZABETH ARDEN, INC.
Date: February , 2006 /s/ Stephen J. Smith
------------------- ----------------------------
Stephen J. Smith
Executive Vice President and
Chief Financial Officer
ELIZABETH ARDEN LOGO
FOR IMMEDIATE RELEASE
ELIZABETH ARDEN, INC. ANNOUNCES FIRST QUARTER RESULTS
FOR FISCAL 2006
~ Results In Line with Expectations; Net Sales Increased 7.2% ~
~ Board Approves Share Repurchase Program ~
- ---------------------------------------------------------------
New York, New York (November 3, 2005) -- Elizabeth Arden,
Inc. (NASDAQ: RDEN), a global prestige beauty products company,
today announced financial results for the first fiscal quarter
ended September 30, 2005.
FIRST QUARTER RESULTS
Net sales increased 7.2% to $227.4 million for the three
months ended September 30, 2005, from $212.2 million in the
comparable period of the prior year. The sales growth was
driven by the launch of the fantasy Britney Spears fragrance in
U.S. department stores and the Elizabeth Arden after five
fragrance into international markets, as well as greater
shipments of fragrances, including the curious Britney Spears
fragrance, to mass retailers. Excluding the favorable impact of
foreign currency translation, net sales increased 6.2%.
Gross margin, which was 39.2% for the quarter, was affected
primarily by weak sales performance and higher returns
provisions for retailers in Western Europe and secondarily, by a
weak performing gift-with-purchase program for the Elizabeth
Arden brand in North American department stores. Marketing and
advertising costs increased due to the launch of the fantasy
Britney Spears fragrance, higher royalties for the Britney
Spears fragrances and to support the launch of PREVAGE(TM) in the
second fiscal quarter.
In line with previously announced expectations, net income
was $1.9 million, or $0.06 per diluted share, excluding the
impact of FAS 123R, "Share-Based Payment," of $1.4 million
before taxes, compared to $4.8 million, or $0.16 per diluted
share, in the same period last year. On a reported basis, net
income was $0.9 million, or $0.03 per diluted share.
E. Scott Beattie, Chairman and Chief Executive Officer of
Elizabeth Arden, Inc., commented, "Despite a volatile economic
environment and decreasing consumer confidence, we are pleased
with the sales growth and product launches during the first
quarter. The fantasy Britney Spears fragrance, which was
launched into U.S. department stores in September, is off to a
strong start and currently ranks as the number one or two
fragrance launch with most retailers. We exceeded our retail
launch plans and have significant promotional programs for both
Britney Spears fragrances planned for the season. We expect to
exceed retailer expectations this quarter as well. The launch
of PREVAGE, the breakthrough anti-aging treatment, is scheduled
to begin shipping to U.S. department stores this month and
globally in the third and fourth fiscal quarters. Based on the
enthusiastic retailer reception and continued success in the
dermatology market for PREVAGE MD, we are optimistic that
PREVAGE(TM) will dramatically improve the Elizabeth Arden skin care
business globally."
Mr. Beattie continued, "An area that has been and continues
to be challenging is the developed markets of Western Europe.
While our expectations for the year assumed a degree of softness
in that market, consumer spending continues to be extremely
depressed, and, therefore, we are projecting a weaker holiday
selling season in Western Europe than we had originally planned.
This, along with increased returns provisions and reduced
replenishment associated with the accelerated door closings
resulting from the Federated Department Store and The May
Department Stores Company merger, is expected to reduce EBITDA
by approximately $5 million to $7 million. Accordingly, we are
revising our second quarter and full year guidance."
"At the same time, the rest of our business overall is
performing as we had expected. Our business with mass retailers
is performing well and most international markets outside of
Western Europe are performing at or better than we had planned.
This, along with our innovation and global launch schedule,
including the launch of the fantasy Britney Spears fragrance and
PREVAGE on a global basis and the Daytona 500 fragrance
introduction in the U.S. in the second half of the fiscal year,
gives us the confidence in our original expectations for the
back half of the year, and that we expect to be able to offset
any impact caused by declining consumer confidence and high
energy prices on consumer spending," Mr. Beattie added.
