Our award-winning new products are transforming our business, adding excitement, glamour and a contemporary edge, while fueling revenue growth.

Transcription

1 Annual Report 2005

2 Our award-winning new products are transforming our business, adding excitement, glamour and a contemporary edge, while fueling revenue growth. E l i z a b e t h A r d e n A n n u a l R e p o r t Elizabeth Arden Provocative Woman Launched Spring 2004 Ceramide Plump Perfect Eye and Lip Cream Introduced Fall 2004 curious Britney Spears Introduced Fall 2004 fantasy Britney Spears Launched Fall 2005 PREVAGE TM Debuting Fall 2005

3 FINANCIAL HIGHLIGHTS in thousands, except per share data Fiscal year ended June 30, 2005 (Audited) June 30, 2004 (Unaudited) Pro forma (a), twelve months ended June 28, 2003 (Unaudited) June 29, 2002 (Unaudited) Net sales $ 920,538 $ 832,003 $ 746,142 $ 693,799 Gross profit 411, , , ,083 Net income (loss), as reported 37,604 2,928 9,987 (15,311) Net income (loss), as adjusted 39,072(b) 27,922(c) 9,863(d) (15,311) Diluted earnings (loss) per common share, as reported $ 1.25 $ (1.66) $ 0.35 $ (1.07) Diluted earnings (loss) per common share, as adjusted $ 1.30(b) $ 1.01(c) $ 0.34(d) $ (1.07) Total long-term debt, less current portion Convertible, redeemable preferred stock $ 233,802 _ $ 233,802 _ $ 310,286 17,260 _ $ 323,758 13,502 _ Shareholders equity 259, ,060 98,989 87,710 EBITDA, as reported (e) $ 100,038 $ 51,358 $ 81,907 $ 54,596 EBITDA, as adjusted (e) 102,194(b) 93,702(c) 81,733(d) 54,596 1 (a) On June 2, 2004, the Company s Board of Directors approved a fiscal year-end change from January 31 to June 30. The pro forma presentation reflects the unaudited consolidated selected financial data for the equivalent prior year periods based on the new fiscal year end, consistent with the presentation on our corporate website. (b) Adjusted to exclude impairment charge related to the anticipated sale of the Miami Lakes facility. (c) Adjusted to exclude debt extinguishment charges associated with long-term debt redemption, corporate restructuring charges and the accelerated accretion on converted preferred stock. (d) Adjusted to exclude debt extinguishment gain associated with long-term debt reduction. (e) 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. For a discussion of EBITDA see Part 11, Item 6, Selected Financial Data of the Company s Annual Report on Form 10-K which is attached. NET SALES EPS GROSS MARGIN EBITDA(e)

4 DEAR FELLOW SHAREHOLDERS: E l i z a b e t h A r d e n A n n u a l R e p o r t Fiscal 2005 was another excellent year for Elizabeth Arden! We delivered strong financial results, achieved balanced growth across all of our product categories and had impressive sales growth in international operations. For fiscal 2005, net sales rose 10.6% to $920.5 million and earnings per share were $1.30, a 29% increase over the prior year results (before charges). Our superior results reflect the success of our strategy to build and develop our brands while driving down operating costs. Several years ago, we committed to a long-term strategy of reducing operating costs and interest expense while reinvesting these cash savings to reinvigorate our brands. Through a series of initiatives undertaken over the past several years, we have taken significant costs out of our operations. By recapitalizing our balance sheet and reducing debt by nearly $100 million, we have, in two years, reduced interest expense by approximately $20 million. We also exceeded our projected savings from the consolidation of our warehouse facilities and reduced supply chain and overhead expenses. These cost-cutting initiatives, coupled with greater contribution from our higher margin owned and licensed products, have resulted in our gross margins increasing by nearly 400 basis points over the last two years. Finally, we have leveraged our infrastructure costs as our sales have grown, with our overhead costs declining by 100 basis points during this time period. We have utilized these interest expense and operational savings to increase investment in our core brands and to launch additional brands to drive revenue growth. Our advertising and product development costs have increased by over 25% for each of the last two years. During this time, we revitalized our product portfolio across all markets with more focused, higher quality and better-executed product launches. We have increased the use of our spokesperson Catherine Zeta-Jones to support the Elizabeth Arden brand, and we have hired additional experienced marketing personnel. As a result of these efforts, we continue to surpass our revenue targets. For the past two years, our fragrance, skin care and color categories have each grown at annual compounded rates in excess of the industry. Due to our increased marketing emphasis and investment to support brand growth, our fragrance, skin care and color collections are well positioned to deliver future growth. Staying Ahead Through Innovation We encourage innovation and creative thinking in all aspects of our business. In an era of rapid change, our creative entrepreneurial approach to the business is a significant asset that we believe gives us a competitive advantage. Our business is scalable. We outsource certain functions, such as manufacturing and various IT functions, to enhance the flexibility of our business and to capitalize on the latest innovative techniques in each discipline. This year we decided to outsource our media planning as well, selecting San Francisco-based Goodby, Silverstein & Partners to drive the global media strategy, including the media planning and buying for the Elizabeth Arden brand. Outsourcing this function allows us to take advantage of the widely-recognized creative expertise

