UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q





|(Mark One)                                              |                                                                                          
|------------------------------------------------------- | -----------------------------------------------------------------------------------------
|[x]                                                     | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                       
|For the quarterly period ended March 31, 2006          
|                                                       
|[]                                                      | 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 1-6370                          





|ELIZABETH ARDEN, INC.                                 
|------------------------------------------------------
|                                                      
|(Exact name of registrant as specified in its charter)



|Florida                                                        |  | 59-0914138                          
|-------------------------------------------------------------- |  | ------------------------------------
|                                                               |  |                                     
|(State or other jurisdiction of incorporation
or organization) |  | (I.R.S. Employer
Identification No.)
|                                                               |  |                                     
|2400 S.W. 145 Avenue, Miramar, Florida                         |  | 33027                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          
|                                                               |  |                                     



|(954) 364-6900                                      
|----------------------------------------------------
|                                                    
|(Registrant's telephone number, including area code)



|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  [X]      No  [  ]
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                   
|Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.    Large accelerated filer  [  ]      Accelerated filer  [X]      Non-accelerated filer  [  ]                                                  
|                                                                                                                                                                                                                                                                                                                                                                                   
|Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  [  ]      No  [X].                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                   
|Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:                                                                                                                                                                                                                                                      



|Class                        |  | Outstanding at
May 5, 2006
|---------------------------- |  | --------------------------
|                             |  |                           
|Common Stock, $.01 par value |  | 29,728,241                



---



ELIZABETH ARDEN, INC.



INDEX TO FORM 10-Q





|PART I        |  | FINANCIAL INFORMATION                                                                                              |  |         
|------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | --------
|              |  |                                                                                                                    |  |         
|Item 1.       |  | Financial Statements                                                                                               |  | Page No.
|              |  |                                                                                                                    |  |         
|              |  | Unaudited Consolidated Balance Sheets - March 31, 2006 and June 30, 2005                                           |  | 3       
|              |  |                                                                                                                    |  |         
|              |  | Unaudited Consolidated Statements of Operations -- Three and nine months ended March 31, 2006
  and March 31, 2005 |  | 4       
|              |  |                                                                                                                    |  |         
|              |  | Unaudited Consolidated Statement of Shareholders' Equity -- Nine months ended March 31, 2006                       |  | 5       
|              |  |                                                                                                                    |  |         
|              |  | Unaudited Consolidated Statements of Cash Flow -- Nine months ended March 31, 2006 and 
  March 31, 2005           |  | 6       
|              |  |                                                                                                                    |  |         
|              |  | Notes to Unaudited Consolidated Financial Statements                                                               |  | 7       
|              |  |                                                                                                                    |  |         
|Item 2.       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                              |  | 23      
|              |  |                                                                                                                    |  |         
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                                         |  | 33      
|              |  |                                                                                                                    |  |         
|Item 4.       |  | Controls and Procedures                                                                                            |  | 34      
|              |  |                                                                                                                    |  |         
|PART II       |  | OTHER INFORMATION                                                                                                  |  |         
|              |  |                                                                                                                    |  |         
|Item 2.       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                        |  | 35      
|              |  |                                                                                                                    |  |         
|Item 6.       |  | Exhibits                                                                                                           |  | 36      
|              |  |                                                                                                                    |  |         
|Signatures    |  | 39                                                                                                                
|              |  |                                                                                                                    |  |         
|Exhibit Index |  | 40                                                                                                                



- 2 -



---





PART I      FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS



|ELIZABETH ARDEN, INC. AND SUBSIDIARIES
|--------------------------------------
|CONSOLIDATED BALANCE SHEETS           
|(Unaudited)                           
|(Dollars in thousands)                





|                                     |                                                                                                                                                                            | As of                                                     |                                           
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            | March 31,                                                 |                                           
|                                     |                                                                                                                                                                            | 2006                                                      |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|ASSETS                               |                                                                                                                                                                            |                                                           |                                           
|Current Assets                       |                                                                                                                                                                            |                                                           |                                           
|                                     | Cash and cash equivalents                                                                                                                                                  |                                                           | $                                         
|                                     | Accounts receivable, net                                                                                                                                                   |                                                           |                                           
|                                     | Inventories                                                                                                                                                                |                                                           |                                           
|                                     | Deferred income taxes                                                                                                                                                      |                                                           |                                           
|                                     | Prepaid expenses and other assets                                                                                                                                          |                                                           |                                           
|                                     | Assets held for sale                                                                                                                                                       |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           | Total current assets                      
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     | Property and equipment, net                                                                                                                                                |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     | Other Assets                                                                                                                                                               |                                                           |                                           
|                                     |                                                                                                                                                                            | Exclusive brand licenses, trademarks and intangibles, net |                                           
|                                     |                                                                                                                                                                            | Debt financing costs, net                                 |                                           
|                                     |                                                                                                                                                                            | Other assets                                              |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           | Total other assets                        
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           | Total assets                              
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                                                                                                            |                                                           |                                           
|Current Liabilities                  |                                                                                                                                                                            |                                                           |                                           
|                                     | Short-term debt                                                                                                                                                            |                                                           | $                                         
|                                     | Accounts payable -- trade                                                                                                                                                  |                                                           |                                           
|                                     | Other payables and accrued expenses                                                                                                                                        |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           | Total current liabilities                 
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     | Long-term debt, net                                                                                                                                                        |                                                           |                                           
|                                     | Deferred income taxes and other                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           | Total long-term liabilities               
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           | Total liabilities                         
|                                     |                                                                                                                                                                            |                                                           |                                           
|Commitments and contingencies        |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|Shareholders' Equity                 |                                                                                                                                                                            |                                                           |                                           
|                                     | Common stock, $.01 par value, 50,000,000 shares authorized; 
  29,727,741 issued and 29,313,318 outstanding, and 29,256,560 
  shares issued and outstanding, respectively |                                                           |                                           
|                                     | Additional paid-in capital                                                                                                                                                 |                                                           |                                           
|                                     | Retained earnings                                                                                                                                                          |                                                           |                                           
|                                     | Treasury stock (414,423 shares at cost)                                                                                                                                    |                                                           |                                           
|                                     | Accumulated other comprehensive income                                                                                                                                     |                                                           |                                           
|                                     | Unearned deferred compensation                                                                                                                                             |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           | Total shareholders' equity                
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           | Total liabilities and shareholders' equity
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           
|                                     |                                                                                                                                                                            |                                                           |                                           



The accompanying notes are an integral part of the unaudited consolidated financial statements.



- 3 -



---





|ELIZABETH ARDEN, INC. AND SUBSIDIARIES       
|---------------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS        
|(Unaudited)                                  
|(Amounts in thousands, except per share data)



|                                                                                                       | Three Months Ended                  |   | Nine Months Ended
|------------------------------------------------------------------------------------------------------ | ----------------------------------- | - | -----------------
|                                                                                                       |                                     |   |                  
|                                                                                                       | March 31, 2006                      |   | March 31, 2005   
|                                                                                                       |                                     |   |                  
|Net sales                                                                                              |                                     | $ | 191,344          
|Cost of sales (excludes depreciation of $641, $681,
  $1,822 and $2,052, respectively, included below) |                                     |   | 105,094          
|                                                                                                       |                                     |   |                  
|Gross profit                                                                                           |                                     |   | 86,250           
|                                                                                                       |                                     |   |                  
|Operating expenses                                                                                     |                                     |   |                  
|                                                                                                       | Selling, general and administrative |   |                  
|                                                                                                       | Depreciation and amortization       |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       | Total operating expenses            |   |                  
|                                                                                                       |                                     |   |                  
|Income from operations                                                                                 |                                     |   | 4,883            
|                                                                                                       |                                     |   |                  
|Other expense:                                                                                         |                                     |   |                  
|Interest expense, net                                                                                  |                                     |   | 5,344            
|Debt extinguishment charge                                                                             |                                     |   | 758              
|                                                                                                       |                                     |   |                  
|Other expense (income), net                                                                            |                                     |   | 6,102            
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|(Loss) income before income taxes                                                                      |                                     |   | (1,219           
|(Benefit from) provision for income taxes                                                              |                                     |   | (1,921           
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|Net income                                                                                             |                                     | $ | 702              
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|Net income per common share:                                                                           |                                     |   |                  
|                                                                                                       | Basic                               |   | $                
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       | Diluted                             |   | $                
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|Weighted average number of common shares:                                                              |                                     |   |                  
|                                                                                                       | Basic                               |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       | Diluted                             |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  
|                                                                                                       |                                     |   |                  





The accompanying notes are an integral part of the unaudited consolidated financial statements.



- 4 -



---





|ELIZABETH ARDEN, INC. AND SUBSIDIARIES        
|----------------------------------------------
|CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
|(Unaudited)                                   
|(Amounts in thousands)                        



|                                                                                                       |                                                                      | Common Stock
Outstanding                                                      |        |  | Additional
Paid-in |   |     | Retained |  |   | Treasury |   |  | Accumulated
Other
Comprehensive |        |        | Unearned
Deferred |   |        | Total
Shareholders' | 
|------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------ |  | ------------------ | - | --- | -------- |  | - | -------- | - |  | ------------------------------- | ------ | ------ | ----------------- | - | ------ | ------------------- | 
|                                                                                                       |                                                                      | Shares                                                                        |        |  | Amount             |   |     | Capital  |  |   | Earnings |   |  | Stock                           |        |        | Income            |   |        | Compensation        | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|Balance at June 30, 2005                                                                               |                                                                      |                                                                               | 29,257 |  |                    | $ | 293 |          |  | $ | 249,919  |   |  | $                               | 15,547 |        |                   | $ | --     |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|Change in accounting principle for adoption of 
  SFAS 123R share-based payment awards 
  (See Note 3) |                                                                      |                                                                               |        |  |                    |   |     |          |  |   | (12,150  | ) |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|Issuance of common stock upon exercise of 
  stock options                                             |                                                                      |                                                                               | 226    |  |                    |   | 2   |          |  |   | 2,577    |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|Issuance of common stock from employee stock 
  purchase plan                                          |                                                                      |                                                                               | 50     |  |                    |   | --  |          |  |   | 808      |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|Common stock issued to an independent contractor                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   | 678      |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|Issuance of restricted stock, net of forfeitures                                                       |                                                                      |                                                                               | 195    |  |                    |   | 2   |          |  |   | (2       | ) |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|Amortization of share-based awards                                                                     |                                                                      |                                                                               |        |  |                    |   |     |          |  |   | 7,926    |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|Repurchase of common stock                                                                             |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   | (8,059 | )                   | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|Comprehensive income:                                                                                  |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       | Net income                                                           |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        | 34,692 |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       | Foreign currency translation adjustments                             |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       | Disclosure of reclassification amount, net of
  taxes (8% tax rate): |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      | Unrealized hedging loss arising during the 
  period                          |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      | Less: reclassification adjustment for 
  hedging gains included in net income |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      | Net unrealized cash flow hedging gain                                         |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       | Total comprehensive income                                           |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        | 34,692 |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|Balance at March 31, 2006                                                                              |                                                                      |                                                                               | 29,728 |  |                    | $ | 297 |          |  | $ | 249,756  |   |  | $                               | 50,239 |        |                   | $ | (8,059 | )                   | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 
|                                                                                                       |                                                                      |                                                                               |        |  |                    |   |     |          |  |   |          |   |  |                                 |        |        |                   |   |        |                     | 

The accompanying notes are an integral part of the unaudited consolidated financial statements.