STOCK REPURCHASE PLAN
The Company also announced that, in connection with its
expectations for record free cash flow(1) generation of $65
million to $75 million ($90 million to $100 million of cash flow
from operations less $25 million of capital expenditures) for
the fiscal year, its Board of Directors has authorized a share
repurchase program for the repurchase of up to $40 million of
its common stock. The repurchase is expected to continue
through March 31, 2007 and will commence immediately. The
Company intends to repurchase shares from time to time in the
open market at prevailing market prices or in private
transactions.
Separately, based on improved operating performance, the
Company has executed an amendment to its asset-based revolving
credit facility to, among other things, extend the maturity date
of the credit facility from June 30, 2009 to December 31, 2010,
lower the interest rate charged on borrowings by 50 basis points
and generally provide the Company more financial flexibility.
(1) This disclosure is being provided because we believe it is
meaningful to our investors and other interested parties to
understand the Company's intended use of cash flow generation.
The presentation of the non-generally accepted accounting
principles ("no-GAAP") information is not meant to be considered
in isolation or as a substitute for cash flow from operations in
accordance with generally accepted accounting principles. Free
cash flow may not be comparable to those of other entities, as
not all companies and analysts calculate this non-GAAP measure
in the same manner.
OUTLOOK
Effective July 1, 2005, the Company adopted FAS 123R "Share-
Based Payment," a new accounting pronouncement requiring the
expensing of stock based compensation. Under this
pronouncement, the Company has elected to apply the standard
prospectively, and prior year results have not been restated.
The earnings guidance, consistent with prior disclosure,
includes a pre-tax charge of approximately $1.4 million, or
$0.03 per diluted share, for the second quarter of fiscal 2006
and a pre-tax charge of $5.7 million, or $0.13 per diluted share,
for the full fiscal year.
With respect to the second quarter, as a result of the factors
mentioned above, the Company currently anticipates net sales of
$340 million to $350 million, representing a 5% to 8% increase over
the prior year. Foreign currency translation is estimated to
negatively impact net sales growth by approximately 1%. Reported
earnings per diluted share are currently estimated to range between
$1.06 and $1.11. Excluding the stock compensation expense mentioned
above, earnings per diluted share are expected to range between $1.09
and $1.14(2). For the full fiscal year, the Company is updating its
expectations to reflect the revised guidance for the second fiscal quarter
and currently anticipates annual net sales to increase 6.5% to 8% to $980
million to $995 million. Foreign currency translation is estimated to
negatively impact net sales growth by approximately 1%. Reported earnings
per diluted share are expected to range between $1.20 and $1.26. Excluding
the stock compensation expense mentioned above, earnings per diluted share
are expected to range between $1.33 and $1.39(2) . The earnings estimates
exclude the debt extinguishment charge the Company expects to incur of $0.5
million, or $0.01 per diluted share, related to the early retirement of the
$8.8 million of 11 3/4% Senior Subordinated Notes that are callable in
January of 2006(2). The earnings estimates do not include any impact from
the share repurchase program. The Company expects gross margins for the year
and second fiscal quarter to approximate prior year levels.
(2) This information is being provided for comparability purposes so that
operating performance is presented on a consistent basis.
The Company is on track with its inventory reduction programs and is
comfortable with its expectations for free cash flow of $65 million to $75
million for the full fiscal year.
CONFERENCE CALL INFORMATION
The Company will host a conference call today at 10:00 a.m. Eastern
Standard Time. All interested parties can listen to a live web cast of the
Company's conference call by logging on to the Company's web site at
http://www.elizabetharden.com/Corporate/calendar_of_events.asp. An online
archive of the broadcast will be available within one hour of the completion
of the call and will be accessible on the Company's web site at
www.elizabetharden.com until November 17, 2005.
Elizabeth Arden is a global prestige beauty products company. The Company's
portfolio of brands includes the fragrance brands of Elizabeth Arden: Red
Door, Red Door Revealed, Elizabeth Arden 5th Avenue, Elizabeth Arden after
five, Elizabeth Arden green tea, and Elizabeth Arden Provocative Woman; the
fragrance brands of Elizabeth Taylor: White Diamonds, Passion and Forever
Elizabeth; the fragrances brands of Britney Spears: curious and fantasy; and
the fragrances White Shoulders, Geoffrey Beene's Grey Flannel, the Halston
brands, Halston and Halston Z-14, PS Fine Cologne for Men, Design and Wings;
the Elizabeth Arden skin care lines, including Ceramide and Eight Hour Cream;
PREVAGET anti-aging treatment and the Elizabeth Arden color cosmetics line.
