10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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 29, 2009

Or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-33048

Bare Escentuals, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-1062857
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

71 Stevenson Street, 22^nd Floor

San Francisco, CA 94105

(Address of principal executive offices with zip code)

(415) 489-5000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨ (registrant is not yet required to provide financial disclosure in an Interactive Data File format, but has been providing the information in this format voluntarily)    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x	Accelerated filer  ¨	Non-accelerated filer  ¨	Smaller reporting company  ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

At April 29, 2009, the number of shares outstanding of the registrant’s common stock, $0.001 par value, was 91,945,457.

Table of Contents

Bare Escentuals, Inc.

INDEX

PART I—FINANCIAL INFORMATION		3
Item 1	Financial Statements (unaudited):	3
	Condensed Consolidated Balance Sheets — March 29, 2009 and December 28, 2008	3
	Condensed Consolidated Statements of Income — Three Months Ended March 29, 2009 and March 30, 2008	4
	Condensed Consolidated Statements of Cash Flows — Three Months Ended March 29, 2009 and March 30, 2008	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4	Controls and Procedures	27
PART II—OTHER INFORMATION		28
Item 1	Legal Proceedings	28
Item 1A	Risk Factors	28
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3	Defaults Upon Senior Securities	28
Item 4	Submission of Matters to a Vote of Security Holders	28
Item 5	Other Information	28
Item 6	Exhibits	29
Signatures		30
Certifications

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BARE ESCENTUALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	March 29, 2009			December 28, 2008(a)
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	61,307		$	47,974
Inventories		87,729			92,576
Accounts receivable, net of allowances of $5,941 and $8,930 at March 29, 2009 and December 28, 2008, respectively		32,473			42,304
Prepaid expenses and other current assets		10,062			10,302
Prepaid income taxes		2,658			—
Deferred tax assets, net		10,011			10,011
Total current assets		204,240			203,167
Property and equipment, net		74,124			71,157
Goodwill		15,409			15,409
Intangible assets, net		6,201			6,943
Other assets		2,863			3,105
Total assets	$	302,837		$	299,781
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt	$	17,216		$	17,216
Accounts payable		11,248			16,534
Accrued liabilities		16,897			20,260
Income taxes payable		—			3,053
Total current liabilities		45,361			57,063
Long-term debt, less current portion		220,364			223,808
Other liabilities		18,806			19,218
Commitments and contingencies
Stockholders’ equity (deficit):
Preferred stock; $0.001 par value; 10,000 shares authorized; zero shares issued and outstanding		—			—
Common stock; $0.001 par value; 200,000 shares authorized; 91,945 and 91,608 shares issued and outstanding at March 29, 2009 and December 28, 2008, respectively		92			92
Additional paid-in capital		427,322			425,352
Accumulated other comprehensive loss		(4,200	)		(4,155	)
Accumulated deficit		(404,908	)		(421,597	)
Total stockholders’ equity (deficit)		18,306			(308	)
Total liabilities and stockholders’ equity (deficit)	$	302,837		$	299,781

(a) Condensed consolidated balance sheet as of December 28, 2008 has been derived from the audited consolidated financial statements as of that date.

See accompanying notes.

3

BARE ESCENTUALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

	Three months ended
	March 29, 2009			March 30, 2008
	(unaudited)
Sales, net	$	124,253		$	140,358
Cost of goods sold		33,337			38,657
Gross profit		90,916			101,701
Expenses:
Selling, general and administrative		54,062			50,464
Depreciation and amortization, relating to selling, general and administrative		4,094			2,621
Stock-based compensation, relating to selling, general and administrative		1,471			1,912
Operating income		31,289			46,704
Interest expense		(2,789	)		(4,644	)
Other (expense) income, net		(438	)		707
Income before provision for income taxes		28,062			42,767
Provision for income taxes		11,373			16,984
Net income	$	16,689		$	25,783
Net income per share:
Basic	$	0.18		$	0.28
Diluted	$	0.18		$	0.28
Weighted-average shares used in per share calculations:
Basic		91,687			91,260
Diluted		92,876			93,277

See accompanying notes.

4

BARE ESCENTUALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Three months ended
	March 29, 2009			March 28, 2008
	(unaudited)
Operating activities
Net income	$	16,689		$	25,783
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment		3,352			1,881
Amortization of intangible assets		742			740
Amortization of debt issuance costs		54			67
Stock-based compensation		1,471			1,912
Excess tax benefit from stock option exercises and disqualifying disposition of shares		(69	)		(1,180	)
Deferred income tax benefit		(388	)		(343	)
Loss on disposal of property and equipment		120			—
Changes in assets and liabilities:
Inventories		4,341			(9,926	)
Accounts receivable		9,780			5,523
Income taxes		(5,335	)		588
Prepaid expenses and other current assets		233			224
Other assets		186			9
Accounts payable and accrued liabilities		(8,534	)		(4,080	)
Other liabilities		502			101
Net cash provided by operating activities		23,144			21,299
Investing activities
Purchase of property and equipment		(6,469	)		(5,532	)
Proceeds from sale of property and equipment		—			1,299
Net cash used in investing activities		(6,469	)		(4,233	)
Financing activities
Repayments on First Lien Term Loan		(3,444	)		(13,580	)
Excess tax benefit from stock option exercises		69			1,180
Exercise of stock options		137			940
Net cash used in financing activities		(3,238	)		(11,460	)
Effect of foreign currency exchange rate changes on cash		(104	)		(61	)
Net increase in cash and cash equivalents		13,333			5,545
Cash and cash equivalents, beginning of period		47,974			32,117
Cash and cash equivalents, end of period	$	61,307		$	37,662
Supplemental disclosure of cash flow information
Cash paid for interest	$	1,601		$	4,300
Cash paid for income taxes	$	17,072		$	14,895

See accompanying notes.

5

BARE ESCENTUALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Business

Bare Escentuals, Inc., together with its subsidiaries (“Bare Escentuals” or the “Company”), develops, markets, and sells branded cosmetics, skin care and body care products under the bareMinerals, RareMinerals, Buxom and md formulations brands. The bareMinerals cosmetics, particularly the core foundation products which are mineral-based, offer a highly differentiated, healthy alternative to conventional cosmetics. The Company uses a multi-channel distribution model utilizing traditional retail distribution channels consisting of premium wholesale customers including Sephora, Ulta and select department stores; company-owned boutiques; and spas and salons; as well as direct to consumer media distribution channels consisting of home shopping television on QVC; infomercials; and online shopping. The Company also sells products internationally in the United Kingdom, Japan, France, Germany and Canada as well as in smaller international markets via distributors.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Note 2 in the Company’s Form 10-K for the year ended December 28, 2008. The Company’s significant accounting policies have not changed significantly as of March 29, 2009.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 29, 2009, the condensed consolidated statements of income for the three months ended March 29, 2009 and March 30, 2008, and the condensed consolidated statements of cash flows for the three months ended March 29, 2009 and March 30, 2008, are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information, Form 10-Q and Article 10 of Regulation S-X. In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s financial position as of March 29, 2009, its results of operations for the three months ended March 29, 2009 and March 30, 2008, and its cash flows for the three months ended March 29, 2009 and March 30, 2008. The results for the interim periods are not necessarily indicative of the results to be expected for any future period or for the fiscal year ending January 3, 2010.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s 2008 Annual Report on Form 10-K filed with the SEC on February 26, 2009.

Fiscal Quarter

The Company’s fiscal quarters end on the Sunday closest to March 31, June 30, September 30 and December 31. The three months ended March 29, 2009 and March 30, 2008 each contained 13 weeks.

Concentration of Credit Risk and Credit Risk Evaluation

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents are held by or invested in various financial institutions with high credit standing and as such, Management believes that minimal credit risk exists with respect to these balances.

Sales generated through credit card purchases for the three months ended March 29, 2009 and March 30, 2008 were approximately 48.1% and 45.6% of total net sales, respectively. The Company uses a third party to collect its credit card sales and, as a consequence, believes that its credit risks related to these channels of distribution are limited. The Company performs ongoing credit evaluations of its third-party resellers not paying by credit card. Generally, the Company does not require collateral. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection using specific identification of doubtful accounts and an aging of receivables analysis based on invoice due dates. Actual collection losses may differ from management’s estimates, and such differences could be material to the Company’s consolidated financial position, results of operations, and cash flows. Uncollectible receivables are written off against the allowance for doubtful accounts when all efforts to collect them have been exhausted, and recoveries are recognized when they are received. Generally, accounts receivable are past due after 30 days of an invoice date unless special payment terms are provided.