- 5 -



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|ELIZABETH ARDEN, INC. AND SUBSIDIARIES
|--------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOW  
|(Unaudited)                           
|(Dollars in thousands)                

|                                                             |                                                                                   | Nine Months Ended                                   |       
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | --------------------------------------------------- | ------
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   | March 31,                                           |       
|                                                             |                                                                                   | 2006                                                |       
|                                                             |                                                                                   |                                                     |       
|Operating Activities:                                        |                                                                                   |                                                     |       
|                                                             | Net income                                                                        |                                                     | $     
|                                                             | Adjustments to reconcile net income to net cash provided by operating activities: |                                                     |       
|                                                             | Depreciation and amortization                                                     |                                                     |       
|                                                             | Amortization of senior note offering costs                                        |                                                     |       
|                                                             | Amortization of share-based awards                                                |                                                     |       
|                                                             | Cumulative effect of a change in accounting for share-based payment awards        |                                                     |       
|                                                             | Deferred income taxes                                                             |                                                     |       
|                                                             | Tax benefit from stock options                                                    |                                                     |       
|                                                             | Debt extinguishment charge                                                        |                                                     |       
|                                                             | Changes in assets and liabilities, net of acquisitions:                           |                                                     |       
|                                                             | Increase in accounts receivable                                                   |                                                     |       
|                                                             | Decrease (increase) in inventories                                                |                                                     |       
|                                                             | Increase (decrease) in prepaid expenses and other assets                          |                                                     |       
|                                                             | Decrease in accounts payable                                                      |                                                     |       
|                                                             | (Decrease) increase in other payables, accrued expenses and other liabilities     |                                                     |       
|                                                             | Other                                                                             |                                                     |       
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   | Net cash provided by operating activities           |       
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   |                                                     |       
|Investing Activities:                                        |                                                                                   |                                                     |       
|                                                             | Additions to property and equipment                                               |                                                     |       
|                                                             | Proceeds from disposals of property and equipment                                 |                                                     |       
|                                                             | Acquisition of distributor assets                                                 |                                                     |       
|                                                             | License acquisition costs                                                         |                                                     |       
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   | Net cash used in investing activities               |       
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   |                                                     |       
|Financing Activities:                                        |                                                                                   |                                                     |       
|                                                             | (Payments on) proceeds from short-term debt                                       |                                                     |       
|                                                             | Payments on long-term debt                                                        |                                                     |       
|                                                             | Proceeds from the exercise of stock options                                       |                                                     |       
|                                                             | Proceeds for issuance of common stock from employee stock purchase plan           |                                                     |       
|                                                             | Repurchase of common stock                                                        |                                                     |       
|                                                             | Other                                                                             |                                                     |       
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   | Net cash (used in) provided by financing activities |       
|                                                             |                                                                                   |                                                     |       
|Effect of exchange rate changes on cash and cash equivalents |                                                                                   |                                                     | 81    
|Net increase in cash and cash equivalents                    |                                                                                   |                                                     | 1,993 
|Cash and cash equivalents at beginning of period             |                                                                                   |                                                     | 25,316
|                                                             |                                                                                   |                                                     |       
|Cash and cash equivalents at end of period                   |                                                                                   | $                                                   | 27,309
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   |                                                     |       
|Supplemental Disclosure of Cash Flow Information:            |                                                                                   |                                                     |       
|                                                             | Interest paid during the period                                                   |                                                     | $     
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   |                                                     |       
|                                                             | Income taxes paid during the period                                               |                                                     | $     
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   |                                                     |       
|                                                             |                                                                                   |                                                     |       

The accompanying notes are an integral part of the unaudited consolidated financial statements.

- 6 -



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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.    BUSINESS AND BASIS OF PRESENTATION

Elizabeth Arden, Inc. (the "Company") is a manufacturer and marketer of prestige designer fragrances, skin treatment and cosmetic products to retailers in the United States and approximately 90 countries internationally.

The unaudited consolidated financial statements include the accounts of the Company's wholly-owned subsidiaries and all significant intercompany accounts and transactions have been eliminated in consolidation.



The accompanying unaudited consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission") for interim financial information.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation and should be read in conjunction with the audited consolidated financial statements and related footnotes included in the Company's Annual Report on Form 10-K for the year ended June 30, 2005 (the "Annual Report"), filed with the Commission.



The consolidated balance sheet of the Company as of June 30, 2005 is derived from the financial statements included in the Annual Report.  The consolidated financial statements presented in this quarterly report are unaudited but include all adjustments that are of a normal recurring nature that management considers necessary for the fair statement of the results for the interim periods.  Results for interim periods are not necessarily indicative of results for the full fiscal year.

NOTE 2.    INCOME PER SHARE



Basic income per share is computed by dividing the net income by the weighted average shares of outstanding common stock, $.01 par value per share ("Common Stock").  The calculation of diluted income per share is similar to basic income per share except that the denominator includes potentially dilutive Common Stock such as stock options and unvested restricted stock.

The following table represents the computation of net income per share:



|(Amounts in thousands, except per 
 share data) |                                                          | Three Months Ended           |   |        | Nine Months Ended | 
|----------------------------------------------- | -------------------------------------------------------- | ---------------------------- | - | ------ | ----------------- | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          | March 31,                    |   |        | March 31,         | 
|                                                |                                                          | 2006                         |   |        | 2005              | 
|                                                |                                                          |                              |   |        |                   | 
|Basic                                           |                                                          |                              |   |        |                   | 
|                                                | Net income                                               |                              | $ | 702    |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                | Weighted average shares outstanding                      |                              |   | 28,412 |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                | Net income per basic share                               |                              | $ | 0.02   |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|Diluted                                         |                                                          |                              |   |        |                   | 
|                                                | Net income                                               |                              | $ | 702    |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                | Weighted average shares outstanding                      |                              |   | 28,412 |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                | Potential common shares - treasury 
  method             |                              |   | 1,224  |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                | Weighted average shares and potential 
  dilutive shares |                              |   | 29,636 |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          | Net income per diluted share |   | $      | 0.02              | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 
|                                                |                                                          |                              |   |        |                   | 



- 7 -



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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



The following table shows the options to purchase shares of Common Stock that were outstanding during the three and nine months ended March 31, 2006 and 2005 where the option exercise price was greater than the average market price of the Common Stock over the applicable period:





|                        | Three Months Ended |   | Nine Months Ended
|----------------------- | ------------------ | - | -----------------
|                        |                    |   |                  
|                        | March 31, 
2006    |   | March 31, 
2005  
|                        |                    |   |                  
|Number of shares        |                    |   | 416,200          
|                        |                    |   |                  
|                        |                    |   |                  
|                        |                    |   |                  
|Range of exercise price |                    | $ | 23.40            
|                        |                    |   |                  
|                        |                    |   |                  
|                        |                    |   |                  
|                        |                    |   |                  



NOTE 3.    STOCK-BASED COMPENSATION



In December 2004, the Financial Accounting Standards Board ("FASB") issued a final standard, SFAS 123R, "Share-Based Payment," ("SFAS 123R"), which requires companies to expense the value of employee stock options and similar awards.  Under SFAS 123R, share-based payment awards result in a cost that will be measured at fair value on the grant date of the awards, based on the estimated number of awards that are expected to vest.  Compensation cost for awards that vest would not be reversed if the awards expire without being exercised.  SFAS 123R was adopted by the Company beginning on July 1, 2005 and applied to all outstanding and unvested share-based payment awards at the adoption date.  The Company adopted the modified prospective approach as its implementation method under this standard.  The fair value of stock options was determined using the Black-Scholes option-pricing model.  The fair value of the market-based restricted stock awards was determined using a Monte Carlo simulation model, and the fair value of all other restricted stock awards was based on the closing price of the Common Stock on the date of grant.  For the three months ended March 31, 2006, the Company recorded costs related to this standard, which include the effects of any grants made during the quarter, of approximately $1.5 million (approximately $1.1million, net of taxes) or $0.04per basic share and diluted share.  For the nine-month period ended March 31, 2006, the Company recorded costs related to this standard, which include the effects of any grants made during the period, of approximately $4.2 million (approximately $3.1 million, net of taxes) or $0.11 per basic share and $0.10 per diluted share. Included in the $4.2 million of total costs recorded is a charge of approximately $0.1 million relating to a change in the valuation method of certain restricted stock awards as a result of the adoption of this standard.



At March 31, 2006, the Company had outstanding stock awards under five share-based compensation plans, which are described in Note 9.  For the three and nine months ended March 31, 2006, the compensation cost that has been charged against income was $2.8 million and $7.9 million, respectively.For the three and nine months ended March 31, 2005, the compensation cost that has been charged against income was $1.6 million and $5.1 million, respectively.The tax benefit related to the compensation cost charged to income for the three and nine months ended March 31, 2006 was approximately $0.8 million and $2.2 million, respectively.  The tax benefit related to the compensation cost charged to income for the three and nine months ended March 31, 2005 was approximately $0.5 million and  $1.6 million, respectively.



On August 10, 2005, in recognition of individual performance for the year ended June 30, 2005, the Board of Directors (the "Board") granted stock options to 127 managerial employees for approximately 417,700 shares of Common Stock under the 2004 Stock Incentive Plan ("2004 Incentive Plan").  The stock options are due to vest over three years in thirds on each succeeding year from the date of grant, assuming the person receiving the grant is employed by the Company at the time of vesting.  The exercise price of those stock options is $23.40 per share, which was the closing price of the Common Stock on the date of grant.  The weighted-average grant-date fair value of options granted was $8.79 per share based on the Black-Scholes option-pricing model.  The options expire ten years from the date of grant.





- 8 -



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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



On November 16, 2005, the Company granted stock options for an aggregate of 35,000 shares of Common Stock to five non-employee directors under the 2004 Non-Employee Director Plan (the"2004 Director Plan"), which are exercisable three years from the date of grant if such persons continue to serve as a director on that date. The exercise price of those stock options is $19.39 per share, which was the closing price of the Common Stock on the date of grant. The weighted-average grant-date fair value of options granted was $7.32 per share based on the Black-Scholes option-pricing model. The options expire ten years from the date of grant.



The weighted average grant date fair value of options granted during the nine months ended March 31, 2006 were estimated on the grant date using the Black-Scholes option-pricing model with the assumptions noted in the following table.  Expected volatilities are based on implied volatilities from traded options on the Common Stock, historical volatility of the Common Stock, and other factors.  The expected term of options represents the period of time that options granted are expected to be outstanding and is derived from historical terms and other factors.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.





|                                  |  | Nine Months Ended
|--------------------------------- |  | -----------------
|                                  |  | March 31, 2006   
|                                  |  |                  
|Expected dividend yield           |  | 0.00             
|Expected price volatility         |  | 35               
|Risk-free interest rate           |  | 4.03-4.39        
|Expected life of options in years |  | 5                

A summary of stock option activity under the Company's share-based compensation plans for the nine months ended March 31, 2006 is presented below:





|                              |  |        |   |  |          |       |  | Weighted    |     |  |          
|----------------------------- |  | ------ | - |  | -------- | ----- |  | ----------- | --- |  | ---------
|                              |  |        |   |  | Weighted |       |  | Average     |     |  | Aggregate
|                              |  |        |   |  | Average  |       |  | Remaining   |     |  | Intrinsic
|                              |  | Shares |   |  | Exercise |       |  | Contractual |     |  | Value(1) 
|Options                       |  | (000)  |   |  | Price    |       |  | Term        |     |  | (000)    
|                              |  |        |   |  |          |       |  |             |     |  |          
|Outstanding at July 1, 2005   |  | 3,221  |   |  | $        | 13.65 |  |             |     |  |          
|New grants                    |  | 455    |   |  | $        | 23.02 |  |             |     |  |          
|Exercised                     |  | (226   | ) |  | $        | 11.43 |  |             |     |  |          
|Forfeited or expired          |  | (23    | ) |  | $        | 16.75 |  |             |     |  |          
|                              |  |        |   |  |          |       |  |             |     |  |          
|Outstanding at March 31, 2006 |  | 3,427  |   |  | $        | 15.03 |  |             | 5.8 |  |          
|                              |  |        |   |  |          |       |  |             |     |  |          
|                              |  |        |   |  |          |       |  |             |     |  |          
|                              |  |        |   |  |          |       |  |             |     |  |          
|Exercisable at March 31, 2006 |  | 2,682  |   |  | $        | 13.43 |  |             | 5.0 |  |          
|                              |  |        |   |  |          |       |  |             |     |  |          
|                              |  |        |   |  |          |       |  |             |     |  |          
|                              |  |        |   |  |          |       |  |             |     |  |          





|(1)The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option.
|----------------------------------------------------------------------------------------------------------------------------------------------------------



The total intrinsic value of stock options exercised during the nine months ended March 31, 2006 and 2005, based upon the average market price during the period, was approximately $1.4 million and $1.6 million, respectively.