5 The media landscape is rapidly changing and we are consistently being challenged to find new ways to reach the consumer in their space. It s our entrepreneurial nature as a company that allows us to be smart and nimble and to create the quality creative that is changing consumers and retailers perceptions of our brands. Ronald L. Rolleston, Executive Vice President, Global Marketing, Elizabeth Arden, Inc. and alternative media thinking of this company, while we focus on more strategic issues and on our core competency of developing brands. This year s launch of curious Britney Spears showcased our marketing and brand development expertise. The marketing strategy developed was a first for the fragrance industry. This fragrance, aimed at a younger audience, used innovative marketing and cutting-edge technology to reach the consumer, including on-line banner web-based advertising, cell phone communications, viral campaigns and text messaging. We also used media events, which were covered and picked up by the press, to cost effectively reach millions of consumers around the world. For example, in the U.S. alone, we had over $1.5 million advertising equivalency in print exposure derived from a single media event. Our speed to market, quality of execution and media campaign set a new standard in the industry, and exceeded all expectations. Our efforts were rewarded with strong sales and industry accolades. In addition to being the number one selling new fragrance launch in globally, curious Britney Spears was honored with numerous industry awards, including the 2004 WWD BeautyBiz Breakthrough Product of the Year, the CosmoGirl! Consumer s Choice Award and the 2005 Mediaweek Award for Best Alternative Media Plan. With the launch of a new Britney Spears fragrance this year, fantasy Britney Spears, we are going to raise the media bar even higher. The attention and enthusiasm of our retail partners is also focused on the launch in late 2005 of PREVAGE, a breakthrough anti-aging skin cream product. PREVAGE is being co-branded with Allergan, Inc., a specialty pharmaceutical company and the makers of Botox Cosmetic. We believe this collaboration with Allergan is the first of its kind in the beauty industry. The growth of cosmeceutical skin care products offering clinical anti-aging efficacy continues to grow at an accelerated pace, and sales of these products are expected to approach $5 billion in 2007, according to NPD Beauty, a global provider of sales and market information for the beauty industry. When launched by Allergan for the dermatology market in January 2005, PREVAGE was extremely well received. We believe PRE- VAGE will catapult our department store business from where it is today to something significantly more profitable and will benefit our business on many levels, including adding new retailers, introducing new male and female customers to the Elizabeth Arden franchise, attracting the best beauty 3

6 E l i z a b e t h A r d e n A n n u a l R e p o r t advisors, improving the productivity of our sales organization and smoothing out the seasonality in our business. We are excited about the prospects for this product and the impact it will have on our business. Developing New International Markets Our international business is expanding at a rapid pace. We are adding new employees, new products and new customers to our international operations. During fiscal 2005, our international operations represented 38% of our total net sales compared to 33% during the prior year and experienced sales growth of 27%, or 20% on a constant currency basis. In many markets our sales growth was exceptional. For example, in travel retail and duty free stores, industry sales of fragrance and cosmetic products increased 26% for the first half of calendar 2005 compared to 2004, while retail sales of our products increased 39%. The growth rate of retail sales of the Elizabeth Arden brand was higher than any other top 20 brand in travel retail over this period. Canada, South Africa, Spain, and Australia were other markets that experienced substantial growth, each achieving sales growth of over 30% in fiscal New products contributed significantly to the sales growth in our international markets. Our fragrance, Elizabeth Arden Provocative Woman, launched in spring 2004, was a top 10 fragrance in many markets and garnered a number of international awards. To satisfy local market demand, we introduced the Gant Adventure men s fragrance in Europe, where it achieved a top ranking in numerous markets, and Elizabeth Arden Green Tea Skincare and Elizabeth Arden Sheer White Skincare in the travel retail and Asian markets. Developing markets represent a significant growth opportunity for our business. We are currently investing in management talent, developing and implementing business plans and restructuring operations to pursue markets such as China,Taiwan, eastern Europe, South America, Mexico and India. The Elizabeth Arden brand represents a tremendous asset.the vast majority of the world s population lives in these developing markets, and we believe our worldwide brand recognition offers us a unique opportunity to significantly expand our business. In particular, we believe China represents a near term opportunity to further enhance our growth. We have historically had a very strong presence in South Korea and the northern Asia travel retail locations, and our business in this region has grown by nearly 30% over the last two and a half years. To take advantage of this we just recently completed the acquisition of our Chinese distributor, established our Elizabeth Arden affiliate in Shanghai and are looking to do the same in Taiwan. We anticipate the northern Asian market will provide top-line growth for us for many years and we will vigorously reinvest our cash flow to grow this market. Focus On Operating Costs and Working Capital As an integral component of strategy, management is always being challenged to seek opportunities to derive additional operational savings and improve our working capital utilization. This year we implemented a number of changes to our business and operational processes that should improve our cost structure, including: Re-engineering the returns processes at our distribution facility to reduce operational deductions; Installing new AS/400 computers and implementing a world-class global wide area network; Re-engineering our logistics systems to enhance performance and meet peak season demands;