6

The table below sets forth the percentage of consolidated accounts receivable, net for customers who represented 10% or more of consolidated accounts receivable:

	March 29, 2009		December 28, 2008
Customer A	12	%	15	%
Customer B	25	%	19	%
Customer C	23	%	39	%

The table below sets forth the percentage of consolidated sales, net for customers who represented 10% or more of consolidated net sales:

	Three months ended
	March 29, 2009		March 30, 2008
Customer A	—	%*	13	%
Customer B	13	%	13	%
Customer C	11	%	16	%

* Represents less than 10%

As of March 29, 2009 and December 28, 2008, the Company had no off-balance sheet concentrations of credit risk.

Derivative Financial Instruments

The Company accounts for derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Certain Hedging Activities, as amended (“Statement 133”), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Statement 133 also requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet and that they are measured at fair value. On December 29, 2009, the Company adopted Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB No. 133 (“Statement 161”), which supplements the required disclosures under Statement 133 and its related interpretations.

Earnings per Share

A calculation of earnings per share, as reported is as follows (in thousands, except per share data):

	Three months ended
	March 29, 2009		March 30, 2008
Numerator:
Net income	$	16,689	$	25,783
Denominator:
Weighted average common shares used in per share calculations — basic		91,687		91,260
Add: Common stock equivalents from exercise of stock options		1,189		2,017
Weighted-average common shares used in per share calculations — diluted		92,876		93,277
Net income per share
Basic	$	0.18	$	0.28
Diluted	$	0.18	$	0.28

For the three months ended March 29, 2009 and March 30, 2008, options to purchase 2,158,198 and 408,975 shares of common stock, respectively, were excluded from the calculation of weighted average shares for diluted net income per share as their impact was anti-dilutive.

7

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) consists of foreign currency translation adjustments and changes in unrealized gains or losses on interest rate swap, net of tax.

Reclassifications

Certain reclassifications of prior year amounts have been made to conform to the current year presentation. In the fourth quarter of fiscal 2008, the Company changed its operating segments and historical segment financial information presented have been revised to reflect these new operating segments (Note 17).

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. Statement 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Statement 157 also applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. For financial assets and liabilities, the provisions of Statement 157 are effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which amends Statement 157 by delaying the effective date of Statement 157 to fiscal years ending after November 15, 2008 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company adopted Statement 157 on December 31, 2007 for financial assets and financial liabilities and on December 29, 2008 for nonfinancial assets and liabilities. It did not have any impact on the Company’s results of operations or financial position (Note 14).

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations. Statement 141(R) will significantly change the accounting for future business combinations after adoption. Statement 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non controlling interest in the acquired business. Statement 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Statement 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company adopted Statement 141(R) on December 29, 2008, as required. It did not have any impact on the Company’s results of operations or financial position.

In March 2008, the FASB issued Statement 161 which amends and expands the disclosure requirements of Statement 133 with the intent to provide users of financial statements with an enhanced understanding of: 1) How and why an entity uses derivative instruments; 2) How derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations and 3) How derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted Statement 161 on December 29, 2008. The adoption of Statement 161 had no financial impact on the financial position or results of operations as it is disclosure-only in nature.

In January 2009, the FASB released Proposed Staff Position SFAS 107-b and Accounting Principles Board (APB) Opinion No. 28-a, Interim Disclosures about Fair Value of Financial Instruments (SFAS 107-b and APB 28-a). This proposal amends Statement 107, Disclosures about Fair Values of Financial Instruments, to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. The proposal also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all interim financial statements. This proposal is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company plans to adopt SFAS 107-b and APB 28-a and provide the additional disclosure requirements for the second quarter of 2009.

3. Acquisition

On April 3, 2007, the Company completed its acquisition of U.K.-based Cosmeceuticals Limited (“Cosmeceuticals”), which distributed Bare Escentuals’ bareMinerals, md formulations and MD Forte brands primarily to spas and salons and QVC U.K. The acquired entity has been renamed Bare Escentuals U.K. Ltd. The Company’s primary reason for the acquisition was to reacquire its distribution rights and to expand its market share. The consideration for the purchase was cash of $23.1 million, comprised of $22.4 million in cash consideration and $0.7 million of transaction costs. The Company’s consolidated financial statements include the operating results of the business acquired from the date of acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material.

8

The total purchase price of $23.1 million was allocated as follows: $12.6 million to goodwill included as corporate assets (not deductible for income tax purposes), $8.9 million to identifiable intangible assets comprised of customer relationships of $8.0 million and $0.9 million for non-compete agreements, $4.4 million to net tangible assets acquired, and $2.8 million to deferred tax liability. The estimated useful economic lives of the identifiable intangible assets acquired are three years. The most significant factor that resulted in the recognition of goodwill in the purchase price allocation was the ability to expand on an accelerated basis into trade areas beyond the acquired distribution rights.

During the three months ended March 30, 2008, the Company sold $1.3 million of the net tangible assets acquired to a third party for proceeds of $1.3 million. There was no gain or loss recorded in this transaction.

4. Comprehensive Income

The components of comprehensive income were as follows (in thousands):

	Three months ended
	March 29, 2009			March 30, 2008
Net income	$	16,689		$	25,783
Foreign currency translation adjustments, net of tax		(584	)		(61	)
Unrealized gain (loss) on interest rate swap, net of tax		539			(1,468	)
Comprehensive income	$	16,644		$	24,254

The components of accumulated other comprehensive loss were as follows (in thousands):

	March 29, 2009			December 28, 2008
Foreign currency translation adjustments, net of tax	$	(3,076	)	$	(2,492	)
Unrealized loss on interest rate swap, net of tax		(1,124	)		(1,663	)
Total accumulated other comprehensive loss	$	(4,200	)	$	(4,155	)

5. Inventories

Inventories consisted of the following (in thousands):

	March 29, 2009		December 28, 2008
Work in process	$	14,784	$	14,058
Finished goods		72,945		78,518
	$	87,729	$	92,576

9

6. Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):

	March 29, 2009			December 28, 2008
Furniture and equipment	$	17,136		$	16,749
Computers and software		23,681			22,347
Leasehold improvements		46,272			45,959
		87,089			85,055
Accumulated depreciation		(20,563	)		(17,285	)
		66,526			67,770
Construction-in-progress		7,598			3,387
Property and equipment, net	$	74,124		$	71,157

7. Intangible Assets, Net

Intangible assets, net, consisted of the following (in thousands):

	March 29, 2009			December 28, 2008
Customer relationships	$	8,000		$	8,000
Trademarks		3,233			3,233
Domestic customer base		939			939
International distributor base		820			820
Non-compete agreements		900			900
		13,892			13,892
Accumulated amortization		(7,691	)		(6,949	)
Intangible assets, net	$	6,201		$	6,943

8. Other Assets

Other assets consisted of the following (in thousands):

	March 29, 2009		December 28, 2008
Debt issuance costs, net of accumulated amortization of $624 and $570 at March 29, 2009 and December 28, 2008, respectively	$	494	$	548
Other assets		2,369		2,557
	$	2,863	$	3,105

9. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	March 29, 2009		December 28, 2008
Employee compensation and benefits	$	6,136	$	6,793
Gift cards and customer liabilities		2,195		2,817
Royalties		1,494		1,646
Sales taxes and local business taxes		1,389		1,983
Interest		340		311
Other		5,343		6,710
	$	16,897	$	20,260

10

10. Revolving Lines of Credit

At March 29, 2009, $24,680,000 was available under our revolving line of credit (the “Revolver”) and $320,000 was outstanding in letters of credit. Borrowings under the Revolver bear interest at a rate equal to, at the Company’s option, either LIBOR or the lenders’ base rate, plus an applicable margin based on a grid in which the pricing depends on the Company’s consolidated total leverage ratio and debt rating (2.25% plus LIBOR or 1.25% plus lenders’ base rate; actual rate of 2.78% at March 29, 2009 and 2.76% at December 28, 2008). The Company is also required to pay commitment fees of 0.5% per annum on any unused portions of the facility.

11. Long-Term Debt

Long-term debt consisted of the following (in thousands):

	March 29, 2009			December 28, 2008
First Lien Term Loan	$	237,580		$	241,024
Less current portion		(17,216	)		(17,216	)
Total long-term debt, net of current portion	$	220,364		$	223,808

First Lien Term Loan

The First Lien Term Loan has an original term of seven years expiring on February 18, 2012 and bears interest at a rate equal to, at the Company’s option, either LIBOR or the lenders’ base rate, plus an applicable margin varying based on the Company’s consolidated total leverage ratio. As of March 29, 2009 and December 28, 2008, the interest rate on the First Lien Term Loan was accruing at 2.78% and 2.76%, respectively (without giving effect to the interest rate swap agreement).