Company Contact: Marcey Becker, Senior Vice President, Finance
(203) 462-5809
Investor/Press Contact: Cara O'Brien/Melissa Merrill
Financial Dynamics
(212) 850-5000
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, Elizabeth Arden, Inc., is hereby providing
cautionary statements identifying important factors that could cause our
actual results to differ materially from those projected in forward-looking
statements (as defined in such act). Any statements thatare not historical
facts and that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but
not always, through the use of words or phrases such as "will likely result,"
"are expected to," "will continue," "is anticipated," "estimated," "intends,"
"plans" and "projection") may be forward-looking and may involve estimates
and uncertainties which could cause actual results to differ materially from
those expressed in the forward-looking statements. Accordingly, any such
statements are qualified in their entirety by reference to, and are
accompanied by, the following key factors that have a direct bearing on our
results of operations: our absence of contracts with customers or suppliers
and our ability to maintain and develop relationships with customers and
suppliers; international and domestic economic and business changes that
could impact consumer confidence and operations; the impact of competitive
products and pricing; risks of international operations, including foreign
currency fluctuations, economic and political consequences of terrorist
attacks, political instability in certain regions of the world, and external
factors affecting customer purchasing patterns; our ability to successfully
launch new products and implement our growth strategy; our ability to
successfully and cost-effectively integrate acquired businesses or new
brands; our substantial indebtedness, debt service obligations and
restrictive covenants in our revolving credit facility and our indenture for
our 7 3/4% senior subordinated notes; our customers' financial condition; our
ability to access capital for acquisitions; changes in product mix to less
profitable products; the retention and availability of key personnel; the
assumptions underlying our critical accounting estimates; delays in
shipments, inventory shortages and higher costs of production due to
interruption of operations at key third party manufacturing or fulfillment
facilities that manufacture or provide logistic services for the majority of
our supply of certain products; changes in the retail, fragrance and cosmetic
industries; our ability to protect our intellectual property rights; changes
in the legal, regulatory and political environment that impact, or will
impact, our business, including changes to customs or trade regulations or
accounting standards; and other risks and uncertainties. We caution that the
factors described herein could cause actual results to differ materially from
those expressed in any forward-looking statements we make and that investors
should not place undue reliance on any such forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which
such statement is made, and we undertake no obligation to update any forward-
looking statement to reflect events or circumstances after the date on which
such statement is made or to reflect the occurrence of anticipated or
unanticipated events or circumstances. New factors emerge from time to time,
and it is not possible for us to predict all of such factors. Further, we
cannot assess the impact of each such factor on our results of operations or
the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(Unaudited)
(In thousands, except percentages and per share data)
Quarter Ended
-------------------------------
September 30, September 30,
2005 2004
------------- -------------
Net Sales $ 227,378 $ 212,156
Cost of Sales 138,312 122,645
------------- -------------
Gross Profit 89,066 89,511
Gross Profit Percentage (a) 39.2% 42.2%
Selling, General and
Administrative Expenses 76,392 70,959
Depreciation and Amortization 5,272 5,533
------------- -------------
Total Operating Expenses 81,664 76,492
Interest Expense, Net 6,114 5,985
Income Before Income Taxes 1,288 7,034
Provision for Income Taxes 393 2,251
------------- -------------
Net Income 895 4,783
As reported:
- -----------
Basic Income Per Share $ 0.03 $ 0.17
Diluted Income Per Share $ 0.03 $ 0.16
EBITDA (b) $ 12,674 $ 18,552
Adjusted before giving effect to the
adoption of FAS 123R: Stock-based
compensation: (c)
- ------------------------------------
Net Income $ 1,877 $ 4,783
Basic Income Per Share 0.07 0.17
Diluted Income Per Share 0.06 0.16
EBITDA (b) $ 14,093 $ 18,552
(a) Based on the percentage of net sales for the periods.
(b) EBITDA is defined as net income plus the provision for income taxes
(or net loss less the benefit from income taxes), plus interest expense, plus
depreciation and amortization. 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 ("GAAP")) as a
measure of our operating performance or to net cash provided by operating,
investing and financing activities (as determined in accordance with
generally accepted accounting principles) 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, 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.