On August 10, 2005, in recognition of individual performance for the year ended June 30, 2005, the Board granted 195,949 shares of performance-based restricted stock to 118 managerial employees, one third of which vests two years from the date of grant and the remaining two thirds of which vest three years from the date of grant if the Company achieves a 10% cumulative average annualized increase in earnings per share, excluding any one-time or extraordinary events (as determined by the compensation committee of the Board), over the relevant measurement periods.  The fair value of the restricted stock granted was based on the closing price of the Common Stock on the date of grant.  The restricted stock is recorded as additional paid-in capital in shareholders' equity as amortization occurs over the two- and three-year vesting periods using the graded vesting method.



- 9 -





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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



A summary of the Company's restricted stock activity for the nine months ended March 31, 2006, is presented below:





|                             |  |        |   |  | Weighted 
Average
|---------------------------- |  | ------ | - |  | -----------------
|                             |  | Shares |   |  | Grant-Date       
|Restricted Stock             |  | (000)  |   |  | Fair Value       
|                             |  |        |   |  |                  
|Non-vested at July 1, 2005   |  | 695    |   |  | $                
|Granted                      |  | 196    |   |  | $                
|Vested                       |  | (59    | ) |  | $                
|Forfeited                    |  | (1     | ) |  | $                
|                             |  |        |   |  |                  
|Non-vested at March 31, 2006 |  | 831    |   |  | $                
|                             |  |        |   |  |                  
|                             |  |        |   |  |                  
|                             |  |        |   |  |                  



As of March 31, 2006, there were approximately $15.0 million of unrecognized compensation costs related to non-vested share-based arrangements granted under the Company's stock plans.  Those costs are expected to be recognized over a weighted-average period of approximately three years.



Prior to July 1, 2005, the Company accounted for its stock incentive plans under the recognition and measurement principles prescribed by Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretations, under which no employee compensation costs were required to be recognized for the periods presented as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.  The following table illustrates the effect on net income and net income per common share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock option compensation for the three and nine months ended March 31, 2005:





|(Amounts in thousands, except per share data)                                                                | March 31, 2005 |                   
|------------------------------------------------------------------------------------------------------------ | -------------- | ------------------
|                                                                                                             |                |                   
|                                                                                                             |                | Three Months Ended
|                                                                                                             |                |                   
|Net income as reported                                                                                       | $              | 5,619             
|Add:  Restricted stock-based employee 
  compensation costs, net of tax, currently included 
  in net income |                | 1,101             
|Less:  Stock-based employee compensation expense, 
  net of tax, determined under fair value-based 
  method |                | 2,016             
|                                                                                                             |                |                   
|Pro forma net income                                                                                         | $              | 4,704             
|                                                                                                             |                |                   
|                                                                                                             |                |                   
|                                                                                                             |                |                   
|Net income per common share                                                                                  |                |                   
|Basic                                                                                                        |                |                   
|                                                                                                             | As reported    | $                 
|                                                                                                             | Pro forma      | $                 
|Diluted                                                                                                      |                |                   
|                                                                                                             | As reported    | $                 
|                                                                                                             | Pro forma      | $                 





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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.    RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS AND RECENT LEGISLATION



American Jobs Creation Act of 2004

In October 2004, the American Jobs Creation Act of 2004 (the "Act") was signed into law.  The Act contains a number of provisions that might affect the Company's future effective tax rate.  A significant provision of the Act allows the Company to elect to deduct from its taxable income 85% of certain eligible dividends received by the Company from non-U.S. subsidiaries before either the year ended June 30, 2005 or the year ending June 30, 2006, if those dividends are reinvested in the U.S. for eligible purposes under the Act.  Another significant provision replaces the extraterritorial income exclusion with a domestic manufacturing deduction.  In September 2005, the Company repatriated $3.2 million of undistributed international earnings from a foreign subsidiary.   Pursuant to the Act, the Company adjusted its net provision for estimated deferred taxes on the repatriation of such earnings from $146,000 to $17,000.  In addition, the Company is anticipating the repatriation of $2.1 million of undistributed international earnings from another foreign subsidiary before the year ending June 30, 2006.



Inventory Costs - An Amendment of ARB No. 43, Chapter 4



In November 2004, the FASB issued SFAS No. 151, "Inventory Costs -- An Amendment of ARB No. 43, Chapter 4" ("SFAS 151").  SFAS 151 amends the guidance in ARB No. 43, Chapter 4 "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43.  Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  The Company adopted SFAS 151 on July 1, 2005.  The adoption of SFAS 151 did not have an impact on the Company's results of operations, financial position or cash flows.

NOTE 5.    INVENTORIES



The components of inventory were as follows:





|                             | March 31, |         | June 30,
|---------------------------- | --------- | ------- | --------
|(Dollars in thousands)       | 2006      |         | 2005    
|                             |           |         |         
|Raw materials and components | $         | 48,398  |         
|Work in progress             | 20,022    |         | 43,037  
|Finished goods               | 171,208   |         | 178,307 
|                             |           |         |         
|Total                        | $         | 239,628 |         
|                             |           |         |         
|                             |           |         |         
|                             |           |         |         
|                             |           |         |         



NOTE 6.    SHORT-TERM DEBT



The Company has a revolving credit facility with a syndicate of banks, for which JPMorgan Chase Bank is the administrative agent, that provides for borrowings on a revolving basis of up to $200 million with a $25 million sublimit for letters of credit (the "Credit Facility").  On November 2, 2005, the Company entered into an amendment to the Credit Facility that (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 entering into a formal amendment requiring the consent of all of the banks, and (iv) permits the Company to pay cash dividends on 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.



- 11 -



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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



The Credit Facility is guaranteed by all of the Company's U.S. subsidiaries. Borrowings under the Credit Facility are limited to 85% of eligible accounts receivable and 75% (65% December 1 through May 31) of eligible finished goods inventory and are collateralized by a first priority lien on all of the Company's U.S. accounts receivable and inventory. The Company's obligations under the Credit Facility rank senior to the Company's 7 3/4% Senior Subordinated Notes due 2014 (the "7 3/4% Senior Subordinated Notes").

The Credit Facility has only one financial maintenance covenant, which is a debt service coverage ratio that must be maintained at not less than 1.1 to 1 if average borrowing availability declines to less than $25 million ($35 million from December 1 through May 31).  No financial maintenance covenant was applicable for the three months ended March 31, 2006. The Credit Facility restricts the Company from incurring additional non-trade indebtedness (other than refinancing and certain small amounts of indebtedness).



Borrowings under the revolving credit portion of the Credit Facility bear interest at a floating rate based on the "Applicable Margin," which is determined by reference to a specific financial ratio.  At the Company's option, the Applicable Margin may be applied to either the London InterBank Offered Rate ("LIBOR") or the prime rate.  The reference ratio for determining the Applicable Margin is a debt service coverage ratio.  As a result of the November 2005 amendment to the Credit Facility, the interest rates charged on LIBOR loans and prime rate loans were reduced to a range of 1.00% to 1.75% from a range of 1.50% to 2.25% for LIBOR loans, and to 0% from a range of 0% to 0.50% for prime rate loans.  As of March 31, 2006, the Applicable Margin was 1.25% for LIBOR loans and 0% for prime rate loans.  The commitment fee on the unused portion of the Credit Facility is 0.25%.



As of March 31, 2006, the Company had approximately $30 million in outstanding borrowings and approximately $4 million in letters of credit outstanding under the Credit Facility, compared with approximately $48 million in outstanding borrowings under the Credit Facility at June 30, 2005.  As of March 31, 2006, the Company had approximately $131 million of eligible receivables and inventories available as collateral under the Credit Facility, resulting in remaining borrowing availability of approximately $96 million.  The Company classifies the Credit Facility as short-term debt on its balance sheet since it expects to reduce outstanding borrowings during the months of December, January and February.

NOTE 7.    LONG-TERM DEBT



The Company's long-term debt consisted of the following:





|(Dollars in thousands)                            |                      | March 31, |         |         | June 30,
|------------------------------------------------- | -------------------- | --------- | ------- | ------- | --------
|Description                                       |                      | 2006      |         |         | 2005    
|                                                  |                      |           |         |         |         
|11 3/4% Senior Secured Notes due May 2011         |                      | $         | --      |         |         
|7 3/4% Senior Subordinated Notes due January 2014 |                      |           | 225,000 |         |         
|Termination costs on interest rate swap           |                      |           | (2,494  | )       |         
|                                                  |                      |           |         |         |         
|                                                  | Total long-term debt |           | $       | 222,506 |         
|                                                  |                      |           |         |         |         
|                                                  |                      |           |         |         |         
|                                                  |                      |           |         |         |         

Redemption of 11 3/4% Senior Notes.    On November 2, 2005, the Board authorized the Company's redemption of the remaining $8.8 million aggregate principal amount of 11 3/4% Senior Secured Notes due 2011 (the "11 3/4% Senior Notes"), when such notes were redeemable on February 1, 2006, at the redemption price of 105.875% of their par amount plus accrued interest.  On February 1, 2006, the Company redeemed the remaining $8.8 million aggregate principal amount of 11 3/4% Senior Notes at a redemption price plus accrued interest of  $9.3 million.  The Company utilized borrowings under the Credit Facility to repurchase the 11 3/4% Senior Notes.  As a result of the redemption, the Company incurred a pre-tax charge of approximately $0.8 million related to the early extinguishment of the remaining 11 3/4% Senior Notes in the three months ended March 31, 2006.





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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Termination Costs on Interest Rate Swap. In February 2004, the Company entered into an interest rate swap agreement to swap $50.0 million of the outstanding 7 3/4% Senior Subordinated Notes to a floating interest rate based on LIBOR.  The swap agreement was scheduled to mature in February 2014 and was terminated March 16, 2006.  As a result of this action, the Company incurred termination costs of $2.5 million.  The swap termination costs were recorded as a reduction to long-term debt and will be amortized to interest expense over the remaining life of the 7 3/4% Senior Subordinated Notes. The Company had designated the swap agreement as a fair value hedge.



NOTE 8.    COMMITMENTS AND CONTINGENCIES



At March 31, 2006, the Company had contractual obligations to incur promotional and advertising expenses, which are either fixed commitments or based on net sales for licensed brands, and minimum royalty guarantees in an aggregate amount of $65.3 million through 2011 compared with $33.8 million through 2010 at June 30, 2005.



Assets held for sale on the consolidated balance sheet at June 30, 2005, relate to the Company's formercorporate headquarters and former distribution facility located on a 13-acre tract of land in Miami Lakes, Florida (the "Miami Lakes Facility").  The sale of the Miami Lakes Facility closed on August 1, 2005 and the Company received approximately $9.9 million in net proceeds relating to the sale of the Miami Lakes Facility and associated equipment.

In September 2005, the Company entered into an operating lease for approximately 35,000 square feet of office space in Miramar, Florida.  The term of the lease commenced on December 1, 2005 and expires on May 31, 2011.  Aggregate payments under this lease are approximately $4.7 million through the term of the lease.



In October 2005, the Company received a demand from a licensee of certain of the Company's patents alleging the Company had breached the license agreement, indicating that it would not pay any further royalties and requesting that the Company return approximately $3 million in royalty payments already made.  The Company believes that it has not breached the license agreement and that the licensee is obligated to continue to make royalty payments.  The Company is not able to determine the ultimate outcome of this dispute or estimate the possible loss or range of loss relating to the licensee's claim.



The Company is a party to a number of other legal actions, proceedings or claims.  While any action, proceeding or claim contains an element of uncertainty; management of the Company believes that the outcome of such actions, proceedings or claims will not have a material adverse effect on the Company's business, financial position or results of operations.



As of March 31, 2006, the Company had notional amounts of 21.1 million Euros and 1.2 million Britishpounds under foreign currency contracts that expire between April 30, 2006 and June 29, 2007 to reduce the exposure of its foreign subsidiary revenues to fluctuations in currency rates.  The Company has designated each qualifying foreign currency contract as a cash flow hedge.  The gains and losses of these contracts will only be recognized in earnings in the period in which the contracts expire.  At March 31, 2006, the unrealized gain, net of taxes, associated with these contracts of approximately $2.0 million, is included in accumulated other comprehensive income.  The unrealized gain, net of taxes, generated during each of the three and nine months ended March 31, 2006, was approximately $1.0 million.