Borrowings under the Revolver (Note 10) and the First Lien Term Loan are secured by substantially all of the Company’s assets, including, but not limited to, all accounts receivable, inventory, property and equipment, and intangibles. The terms of the senior secured credit facilities require the Company to comply with financial covenants, including maintaining a leverage ratio and entering into interest rate swap or similar agreements with respect to 40% of the principal amounts outstanding under the Company’s senior secured credit facilities as of October 2, 2007. The secured credit facility also contains nonfinancial covenants that restrict some of the Company’s activities, including its ability to dispose of assets, incur additional debt, pay dividends, create liens, make investments, and engage in specified transactions with affiliates. As of March 29, 2009, the Company was in compliance with its financial and nonfinancial covenants.

Scheduled Maturities of Long-Term Debt

At March 29, 2009, future scheduled principal payments on long-term debt were as follows (in thousands):

Year ending:
Remainder of the year ending January 3, 2010	$	13,773
January 2, 2011		13,773
January 1, 2012		158,386
December 30, 2012		51,648
	$	237,580

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12. Derivative Financial Instruments

On December 29, 2008, the Company adopted Statement 161. The Company is exposed to interest rate risks primarily through borrowings under its senior secured credit facilities. Interest on all of the Company’s borrowings under its senior secured credit facilities is based upon variable interest rates. As of March 29, 2009, the Company had borrowings of $237.6 million outstanding under its senior secured credit facilities which bear interest at a rate equal to, at the Company’s option, either LIBOR or the lenders’ base rate, plus an applicable margin varying based on the Company’s consolidated total leverage ratio. As of March 29, 2009, the interest rate on the First Lien Term Loan was accruing at 2.78% (without giving effect to the interest rate swap agreement discussed below). At all times after October 2, 2007, the Company is required under its senior secured credit facilities to enter into interest rate swap or similar agreements with respect to at least 40% of the outstanding principal amount of all loans under its senior loan facilities, unless the Company satisfies specified coverage ratio tests. For the three months ended March 29, 2009, the Company satisfied these tests.

In August 2007, the Company entered into a two-year interest rate swap agreement under the Company’s senior secured credit facilities. The interest rate swap was designated as a cash flow hedge of future interest payments of LIBOR and had an initial notional amount of $200 million which declined to $100 million after one year under which, on a net settlement basis, the Company will make monthly fixed rate payments, excluding a margin of 2.25%, at the rate of 5.03% and the counterparty makes monthly floating rate payments based upon one-month U.S. dollar LIBOR. As a result of the interest rate swap transaction, the Company has fixed for a two-year period the interest rate subject to market based interest rate risk on $200 million of borrowings for the first year and $100 million of borrowings for the second year under its First Lien Credit Agreement. The Company’s obligations under the interest rate swap transaction as to the scheduled payments are guaranteed and secured on the same basis as is its obligations under the First Lien Credit Agreement.

The following table summarizes the fair value and presentation within the unaudited condensed consolidated balance sheets for derivatives designated as hedging instruments under Statement 133 (in thousands):

	Liability Derivative
	March 29, 2009			December 28, 2008
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest rate swap	Other liabilities	$	1,873	Other liabilities	$	2,752

The following table presents the impact of derivative instruments and their location within the unaudited condensed consolidated statements of income and accumulated other comprehensive income (AOCI) (in thousands):

Derivatives in Statement 133 Cash Flow Hedging Relationships

	Amount of (Gain) Loss Recognized in AOCI on Derivative (Effective Portion)					Amount of (Gain) Loss Reclassified from AOCI into Income (Effective Portion)				Amount of (Gain) Loss Recognized in Income on Derivatives (Ineffective Portion)
	Three months ended					Three months ended				Three months ended
	March 29, 2009			March 30, 2008		March 29, 2009		March 30, 2008		March 29, 2009		March 30, 2008
Interest rate swap, net of tax	$	(539	)	$	1,468	$	—	$	—	$	—	$	—

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13. Commitments and Contingencies

Lease Commitments

The Company leases retail boutiques, distribution facilities, office space and certain office equipment under non-cancelable operating leases with various expiration dates through January 2021. Additionally, the Company subleases certain real property to third parties. Portions of these payments are denominated in foreign currencies and were translated in the tables below based on their respective U.S. dollar exchange rates at March 29, 2009. These future payments are subject to foreign currency exchange rate risk. The future minimum annual payments and anticipated sublease income under such leases in effect at March 29, 2009, were as follows (in thousands):

	Minimum Rental Payments		Sublease Rental Income		Net Minimum Lease Payments
Year ending:
Remainder of the year ending January 3, 2010	$	12,728	$	16	$	12,712
January 2, 2011		18,312		21		18,291
January 1, 2012		18,208		21		18,187
December 30, 2012		18,319		1		18,318
December 29, 2013		18,659		—		18,659
Thereafter		80,081		—		80,081
	$	166,307	$	59	$	166,248

Many of the Company’s retail boutique leases require additional contingent rents when certain sales volumes are reached. Total rent expense was $6,084,000 and $4,421,000 for the three months ended March 29, 2009 and March 30, 2008, respectively. Total rent expense included contingent rents of $190,000 and $556,000 for the three months ended March 29, 2009 and March 30, 2008, respectively. Several leases entered into by the Company include options that may extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception.

As of March 29, 2009, under the terms of its corporate office lease, the Company had outstanding an irrevocable standby letter of credit of $100,000 to the lessor for the term of the lease.

Royalty Agreements

The Company is party to a license agreement (the “License”) for use of certain patents associated with some of the skin care products sold by the Company. The License requires that the Company pay a quarterly royalty of 4% of the net sales of certain skin care products for an indefinite period of time. The License also requires minimum annual royalty payments of $600,000 from the Company. The Company can terminate the agreement at any time with six months written notice. The Company’s royalty expense under the License for the three months ended March 29, 2009 and March 30, 2008 was $150,000 and $150,000, respectively.

In March 2009, the Company entered into a new agreement for the license rights to proprietary mineral extraction technology and a limited exclusive right to purchase certain ingredients based on such technology. The license is exclusive to the Company for a specified period from the date of the agreement in certain defined fields of use and is otherwise nonexclusive for the term of the agreement. However, the Company has the right to extend the term of the exclusivity in the defined fields of use to the full term of the agreement upon a one-time payment of a specified amount or achievement of a specified level of annual aggregate gross revenues from the sale of licensed products in the defined fields of use. The Company is required to pay three lump-sum commencement payments over the course of the first year of the term of the agreement. In addition, on a quarterly basis during the term of the agreement, the Company is required to pay royalties on its net revenue resulting from the sale of products containing the licensed ingredients. Such royalties are not subject to any minimum annual amounts. The new agreement has an initial term of 10 years. As a result of the new agreement, the Company’s previous agreement was terminated. The Company’s expense under these agreements for the three months ended March 29, 2009 and March 30, 2008 was $43,000 and $310,000, respectively.

Contingencies

The Company is involved in various legal and administrative proceedings and claims arising in the ordinary course of its business. The ultimate resolution of such claims would not, in the opinion of management, have a material effect on the Company’s financial position or results of operation.

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14. Fair Value Measurements

The Company adopted Statement 157 as of December 31, 2007 for financial assets and liabilities and as of December 29, 2008 for nonfinancial assets and liabilities. The Company also adopted Statement 159 in which entities are permitted to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value option for any of its eligible financial assets or liabilities under FAS 159.

SFAS No. 157 established a three-tier hierarchy for fair value measurements, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 – observable inputs such as quoted prices for identical instruments in active markets.

• Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.

• Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.

As of March 29, 2009 and December 28, 2008, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included the Company’s interest rate swap agreement and certain investments associated with the Company’s Long-Term Employee-Related Benefits Plan. The fair value of the Company’s interest rate swap agreement is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized the interest rate swap as Level 2. The fair value of the Company’s investments associated with its Long-Term Employee-Related Benefits Plan is based primarily on third-party reported net asset values, which is primarily based on quoted market prices of the underlying assets of the funds and have been categorized as Level 2.

