Elizabeth Arden (RDEN) Board Approves Restructuring; Plans Job Cuts

On June 23, 2014, the board of directors of Elizabeth Arden, Inc. (Nasdaq: RDEN), approved a broad restructuring and cost savings program that is intended to reduce the size and cost of the Company's overhead structure and exit low-return businesses, customers and brands to improve gross margins and profitability in the long term (the "2014 Performance Improvement Plan"). The 2014 Performance Improvement Plan includes the exiting of certain unprofitable retail doors and fragrance license agreements, changes in customer, distribution and supply chain relationships, the discontinuation of certain products, the elimination of employee positions globally and the closing of the Company's Puerto Rico affiliate. The 2014 Performance Improvement Plan is only a part of the Company's ongoing broad restructuring and cost savings program, and the Company is continuing to target annual savings in the range of $40 million to $50 million upon full implementation of the program.

The Company currently estimates that the 2014 Performance Improvement Plan will result in pre-tax charges beginning in the fourth fiscal quarter of 2014 and through fiscal 2015 of $65 million to $72 million, of which an estimated $32 million to $36 million is comprised of future cash expenditures. The estimated pre-tax charges consist of:

(i) approximately $17 million to $20 million of exit and contract termination costs related to the closing of the Company's Puerto Rico affiliate, the exiting of unprofitable doors and changes in customer, distribution and supply chain relationships;

(ii) approximately $11 million to $12 million for employee severance and other related one-time costs (including those related to the closing of the Company's Puerto Rico affiliate); and

(iii) approximately $37 million to $40 million related to asset impairments, including approximately $17 million to $18 million associated with intangible asset and inventory impairments and exit costs caused by the expiration, non-renewal or wind-down of fragrance license agreements, and $20 million to $22 million associated with discontinuations of certain products, including $7.5 million related to certain Elizabeth Arden branded skincare and color products developed prior to the Elizabeth Arden brand repositioning.

The Company anticipates annualized savings resulting from the 2014 Performance Improvement Plan activities of approximately $27 million to $35 million.

In the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the Securities and Exchange Commission on May 12, 2014, the Company disclosed that it was engaged in a fundamental reexamination of how it commercially executed its business, and that this reexamination could result in decisions that could impact earnings for the fiscal year ending June 30, 2014, as well as our earnings projections for subsequent fiscal years. In connection with the reexamination, the Company stated that it would closely assess the potential for realization of its net deferred tax assets in future periods, including U.S. net operating loss carryforwards and U.S. and foreign tax credits, and that changes in future earnings projections resulting from decisions made as a result of this reexamination, among other factors, could cause the Company to record a valuation allowance against some or all of its net deferred tax assets, which could materially impact the Company's income tax expense and results of operations in future periods.

Applicable accounting guidance for income taxes (ASC 740) provides that the future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. If, based upon all available evidence, both positive and negative, it is more likely than not (more than 50 percent likely) such deferred tax assets will not be realized, a valuation allowance is recorded. A company's three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable and the accounting guidance restricts the amount of reliance the Company can place on projected taxable income to support the recovery of the deferred tax assets.

Based on the authorization of the 2014 Performance Improvement Plan and fiscal 2014 results to date, the Company is now projecting to be in a three-year cumulative loss position for fiscal years 2012 through 2014, and, after considering the accounting guidance, the Company can no longer assume the realization of its net deferred tax assets, including those relating to its U.S. cumulative net operating losses and its federal, state and foreign tax credits. As such, the Company has concluded that valuation allowances should be recorded with respect to these net deferred tax assets and will record a non-cash charge in the fourth quarter of fiscal 2014 in the amount of $85 million to $95 million. The final amount of the valuation allowance will be dependent on the Company's financial results for fiscal year 2014. Recording the valuation allowance does not restrict the Company's ability to utilize net operating losses and potentially foreign tax credits associated with many of the deferred tax assets assuming taxable income of the appropriate character is recognized in future periods. A return to sustained profitability in the U.S. operations could result in objective positive evidence thereby warranting the potential reversal of all or a portion of the valuation allowance. There is no assurance that the Company will be able to reverse all or a portion of the valuation allowance in the future.

The Company's valuation allowance for its net deferred tax assets will not impact the Company's cash flow for a number of years; however, it will have a direct negative impact on the Company's net income and shareholders' equity for the quarter and fiscal year ending June 30, 2014. In addition, it may result in the Company's inability to record tax benefits on future losses of its U.S. operations until sufficient future taxable income is generated by such operations to support the realization of deferred tax assets.

The Company intends to treat charges related to the 2014 Performance Improvement Plan as special items impacting the comparability of results in its quarterly earnings releases.

The amounts and timing of all estimates above are subject to change until finalized. Our estimates for the charges discussed above, with the exception of the valuation allowance, exclude any potential income tax effects. The actual amounts and timing may vary materially based on various factors

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