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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



During the nine months ended March 31, 2006, the Company entered into and settled foreign currency contracts for 7.5 million Euros and 2.0 million British pounds to reduce exposure of the Company's foreign subsidiaries net balance sheet to fluctuations in foreign currency rates.  The realized loss, net of taxes, recognized during the three months ended March 31, 2006 was approximately $0.1 million and the realized gain, net of taxes, during the nine months ended March 31, 2006 was $0.3 million.



The Company does not utilize foreign exchange contracts for trading or speculative purposes.  There can be no assurance that the Company's hedging operations or other exchange rate practices, if any, will eliminate or substantially reduce risks associated with fluctuating exchange rates.



Acquisition of Distributor Assets.    In August 2005, a wholly-owned subsidiary of the Company acquired certain assets, including inventory and certain intangibles of the distributor of Elizabeth Arden brands in the People's Republic of China in order to operate the business in China.  The purchase price was approximately $4.5 million, comprised of $2.6 million payable in cash, of which approximately $1.6 million was paid as of March 31, 2006, and $1.9 million of which was credited against an account receivable due a subsidiary of the Company.  The purchase price was allocated as follows:  $2.0 million for inventory, $0.2 million for fixed assets and $2.3 million for intangible assets.  The Company is continuing to evaluate the final allocation of the purchase price.  Net sales and operating income related to the Chinese operations were not significant to the overall consolidated results for the three and nine months ended March 31, 2006.



In January 2006, a wholly-owned subsidiary of the Company acquired certain assets, including inventory, retailer fixtures and other fixed assets and certain intangibles of the distributor of the Elizabeth Arden brands in Taiwan in order to operate the business in Taiwan.  The purchase price was approximately $3.2 million, comprised of $2.1 million payable in cash, of which $2.0 million was paid as of March 31, 2006. and $1.1 million was credited against an account receivable due a subsidiary of the Company.  The purchase price was allocated as follows:  $1.0 million for inventory, $0.2 million for fixed assets and $2.0 million for intangible assets.  The Company is continuing to evaluate the final allocation of the purchase price.  Net sales and operating income related to the Taiwan operations were not significant to the overall consolidated results for the three and nine months ended March 31, 2006.

NOTE 9.     SHAREHOLDERS' EQUITY



Stock Incentive Plans and Awards



At March 31, 2006, the Company had outstanding stock awards under five stock incentive plans, two for the benefit of non-employee directors (the 1995 Non-Employee Director Plan and the 2004 Director Plan) and three for the benefit of eligible employees and independent contractors (the 1995 Stock Option Plan, the 2000 Stock Incentive Plan and the 2004 Incentive Plan).  All five plans were adopted by the Board and approved by the Company's shareholders.  The shareholders of the Company approved the 2004 Incentive Plan on June 22, 2004, as there remained no shares of Common Stock available for grant under the 1995 Stock Option Plan and the 2000 Stock Incentive Plan.  The 2004 Director Plan was also approved by the shareholders of the Company on June 22, 2004 and replaced the 1995 Non-Employee Director Plan.  No further grants of stock options will occur under the 1995 Non-Employee Director Plan. Shares issued as a result of stock option exercises will be funded with the issuance of new shares.

The 2004 Director Plan authorizes the Company to grant non-qualified stock options for 350,000 shares of Common Stock under such plan to non-employee directors of the Company.  Each year on the date of the annual meeting of the shareholders and provided that a sufficient number of shares remain available under the 2004 Director Plan, there will automatically be granted to each eligible director who is re-elected to the Board an option to purchase 7,000 shares of Common Stock or such other amount as the Board determines based on a competitive review of comparable companies.  Unless service is terminated due to death, disability or retirement in good standing after age 70, each option granted under the 2004 Director Plan on an annual shareholder meeting date will become exercisable three years from the date of grant if such person has continued to serve as a director until that date.  No option may be exercisable after the expiration of ten years from the date of grant.  The exercise price will represent the closing price of the Common Stock on the date of grant.  At March 31, 2006, 280,000 shares of Common Stock remained available for grant under the 2004 Director Plan.

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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



The Company currently has an Employee Stock Purchase Plan ("ESPP") under which employees in certain countries are permitted to deposit after tax funds from their wages for purposes of purchasing Common Stock at a 15% discount from the lowest of the closing price of the Common Stock at either the start of the contribution period or the end of the contribution period.  On November 30, 2005, a purchase of Common Stock occurred under this plan for 49,961 shares. Beginning in the three-month period ending September 30, 2005, the Company began expensing the discount taken and the fair value of the "look-back" feature realized by employees upon purchases of Common Stock under the ESPP.  For the three and nine months ended March 31, 2006, the Company recorded costs associated with the ESPP of approximately $0.2 million and $0.4 million, respectively.  The next purchase under the ESPP will be consummated on June 1, 2006.



For information on stock option and restricted stock grants during the nine months ended March 31, 2006, see Note 3.



In March 2005, the Board approved the granting of up to 423,800 shares of market-based restricted stock ("MBRS"). As a result of such approval, the Company issued 410,800 shares of MBRS to 17 managerial employees.  The MBRS will only vest if the Company's total shareholder return surpasses the total shareholder return of the Russell 2000 Index over a three, four, five or six-year period from the date of grant, in which case the MBRS will vest at that time.  On the date of issuance, these grants were recorded as unearned deferred compensation in shareholders' equity in the amount of approximately $9.6 million and are being amortized over a six-year vesting period.  Upon adoption of SFAS 123R on July 1, 2005, the Company revalued the MBRS using a Monte Carlo simulation model using the assumptions presented below:





|                                |  | Three Months Ended |  
|------------------------------- |  | ------------------ | -
|                                |  | September 30, 2005 |  
|                                |  |                    |  
|Expected dividend yield         |  | 0.00               | %
|Expected price volatility       |  | 40.00              | %
|Risk-free interest rate         |  | 3.72               | %
|Derived service period in years |  | 3                  |  



Repurchase of Common Stock.



On November 2, 2005, the Board authorized the Company to implement a stock repurchase program to repurchase up to $40 million of Common Stock through March 31, 2007.  As of March 31, 2006, the Company repurchased 414,423 shares of Common Stock on the open market at a cost of $8.1 million, including sales commissions.  These repurchases are accounted for under the treasury method.



Amendment to Articles of Incorporation.



At the annual shareholders meeting held on November 16, 2005, the shareholders of the Company approved the Amended and Restated Articles of Incorporation, which eliminated the Series D convertible preferred stock and reinstituted the Board's authority to determine the designations, preferences, limitations and other rights of the serial preferred stock.  The Series D convertible preferred stock had been authorized in connection with the acquisition of the Elizabeth Arden business in January 2001 but there were no outstanding shares at the time of the amendment.





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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 10.    CONDENSED CONSOLIDATING FINANCIAL INFORMATION



The following condensed financial statements as of March 31, 2006 and for the three- and nine- month periods then ended, and as of June 30, 2005, show the consolidated financial statements of the Company, and, in separate financial statements, the financial statements of those subsidiaries that are guarantors of the 7 3/4% Senior Subordinated Notes issued in January 2004, plus, in each case, the financial statements of non-guarantor entities, elimination adjustments and the consolidated total.  The following condensed financial statements for the three and nine month period ended March 31, 2005 show the consolidated financial statements of the Company, and, in separate financial statements, the financial statements of those subsidiaries that are guarantors of the 7 3/4% Senior Subordinated Notes plus, in each case, the financial statements of non-guarantors entities, elimination adjustments and the consolidated total. The Company's subsidiaries DF Enterprises, Inc., FD Management, Inc., Elizabeth Arden International Holding, Inc., Elizabeth Arden (Financing), Inc., RDEN Management, Inc. and Elizabeth Arden Travel Retail, Inc. are guarantors of the 7 3/4% Senior Subordinated Notes.  Equity income of the guarantor subsidiaries is included in other (expense) income, net.  All subsidiaries listed in this note are wholly-owned subsidiaries of the Company and their guarantees are joint and several, full and unconditional.  All information presented is in thousands.





[Remainder of Page Intentionally Left Blank]





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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



|Balance Sheet                           | As of March 31, 2006                                        
|--------------------------------------- | ------------------------------------------------------------
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|ASSETS                                  |                                                             
|Current Assets                          |                                                             
|                                        | Cash and cash equivalents                                   
|                                        | Accounts receivable, net                                    
|                                        | Inventories                                                 
|                                        | Intercompany receivable                                     
|                                        | Deferred income taxes                                       
|                                        | Prepaid expenses and other assets                           
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|Property and equipment, net             |                                                             
|                                        |                                                             
|Other Assets:                           |                                                             
|                                        | Investment in subsidiaries                                  
|                                        | Exclusive brand licenses, trademarks and 
  intangibles, net
|                                        | Debt financing costs, net                                   
|                                        | Other assets                                                
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|LIABILITIES AND SHAREHOLDERS' 
  EQUITY |                                                             
|Current Liabilities:                    |                                                             
|                                        | Short-term debt                                             
|                                        | Accounts payable - trade                                    
|                                        | Intercompany payable                                        
|                                        | Other payables and accrued expenses                         
|                                        | Current portion of long-term debt                           
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        | Long-term debt, net                                         
|                                        | Deferred income taxes and other                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|Shareholders' Equity                    |                                                             
|                                        | Common stock                                                
|                                        | Additional paid-in capital                                  
|                                        | Retained earnings (accumulated deficit)                     
|                                        | Treasury Stock                                              
|                                        | Accumulated other comprehensive income                      
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             
|                                        |                                                             





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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



|Balance Sheet                            | As of June 30, 2005                                          
|---------------------------------------- | -------------------------------------------------------------
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|ASSETS                                   |                                                              
|Current Assets:                          |                                                              
|                                         | Cash and cash equivalents                                    
|                                         | Accounts receivable, net                                     
|                                         | Inventories                                                  
|                                         | Intercompany receivable                                      
|                                         | Deferred income taxes                                        
|                                         | Prepaid expenses and other assets                            
|                                         | Assets held for sale                                         
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|Property and equipment, net              |                                                              
|                                         |                                                              
|Other Assets:                            |                                                              
|                                         | Investment in subsidiaries                                   
|                                         | Exclusive brand licenses, trademarks and 
   intangibles, net
|                                         | Debt financing costs, net                                    
|                                         | Other assets                                                 
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|LIABILITIES AND SHAREHOLDERS' 
   EQUITY |                                                              
|Current Liabilities:                     |                                                              
|                                         | Short-term debt                                              
|                                         | Accounts payable - trade                                     
|                                         | Intercompany payable                                         
|                                         | Other payables and accrued expenses                          
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         | Long-term debt                                               
|                                         | Deferred income taxes and other                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|Shareholders' Equity                     |                                                              
|                                         | Common stock                                                 
|                                         | Additional paid-in capital                                   
|                                         | Retained earnings (accumulated deficit)                      
|                                         | Accumulated other comprehensive income                       
|                                         | Unearned deferred compensation                               
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              
|                                         |                                                              

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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



|Statement of Operations                   | Three Months Ended March 31, 2006
|----------------------------------------- | ---------------------------------
|                                          |                                  
|                                          |                                  
|                                          |                                  
|Net sales                                 |                                  
|Cost of sales                             |                                  
|                                          |                                  
|Gross profit                              |                                  
|                                          |                                  
|                                          |                                  
|Selling, general and administrative costs |                                  
|Depreciation and amortization             |                                  
|                                          |                                  
|(Loss) income from operations             |                                  
|Other expense (income):                   |                                  
|                                          | Interest expense (income)        
|                                          | Debt extinguishment charge       
|                                          | Other                            
|                                          |                                  
|(Loss) income before income taxes         |                                  
|(Benefit from) provision for income taxes |                                  
|                                          |                                  
|Net income                                |                                  
|                                          |                                  
|                                          |                                  
|                                          |                                  







|Statement of Operations                   | Nine Months Ended March 31, 2006
|----------------------------------------- | --------------------------------
|                                          |                                 
|                                          |                                 
|                                          |                                 
|Net sales                                 |                                 
|Cost of sales                             |                                 
|                                          |                                 
|Gross profit                              |                                 
|                                          |                                 
|                                          |                                 
|Selling, general and administrative costs |                                 
|Depreciation and amortization             |                                 
|                                          |                                 
|Income from operations                    |                                 
|Other expense (income):                   |                                 
|                                          | Interest expense (income)       
|                                          | Debt extinguishment charge      
|                                          | Other                           
|                                          |                                 
|Income before income taxes                |                                 
|Provision for income taxes                |                                 
|                                          |                                 
|Net income                                |                                 
|                                          |                                 
|                                          |                                 
|                                          |                                 