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 29, 2009 subject to the disclosure requirements of Statement 157 (in thousands):

			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Other assets:
Deferred compensation	$	1,156	$	—	$	1,156	$	—
Other liabilities:
Interest rate swap	$	1,873	$	—	$	1,873	$	—
Deferred compensation		686		—		686		—
Total liabilities	$	2,559	$	—	$	2,559	$	—

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 28, 2008 subject to the disclosure requirements of Statement 157 (in thousands):

			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Other assets:
Deferred compensation	$	1,232	$	—	$	1,232	$	—
Other liabilities:
Interest rate swap	$	2,752	$	—	$	2,752	$	—
Deferred compensation		886		—		886		—
Total liabilities	$	3,638	$	—	$	3,638	$	—

15. Income Taxes

As of March 29, 2009, the total amount of net unrecognized tax benefits was $2,829,000. This amount includes $260,000 of net unrecognized tax benefits that, if recognized, would affect the effective tax rate. The Company accrues interest related to unrecognized tax benefits in its provision for income taxes. As of March 29, 2009, the Company had approximately $329,000 of accrued interest, net of tax, related to uncertain tax positions.

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The Company anticipates that it is reasonably possible that the gross amount of unrecognized tax benefits balance may change by a range of zero to $250,000 in the next twelve months as a result of the settlement of certain tax audits and expiration of applicable statutes of limitation in certain jurisdictions.

The Company files income tax returns in the United States and in various states, local and foreign jurisdictions. The tax years subsequent to 2003 remain open to examination by the major taxing jurisdictions in the United States.

16. Stock-Based Employee Compensation Plans

As of March 29, 2009, the Company had reserved 8,987,927 shares of common stock for future issuance.

2004 Equity Incentive Plan

On June 10, 2004, the board of directors adopted the 2004 Equity Incentive Plan (the “2004 Plan”). The 2004 Plan provides for the issuance of non-qualified stock options for common stock to employees, directors, consultants, and other associates. The options generally vest over a period of five years from the date of grant and have a maximum term of ten years.

In conjunction with the adoption of the 2006 Equity Incentive Plan in September 2006, no additional options are permitted to be granted under the 2004 Plan. In addition, any outstanding options cancelled under the 2004 Plan will become available to grant under the 2006 Equity Incentive Plan.

A summary of activity under the 2004 Plan is set forth below.

			Options Outstanding
	Options Available for Grant		Number of Shares		Weighted- Average Exercise Price
Balance at December 28, 2008	—		3,550,729		$	2.37
Exercised	—		(212,833	)		0.64
Canceled	16,488		(16,488	)		8.87
Rolled over to 2006 Plan	(16,488	)	—			—
Balance at March 29, 2009	—		3,321,408		$	2.44

At March 29, 2009, there were 1,528,894 total outstanding vested options under the 2004 Plan at a weighted-average exercise price of $1.84.

The total intrinsic value of options exercised under the 2004 Plan for the three months ended March 29, 2009 was $492,000.

2006 Equity Incentive Plan

On September 12, 2006, the Company’s stockholders approved the 2006 Equity Incentive Award Plan (the “2006 Plan”) for executives, directors, employees and consultants of the Company. A total of 4,500,000 shares of the Company’s Common Stock have been reserved for issuance under the 2006 Plan. Awards are granted with an exercise price equal to the closing market price of the Company’s Common Stock at the date of grant. Those awards generally vest over a period of four or five years from the date of grant and have a maximum term of ten years.

A summary of activity under the 2006 Plan is set forth below:

			Options Outstanding
	Options Available for Grant		Number of Shares		Weighted- Average Exercise Price
Balance at December 28, 2008	4,131,681		1,518,350		$	12.36
Rolled over from 2004 Plan	16,488		—			—
Granted	(245,500	)	245,500			3.96
Canceled	64,775		(64,775	)		24.08
Balance at March 29, 2009	3,967,444		1,699,075		$	10.70

At March 29, 2009, there were 104,314 total outstanding vested options under the 2006 Plan at a weighted-average exercise price of $27.62.

15

The total cash received from employees as a result of employee stock option exercises under all plans for the three months ended March 29, 2009 was $137,000. In connection with these exercises, the tax benefits realized by the Company for the three months ended March 29, 2009 were $69,000.

17. Segment and Geographic Information

Operating segments are defined as components of an enterprise engaging in business activities for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and assessing performance. The Company’s Chief Executive Officer has been identified as the CODM as defined by Statement 131, Disclosures about Segments of an Enterprise and Related Information.

One of the Company’s key objectives is the further expansion of its business internationally and as a consequence, the operating results that the CODM reviews to make decisions about resource allocations and to assess performance have changed to be more geographically focused. In the fourth quarter of fiscal 2008, the Company re-evaluated its operating segments to bring them in line with these changes and how management currently reviews and evaluates the operating performance of the Company and accordingly, the new segments include: North America Retail, North America Direct to Consumer, and International. The North America Retail segment includes all products marketed in the United States and Canada and consists of sales to end users either directly through company owned boutiques or through third-party resellers in a branded, prestige retail environment. The North America Direct to Consumer segment includes all products marketed in the United States and Canada and consists of sales to end users through television or online media who then receive their product via mail. The International segment includes all operations outside the United States and Canada, regardless of method of delivery to the end user. Prior to fiscal 2008, the Company’s operating segments were Retail and Wholesale. As a result, historical segment financial information presented has been revised to reflect these new operating segments.

These reportable segments are strategic business units that are managed separately based on the fundamental differences in their operations. The following table presents certain financial information for each segment. Operating income is the gross margin of the segment less direct expenses of the segment. Some direct expenses, such as media and advertising spend, do impact the performance of the other segment, but these expenses are recorded in the segment they directly relate to and are not allocated out to each segment. The Corporate column includes unallocated selling, general and administrative expenses, depreciation and amortization and stock-based compensation expenses. Corporate selling, general and administrative expenses include headquarters facilities costs, distribution center costs, product development costs, corporate headcount costs and other corporate costs, including information technology, finance, accounting, legal and human resources costs. These items, while often times related to the operations of a segment, are not considered by segment operating management and the Chief Operating Decision Maker in assessing segment performance.

	North America Retail		North America Direct to Consumer		International		Corporate			Total
Three Months ended March 29, 2009
Sales, net	$	73,209	$	35,170	$	15,874	$	—		$	124,253
Cost of goods sold		17,958		10,294		5,085		—			33,337
Gross profit		55,251		24,876		10,789		—			90,916
Operating expenses:
Selling, general and administrative		22,168		11,387		4,041		16,466			54,062
Depreciation and amortization		1,363		7		939		1,785			4,094
Stock-based compensation		—		—		—		1,471			1,471
Total expenses		23,531		11,394		4,980		19,722			59,627
Operating income (loss)		31,720		13,482		5,809		(19,722	)		31,289
Interest expense											(2,789	)
Other expense, net											(438	)
Income before provision for income taxes											28,062
Provision for income taxes											11,373
Net income										$	16,689

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	North America Retail		North America Direct to Consumer		International		Corporate			Total
Three Months ended March 30, 2008
Sales, net	$	78,042	$	48,248	$	14,068	$	—		$	140,358
Cost of goods sold		20,206		14,005		4,446		—			38,657
Gross profit		57,836		34,243		9,622		—			101,701
Operating expenses:
Selling, general and administrative		15,293		15,661		2,205		17,305			50,464
Depreciation and amortization		643		7		819		1,152			2,621
Stock-based compensation		—		—		—		1,912			1,912
Total expenses		15,936		15,668		3,024		20,369			54,977
Operating income (loss)		41,900		18,575		6,598		(20,369	)		46,704
Interest expense											(4,644	)
Other income, net											707
Income before provision for income taxes											42,767
Provision for income taxes											16,984
Net income										$	25,783

The Company’s long-lived assets, excluding goodwill and intangibles, by segment were as follows (in thousands):

	March 29, 2009		December 28, 2008
North America Retail	$	41,670	$	38,628
North America Direct to Consumer		—		84
International		2,615		2,594
Corporate		30,914		31,036
	$	75,199	$	72,342

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Long-lived assets allocated to the North America Retail segment consist of fixed assets and deposits for retail stores. Long-lived assets in Corporate consist of fixed assets, tooling costs and deposits related to the Company’s corporate offices and distribution centers.

The Company’s long-lived assets, excluding goodwill and intangibles, by geographic area were as follows (in thousands). For the table below, Canada is included in International.