The following is a reconciliation of net income (loss), as determined in
accordance with GAAP, to EBITDA: (For a reconciliation of net income to
EBITDA for prior periods, see the Company's filings with the Securities and
Exchange Commission which can be found on the Company's website at
www.elizabetharden.com).
(In thousands) Three Months Ended
------------------------------
September 30, September 30,
2005 2004
------------- -------------
Net income $ 895 $ 4,783
Plus:
Provision for income taxes 393 2,251
Interest expense 6,114 5,985
Depreciation and
amortization 5,272 5,533
------------- -------------
EBITDA 12,674 18,552
Impact of adopting FAS 123R,
Stock-based compensation 1,419 --
------------- -------------
EBITDA excluding charges $ 14,093 $ 18,552
============= =============
(c) The following tables reconcile the calculation of net income per share
on a basic and fully diluted basis from the amounts reported in accordance
with GAAP to such amounts before giving effect to the impact of adopting FAS
123R, "Share-based payment," net of taxes. This disclosure is being provided
because we believe it is meaningful to our investors and other interested
parties to understand the Company's operating performance for comparability
purposes and on a consistent basis without regard to the impact of adopting
FAS 123R, "Share-based payment." The presentation of the non-GAAP
information titled "Net income per share as adjusted, before giving effect to
the adoption of FAS 123R, "Share-based payment," net of taxes" or "Net income
per diluted share as adjusted, before giving effect to the adoption of FAS
123R, "Share-based payment," net of taxes" is not meant to be considered in
isolation or as a substitute for net income or diluted income per share
prepared in accordance with GAAP.
(In thousands, except per share data) Three Months Ended
September 30, September 30,
2005 2004
------------- -------------
As reported:
Basic
Net income as reported $ 895 $ 4,783
============= =============
Weighted average shares outstanding
as reported 28,574 27,340
============= =============
Net income per basic share as reported $ 0.03 $ 0.17
============= =============
Diluted
Net income as reported $ 895 $ 4,783
============= =============
Weighted average shares and potential
dilutive shares as reported 28,574 27,340
============= =============
Net income per diluted share
as reported $ 0.03 $ 0.17
============= =============
Adjusted before giving effect to the
adoption of FAS 123R, Share-based
payment, net of taxes
- ------------------------------------
Basic
Net income as reported $ 895 $ 4,783
Impact of adopting FAS 123R,
share-based payment, net of taxes 982 --
------------- -------------
Net income attributable to common
shareholders as adjusted, before
giving effect to the adoption of
FAS 123R, share-based payment,
net of taxes $ 1,877 $ 4,783
============= =============
Weighted average shares outstanding
as reported 28,574 27,340
============= =============
Net income per share as adjusted,
before giving effect to the
adoption of FAS 123R, share-based
payment, net of taxes $ 0.07 $ 0.17
============= =============
Diluted
Net income as reported $ 895 $ 4,783
Impact of adopting FAS 123R,
share-based payment, net of taxes 982 --
------------- -------------
Net income as adjusted, before
giving effect to the adoption of
FAS 123R, share-based payments,
net of taxes $ 1,877 $ 4,783
============= =============
Weighted average shares and potential
dilutive shares as reported 29,948 29,598
============= =============
Net income per diluted share as
adjusted, before giving effect to the
adoption of FAS 123R, share-based
payment, net of taxes $ 0.06 $ 0.16
============= =============
ELIZABETH ARDEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 30, June 30, September 30,
2005 2005 2004
------------- ---------- -------------
Cash $ 26,245 $ 25,316 $ 20,532
Accounts Receivable, Net 219,117 149,965 188,701
Inventories 300,941 273,343 303,987
Property and Equipment, Net 31,342 29,184 36,390
Exclusive Brand Licenses,
Trademarks and Intangibles, Net 186,987 186,527 189,977
Total Assets 815,965 719,897 787,126
Short-Term Debt 123,300 47,700 152,000
Current Liabilities 310,290 219,484 341,728
Long-Term Liabilities 240,479 241,213 236,779
Total Debt 357,102 281,502 385,802
Shareholders' Equity 265,196 259,200 208,619
Working Capital 278,611 275,628 202,078