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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



|Statement of Operations                   | Three Months Ended March 31, 2005
|----------------------------------------- | ---------------------------------
|                                          |                                  
|                                          |                                  
|                                          |                                  
|Net sales                                 |                                  
|Cost of sales                             |                                  
|                                          |                                  
|Gross profit                              |                                  
|                                          |                                  
|                                          |                                  
|Selling, general and administrative costs |                                  
|Depreciation and amortization             |                                  
|                                          |                                  
|Income from operations                    |                                  
|Other expense (income):                   |                                  
|                                          | Interest expense (income)        
|                                          | Other                            
|                                          |                                  
|Income before income taxes                |                                  
|Provision for income taxes                |                                  
|                                          |                                  
|Net income                                |                                  
|                                          |                                  
|                                          |                                  
|                                          |                                  





|Statement of Operations                   | Nine Months Ended March 31, 2005
|----------------------------------------- | --------------------------------
|                                          |                                 
|                                          |                                 
|                                          |                                 
|Net sales                                 |                                 
|Cost of sales                             |                                 
|                                          |                                 
|Gross profit                              |                                 
|                                          |                                 
|                                          |                                 
|Selling, general and administrative costs |                                 
|Depreciation and amortization             |                                 
|                                          |                                 
|Income from operations                    |                                 
|Other expense (income):                   |                                 
|                                          | Interest expense (income)       
|                                          | Other                           
|                                          |                                 
|Income before income taxes                |                                 
|Provision for income taxes                |                                 
|                                          |                                 
|Net income                                |                                 
|                                          |                                 
|                                          |                                 
|                                          |                                 



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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



|Statement of Cash Flows                                         | Nine Months Ended March 31, 2006                   
|--------------------------------------------------------------- | ---------------------------------------------------
|                                                                |                                                    
|                                                                |                                                    
|                                                                |                                                    
|Operating activities:                                           |                                                    
|Net cash provided by (used in) operating activities             |                                                    
|                                                                |                                                    
|                                                                |                                                    
|Investing activities:                                           |                                                    
|                                                                | Additions to property and equipment                
|                                                                | Proceeds from disposals of property and
  equipment
|                                                                | Acquisition of assets                              
|                                                                |                                                    
|Net cash provided by (used in) investing activities             |                                                    
|                                                                |                                                    
|                                                                |                                                    
|Financing activities:                                           |                                                    
|                                                                | Payments on short-term debt                        
|                                                                | Payments on long-term debt                         
|                                                                | Proceeds from the exercise of stock options        
|                                                                | Proceeds from employee stock purchase plan         
|                                                                | Repurchase of common stock                         
|                                                                | Net change in intercompany obligations             
|                                                                |                                                    
|Net cash (used in) provided by financing activities             |                                                    
|                                                                |                                                    
|Effect of exchange rate changes on cash and cash 
  equivalents |                                                    
|Net increase (decrease) in cash and cash equivalents            |                                                    
|Cash and cash equivalents at beginning of period                |                                                    
|                                                                |                                                    
|Cash and cash equivalents at end of period                      |                                                    
|                                                                |                                                    
|                                                                |                                                    
|                                                                |                                                    



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ELIZABETH ARDEN, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



|Statement of Cash Flows                                         | Nine Months Ended March 31, 2005                                         
|--------------------------------------------------------------- | -------------------------------------------------------------------------
|                                                                |                                                                          
|                                                                |                                                                          
|                                                                |                                                                          
|Operating activities:                                           |                                                                          
|Net cash provided by (used in) operating activities             |                                                                          
|                                                                |                                                                          
|                                                                |                                                                          
|Investing activities:                                           |                                                                          
|                                                                | Additions to property and equipment                                      
|                                                                | License acquisition costs                                                
|                                                                |                                                                          
|Net cash used in investing activities                           |                                                                          
|                                                                |                                                                          
|                                                                |                                                                          
|Financing activities:                                           |                                                                          
|                                                                | Proceeds from short-term debt                                            
|                                                                | Payments on long-term debt                                               
|                                                                | Proceeds from the exercise of stock options                              
|                                                                | Proceeds from issuance of common stock for
  employee stock purchase plan
|                                                                | Other                                                                    
|                                                                | Net change in intercompany obligations                                   
|                                                                |                                                                          
|Net cash (used in) provided by financing activities             |                                                                          
|                                                                |                                                                          
|Effect of exchange rate changes on cash and cash 
  equivalents |                                                                          
|Net (decrease) increase in cash and cash equivalents            |                                                                          
|Cash and cash equivalents at beginning of period                |                                                                          
|                                                                |                                                                          
|Cash and cash equivalents at end of period                      |                                                                          
|                                                                |                                                                          
|                                                                |                                                                          
|                                                                |                                                                          



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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                  OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

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 quarterly report on Form 10-Q.  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 andpricing; 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 the 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 as well as retailer inventory control practices; 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.

General



This discussion should be read in conjunction with the Notes to Unaudited Consolidated Financial Statements contained herein and the Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended June 30, 2005. The results of operations for an interim period may not give a true indication of results for the year.  In the following discussions, all comparisons are with the corresponding items in the prior year period.



Our operations have historically been seasonal, with higher sales generally occurring during the first half of the fiscal year (July through December) as a result of increased demand by retailers in anticipation of, and during, the holiday season.  During the fiscal year ended June 30, 2005, approximately 58% of our net sales were made during those months. Due to the size and timing of certain orders from our customers, sales, results of operations, working capital requirements and cash flows can vary between quarters of the same and different years.  As a result, we expect to experience variability in net sales, net income, working capital requirements and cash flows on a quarterly basis.





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

Overview



For the three months ended March 31, 2006, net sales decreased 3.5% compared to the prior year period.  On a constant currency basis, the decrease was 1.5%.  Initial brand launches of the fantasy Britney Spears fragrance and the Prevage skin care line were more than offset by lower sales of the curious Britney Spears fragrance, resulting from the launch internationally in the comparable prior year quarter.  Also contributing to the decrease were lower sales of distributed brands due to certain retail customers implementing inventory control initiatives and the loss of distribution rights on select brands.  We expect the retailer inventory control initiatives to continue to affect net sales in the short term.  Gross margins decreased to 45.1% in the current year's three-month period from 48.3% in the prior year period due to the higher sales-related allowances as a percentage of net sales, higher product costs on new launches, a higher proportion of promotional sales and higher sales of owned or licensed fragrances into lower margin mass channels.  Selling, general and administrative expenses decreased 1.3% for the three months ended March 31, 2006, compared to the prior year period, primarily due to lower employee incentive compensation costs and the favorable impact of foreign currency rates, partially offset by higher product development costs.



For the nine months ended March 31, 2006, net sales increased 4.3% compared to the prior year period.  On a constant currency basis, the increase was 5.0%.  Sales related to initial brand launches, including the fantasy Britney Spears fragrance and the Prevage skin care line were partially offset by lower sales of product that we previously distributed and lower sales of brands coming off a launch last year.  Certain customers implementing inventory control initiatives also negatively affected net sales.  Gross margins decreased to 42.0% in the current year period from 44.6% in the prior year period due to higher product costs on new launches, higher proportion of promotional sales and higher sales of owned or licensed fragrances into lower margin mass channels.  Selling, general and administrative expenses increased 2.9% for the nine months ended March 31, 2006 compared to the prior year period, primarily due to an increase in royalty costs related to higher sales of licensed brands and an increase in national media advertising and product development costs, partially offset by lower promotional costs and employee incentive compensation costs.



Cash flow from operations improved by $28 million for the nine months ended March 31, 2006 as compared to the prior year period, primarily due to working capital initiatives that resulted in a $34 million reduction in inventory and a $36 million reduction in accounts receivable build-up mainly as a result of the timing of sales, partially offset by a decrease in other payables and accrued expenses, primarily employee incentive compensation accruals.



Critical Accounting Policies and Estimates



We believe the accounting policies below represent our critical accounting policies.  See our Annual Report on Form 10-K for the year ended June 30, 2005 for a detailed discussion on the application of these and other accounting policies.



Accounting for Acquisitions and Intangible Assets.    We have accounted for our acquisitions under the purchase method of accounting for business combinations. Under the purchase method of accounting, the cost, including transaction costs, are allocated to the underlying net assets, based on their respective estimated fair values.  The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.



The judgments made in determining the estimated fair value and expected useful lives assigned to each class of assets and liabilities acquired can significantly affect net income.  For example, different classes of assets will have useful lives that differ - the useful life of property, plant, and equipment acquired will differ substantially from the useful life of brand licenses and trademarks.  Consequently, to the extent a longer-lived asset is ascribed greater value under the purchase method than a shorter-lived asset, net income in a given period may be higher.





- 24 -



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Determining the fair value of certain assets and liabilities acquired is judgmental in nature and often involves the use of significant estimates and assumptions. One of the areas that require more judgment is determining the fair values and useful lives of intangible assets.  To assist in this process, we often obtain appraisals from independent valuation firms for certain intangible assets.



Our intangible assets generally consist of exclusive brand licenses and trademarks.  We do not carry any goodwill. The value of our intangible assets, including brand licenses, trademarks and intangibles, is exposed to future adverse changes if we experience declines in operating results or experience significant negative industry or economic trends. We periodically review intangible assets, at least annually or more often as circumstances dictate, for impairment and the useful life assigned using the guidance of applicable accounting literature.



We have determined that the Elizabeth Arden trademarks acquired in the January 2001 acquisition of the Elizabeth Arden business have indefinite useful lives, as cash flows from the use of the trademarks are expected to be generated indefinitely.  In May 2006, we performed our annual impairment testing of these assets with the assistance of a third party valuation firm.  The analysis and assessments of these assets indicated that no impairment adjustment was required.

Long-Lived Assets.    We review for the impairment of long-lived assets to be held and used whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable.  Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.



Revenue Recognition.    Sales are recognized when title and risk of loss transfers to the customer, the sales price is fixed or determinable and collectibility of the resulting receivable is probable.  Sales are recorded net of estimated returns and other allowances.  The provision for sales returns represents management's estimate of future returns based on historical experience and considering current external factors and market conditions.

Allowances for Sales Returns and Markdowns.    As is customary in the prestige beauty business, we grant certain of our customers, subject to our authorization and approval, the right to either return product or to receive a markdown allowance for certain promotional product.  Upon sale, we record a provision for product returns and markdowns estimated based on our historical and projected experience, economic trends and changes in customer demand.  There is considerable judgment used in evaluating the factors influencing the allowance for returns and markdowns, and additional allowances in any particular period may be needed.



Allowances for Doubtful Accounts Receivable.    We maintain allowances for doubtful accounts to cover uncollectible accounts receivable, and we evaluate our accounts receivable to determine if they will ultimately be collected.  This evaluation includes significant judgments and estimates, including an analysis of receivables aging and a customer-by-customer review for large accounts.  If, for example, the financial condition of our customers deteriorates resulting in an impairment of their ability to pay, additional allowances may be required.



Provisions for Inventory Obsolescence.    We record a provision for estimated obsolescence and shrinkage of inventory.  Our estimates consider the cost of inventory, forecasted demand, the estimated market value, the shelf life of the inventory and our historical experience.  If there are changes to these estimates, additional provisions for inventory obsolescence may be necessary.



Hedge Contracts.    Under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, we designated each qualifying foreign currency contract we have entered into as a cash flow hedge.  Unrealized gains or losses, net of taxes, associated with these contracts are included in accumulated other comprehensive income on the balance sheet.  Gains and losses will only be recognized in earnings in the period in which the contracts expire.