7 Rolling out state-of-the-art software programs to support the materials planning processes and identifying a product life cycle management solution to automate new product development processes; and Expanding our manufacturing and distribution facility in South Africa to allow us to support more of our global needs from that facility. While we were short of our inventory goals this year, we are committed to increasing our inventory turns from 2 times to 2.5 times by the end of fiscal 2006 despite new product launches and without any additional investment. We have implemented initiatives to accomplish our inventory goals, including better management of safety stock levels, improving forecasting schedules, normalizing distributed brand inventory and continuing to reduce stock-keeping units. Reducing our inventories is essential to achieving our free cash flow goals and increasing our return on invested capital, and we are committed to doing so. Looking Forward We are enormously gratified by the success of our business strategy and the strong results of fiscal 2005, and we will continue to pursue our strategy of building brands, expanding our international presence, and reducing operating costs. Our brand portfolio provides a solid platform for future growth, our international infrastructure provides great opportunities for continued global expansion, and we will continue to reduce costs while keeping our operations flexible to accommodate growth. We believe we are well positioned to accomplish our corporate goals and to build shareholder value for the long term. a compensation strategy and programs for our key personnel that reflect best practices under corporate governance principles. For example, we introduced the use of performance-based restricted stock three years ago before it was common practice. Currently, two thirds of our stock incentives are performance contingent, a level that is greater than market. I am also pleased to say that our corporate governance quotient, a rating developed by Institutional Shareholder Services, as of September 1, 2005, was better than 94.4% of the Russell 3000 companies and 98.1% of Household and Personal Products companies (an industry peer group as defined by Standard & Poor s). This rating is provided by Institutional Shareholder Services on over 7,500 companies worldwide and evaluates the strengths, deficiencies and risks of a company s corporate governance practices and board of directors. This is a testament to the strength of our organization and our serious commitment to operating at the highest and most responsible level for a public company. Relying on the Support of Our Employees and Key Stakeholders Our success over the past several years would not have been possible without the hard work, dedication and drive of our employees, beauty advisors, and other retail associates. I am very proud of our entrepreneurial, team-oriented organization, and I thank everyone for their exemplary efforts in positioning Elizabeth Arden for future success. We also very much appreciate the support of our shareholders and are grateful for the confidence that they have in the future of Elizabeth Arden. 5 Committing To Best Practices and Strong Corporate Governance Corporate governance is an issue of great importance to all public companies, and it is an aspect of our business we take very seriously. We have developed Sincerely Yours, E. Scott Beattie Chairman and Chief Executive Officer

8 OUR MANAGEMENT TEAM William J. Keneally Senior Vice President, Finance and Corporate Controller 2 Heide Rand Senior Vice President, Department Store Fragrance Group Paul F. West President and Chief Operating Officer 4 Ronald L. Rolleston Executive Vice President, Global Marketing 5 Joel B. Ronkin Executive Vice President and Chief Administrative Officer 6 E. Scott Beattie Chairman and Chief Executive Officer 7 Jacobus A.J. Steffens Executive Vice President, General Manager - International 8 Gretchen Goslin Executive Vice President, Business Development 9 L. Hoy Heise Senior Vice President and Chief Information Officer 10 Jeffrey M. Arnold Senior Vice President, Mass Selling Business Unit 11 Stephen J. Smith Executive Vice President and Chief Financial Officer 12 Roy C. Drilon Senior Vice President, Logistics 13 Marcey Becker Senior Vice President, Finance and Corporate Development 14 Oscar E. Marina Executive Vice President, General Counsel and Secretary 15 Elizabeth T. Park Senior Vice President, Global Marketing 16 Michael H. Lombardi Executive Vice President, Operations 17 Tamara Steele Senior Vice President, Marketing