	March 29, 2009		December 28, 2008
United States	$	72,416	$	69,390
International		2,783		2,952
	$	75,199	$	72,342

No individual geographical area outside of the United States accounted for more than 10% of net sales in any of the periods presented. The Company’s sales by geographic area were as follows (in thousands). For the table below, Canada is included in International.

	Three months ended
	March 29, 2009		March 30, 2008
United States	$	108,008	$	126,290
International		16,245		14,068
Sales, net	$	124,253	$	140,358

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

Forward-Looking Statements

This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. In some cases, forward-looking statements can be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Such forward-looking statements are based on current expectations, estimates and projections about our industry, management’s beliefs and assumptions made by management. Forward-looking statements are not guarantees of future performance and our actual results may differ materially from the results discussed below and in the forward-looking statements. Factors that might cause such differences include, but are not limited to those discussed in Part II, Item 1A, “Risk Factors” below and Item 1A of our Annual Report on Form 10-K for the year ended December 28, 2008 filed with the SEC on February 26, 2009. The following discussion should be read in conjunction with the Company’s consolidated financial statements and related notes hereto included elsewhere in this Quarterly Report on Form 10-Q. Except as required by law, we expressly disclaim any obligation to update publicly any forward-looking statements, whether as result of new information, future events or otherwise.

Executive Overview

Founded in 1976, Bare Escentuals is one of the leading prestige cosmetic companies in the United States and an innovator in mineral-based cosmetics. We develop, market and sell branded cosmetics and skin care products primarily under our bareMinerals, RareMinerals, Buxom and md formulations brands worldwide.

We utilize a distinctive marketing strategy and a multi-channel distribution model consisting of premium wholesale customers including Sephora, Ulta and select department stores; company-owned boutiques; spas and salons; home shopping television on QVC; infomercials; online shopping and international distributors. We believe that this strategy provides convenience to our consumers and allows us to reach the broadest possible spectrum of consumers.

In the fourth quarter of fiscal 2008, we re-evaluated how we internally review our business performance and, in turn, changed our operating segments to be more geographically focused. As a result, our business is now comprised of three strategic business units constituting reportable segments that we manage separately based on fundamental differences in their operations:

• Our North America Retail segment includes the United States and Canada and consists of our company-owned boutiques; premium wholesale customers and spas and salons. Our company-owned boutiques enhance our ability to build strong consumer relationships and promote additional product use through personal demonstrations and product consultations. We also sell to retailers that we believe feature our products in settings that support and reinforce our brand image and provide a premium in-store experience. Similarly, our spa and salon customers provide an informative and treatment-focused environment in which aestheticians and spa professionals can communicate the benefits of our core products.

• Our North America Direct to Consumer segment includes infomercials, home shopping television in the United States and Canada and online shopping. We believe that our infomercial business helps us to build brand awareness, communicate the benefits of our core products and establish a base of recurring revenue. Our sales through home shopping television help us to build brand awareness, educate consumers through live product demonstrations and develop close connections with our consumers. In addition, our online shopping business allows us to educate consumers as to the benefits as well as proper usage and application techniques for each product offered.

• Our International segment includes premium wholesale, spas and salons, home shopping television, infomercial, and international distributors outside of North America. We have partnered with a third party to build our infomercial business in Japan and currently have an international home shopping television presence and appear on QVC in Japan, the U.K. and Germany. We have a presence in brick-and-mortar locations overseas, including in certain international Sephora locations as well as spas, salons and department stores in the U.K. We also sell our products in smaller international markets primarily through a network of third-party distributors.

We manage our business segments to maximize overall sales growth and market share. We believe that our multi-channel distribution strategy enhances convenience for our consumers, reinforces brand awareness, increases consumer retention rates, and drives corporate cash flow and profitability. Further, we believe that the broad diversification within our segments provides us with expanded opportunities for growth and reduces our dependence on any single distribution channel. Within individual distribution channels, financial results can be affected by the timing of shipments as well as the impact of key promotional events.

Our performance depends on economic conditions in the United States and globally and their impact on levels of consumer confidence and spending. Driven in part by the recent challenging economic environment, we have seen a trend across our distribution channels of customers favoring lower-ticket, non-kit items in lieu of higher-priced kits. Although this has the impact of reducing our sales growth, the impact to net income is partially mitigated as these non-kit items sell at a higher gross margin.

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In the current economic environment, we continue to closely manage our expenses and allocate resources in order to maximize cash flow and liquidity. This includes a more conservative approach to inventory management in light of reduced target inventory levels on behalf of our retail partners. At the same time, we continue to invest strategically in areas that we believe will create long-term value including our international operations, domestic distribution expansion, education and field teams, and customer acquisition activities. We anticipate that our capital expenditures for fiscal 2009 will be approximately $28.0 million which will support boutique and department store build-outs as well as international infrastructure investments.

During the first quarter of fiscal 2009, net sales decreased $16.1 million, or 11.5%, to $124.3 million from the first quarter of fiscal 2008. As anticipated, the economic environment remained challenged in the first quarter impacting our net sales.

Diluted earnings per share for the first quarter of fiscal 2009 decreased 35.7% to $0.18 compared to $0.28 per diluted share in the first quarter of fiscal 2008. Diluted earnings per share decreased due to a decline in sales combined with selling, general and administrative increases largely resulting from a net increase of 43 boutiques versus the prior year.

Basis of Presentation

The Company’s significant accounting policies are disclosed in Note 2 in the Company’s Form 10-K for the year ended December 28, 2008. The Company’s significant accounting policies have not changed significantly as of March 29, 2009.

Results of Operations

The following is a discussion of our results of operations and percentage of net sales for the three months ended March 29, 2009 compared to the three months ended March 30, 2008.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three months ended
	March 29, 2009					March 30, 2008
	(in thousands, except percentages)
Sales, net	$	124,253		100.0	%	$	140,358		100.0	%
Cost of goods sold		33,337		26.8			38,657		27.5
Gross profit		90,916		73.2			101,701		72.5
Expenses:
Selling, general and administrative		54,062		43.5			50,464		35.9
Depreciation and amortization		4,094		3.3			2,621		1.9
Stock-based compensation		1,471		1.2			1,912		1.4
Operating income		31,289		25.2			46,704		33.3
Interest expense		(2,789	)	(2.2	)		(4,644	)	(3.3	)
Other income (expense), net		(438	)	(0.4	)		707		0.5
Income before provision for income taxes		28,062		22.6			42,767		30.5
Provision for income taxes		11,373		9.2			16,984		12.1
Net income	$	16,689		13.4	%	$	25,783		18.4	%

Net sales by business segment and percentage of net sales for the three months ended March 29, 2009 and March 30, 2008 are as follows:

	Three months ended
	March 29, 2009				March 30, 2008
	(in thousands, except percentages)
North America Retail	$	73,209	58.9	%	$	78,042	55.6	%
North America Direct to Consumer		35,170	28.3			48,248	34.4
International		15,874	12.8			14,068	10.0
Sales, net	$	124,253	100.0	%	$	140,358	100.0	%

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Gross profit and gross margin by business segment for the three months ended March 29, 2009 and March 30, 2008 are as follows:

	Three months ended
	March 29, 2009				March 30, 2008
	(in thousands, except percentages)
North America Retail	$	55,251	75.5	%	$	57,836	74.1	%
North America Direct to Consumer		24,876	70.7			34,243	71.0
International		10,789	68.0			9,622	68.4
Gross profit/gross margin	$	90,916	73.2	%	$	101,701	72.5	%

Operating income (loss) by business segment for the three months ended March 29, 2009 and March 30, 2008 are as follows:

	Three months ended
	March 29, 2009					March 30, 2008
	(in thousands, except percentages)
North America Retail	$	31,720		43.3	%	$	41,900		53.7	%
North America Direct to Consumer		13,482		38.3			18,575		38.5
International		5,809		36.6			6,598		46.9
Total		51,011		41.1	%		67,073		47.8	%
Corporate		(19,722	)				(20,369	)
Operating income	$	31,289		25.2	%	$	46,704		33.3	%

Three months ended March 29, 2009 compared to three months ended March 30, 2008

Sales, net

Net sales for the three months ended March 29, 2009 decreased to $124.3 million from $140.4 million in the three months ended March 30, 2008, a decrease of $16.1 million, or 11.5%. The decrease in our net sales was driven by our North America Retail and North America Direct to Consumer segments.