Stock-Based Compensation.    In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R, a standard on accounting for share-based payments that requires companies to expense the value of employee stock options and similar awards.  Under SFAS 123R, share-based payment awards result in a cost that will be measured at fair value on the grant date of the awards, based on the estimated number of awards that are expected to vest.  Compensation cost for awards that vest would not be reversed if the awards expire without being exercised.  We adopted SFAS 123R beginning July 1, 2005.

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We have adopted the modified prospective approach as our implementation method under this standard.  See Note 3 to the Unaudited Consolidated Financial Statements.  For the three months ended March 31, 2006, we recorded share-based award costs related to this standard of approximately $1.5 million (approximately $1.1 million, net of taxes) or $0.04 per basic and diluted share.  For the nine months ended March 31, 2006 we recorded share-based award costs related to this standard of approximately $4.2 million (approximately $3.1 million, net of taxes) or $0.11 per basic share and $0.10 per diluted share.  For the year ended June 30, 2006, we are estimating that we will record share-based award costs related to this standard of approximately $5.7 million ($4.1 million, net of taxes) or $0.13 per diluted share.



Income Taxes and Valuation Reserves.    A valuation allowance may be required to reduce deferred tax assets to the amount that is more likely than not to be realized. We consider projected future taxable income and ongoing tax planning strategies in assessing a potential valuation allowance. In the event we determine that we may not be able to realize all or part of our deferred tax asset in the future, or that new estimates indicate that a previously recorded valuation allowance is no longer required, an adjustment to the deferred tax asset would be charged or credited to net income in the period of such determination.



Results of Operations

The following discussion compares the historical results of operations for the three and nine months ended March 31, 2006 and March 31, 2005.  Results of operations as a percentage of net sales, were as follows (Dollar amounts in thousands, percentages may not add due to rounding):





|                                                |                                      | Three Months Ended |         | Nine Months Ended
|----------------------------------------------- | ------------------------------------ | ------------------ | ------- | -----------------
|                                                |                                      |                    |         |                  
|                                                |                                      | March 31, 
2006    |         | March 31, 
2005  
|                                                |                                      |                    |         |                  
|Net sales                                       |                                      | $                  | 191,344 |                  
|Cost of sales                                   |                                      |                    | 105,094 |                  
|                                                | Gross profit                         |                    |         | 86,250           
|Selling, general and 
  administrative expenses |                                      |                    | 75,929  |                  
|Depreciation and amortization                   |                                      |                    | 5,438   |                  
|                                                | Income from operations               |                    |         | 4,883            
|Interest expense, net                           |                                      |                    | 5,344   |                  
|Debt extinguishment charge                      |                                      |                    | 758     |                  
|                                                | (Loss) income before income 
  taxes |                    |         | (1,219           
|(Benefit from) provision for 
    income taxes  |                                      |                    | (1,921  | )                
|                                                | Net income                           |                    |         | 702              
|                                                |                                      |                    |         |                  
|Other data                                      |                                      |                    |         |                  
|EBITDA and EBITDA margin (1)                    |                                      | $                  | 9,563   |                  





|(1)  For a definition of EBITDA and a reconciliation of net income to EBITDA, see "EBITDA" under Results of Operations - Three  and Nine Months Ended March 31, 2006 Compared to Three and Nine Months Ended March 31, 2005.  EBITDA margin represents EBITDA divided by net sales.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005



Net Sales.    Net sales decreased 3.5% for the three months ended March 31, 2006 compared to the three months ended March 31, 2005.  Excluding the impact of foreign currency translation, net sales decreased 1.5%. Approximately $23 million of new sales from initial brand launches, including the fantasy Britney Spears fragrance and the Prevage skin care line were more than offset by $15 million of lower sales of the curious Britney Spears fragrance, resulting from the launch internationally in the comparable prior year quarter, and lower sales of distributed brands due to certain retail customers implementing inventory control initiatives and the loss of distribution rights on select brands totaling $14 million.  We expect retailer inventory control initiatives to continue to affect net sales in the short term.  Pricing changes had an immaterial effect on the net sales decrease.



Gross Profit.    Gross profit decreased by 10.0% for the three months ended March 31, 2006 compared to the three months ended March 31, 2005.  The decrease in gross profit was primarily due to the lower sales volumes and higher sales-related allowances.  Gross margin decreased to 45.1% for the three months ended March 31, 2006, from 48.3% for the three months ended March 31, 2005, due to the higher sales-related allowances as a percentage of net sales, higher product costs on new launches, a higher proportion of promotional sales and higher sales of owned or licensed fragrances into lower margin mass channels.



SG&A.    Selling, general and administrative expenses decreased 1.3% for the three months ended March 31, 2006 over the three months ended March 31, 2005.  The decrease was principally due to a $0.9 million decrease in employee incentive compensation costs and the favorable impact of foreign currency rates of $1.7 million, partially offset by higher product development costs of $1.2 million.



Interest Expense.    Interest expense, net of interest income, decreased by 4.3% for the three months ended March 31, 2006 compared to the three months ended March 31, 2005.  The decrease is a result of lower average borrowings on our revolving credit facility and the repayment of the remaining 11 3/4% senior secured notes due 2011, partially offset by higher interest rates on our revolving credit facility and on the interest rate swap agreement prior to our termination of that agreement.



Debt Extinguishment Charge.    On February 1, 2006, we redeemed the remaining $8.8 million aggregate principal amount of 11 3/4% senior secured notes due 2011 at the redemption price of 105.875% of their par amount plus accrued interest.  As a result of the redemption, we incurred a pre-tax debt extinguishment charge of approximately $0.8 million.



(Benefit from) Provision for Income Taxes.    The provision for income taxes decreased by approximately $4.5 million for the three months ended March 31, 2006 compared to the three months ended March 31, 2005 due to lower income from operations and the adjustment of the fiscal 2006 estimated annual effective tax rate from 30.5% to 27.3% to reflect increased forecasted earnings contribution from international affiliates.



Net Income.    Net income for the three months ended March 31, 2006 decreased by $4.9 million as compared to the three months ended March 31, 2005. The decrease was primarily a result of lower income from operations, partially offset by lower income taxes.



EBITDA.    EBITDA (net income plus the provision for income taxes (or net loss less the benefit from income taxes), plus interest expense, plus depreciation and amortization expense) decreased by $9.4 million to $9.6 million for the three months ended March 31, 2006 compared to $19.0 million for the three months ended March 31, 2005.  The decrease in EBITDA was primarily the result of lower net sales and gross profit and the debt extinguishment charge related to the redemption of the remaining 11 3/4% senior secured notes due 2011, partially offset by lower selling, general and administrative expenses.



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

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





|* |  | it does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;                                                                                                                
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                    
|* |  | it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;                                                                                     
|  |  |                                                                                                                                                                                                                                    
|* |  | it does not reflect any cash income taxes that we may be required to pay; and                                                                                                                                                      
|  |  |                                                                                                                                                                                                                                    
|* |  | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and these measures do not reflect any cash requirements for such replacements.



The following is a reconciliation of net income, as determined in accordance with generally accepted accounting principles, to EBITDA:





|(Amounts in thousands) | Three Months Ended                           |       
|---------------------- | -------------------------------------------- | ------
|                       |                                              |       
|                       | March 31, 
2006                              |       
|                       |                                              |       
|Net income             | $                                            | 702   
|Plus:                  |                                              |       
|                       | (Benefit from) provision for 
  income taxes |       
|                       | Interest expense, net                        |       
|                       | Depreciation and amortization                |       
|                       |                                              |       
|                       |                                              | EBITDA
|                       |                                              |       
|                       |                                              |       
|                       |                                              |       



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Nine Months Ended March 31, 2006 Compared to Nine Months Ended March 31, 2005



Net Sales.    Net sales increased 4.3% for the nine months ended March 31, 2006 compared to the nine months ended March 31, 2005.  Excluding the impact of foreign currency translation, net sales increased 5.0%.  The sales increase was mainly driven by $64 million of sales related to initial brand launches, including the fantasy Britney Spears fragrance and the Prevage skin care line, partially offset by $16 million of lower sales of distributed brands, including the loss of certain brands, and $12 million of lower sales of brands initially launched last year, primarily Elizabeth Arden Provocative Woman.  Certain retail customers implementing inventory control initiatives also negatively affected net sales.  We expect retailer inventory control initiatives will continue to affect net sales in the short term.  Pricing changes had an immaterial effect on the net sales increase.



Gross Profit.    Gross profit decreased by 1.8% for the nine months ended March 31, 2006 compared to the nine months ended March 31, 2005.  The decrease in gross profit dollars was primarily due to higher product costs on new launches, partially offset by the higher sales volumes discussed above.  Gross margin decreased to 42.0% for the nine months ended March 31, 2006, from 44.6% for the nine months ended March 31, 2005 primarily due to higher product costs on new launches, a higher proportion of promotional sales and higher sales of owned or licensed fragrances into lower margin mass channels.



SG&A.    Selling, general and administrative expenses increased 2.9% for the nine months ended March 31, 2006 compared to the nine months ended March 31, 2005.  The increase was primarily due to an increase in royalty costs related to higher sales of licensed brands, national media advertising and product development costs totaling $5.6 million and the unfavorable impact of foreign currency rates of $3.5 million, partially offset by a $3.2 million decrease in promotional costs and a $1.2 million decrease in employee incentive compensation costs.



Interest Expense.    Interest expense, net of interest income, increased by 1.6% for the nine months ended March 31, 2006, compared to the nine months ended March 31, 2005. The increase is a result of higher interest rates on our revolving credit facility and on the interest rate swap agreement prior to our termination of that agreement.



Debt Extinguishment Charge.    On February 1, 2006, we redeemed the remaining $8.8 million aggregate principal amount of 11 3/4% senior secured notes due 2011 at the redemption price of 105.875% of their par amount plus accrued interest.  As a result of the redemption, we incurred a pre-tax debt extinguishment charge of approximately $0.8 million.



Provision for Income Taxes.    The provision for income taxes decreased by $6.1 million for the nine months ended March 31, 2006 compared to the nine months ended March 31, 2005 due to lower income from operations and a lower estimated annual effective tax rate.  The estimated annual effective tax rate decreased from 31.2% in the prior period to 27.3% currently due to increased forecasted earnings contribution from international affiliates.



Net Income.    Net income for the nine months ended March 31, 2006 decreased by $7.4 million as compared to the nine months ended March 31, 2005.  The decrease was primarily a result of a lower gross margin and higher selling, general and administrative expenses, partially offset by lower income taxes.



EBITDA.    EBITDA (net income plus the provision for income taxes (or net loss less the benefit from income taxes), plus interest expense, plus depreciation and amortization expense) decreased by $13.3 million to $81.9 million for the nine months ended March 31, 2006 compared to $95.2 million for the nine months ended March 31, 2005.  The decrease in EBITDA was primarily the result of a lower gross margin and higher selling, general and administrative expenses.





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The following is a reconciliation of net income, as determined in accordance with generally accepted accounting principles, to EBITDA:





|(Amounts in thousands) | Nine Months Ended             |       
|---------------------- | ----------------------------- | ------
|                       |                               |       
|                       | March 31, 
2006               |       
|                       |                               |       
|Net income             | $                             | 34,692
|Plus:                  |                               |       
|                       | Provision for income taxes    |       
|                       | Interest expense, net         |       
|                       | Depreciation and amortization |       
|                       |                               |       
|                       |                               | EBITDA
|                       |                               |       
|                       |                               |       
|                       |                               |       



Financial Condition





|(Amounts in thousands)                              |  | Nine Months Ended |        
|--------------------------------------------------- |  | ----------------- | -------
|                                                    |  |                   |        
|                                                    |  | March 31, 
2006   |        
|                                                    |  |                   |        
|Net cash provided by operating activities           |  | $                 | 41,203 
|Net cash used in investing activities               |  |                   | (7,895 
|Net cash (used in) provided by financing activities |  |                   | (31,396
|Net increase in cash and cash equivalents           |  |                   | 1,993  

Cash Flows.    Net cash provided by operating activities improved by approximately $28 million for the nine months ended March 31, 2006 as compared to the nine months ended March 31, 2005.  The improvement for the nine months ended March 31, 2006 is primarily due to an approximately $34 million reduction in inventory, mainly as a result of inventory reduction initiatives, and an approximately $36 million reduction in the build-up of accounts receivable as compared to the prior year, mainly as a result of timing of sales, partially offset by a decrease in other payables and accrued expenses, primarily incentive compensation accruals, and lower net income.