9 PRESTIGE FRAGRANCES From legendary classics such as Elizabeth Arden Red Door to the number one fragrance launch of 2004, curious Britney Spears, our fragrance portfolio sets new standards. Major brands include the Elizabeth Arden fragrances: Red Door, Red Door Revealed, Elizabeth Arden 5th Avenue, Elizabeth Arden green tea, Elizabeth Arden Provocative Woman and ardenbeauty; curious Britney Spears and fantasy Britney Spears; Elizabeth Taylor s White Diamonds, and Passion; White Shoulders; the Halston brands Halston, and Halston Z-14; Geoffrey Beene s Grey Flannel; PS Fine Cologne for Men, Design and Wings. In addition to the 50 brands we own or license, we distribute more than 250 prestige brands manufactured by others. curious Britney Spears is a white floral fragrance, accented with Louisiana Magnolia and vanillainfused musk. Its unique bottle with an atomizer and packaging design communicates a youthful but sophisticated image. We initiated an innovative media campaign, the Britney Buzz, at the curious launch. Elements of this campaign included on-line advertising, text messaging, a voice-messaging campaign utilizing Britney Spears voice and promotional events featuring the tag line Do you dare? Promotional events featured the Ultimate Girls Night Out, Britney look-alike contests and Weekend Spa Getaway giveaways. The Spears Peers, a team of Britney look-alike beauty specialists, helped promote the fragrance at special events. Retailers are equally excited about fantasy Britney Spears, which was launched in September fantasy Britney Spears is designed as a slightly more sophisticated scent and packaging to create a point of difference at counter. This second fragrance in the Britney Spears collection is described as a magic love potion of sweet temptation. Adorned with Swarovski crystals, the round fuchsia bottle comes in an innovative carton, designed to unfold like a magic storybook. The media campaign for this new fragrance will capitalize on the Britney Buzz and the momentum created by curious, using groundbreaking advertising techniques. 7 curious Britney Spears, launched in the fall 2004, broke records across the globe! According to NPD curious was the number one selling fragrance launch in U.S. department stores in curious was also the number one fragrance launch in almost every international market in which the fragrance was introduced. On-line sales surpassed expectations as well. curious was described as one of the hottest items dropping into virtual shopping carts at amazon.com.

10 E l i z a b e t h A r d e n A n n u a l R e p o r t Elizabeth Arden Provocative Woman, Elizabeth Arden s newest fragrance, has experienced incredible success since its April 2004 launch. This intoxicating fragrance is a fusion of tantalizing oriental ingredients combined with a sexy, magnetic floralcy. Elizabeth Arden Provocative Woman was a key global launch and received numerous awards as it was rolled out, including the Best New Product Launch at the 2005 Raven Fox Awards for Global Travel Retail Excellence. The captivating print and television advertising features Catherine Zeta-Jones with the seductive tagline men will melt.. Elizabeth Arden 5th avenue after five was launched worldwide in September 2005, bringing a modern look to the 5th Avenue franchise and a new fragrance to the Elizabeth Arden portfolio. This distinctive, sheer oriental combines sparkling notes of black plum and exotic florals with warm, creamy woods - creating the unique sensibility of a fragrance that has sensuous evening warmth yet is perfect for everyday. The contemporary print campaign features Catherine Zeta-Jones in a cosmopolitan-chic look and the tagline My Day Begins at 5:01. Halston Z-14 has generated new excitement this year with the addition of spokesperson Jeff Gordon, one of NASCAR s most successful and recognizable drivers. Coinciding with his third Daytona 500 win in February, a Jeff Gordon Halston Z-14 Satellite Media Tour took place on 63 television and radio stations, reaching more than six million viewers. The association of Jeff Gordon and Halston Z-14 is driving a whole new generation of customers to the Halston Z-14 brand. We also signed a licensing agreement with the International Speedway Corporation, the owners of the Daytona Speedway, which hosts NASCAR s most famous event, and plan on introducing the fragrance Daytona 500 in the spring of 2005.

11 COLOR COSMETICS A true gem in our fragrance portfolio, Elizabeth Taylor s White Diamonds remains a perenial best seller and was the number one selling holiday gift set in the U.S. for the sixth consecutive year. This fragrance, introduced in 1991, is widely considered to be the most successful celebrity fragrance of all time. We continue to support the Elizabeth Taylor fragrance collection with advertising and complementary products. L et us Color Intrigue you. The Color Intrigue collection of lipsticks, eye and cheek color products is creating excitement and attracting customers to our counters. Building upon the success of the Color Intrigue Lipstick introduced in summer 2003, we launched the Color Intrigue Eye & Cheek Collection featuring eyeshadows, eyeliners, cheekcolors, browshapers and bronzing powder in fall The Color Intrigue collection is an important evolution in our color cosmetics line, reflecting contemporary trends and an integrated approach to our color cosmetics collection. Our print advertising campaign for Color Intrigue features Catherine Zeta-Jones in a triptych of different modern looks : The Urban Look, The Casual Look and The Polished Look. 9 Coordinated with Color Intrigue, are seasonal color collections such as our Fall Holiday Color Collection and our Spring Bronze Beauty, which were introduced for limited periods to create newness at the counter. We are excited to announce a partnership with Hilary Duff, international star of film, television and recording fame, to launch a new line of fragrance products. The line will be designed to reflect Hilary s image and taste, and it is expected to debut in fall 2006 in prestige department stores in North America followed by a global rollout. For many women, mascara is one of their most important cosmetic accessories. At the cosmetic counter, mascara helps to link sell to other color Finally, we have entered into an exclusive global licensing agreement with Danielle Steel, internationally acclaimed novelist, to develop and market her own line of fragrance products to launch nationwide in fall of 2006.