North America Retail. North America Retail net sales decreased 6.2% to $73.2 million in the three months ended March 29, 2009 from $78.0 million in the three months ended March 30, 2008. Net sales to our premium wholesale and spa and salon customers decreased from March 30, 2008 resulting primarily from our major retail partners reducing their weeks-on-hand ownership. Offsetting this decrease was an increase in net sales from boutiques versus the prior year due primarily to a net increase of 43 boutiques open as of March 29, 2009 compared to March 30, 2008. As of March 29, 2009 and March 30, 2008, we had 96 and 53 open company-owned boutiques, respectively.

North America Direct to Consumer. North America Direct to Consumer net sales decreased 27.1% to $35.2 million in the three months ended March 29, 2009 from $48.2 million in the three months ended March 30, 2008. This decrease primarily resulted from a reduction in infomercial performance versus the prior year and a decline in home shopping television net sales due to less on-air time compared to the prior year.

International. International net sales increased 12.8% to $15.9 million in the three months ended March 29, 2009 from $14.1 million in the three months ended March 30, 2008 as we expanded our business across our international channels. Net sales to our global premium wholesale customers increased due to continued expansion into additional locations as well as increased sales from international distributors. Partially offsetting this increase was a decrease in international home shopping sales.

21

Gross profit

Gross profit decreased $10.8 million, or 10.6%, to $90.9 million in the three months ended March 29, 2009 from $101.7 million in the three months ended March 30, 2008. Our North America Retail segment gross profit decreased 4.5% to $55.3 million in the three months ended March 29, 2009 from $57.8 million in the three months ended March 30, 2008, as a result of lower sales across our premium wholesale and spas and salons channels. Our North America Direct to Consumer segment gross profit decreased 27.4% to $24.9 million in the three months ended March 29, 2009 from $34.2 million in the three months ended March 30, 2008, primarily due to the decline in the performance of our infomercial compared to the prior year and less on-air time at QVC. Our International segment gross profit increased 12.1% to $10.8 million in the three months ended March 29, 2009 from $9.6 million in the three months ended March 30, 2008, due to increases in sales across our global premium wholesale and international distributors channels.

Gross margin increased approximately 70 basis points to 73.2% in the three months ended March 29, 2009 from 72.5% in the three months ended March 30, 2008. This overall increase resulted primarily from a shift in product mix towards higher-margin open stock merchandise as well as a shift towards higher-margin sales channels.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $3.6 million, or 7.1%, to $54.1 million in the three months ended March 29, 2009 from $50.5 million in the three months ended March 30, 2008. The increase was primarily due to increased expenses to support distribution expansion including $4.4 million in increased operating costs relating to boutique expansion and $1.8 million in international infrastructure expense. This was partially offset by decreased expenses of $4.2 million from savings in infomercial operating expenses and lower corporate infrastructure expense due to cost control efforts. As a percentage of net sales, selling, general and administrative expenses increased 760 basis points to 43.5% from 35.9%, primarily due to infrastructure expenses increasing at a greater rate than net sales.

Depreciation and amortization

Depreciation and amortization expenses increased $1.5 million, or 56.2%, to $4.1 million in the three months ended March 29, 2009 from $2.6 million in the three months ended March 30, 2008. This increase was primarily attributable to increases in depreciable assets as we continue to expand the number of company-owned boutiques and invest in our corporate infrastructure.

Stock-based compensation

Stock-based compensation expense decreased $0.4 million, or 23.1%, to $1.5 million in the three months ended March 29, 2009 from $1.9 million in the three months ended March 30, 2008. This decrease resulted primarily from the impact of actual forfeitures.

Operating income

Operating income decreased $15.4 million, or 33.0%, to $31.3 million in the three months ended March 29, 2009 from $46.7 million in the three months ended March 30, 2008, primarily due to decreases in operating income across all segments partially offset by a decrease in operating loss in Corporate due to lower corporate operating expenses.

Our North America Retail segment operating income decreased 24.3% to $31.7 million in the three months ended March 29, 2009 from $41.9 million in the three months ended March 30, 2008. This decrease was primarily driven by lower sales and increased operating expenses of $7.6 million primarily related to the increase in the number of company-owned boutiques.

Our North America Direct to Consumer segment operating income decreased 27.4% to $13.5 million in the three months ended March 29, 2009 from $18.6 million in the three months ended March 30, 2008. This decrease was primarily driven by sales and gross margin declines due to the lower productivity of our infomercial program compared to the prior version partially offset by lower operating costs for this channel.

Our International segment operating income decreased 12.0% to $5.8 million in the three months ended March 29, 2009 from $6.6 million in the three months ended March 30, 2008 due to increased operating costs of $2.0 million which more than offset sales growth and gross margin improvements in this segment.

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Our Corporate operating loss decreased 3.2% to $19.7 million in the three months ended March 29, 2009 from $20.4 million in the three months ended March 30, 2008 primarily due to a decrease in Corporate selling, general and administrative expense of $0.8 million and a decrease in stock-based compensation of $0.4 million, which was offset by an increase in depreciation and amortization of $0.6 million. The decrease in Corporate selling, general and administrative expense resulted from our cost control measures.

Interest expense

Interest expense decreased $1.9 million, or 40.0%, to $2.8 million in the three months ended March 29, 2009 from $4.6 million in the three months ended March 30, 2008. The decrease was attributable to lower average interest rates (excluding the debt under the interest rate swap agreement) versus the prior year combined with decreased debt balances during the three months ended March 29, 2009 as a result of repayment of outstanding indebtedness.

Other income (expense), net

Other income (expense), net decreased to net other expense of $0.4 million in the three months ended March 29, 2009 from net other income of $0.7 million in the three months ended March 30, 2008. The decrease was primary attributable to a negative foreign currency impact resulting from fluctuations in the value of the U.S. dollar as compared to certain foreign currencies as well as lower interest income on our cash and cash equivalent balances resulting from lower interest rates versus the prior year.

Provision for income taxes

The provision for income taxes was $11.4 million, or 40.5% of income before provision for income taxes, in the three months ended March 29, 2009 compared to $17.0 million, or 39.7% of income before provision for income taxes, in the three months ended March 30, 2008. The decrease resulted from lower income before provision for income taxes offset by a higher effective rate in the three months ended March 29, 2009 compared to the three months ended March 30, 2008.

Seasonality

Because our products are largely purchased for individual use and are consumable in nature, we are not generally subject to significant seasonal variances in sales. However, fluctuations in sales and operating income in any fiscal quarter may be affected by the timing of wholesale shipments, home shopping television appearances and other promotional events. While we believe our overall business is not currently subject to significant seasonal fluctuations, we have experienced limited seasonality in our premium wholesale and company-owned boutique channels as a result of increased demand for our products in anticipation of, and during, the holiday season. To the extent our sales to specialty beauty retailers and through our boutiques increase as a percentage of our net sales, we may experience increased seasonality.

Liquidity and Capital Resources

Our primary liquidity and capital resource needs are to service our debt, finance working capital needs and fund ongoing capital expenditures. We have financed our operations through cash flows from operations, sales of common shares and borrowings under our credit facilities.

Our operations provided us cash of $23.1 million in the three months ended March 29, 2009. At March 29, 2009, we had working capital of $158.9 million, including cash and cash equivalents of $61.3 million, compared to working capital of $146.1 million, including $48.0 million in cash and cash equivalents, as of December 28, 2008. The $13.3 million increase in cash and cash equivalents resulted from cash provided by operations of $23.1 million, including net income for the three months ended March 29, 2009 of $16.7 million, partially offset by cash used in investing activities of $6.5 million related to capital expenditures and cash used in financing activities of $3.2 million. The $12.8 million increase in working capital was primarily driven by increases in prepaid income taxes and decreases in accounts payable, accrued liabilities and income taxes payable.

Net cash used in investing activities was $6.5 million in the three months ended March 29, 2009, primarily attributable to the build-out of additional company-owned boutiques and department stores as well as our continued investment in our corporate and information systems infrastructure to support our distribution expansion both in the U.S. and internationally. Our future capital expenditures will depend on the timing and rate of expansion of our business, information technology investments, new store openings, store renovations and international expansion opportunities.

Net cash used in financing activities was $3.2 million in the three months ended March 29, 2009, which consisted of repayments of $3.4 million on our first-lien term loan partially offset by exercise of stock options of $0.1 million.

Our revolving credit facility of $25.0 million, of which approximately $0.3 million was utilized for outstanding letters of credit as of March 29, 2009, and our first-lien term loan of $237.6 million, bear interest at a rate equal to, at our option, either LIBOR or the lender’s base rate, plus an applicable variable margin based on our consolidated total leverage ratio and debt rating. The current

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applicable interest margin for the revolving credit facility and first-lien term loan is 2.25% for LIBOR loans and 1.25% for base rate loans based on our current Moody’s rating. As of March 29, 2009, interest on the first-lien term loan was accruing at 2.78% (without giving effect to the interest rate swap transaction discussed below).