For the nine months ended March 31, 2006, net cash used in investing activities was $7.9 million as compared to $13.7 million for the nine months ended March 31, 2005.  The decrease in net cash used in investing activities is a result of the sale of the Miami Lakes facility and related equipment that closed on August 1, 2005 and resulted in approximately $9.9 million of cash proceeds, partially offset by higher capital expenditures and the acquisition of distributor assets in the People's Republic of China and Taiwan.



Net cash used in financing activities increased by approximately $34 million for the nine months ended March 31, 2006 as compared to the nine months ended March 31, 2005.  The increase in net cash used in financing activities for the nine months ended March 31, 2006 was primarily due to payments on the credit facility, a decrease in working capital requirements, repurchases of common stock and the redemption of the 11 3/4% senior secured notes due 2011on February 1, 2006.



Interest paid during the nine months ended March 31, 2006 included $17.4 million of interest payments on the 7 3/4% senior subordinated notes due 2014 that covered the period from February 16, 2005 through February 15, 2006.  Interest paid during the nine months ended March 31, 2005 included $17.9million interest payments on the 7 3/4% senior subordinated notes that covered the period from the January 13, 2004 date of issuance through February 15, 2005.



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





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We have a revolving credit facility with a syndicate of banks, for which JPMorgan Chase Bank is the administrative agent, which provides for borrowings on a revolving basis of up to $200 million with a $25 million sublimit for letters of credit.  On November 2, 2005, we entered into an amendment to the credit facility that (i) extends the maturity of the credit facility to December 2010 from June 2009, (ii) reduces the interest rates and commitment fees based on our debt service coverage ratio, (iii) permits us to increase the size of the credit facility by up to $100 million without the consent of all of the banks, and (iv) permits us to pay cash dividends on the common stock, repurchase common stock or make other distributions to the common shareholders if we maintain 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.  The credit facility is guaranteed by all of our U.S. subsidiaries. Borrowings under the credit facility are limited to 85% of eligible accounts receivable and 75% (65% December 1 through May 31) of eligible finished goods inventory and are collateralized by a first priority lien on all of the our U.S. accounts receivable and inventory.  Our obligations under the credit facility rank senior to our 7 3/4% senior subordinated notes due 2014.



The credit facility has only one financial maintenance covenant, which is a debt service coverage ratio that must be maintained at not less than 1.1 to 1 if average borrowing availability declines to less than $25 million ($35 million from December 1 through May 31).  No financial maintenance covenant was applicable for the three- and nine-month periods ended March 31, 2006.  The credit facility restricts us from incurring additional non-trade indebtedness (other than refinancing and certain small amounts of indebtedness).



Borrowings under the revolving credit portion of the credit facility bear interest at a floating rate based on the "Applicable Margin," which is determined by reference to a specific financial ratio.  At our option, the Applicable Margin may be applied to either the London InterBank Offered Rate (LIBOR) or the prime rate.  The reference ratio for determining the Applicable Margin is a debt service coverage ratio. As a result of the November 2005 amendment to the credit facility, the interest rates charged on LIBOR loans and prime rate loans were reduced to a range of 1.00% to 1.75% from a range of 1.50% to 2.25% for LIBOR loans, and to 0% from a range of 0% to 0.50% for prime rate loans.  As of March 31, 2006, the Applicable Margin was 1.25% for LIBOR loans and 0% for prime rate loans.  The commitment fee on the unused portion of the credit facility is 0.25%.



Based upon our internal projections, we believe that the credit facility, as currently amended and restated, provides sufficient flexibility so that we will remain in compliance with its terms.  If our actual results deviate significantly from our projections, we may not remain in compliance with the debt service coverage ratio and would not be allowed to borrow under the credit facility.  In addition, a default under our credit facility that causes acceleration of the debt under this facility could trigger a default on our senior subordinated notes.  In the event we are not able to borrow under our credit facility, we would be required to develop an alternative source of liquidity.  There is no assurance that we could obtain replacement financing or what the terms of such financing, if available, would be.  As of March 31, 2006, we had $30 million in outstanding borrowings and approximately $4 million in letters of credits under our credit facility and approximately $131 million of eligible receivables and inventories available as collateral under the credit facility, resulting in remaining borrowing availability of approximately $96 million.



We believe that existing cash and cash equivalents, internally generated funds and borrowings under our credit facility will be sufficient to cover debt service, working capital requirements and capital expenditures for the next twelve months other than additional working capital requirements that may result from further expansion of our operations through acquisitions of additional brands or new product launches or distribution arrangements.



Repurchase of Common Stock.    On November 2, 2005, our board of directors authorized us to implement a stock repurchase program to repurchase up to $40 million of our common stock through March 31, 2007. As of March 31, 2006, we repurchased 414,423 shares of Common Stock on the open market at a cost of $8.1 million, including sales commissions.





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Redemption of 11 3/4% Senior Notes.    On November 2, 2005, the Board authorized us to redeem the remaining $8.8 million aggregate principal amount of 11 3/4% senior secured notes due 2011, when such notes were redeemable on February 1, 2006, at the redemption price of 105.875% of their par amount plus accrued interest.  On February 1, 2006, we redeemed the remaining $8.8 million aggregate principal amount of 11 3/4% senior notes at a redemption price plus accrued interest of $0.5 million.  We utilized borrowings under the credit facility to repurchase the 11 3/4% senior notes.  As a result of the redemption, we incurred a pre-tax charge of approximately $0.8 million related to the early extinguishment of the remaining 11 3/4% senior notes in the three months ended March 31, 2006.



Termination Costs on Interest Rate Swap.    In February 2004, we entered into an interest rate swap agreement to swap $50.0 million of the outstanding 7 3/4% senior subordinated notes to a floating interest rate based on LIBOR.  The swap agreement was scheduled to mature in February 2014 and was terminated March 16, 2006.  As a result of this action, we incurred termination costs of $2.5 million.  The swap termination costs were recorded as a reduction to long-term debt and will be amortized to interest expense over the remaining life of the 7 3/4% senior subordinated notes due 2014.  We had designated the swap agreement as a fair value hedge.



Contractual Obligations.    At March 31, 2006, we had contractual obligations to incur promotional and advertising expenses, which are either fixed commitments or based on net sales for licensed brands, and minimum royalty guarantees in an aggregate amount of $65.3 million through 2011 compared with $33.8 million through 2010 at June 30, 2005.



In September 2005, the Company entered into a lease for approximately 35,000 square feet of office space in Miramar, Florida.  The term of the lease commenced on December 1, 2005 and expires on May 31, 2011.  Aggregate payments under this lease are approximately $4.7 million through the term of the lease.



Recently Adopted Accounting Pronouncements and Recent Legislation

American Jobs Creation Act of 2004



In October 2004, the American Jobs Creation Act of 2004 was signed into law.  This act contains a number of provisions that might affect our future effective tax rate.  A significant provision of this act allows us to elect to deduct from our taxable income 85% of certain eligible dividends received by us from our non-U.S. subsidiaries before either the year ended June 30, 2005 or the year ending June 30, 2006, if those dividends are reinvested in the U.S. for eligible purposes under this act.  Another significant provision replaces the extraterritorial income exclusion with a domestic manufacturing deduction.  In September 2005, we repatriated $3.2 million of undistributed international earnings from a foreign subsidiary.  Pursuant to the Act, we adjusted our net provision for estimated deferred taxes on the repatriation of such earnings from $146,000 to $17,000.  In addition, the Company is anticipating the repatriation of $2.1 million of undistributed international earnings from another foreign subsidiary before the year ending June 30, 2006.



Inventory Costs - An Amendment of ARB No. 43, Chapter 4



In November 2004, the FASB issued SFAS No. 151, "Inventory Costs -- An Amendment of ARB No. 43, Chapter 4." SFAS 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43.  Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  We adopted SFAS 151 on July 1, 2005.  The adoption of SFAS 151 did not have an impact on results of operations, financial position or cash flows.





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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of March 31, 2006, we had $30 million in borrowings outstanding under our credit facility.  Borrowings under our credit facility are seasonal, with peak borrowings in the months of September, October and November.  Borrowings under the credit facility are subject to variable rates and, accordingly, our earnings and cash flow will be affected by changes in interest rates.  In February 2004, we entered into two interest rate swap transactions to swap $50.0 million of our fixed rate 7 3/4% senior subordinated notes due 2014 to a floating rate of interest based on LIBOR to better balance our mix of fixed and floating rate debt.  The swap agreement was scheduled to mature in February 2014 and was terminated on March 16, 2006.  We designated the swap as a fair value hedge.  See Note 7 to the Notes to Unaudited Consolidated Financial Statements.



Foreign Currency Risk



We sell our products in approximately 90 countries around the world.  During the three- and nine-month periods ended March 31, 2006, we derived approximately 48% and 37%, respectively, of our net sales from our international operations.   We conduct our international operations in a variety of different countries and derive our sales in various currencies including the Euro, British pound, Swiss franc, Canadian dollar and Australian dollar, as well as the U.S. dollar.  Our operations may be subject to volatility because of currency changes, inflation changes and changes in political and economic conditions in the countries in which we operate.  With respect to international operations, our sales, cost of goods sold and expenses are typically denominated in a combination of local currency and the U.S. dollar.  Our results of operations are reported in U.S. dollars. Fluctuations in currency rates can affect our reported sales, margins, operating costs and the anticipated settlement of our foreign denominated receivables and payables.  Most of our skin care and cosmetic products are produced in a third-party manufacturing facility located in Roanoke, Virginia.  A weakening of the foreign currencies in which we generate sales relative to the currencies in which our costs are denominated, which is primarily the U.S. dollar, may decrease our reported cash flow and operating profits.  Our competitors may or may not be subject to the same fluctuations in currency rates, and our competitive position could be affected by these changes.  The cumulative effect of translating balance sheet accounts from the functional currency into the U.S. dollar at current exchange rates is included in "Accumulated other comprehensive income" in our consolidated balance sheets.



As of March 31, 2006, we had notional amounts of 21.1 million Euros and 1.2 million British pounds under foreign currency contracts that expire between April 30, 2006 and June 29, 2007 to reduce the exposure of our foreign subsidiary revenues to fluctuations in currency rates.  We have designated each qualifying foreign currency contract as a cash flow hedge.  The gains and losses of these contracts will only be recognized in earnings in the period in which the contracts expire.  At March 31, 2006, the unrealized gain, net of taxes associated with these contracts of approximately $2.0 million, is included in accumulated other comprehensive income. The unrealized gain, net of taxes, generated during the three and nine months ended March 31, 2006, was approximately $1.0 million, and approximately $1.0 million respectively.



During the nine months ended March 31, 2006, we entered into and settled foreign currency contracts for 7.5 million Euros and 2.0 million British pounds to reduce exposure of our foreign subsidiaries net balance sheet to fluctuations in foreign currency rates.  The realized loss, net of taxes, recognized during the three months ended March 31, 2006 was approximately $0.1 million and the realized gain, net of taxes, recognized during the nine months ended March 31, 2006 was approximately $0.3 million.



We do not utilize foreign exchange contracts for trading or speculative purposes.  There can be no assurance that our hedging operations or other exchange rate practices, if any, will eliminate or substantially reduce risks associated with fluctuating exchange rates.





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ITEM 4.    CONTROLS AND PROCEDURES

The Company's Chairman and Chief Executive Officer and Executive Vice President and Chief Financial Officer, who are the principal executive officer and principal financial officer, respectively, have evaluated the effectiveness and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report (the "Evaluation Date").  Based upon such evaluation, they have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective.



There have been no changes in the Company's internal control over financial reporting during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.