12 cosmetics. In fall 2004, we successfully launched Double Density Maximum Volume Mascara, a technologically advanced formula that thickens lashes while separating and defining them. This led to a 50% growth in our worldwide mascara business. In the U.S., our mascara business had double-digit retail sales growth and almost double the category. E l i z a b e t h A r d e n A n n u a l R e p o r t Among coming attractions this fall we will introduce a new seasonal color story - after five colors which will be promoted with our new fragrance Elizabeth Arden 5 th avenue after five. Focusing on growth in the anti-aging, premium skin care category, we were able to capitalize on our successful Ceramide business and create Ceramide Plump Perfect Makeup SPF 15, a lightweight cream makeup that incorporates the Ceramide Plump Perfect skin care technology. Like its skin care partner, this skin-perfecting, line-diminishing foundation plumps fine lines and wrinkles with argirelene. Debuting at the same time will be Sheer Lights Illuminating Pen, a concealing product that instantly brightens skin and diminishes the appearance of dark circles and signs of fatigue. Consumer test results for both of these products were outstanding. We are repackaging and updating several of our existing foundation formulas and plan to introduce a new foundation brush. Finally, a series of products to take advantage of the bronzing trend will be introduced in spring Color is what attracts customers to the counter. Our strategy is to capitalize on market trends to attract new customers. We will utilize our spokesperson, Catherine Zeta-Jones as the face of Elizabeth Arden across more products than ever.

13 SKIN CARE Our Company s rich heritage in skin care innovation dates back nearly 75 years. Since then, our Company has been a leader in developing and marketing innovative skin care products, and we are continually updating and enhancing our skin care lineup. Advancing this tradition of innovation in skin care, we will introduce PREVAGE anti-aging treatment later this year, co-marketed with Allergan, Inc., a specialty pharmaceutical company and market leader in dermatology. idebenone is currently the most effective antioxidant for preventing and relieving oxidative stress in the skin and restoring cell vitality. In collaboration with Allergan, the PREVAGE formulation, packaging design, and marketing plans are well underway. Our prestige customers have expressed unprecedented interest in this product. We expect to begin shipping to prestige department stores in November and PREVAGE to be rolled out to our prestige customers globally throughout the remainder of fiscal 2006 and into With the dermatology-inspired skin care market experiencing explosive growth, PREVAGE is a timely introduction. On May 4, 2005, we announced our exclusive co-marketing agreement with Allergan to bring a newly-formulated PREVAGE to prestige cosmetic retailers worldwide. The new formulation will contain 0.5% idebenone, a revolutionary, patented, highly effective antioxidant which was first used in the medical community as a compound to protect organs from the oxidation process during transplant surgery. Allergan will continue to sell a physicianstrength PREVAGE MD, containing 1% idebenone through dermatologists. The launch of PREVAGE will be backed by a powerful public relations and multi-media advertising campaign. 11 PREVAGE is clinically proven to reduce the appearance of fine lines and wrinkles, increase skin hydration, and improve the overall appearance of the skin. Results show that

14 Our Elizabeth Arden skin care strategy is to focus on our core skin care franchises and to use them as pillars for new brands. Our Cermide anti-aging skin care line was a breatkthrough at its introduction and continues to be a leading brand worldwide. We experienced double-digit growth for our Ceramide anti-aging skin care, as well as for our Eight Hour Cream franchises over the last two years. The Ceramide anti-aging skin care line uses advanced anti-aging technology to plump surface lines and wrinkles to smooth away the signs of aging, stress and tension. 12 Concentrate, a concentrated formulation, which diminishes the appearance of deeper expression lines and wrinkles. Other recently introduced skin care products include Perpetual Moisture 24-Lotion and Cream, which relieves dryness and the underlying causes of dryness and Green Tea Skincare, a skin care line that will capitalize on the strength of the green tea fragrance and growing popularity for wellness products. Capitalizing on the success of Ceramide Plump Perfect Moisture Cream SPF 30 (introduced in 2003), we introduced three new Ceramide products in fiscal 2005: Ceramide Moisture Network Night Cream, an advanced night-time formula that provides targeted, time-release moisture coupled with antiaging benefits to repair and smooth the skin s appearance, Ceramide Plump Perfect Eye Moisture Cream SPF 15 and Ceramide Plump Perfect Lip Moisture Cream SPF 30 which plump lines around the eyes and lips, respectively. In fall 2005, we plan to launch Ceramide Plump Perfect Targeted Line Another skin care trend in our Asian markets for which we are well positioned is the growing popularity of whitening products. We estimate that up to 40% of women in key Asian countries use at least one whitening product, and that whitening is the largest skin care category in Asia, accounting for up to 30% of total skin care volume or over $4 billion in annual sales. As such, a strong position in whitening skin care is critical in being successful in the Asian skin care market, particularly in China. To address this, we intend to build our Elizabeth Arden Sheer White line into a major Elizabeth Arden skin care franchise. Products scheduled to launch in spring 2006 include Sheer White Luminizing Moisture Lotion and Sheer White Protective Daytime Lotion SPF 15. Our strength and reputation as a skin care innovator should provide us a competitive advantage in establishing a leadership position in these markets.