Borrowings under our revolving credit facility and the first-lien term loan are secured by substantially all of our assets, including, but not limited to, all accounts receivable, inventory, property and equipment, and intangibles. The terms of the senior secured credit facilities require us to comply with financial covenants, including maintaining a leverage ratio, entering into interest rate swap or similar agreements with respect to 40% of the principal amounts outstanding under our senior secured credit facilities as of October 2, 2007.

In August 2007, we entered into a two-year interest rate swap transaction under our senior secured credit facilities. The interest rate swap had an initial notional amount of $200 million which declined to $100 million after one year under which, on a net settlement basis, we make monthly fixed rate payments at the rate of 5.03% and the counterparty makes monthly floating rate payments based upon one-month U.S. dollar LIBOR. As a result of the interest rate swap transaction, we have fixed the interest rate for a two-year period subject to market based interest rate risk on $200 million of borrowings for the first year and $100 million for the second year under our First Lien Credit Agreement. Our obligations under the interest rate swap transaction as to the scheduled payments are guaranteed and secured on the same basis as our obligations under the First Lien Credit Agreement. The fair value of the interest rate swap as of March 29, 2009 was $1.9 million, which was recorded in other liabilities in the condensed consolidated balance sheet, with the related $1.9 million unrealized loss recorded and included in equity as a component of accumulated other comprehensive loss, net of a $0.8 million tax benefit.

The terms of our senior secured credit facilities require us to comply with financial covenants, including a maximum leverage ratio covenant. We are required to maintain a maximum leverage ratio (consolidated total debt to Adjusted EBITDA as defined in the agreement) of not greater than 4.5 to 1.0. As of March 29, 2009, our leverage ratio was 0.99 to 1.0. If we fail to comply with any of the financial covenants, the lenders may declare an event of default under the secured credit facility. An event of default resulting from a breach of a financial covenant may result, at the option of lenders holding a majority of the loans, in an acceleration of repayment of the principal and interest outstanding and a termination of the revolving credit facility. The secured credit facility also contains non-financial covenants that restrict some of our activities, including our ability to dispose of assets, incur additional debt, pay dividends, create liens, make investments and engage in specified transactions with affiliates. The secured credit facility also contains customary events of default, including defaults based on events of bankruptcy and insolvency, nonpayment of principal, interest or fees when due, subject to specified grace periods, breach of specified covenants, change in control and material inaccuracy of representations and warranties. We have been in compliance with all financial ratio and other covenants under our credit facilities during all reported periods and we were in compliance with these covenants as March 29, 2009.

Subject to specified exceptions, including for investment of proceeds from asset sales and for permitted equity contributions for capital expenditures, we are required to prepay outstanding loans under our amended senior secured credit facilities with the net proceeds of certain asset dispositions, condemnation settlements and insurance settlements from casualty losses, issuances of certain debt and, if our consolidated leverage ratio is 2.25 to 1.0 or greater, a portion of excess cash flow.

Liquidity sources, requirements and contractual cash requirement and commitments

We believe that cash flow from operations, cash on hand and amounts available under our revolving credit facility will provide adequate funds for our foreseeable working capital needs and planned capital expenditures. As part of our business strategy, we intend to invest in making improvements to our information technology systems. We opened 45 boutiques in 2008 and closed two locations. We plan to open approximately 25 new boutiques in 2009 (two of which were opened as of March 29, 2009), which will require additional capital expenditures. Additionally, we also plan to continue to invest in our corporate infrastructure particularly in support of our international growth. We may also look to acquire or invest in businesses or products complementary to our own. We anticipate that our capital expenditures in the year ending January 3, 2010 will be approximately $28.0 million. Our ability to fund our working capital needs, planned capital expenditures and scheduled debt payments, as well as to comply with all of the financial covenants under our debt agreements, depends on our future operating performance and cash flow, which in turn are subject to prevailing economic conditions, including the limited availability of capital in light of the current financial crisis, and to financial, business and other factors, some of which are beyond our control.

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Contractual commitments

We lease retail stores, warehouses, corporate offices and certain office equipment under noncancelable operating leases with various expiration dates through January 2021. Portions of these payments are denominated in foreign currencies and were translated in the tables below based on their respective U.S. dollar exchange rates at March 29, 2009. These future payments are subject to foreign currency exchange rate risk. As of March 29, 2009, the scheduled maturities of our long-term contractual obligations were as follows:

	Remainder of the year ending January 3, 2010		1 - 3 Years		4 - 5 Years		After 5 Years		Total
	(amounts in millions)
Operating leases, net of sublease income	$	12.7	$	54.8	$	37.3	$	61.4	$	166.2
Principal payments on long-term debt, including the current portion		13.8		223.8		—		—		237.6
Interest payments on long-term debt, including the current portion(1)		6.3		10.6		—		—		16.9
Payments under licensing arrangements		0.3		0.2		—		—		0.5
Purchase obligations(2)		2.6		—		—		—		2.6
Total	$	35.7	$	289.4	$	37.3	$	61.4	$	423.8

(1) For purposes of the table, interest expense is calculated after giving effect to our interest rate swap as follows: (i) during the remaining five month term of the swap agreement, interest expense is based on $100 million of our first-lien term loan and based on the fixed rate of the swap of 5.03% plus a margin of 2.25% and interest expense on the remaining amount of the loan is estimated based on the rate in effect as of March 29, 2009 and (ii) after the remaining five month term of the swap agreement, interest expense on the loan is estimated for all periods based on the rate in effect as of March 29, 2009. A 1% change in interest rates on our variable rate debt, including the effect of the interest rate swap, would result in a change of $5.2 million in our total interest payments, of which $1.4 million would be in the remainder of the year ended January 3, 2010 and $3.8 million would be in years 1-3.

(2) Purchase obligations include agreements to purchase goods that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Agreements that are cancelable without penalty have been excluded.

We are also party to a sublicense agreement for use of certain patents associated with certain of our mineral-based skin care products. The agreement requires that we pay a quarterly royalty of 4.0% of the net sales of these skin care products up to the date of the last to expire licensed patent rights. This sublicense also requires minimum annual royalty payments of approximately $0.6 million for 2007 and thereafter. The minimum annual royalty payments have not been included in the schedule of long-term contractual obligations above as we can terminate the agreement at any time with six months written notice.

Off-balance-sheet arrangements

We do not have any off-balance-sheet financing or unconsolidated special purpose entities.

Effects of inflation

Our monetary assets, consisting primarily of cash and receivables, are not significantly affected by inflation because they are short-term in nature. Our non-monetary assets, consisting primarily of inventory, intangible assets, goodwill and prepaid expenses and other assets, are not currently affected significantly by inflation. We believe that replacement costs of equipment, furniture and leasehold improvements will not materially affect our operations. However, the rate of inflation affects our cost of goods sold and expenses, such as those for employee compensation, which may not be readily recoverable in the price of the products offered by us. In addition, an inflationary environment could materially increase the interest rates on our debt and reduce consumers’ discretionary spending.

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results may vary from estimates in amounts that may be material to the financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. Our critical accounting policies and estimates are discussed in our recently filed Annual Report on Form 10-K for the fiscal year ended December 28, 2008, which was filed with the SEC on February 26, 2009. We believe that there have been no other significant changes during the three months ended March 29, 2009 to the items that we disclosed in our critical accounting policies and estimates with the exception of the adoption of Statement 141-R, Statement 157 and Statement 161 as noted below.

Derivative Financial Instruments

We account for derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Certain Hedging Activities, as amended (“Statement 133”), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Statement 133 also requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet and that they are measured at fair value. On December 29, 2009, we adopted Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB No. 133 (“Statement 161”), which supplements the required disclosures under Statement 133 and its related interpretations.

New Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. Statement 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Statement 157 also applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. For financial assets and liabilities, the provisions of Statement 157 are effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which amends Statement 157 by delaying the effective date of Statement 157 to fiscal years ending after November 15, 2008 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. We adopted Statement 157 on December 31, 2007 for financial assets and financial liabilities and on December 29, 2008 for nonfinancial assets and liabilities. It did not have any impact on our results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations. Statement 141(R) will significantly change the accounting for future business combinations after adoption. Statement 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non controlling interest in the acquired business. Statement 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Statement 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We adopted Statement 141(R) on December 29, 2008, as required. It did not have any impact on our results of operations or financial position.