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PART II.   OTHER INFORMATION



ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

This table provides information with respect to purchases by the Company of shares of its common stock, $01. par value per share ("Common Stock") during the three months ended March 31, 2006:

Issuer Purchases of Equity Securities



|                                            |  | (a)           |  | (b)        |       | (c)              |        | (d)         
|------------------------------------------- |  | ------------- |  | ---------- | ----- | ---------------- | ------ | ------------
|                                            |  |               |  |            |       |                  |        |             
|                                            |  |               |  |            |       | Total Number     |        | Approximate 
|                                            |  |               |  |            |       | of Shares        |        | Dollar Value
|                                            |  |               |  |            |       | Purchased as     |        | that May Yet
|                                            |  | Total         |  | Average    |       | Part of Publicly |        | Be Purchased
|                                            |  | Number        |  | Price Paid |       | Announced        |        | Under the   
|                                            |  | of Shares     |  | Per        |       | Plans            |        | Plans or    
|Period (1)                                  |  | Purchased (1) |  | Share      |       | or Programs      |        | Programs (2)
|                                            |  |               |  |            |       |                  |        |             
|January 1, 2006 through 
January 31, 2006   |  | 8,000         |  | $          | 19.32 |                  | 8,000  |             
|                                            |  |               |  |            |       |                  |        |             
|February 1, 2006 through 
February 28, 2006 |  | 27,887        |  | $          | 21.61 |                  | 27,887 |             
|                                            |  |               |  |            |       |                  |        |             
|March 1, 2006 through 
March 31, 2006       |  | 3,200         |  | $          | 21.92 |                  | 3,200  |             
|                                            |  |               |  |            |       |                  |        |             
|                                            |  |               |  |            |       |                  |        |             
|Totals                                      |  | 39,087        |  | $          | 19.48 |                  | 39,087 |             
|                                            |  |               |  |            |       |                  |        |             
|                                            |  |               |  |            |       |                  |        |             
|                                            |  |               |  |            |       |                  |        |             





|(1)  On November 2, 2005, the Board authorized the Company to implement a stock repurchase program to repurchase up to $40 million of Common Stock (the "2005 Stock Repurchase Program") through March 31, 2007.  The 2005 Stock Repurchase Program was announced on November 3, 2005.  Shares were purchased on the open market by the Company.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  Amounts reflect the remaining dollar value of shares that may be purchased under the 2005 Stock Repurchase Program.                                                                                                                                                                                                                        





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ITEM 6.    EXHIBITS



|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3.1            |  | Amended and Restated Articles of Incorporation of the Company dated November 17, 2005 (incorporated herein by reference to Exhibit 3.1 filed as part of the Company's Form 10-Q for the quarter ended December 31, 2005 (Commission File No. 1-6370)).                                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3.2            |  | Amended and Restated By-laws of the Company (incorporated herein by reference to Exhibit 3.2 filed as part of the Company's Form 10-Q for the transition period from February 1, 2004 to June 30, 2004 (Commission File No. 1-6370)).                                                                                                                                                                                                                         
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.1            |  | Indenture dated as of January 13, 2004, among the Company and FD Management, Inc., DF Enterprises, Inc., Elizabeth Arden International Holding, Inc., RDEN Management, Inc., Elizabeth Arden (Financing), Inc., Elizabeth Arden Travel Retail, Inc., as guarantors, and HSBC Bank USA, as trustee (incorporated herein by reference to Exhibit 4.3 filed as part of the Company's Form 10-K for the year ended January 31, 2004 (Commission File No. 1-6370)).
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.2            |  | Second Amended and Restated Credit Agreement dated as of December 24, 2002 among the Company, JPMorgan Chase Bank, as administrative agent, Fleet National Bank, as collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.1 filed as part of the Company's Form 8-K dated December 30, 2002 (Commission File No. 1-6370)).                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.3            |  | First Amendment to Second Amended and Restated Credit Agreement dated as of February 25, 2004, among the Company, JPMorgan Chase Bank, as administrative agent, Fleet National Bank, as collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.5 filed as part of the Company's Form 10-K for the year ended January 31, 2004 (Commission File No. 1-6370)).                                    
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.4            |  | Second Amendment to Second Amended and Restated Credit Agreement dated as of June 2, 2004, among the Company, JPMorgan Chase Bank, as administrative agent, Fleet National Bank, as collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.6 filed as part of the Company's Form 10-Q for the quarter ended May 1, 2004 (Commission File No. 1-6370)).                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.5            |  | Third Amendment to Second Amended and Restated Credit Agreement dated as of September 30, 2004, among the Company, JPMorgan Chase Bank, as administrative agent, Fleet National Bank, as collateral agent, and the banks listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.1 filed as part of the Company's Form 8-K dated October 1, 2004 (Commission File No. 1-6370)).                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.6            |  | Fourth Amendment to Second Amended and Restated Credit Agreement dated as of November 2, 2005, among the Company, 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 (incorporated herein by reference to Exhibit 4.8 filed as part of the Company's Form 10-Q for the quarter ended September 30, 2005 (Commission File No. 1-6370)).    
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.7            |  | Amended and Restated Security Agreement dated as of January 29, 2001, made by the Company and certain of its subsidiaries in favor of Fleet National Bank, as administrative agent (incorporated herein by reference to Exhibit 4.5 filed as part of the Company's Form 8-K dated February 7, 2001 (Commission File No. 1-6370)).                                                                                                                             
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.1           |  | 2004 Stock Incentive Plan (incorporated herein by reference to Annex E filed as part of the Company's Proxy Statement on May 14, 2004 (Commission File No. 1-6370)).                                                                                                                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.2           |  | 2004 Non-Employee Director Stock Option Plan (incorporated herein by reference to Annex F filed as part of the Company's Proxy Statement on May 14, 2004 (Commission File No. 1-6370)).                                                                                                                                                                                                                                                                       
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.3           |  | Amended 2000 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 filed as a part of the Company's Form 10-Q for the quarter ended July 26, 2003 (Commission File No. 1-6370)).                                                                                                                                                                                                                                                             
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               





---



|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                 
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                             
|10.4           |  | Amended 1995 Stock Option Plan (incorporated herein by reference to Exhibit 4.12 filed as a part of the Company's Registration Statement on Form S-8 dated July 7, 1999 (Commission File No. 1-6370)).                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                             
|10.5           |  | Amended 2002 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.4 filed as part of the Company's Form 10-Q for the quarter ended April 26, 2003 (Commission File No. 1-6370)).                                                                                                    
|               |  |                                                                                                                                                                                                                                                                                                             
|10.6           |  | Amended Non-Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.2 filed as a part of the Company's Form 10-Q for the quarter ended April 26, 2003 (Commission File No. 1-6370)).                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                             
|10.7           |  | Amended and Restated Deed of Lease dated as of January 17, 2003, between the Company and Liberty Property Limited Partnership (incorporated herein by referenced to Exhibit 10.5 filed as a part of the Company's Form 10-Q for the quarter ended April 26, 2003 (Commission File No. 1-6370)).             
|               |  |                                                                                                                                                                                                                                                                                                             
|10.8           |  | Form of Nonqualified Stock Option Agreement for stock option awards under the Company's Amended Non-Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.8 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).    
|               |  |                                                                                                                                                                                                                                                                                                             
|10.9           |  | Form of Incentive Stock Option Agreement for stock option awards under the Company's Amended 1995 Stock Option Plan (incorporated herein by reference to Exhibit 10.9 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).                        
|               |  |                                                                                                                                                                                                                                                                                                             
|10.10          |  | Form of Nonqualified Stock Option Agreement for stock option awards under the Company's Amended 1995 Stock Option Plan (incorporated herein by reference to Exhibit 10.10 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).                    
|               |  |                                                                                                                                                                                                                                                                                                             
|10.11          |  | Form of Stock Option Agreement for stock option awards under the Company's 2000 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.11 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).                                      
|               |  |                                                                                                                                                                                                                                                                                                             
|10.12          |  | Form of Restricted Stock Agreement for regular restricted stock awards under the Company's Amended 2000 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.12 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).              
|               |  |                                                                                                                                                                                                                                                                                                             
|10.13          |  | Form of Restricted Stock Agreement for the performance-based restricted stock awards under the Company's Amended 2000 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.13 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).
|               |  |                                                                                                                                                                                                                                                                                                             
|10.14          |  | Form of Stock Option Agreement for stock option awards under the Company's 2004 Non-Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.14 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).                   
|               |  |                                                                                                                                                                                                                                                                                                             
|10.15          |  | Form of Restricted Stock Agreement for the market-based restricted stock awards under the Company's 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.15 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).             
|               |  |                                                                                                                                                                                                                                                                                                             
|10.16          |  | Compensation Arrangement for Named Executive Officers (incorporated herein by reference to Exhibit 10.16 filed as part of the Company's Form 10-K for the year ended June 30, 2005 (Commission File No. 1-6370)).                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                             
|10.17          |  | Board of Directors Compensation Arrangements (incorporated herein by reference to Exhibit 10.17 filed as a part of the Company's Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-6370)).                                                                                              
|               |  |                                                                                                                                                                                                                                                                                                             





---



|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                
|10.18          |  | Agreement for Sale and Purchase dated as of March 29, 2005 between Elizabeth Arden, Inc. and Nina Elazar  (incorporated herein by reference to Exhibit 10.18 filed as a part of the Company's Form 10-K for the year ended June 30, 2005 (Commission File No. 1-6370)).        
|               |  |                                                                                                                                                                                                                                                                                
|10.19          |  | Form of Stock Option Agreement for stock option awards under the Company's 2004 Stock Incentive Plan  (incorporated herein by reference to Exhibit 10.19 filed as a part of the Company's Form 10-K for the year ended June 30, 2005 (Commission File No. 1-6370)).            
|               |  |                                                                                                                                                                                                                                                                                
|10.20          |  | Form of Restricted Stock Agreement for the restricted stock awards under the Company's 2004 Stock Incentive Plan  (incorporated herein by reference to Exhibit 10.20 filed as a part of the Company's Form 10-K for the year ended June 30, 2005 (Commission File No. 1-6370)).
|               |  |                                                                                                                                                                                                                                                                                
|10.21          |  | 2005 Management Bonus Plan (incorporated herein by reference to Exhibit 10.21 filed as a part of the Company's Form 10-K for the year ended June 30, 2005 (Commission File No. 1-6370)).                                                                                       
|               |  |                                                                                                                                                                                                                                                                                
|10.22          |  | 2005 Performance Bonus Plan (incorporated herein by reference to Exhibit 10.22 filed as a part of the Company's Form 10-K for the year ended June 30, 2005 (Commission File No. 1-6370)).                                                                                      
|               |  |                                                                                                                                                                                                                                                                                
|10.23          |  | Base Salary Adjustments for Named Executive Officers.                                                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                
|31.1           |  | Section 302 Certification of Chief Executive Officer.                                                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                
|31.2           |  | Section 302 Certification of Chief Financial Officer.                                                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                
|32             |  | Section 906 Certifications of the Chief Executive Officer and the Chief Financial Officer.                                                                                                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                



The foregoing list omits instruments defining the rights of holders of our long-term debt where the total amount of securities authorized thereunder does not exceed 10% of our total assets. We hereby agree to furnish a copy of each such instrument or agreement to the Commission upon request.



- 38 -





---



SIGNATURES



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 thereunto duly authorized.



|                    |  | ELIZABETH ARDEN, INC.                               
|------------------- |  | ----------------------------------------------------
|                    |  |                                                     
|Date:  May 8, 2006  |  | /s/ E. Scott Beattie                                
|                    |  |                                                     
|                    |  | E. Scott Beattie                                    
|                    |  | Chairman and Chief Executive Officer                
|                    |  | (Principal Executive Officer)                       
|                    |  |                                                     
|Date:   May 8, 2006 |  | /s/ Stephen J. Smith                                
|                    |  |                                                     
|                    |  | Stephen J. Smith                                    
|                    |  | Executive Vice President and Chief Financial Officer
|                    |  | (Principal Financial and Accounting Officer)        
|                    |  |                                                     



- 39 -



---



EXHIBIT INDEX



|Exhibit 
Number |  | Description                                                                               
|--------------- |  | ------------------------------------------------------------------------------------------
|                |  |                                                                                           
|                |  |                                                                                           
|10.23           |  | Base Salary Adjustments for Named Executive Officers.                                     
|                |  |                                                                                           
|31.1            |  | Section 302 Certification of Chief Executive Officer.                                     
|                |  |                                                                                           
|31.2            |  | Section 302 Certification of Chief Financial Officer.                                     
|                |  |                                                                                           
|32              |  | Section 906 Certifications of the Chief Executive Officer and the Chief Financial Officer.





- 40 -