15 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-K È ANNUAL REPORT PURSUANT TO SECTION 13 OR 14(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended June 30, 2005 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number Elizabeth Arden, Inc. (Exact name of registrant as specified in its charter) Florida (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) N.W. 60th Avenue, Miami Lakes, Florida (Address of principal executive offices) (Zip Code) (305) (Registrant s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes È No Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The aggregate market value of voting Common Stock held by non-affiliates of the registrant was approximately $593 million based on the closing price of the Common Stock on the NASDAQ National Market of $23.74 per share on December 31, 2004, the last business day of the registrant s most recently completed second fiscal quarter and determined by subtracting from the number of shares outstanding on that date the number of shares held by the registrant s directors, executive officers and holders of at least 10% of the outstanding shares of Common Stock. As of September 1, 2005, the registrant had 29,483,510 shares of Common Stock outstanding. 13 Documents Incorporated by Reference Part III Portions of the Registrant s Proxy Statement relating to the 2005 Annual Meeting of Shareholders to be held on November 16, 2005.

16 Elizabeth Arden, Inc. TABLE OF CONTENTS 14 Part I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders Part II Item 5. Market for Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Item 9A. Controls and Procedures Item 9B. Other Information Part III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions Item 14. Principal Accountant Fees and Services Part IV Item 15. Exhibits, Financial Statement Schedules Signatures Page

17 FORWARD LOOKING INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS 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) MADE IN THIS ANNUAL REPORT ON FORM 10-K. ANY STATEMENTS THAT ARE 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 PROJECTS ) 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 OR 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 UNEXPECTED 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, INCLUDING THE CONSOLIDATION OF RETAILERS AND THE ASSOCIATED CLOSING OF RETAIL DOORS; 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. 15

18 PART I ITEM 1. BUSINESS General Elizabeth Arden, Inc., is a global prestige beauty products company with an extensive portfolio of prestige fragrance, skin care and cosmetics brands. We market approximately 100 owned or licensed prestige brands, including the following fragrance brands: Elizabeth Arden Red Door, Red Door Revealed, Elizabeth Arden 5th Avenue, 5th Avenue After Five, Elizabeth Arden green tea, Elizabeth Arden Provocative Woman, ardenbeauty, and Sunflowers; curious Britney Spears and fantasy Britney Spears; Elizabeth Taylor s White Diamonds, Passion, Forever Elizabeth and Gardenia; White Shoulders; Halston and Z-14; Geoffrey Beene s Grey Flannel; PS Fine Cologne for Men; Design; GANT Adventure; and Wings. Our skin care brands include Ceramide, Eight Hour Cream, Overnight Success and Prevage, and our cosmetics products include Color Intrigue Cheek & Eye Collection and other Elizabeth Arden brand lipstick, foundation and color cosmetics products. In addition to our owned or licensed fragrance brands, we distribute over 250 additional prestige fragrance brands, primarily in the United States through distribution and other purchasing agreements. We sell our prestige beauty products to retailers in the United States and internationally, including; department stores such as Macy s, Dillard s, JCPenney, Saks and Nordstroms; mass retailers such as Wal-Mart, Target, Sears, Kohl s, Walgreens, Rite-Aid and CVS; and international retailers such as Boots, Debenhams, Sephora, and various travel retail outlets. 16 In the United States, we sell our Elizabeth Arden skin care and cosmetics products primarily in prestige department stores and our fragrances in prestige department stores and mass retailers. We also sell our Elizabeth Arden fragrances, skin care and cosmetics products and other fragrance lines like curious Britney Spears in approximately 90 countries worldwide through perfumeries, boutiques, department stores and travel retail outlets, such as duty free shops and airport boutiques. Our international operations are subject to volatility because of foreign currency exchange rate changes, inflation and changes in political and economic conditions in the countries in which we operate. The value of international assets is affected by fluctuations in foreign currency exchange rates. On June 2, 2004, our board of directors approved a change in fiscal year end from January 31 to June 30, effective as of June 30, The change was implemented to better reflect our business cycle and to enhance business planning relative to our customers retail calendars. As a result, the financial periods presented and discussed in this Annual Report on Form 10-K will be defined as follows: (i) year ended June 30, 2005 represents the twelve months ended June 30, 2005; (ii) fivemonth transition period ended June 30, 2004 represents the five months ended June 30, 2004; (iii) year ended January 31, 2004 represents the twelve months ended January 31, 2004; and (iv) year ended January 31, 2003 represents the twelve months ended January 31, Our net sales to customers in the United States and internationally in dollars and net sales as a percentage of combined net sales for the year ended June 30, 2005, five-month transition period ended June 30, 2004 and fiscal years ended January 31, 2004 and 2003 are listed in the following chart: Year Ended Five-Month Transition Period Ended Years Ended January 31, June 30, 2005 June 30, Sales % Sales % Sales % Sales % (Amounts in millions) United States... $ % $ % $ % $ % International % % % % Total... $ % $ % $ % $ %

19 Our three largest foreign countries in terms of net sales for the year ended June 30, 2005, the five-month transition period ended June 30, 2004 and the years ended January 31, 2004 and 2003, are listed in the following chart: Year Ended June 30, 2005 Five-Month Transition Period Ended June 30, 2004 Years Ended January 31, (Amounts in millions) United Kingdom... $45.6 $12.5 $38.1 $35.0 Canada Spain For information on the breakdown of our long-lived assets in the United States and internationally and risks associated with our international operations, see Note 17 to the Notes to Consolidated Financial Statements. On January 23, 2001, we acquired the Elizabeth Arden business, including the Elizabeth Arden line of fragrance, skin care and cosmetic brands, the license for the Elizabeth Taylor fragrance brands and the White Shoulders fragrance brand, from affiliates of Unilever N.V. Following the acquisition, we changed our name from French Fragrances, Inc. to Elizabeth Arden, Inc. As a result of this acquisition, our net sales almost doubled from approximately $373 million in the year ended January 31, 2001 to approximately $668 million in the year ended January 31, 2002 and our international sales also increased significantly from approximately $4 million in the year ended January 31, 2001 to approximately $203 million in the year ended January 31, Prior to this acquisition, we were involved primarily in the marketing and sales of prestige fragrance products in the United States, and international sales were not material. Our principal executive offices are located at N.W. 60th Avenue, Miami Lakes, Florida 33014, and our telephone number is (305) We maintain a website with the address We are not including information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission. 17 Information relating to corporate governance at Elizabeth Arden, Inc., including our Corporate Governance Guidelines and Principles, Code of Ethics for Directors and Executive and Finance Officers, Code of Business Conduct and charters for the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, is available on our website under the section EA Corporate Investor Relations Corporate Governance. We will provide the foregoing information without charge upon written request to Secretary, Elizabeth Arden, Inc., NW 60 th Avenue, Miami Lakes, FL Business Strategy Grow Existing Brand Portfolio. We believe significant opportunities exist to increase the sales of our brands by both investing behind our core brands such as the Elizabeth Arden and Elizabeth Taylor names and capitalizing on additional brand building opportunities. We intend to do this by increasing the advertising, marketing and brand development expenditures to grow our product categories globally and to increase the utilization of our global spokesperson, Catherine Zeta-Jones, to promote the Elizabeth Arden brand across all product categories. For the year ended June 30, 2005, we increased these expenditures by 35% over the year ended January 31, During the year ended June 30, 2005, we launched a Britney Spears fragrance; curious, a new Elizabeth Arden fragrance, Elizabeth Arden Provocative Woman, and several new skin care and color products, including additional Ceramide skin care products and the Color Intrigue Eye and Cheek collection.

20 New brands launched during the year ended January 31, 2004, included a new Elizabeth Arden fragrance, Red Door Revealed, a relaunch of Elizabeth Arden green tea fragrance, and several new skin care and color products, including Ceramide Plump Perfect, Overnight Success and Color Intrigue, a line of lipstick. Acquire Control of or Develop Additional Prestige Brands. We intend to continue to opportunistically acquire control through acquisitions and licensing agreements of additional prestige brands that will complement and grow our brand portfolio. The acquisition of brands enables us to leverage our logistics and sales infrastructure globally, generate higher gross margins, and sell our products into new retailers and markets. In March 2005, for example, we announced an agreement with Allergan, Inc., to exclusively produce and market Prevage, a skin care treatment, to prestige retailers worldwide. During the year ended June 30, 2005, we also entered into an exclusive licensing agreement with International Speedway Corporation, the owners of the Daytona Speedway, which hosts the most recognized NASCAR automobile race, for the sale of Daytonarelated beauty products. In March 2004, we entered into an exclusive worldwide licensing agreement with Britney Brands, Inc. to develop and distribute a line of fragrance, cosmetics and skin care products under the Britney Spears name allowing us to target a younger global consumer. In the year ended June 30, 2005, we introduced the curious Britney Spears fragrance and plan to introduce the fantasy Britney Spears fragrance during fiscal year In June 2003, we entered into a licensing agreement to market a line of men s fragrance for GANT AB primarily for our international markets. While we continuously review acquisition opportunities for prestige brands, we have no commitments or agreements for any acquisitions at this time. 18 Grow the Prestige Fragrance Category with our Mass Retail Partners. We distinguish ourselves by tailoring the marketing, promotion, size and packaging of our prestige fragrances to appeal to a wide range of consumers. This tailoring uniquely allows us to sell the same brand in prestige department stores and mass retailers while maintaining its prestige image. We intend to increase the sales volume of our products and strengthen our relationships with our mass retail customers by continuing to offer new prestige fragrances, including fragrances not currently offered in department stores, as well as value-added services such as category and inventory management and fulfillment services that our competitors do not typically offer. We believe that our breadth of products and level of services have enabled us to gain a leading share of the growing prestige fragrance category at mass retailers and to become an important and valued supplier for our customers. Additionally, we expect to capitalize on the growth of our largest mass retail customers both in the United States and, over time, internationally. Improve Profitability and Working Capital Efficiencies. We continue to pursue business efficiencies throughout the company, particularly in finance, logistics, supply chain and information technology areas. For example, in January 2004, we consolidated our distribution facilities to a single facility in Roanoke Virginia and in August 2005, sold our Miami Lakes distribution facility. This allowed us to lower our supply chain and other overhead expenses by $8.4 million from February 2004 through January 31, 2005 compared to the year ended January 31, Through June 30, 2005, we have reduced our long-term indebtedness by approximately $86.5 million from the balance as of January 31, 2003, which has significantly lowered our interest expense, allowing us to increase our advertising and product innovation expenditures and providing us with greater financial flexibility. We intend to continue to use the savings we have achieved in these areas as well as the cash flow from operations, which should increase as we improve our working capital efficiencies, to reinvest in and grow our brands and repay debt. Since the year ended January 31, 2004, our general and administrative expenses have decreased as a percentage of net sales while our advertising and marketing expenditures have increased as a percentage of net sales. In addition, the scale of our international operations continue to provide opportunities to improve operating efficiency by leveraging a larger sales and distribution platform. Develop Emerging Markets. We intend to invest in and develop certain markets around the world that we believe have significant opportunities for growth of our products. For example, in July 2005, we acquired certain assets of our distributor in China and established a sales affiliate in

21 Shanghai. We also intend to establish a branch office in Taiwan. Other markets we believe have significant potential for growth include Mexico, Latin America and Eastern Europe. We believe the Elizabeth Arden name is well recognized in these countries and we intend to capitalize on our relative strength. Expand Selection of Distributed Fragrance Brands. We intend to continue to add, primarily in North America, new prestige fragrance brands to our portfolio of brands that we distribute on behalf of other beauty companies. Our extensive distribution platform, our strong reputation with our retail customers and our relationships with leading fragrance houses provide us with opportunities to expand our line of distributed brands. We believe that increasing our line of distributed brands also further leverages our existing infrastructure and makes us a more attractive source of supply for our customers. Products Our net sales of products and net sales as a percentage of combined net sales for the year ended June 30, 2005, five-month transition period ended June 30, 2004 and fiscal years ended January 31, 2004 and 2003 are listed in the following chart. Year Ended Five-Month Transition Period Ended Years Ended January 31, June 30, 2005 June 30, (Amounts in millions) Sales % Sales % Sales % Sales % Fragrance... $ % $ % $ % $ % Skin Care % % % % Cosmetics % % % % Total... $ % $ % $ % $ % 19 Fragrance. We offer a wide variety of fragrance products for both men and women, including perfume, cologne, eau de toilette, body spray and gift sets. Each fragrance is sold in a variety of sizes and packaging arrangements. In addition, bath and body products, such as soaps, deodorants, body lotions, gels, creams and dusting powder that are based on the particular fragrance, may complement each fragrance line. We tailor the size and packaging of the fragrance to suit the particular target customer. Our fragrance products generally retail at prices ranging from $4 to $95, depending on the size, type and packaging of the product. Our owned and licensed fragrance brands include the Elizabeth Arden brands, such as Elizabeth Arden Red Door, Red Door Revealed, Elizabeth Arden 5th Avenue, 5th Avenue After Five, Elizabeth Arden green tea, Elizabeth Arden Provocative Woman, Sunflowers and ardenbeauty; Elizabeth Taylor s White Diamonds, Passion, Forever Elizabeth and Gardenia; curious Britney Spears and fantasy Britney Spears; White Shoulders; Halston and Z-14; Geoffrey Beene s Grey Flannel; PS Fine Cologne for Men, Design; GANT Adventure; and Wings. In addition to the approximately 100 prestige fragrance brands we own and license, we also distribute over 250 fragrances under brands manufactured by others, principally to mass retailers. Skin Care. Our skin care lines include products such as moisturizers, creams, lotions, and cleansers. Our skin care lines are marketed under our core product franchises, which include the Ceramide skin care line including Ceramide Plump Perfect Moisture Cream SPF 30 and Ceramide Network Moisture Network Night Cream, and the Eight Hour Cream line of products. We recently launched Perpetual Moisture 24-Hour Lotion and Cream, green tea skin care and Elizabeth Arden Sheer White, a line of whitening products for our Asian markets. We sell skin care products internationally and in the United States primarily in prestige department stores and, to a lesser extent, through independently owned and operated Elizabeth Arden Red Door salons and stores. Our skin care products generally retail at prices ranging from $7 to $87. In March 2005, we announced an alliance with Allergan, Inc., to exclusively produce and market Prevage, a skin care treatment,