In March 2008, the FASB issued Statement 161 which amends and expands the disclosure requirements of Statement 133 with the intent to provide users of financial statements with an enhanced understanding of: 1) How and why an entity uses derivative instruments; 2) How derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations and 3) How derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We adopted Statement 161 on December 29, 2008. The adoption of Statement 161 had no financial impact on the financial position or results of operations as it is disclosure-only in nature.

In January 2009, the FASB released Proposed Staff Position SFAS 107-b and Accounting Principles Board (APB) Opinion No. 28-a, Interim Disclosures about Fair Value of Financial Instruments (SFAS 107-b and APB 28-a). This proposal amends Statement 107, Disclosures about Fair Values of Financial Instruments, to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. The proposal also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all interim financial statements. This proposal is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. We plan to adopt SFAS 107-b and APB 28-a and provide the additional disclosure requirements for the second quarter of 2009.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate sensitivity

We are exposed to interest rate risks primarily through borrowings under our credit facilities. We have reduced our exposure to interest rate fluctuations by entering into an interest rate swap agreement covering a portion of our variable rate debt. In August 2007, we entered into a two-year interest rate swap transaction under our senior secured credit facilities. The interest rate swap had an initial notional amount of $200 million declining to $100 million after one year under which, on a net settlement basis, we make monthly fixed rate payments at the rate of 5.03% and the counterparty makes monthly floating rate payments based upon one-month U.S. dollar LIBOR. Our weighted average borrowings outstanding during the three months ended March 29, 2009 were $245.8 million and the annual effective interest rate for the period was 4.48%, after giving effect to the interest swap agreement. A hypothetical 1% increase or decrease in interest rates would have resulted in a $0.6 million change to our interest expense in the three months ended March 29, 2009 and $2.4 million on an annualized basis.

Foreign currency risk

Most of our sales, expenses, assets, liabilities and cash holdings are currently denominated in U.S. dollars but a portion of the net revenues we receive from sales is denominated in currencies other than the U.S. dollar. Additionally, portions of our costs of goods sold and other operating expenses are incurred by our foreign operations and denominated in local currencies. While fluctuations in the value of these net revenues, costs and expenses as measured in U.S. dollars have not materially affected our results of operations historically, we cannot assure that adverse currency exchange rate fluctuations will not have a material impact in the future. In addition, our balance sheet reflects non-U.S. dollar denominated assets and liabilities which can be adversely affected by fluctuations in currency exchange rates. We do not currently hedge against foreign currency risks.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management is responsible for establishing and maintaining adequate internal control over financial reporting. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer determined that disclosure controls and procedures were effective at a reasonable assurance level.

There has been no change in internal controls over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal controls over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of our business, we are subject to periodic lawsuits, investigations and claims. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party is likely to have a material adverse effect on our business, results of operations, cash flows or financial condition.

ITEM 1A. RISK FACTORS

An investment in our common stock involves a high degree of risk. Our Annual Report on Form 10-K for the year ended December 28, 2008 includes a detailed discussion of our risk factors under the heading “Part I, Item 1A—Risk Factors.” Set forth below are changes from the risk factors previously disclosed in our Annual Report on Form 10-K. You should carefully consider the risk factors discussed in this report and our Annual Report on Form 10-K as well as the other information in this report, before making an investment decision. If any of the following risks or the risks discussed in the Annual Report on Form 10-K occur, our business, financial condition, results of operations or future growth could suffer.

Our senior management team has limited experience working together as a group, and may not be able to manage our business effectively.

Many members of our senior management team, including our President of Retail and Vice President Controller have been hired since June 2008. As a result, our senior management team has limited experience working together as a group. This lack of shared experience could harm our senior management team’s ability to quickly and efficiently respond to problems and effectively manage our business. Our success also depends on our ability to continue to attract, manage and retain other qualified senior management members as we grow.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibits

The following documents are incorporated by reference or filed as Exhibits to this report:

Exhibit Number	Description
3.2(1)	Amended and Restated Certificate of Incorporation.
3.4(1)	Amended and Restated Bylaws.
10.1†	License and Supply Agreement between Bare Escentuals Beauty, Inc., a wholly owned subsidiary of the Registrant, and BioKool LLC dated March 9, 2009
31.1	Certification of the Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and the Chief Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference from our Quarterly Report on Form 10-Q for the period ended October 1, 2006 filed on November 15, 2006.

† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been filed separately with the SEC.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BARE ESCENTUALS, INC.
Date: May 8, 2009	By:	/s/ LESLIE A. BLODGETT
		Leslie A. Blodgett
		Chief Executive Officer and Director
	By:	/s/ MYLES B. MCCORMICK
		Myles B. McCormick
		Executive Vice President, Chief Financial Officer and Chief Operating Officer

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EX-10.1

Exhibit 10.1

*** CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT (INDICATED BY ASTERISKS) HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 24b-2.

LICENSE AND SUPPLY AGREEMENT

This License and Supply Agreement (“Agreement”) is made on March 9, 2009 (“Effective Date”) by and between BIOKOOL LLC, an Arizona limited liability company (“BioKool”), and BARE ESCENTUALS BEAUTY, INC., a California corporation (“Bare Escentuals”).

RECITALS

WHEREAS, BioKool and Bare Escentuals are currently parties to a License and Supply Agreement, dated September 12, 2005, as amended (“Original Agreement”), pursuant to which BioKool has granted to Bare Escentuals both an exclusive license to BioKools’ proprietary mineral technology and an exclusive right to purchase certain ingredients based on such technology;

WHEREAS, the parties desire to replace the Original Agreement with this Agreement, pursuant to which BioKool will grant to Bare Escentuals both a limited exclusive license to BioKools’ proprietary mineral teachnology and a limited exclusive right to purchase certain ingredients based on such technology; and

WHEREAS, BioKool will manufacture for, and supply to, Bare Escentuals the BioKool proprietary ingredients;

In consideration of the covenants and obligations hereinafter set forth, and the mutual benefits to be derived hereunder, the parties agree as follows:

1. DEFINITIONS. Capitalized terms used in this Agreement have the meaning given in this Section 1 or in the section where such term is first defined.

1.1 “BioKool Mineral Technology” means the BioKool proprietary mineral technology, as further described in Exhibit A, the Licensed Patents, and all Improvements.

1.2 “Field of Use” means the field of ***.

1.3 “Gross Revenue” means the total amount of payments actually received by Bare Escentuals from third party customers as a result of the sale of Royalty-Bearing Licensed Products to such third parties.

*** PORTIONS OF THIS PAGE HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Page 1 of 15

1.4 “Improvement” means any improvement, modification, upgrade, variation, or enhancement of any BioKool Mineral Technology.

1.5 “Licensed Ingredients” means any substance coming within the scope of any claim of the Licensed Patents and/or any substance that is proprietary to BioKool and manufactured pursuant to the BioKool Mineral Technology.

1.6 “Licensed Method” means any method or process that, if used or performed by Bare Escentuals without the license granted in Section 2.1, would infringe one or more claims of a Licensed Patent.

1.7 “Licensed Patents” means (a) those United States patents and patent applications owned by BioKool or in which BioKool has a licensable interest, including the patent application described in Exhibit A; (b) any and all patents issuing or claiming priority from any of such patents, including continuations, continuations-in-part, divisionals, reexaminations, and reissues thereof; and (c) foreign counterparts of the patents described in clauses (a) and (b).

1.8 “Licensed Products” means a product that is made into finished goods for commercial sale to consumers and that if made, used, imported, or sold by Bare Escentuals without the license granted in Section 2.1 would infringe one or more claims of a Licensed Patent.

1.9 “Net Revenue” means Gross Revenue less any (a) testers, co-op advertising, rebates or trade, cash or quantity discounts offered by Bare Escentuals; (b) taxes on sales (such as sales or use taxes) to the extent added to the sales price; (c) value added taxes when included as part of the sales price and not refunded to the third-party customer; (d) freight, insurance, and other transportation charges; and (e) amounts repaid or credited by reason of rejection, defects, or returns or because of retroactive price reductions.

1.10 “Royalty Bearing Licensed Product” means a Licensed Product that contains the Licensed Ingredients.

1.11 “Specifications” means the quality and chemical specifications for the Licensed Ingredients, as set out in Exhibit A.

2. GRANT OF LICENSE

2.1 Licensed Patents. Subject to the terms and conditions of this Agreement, BioKool grants to Bare Escentuals a worldwide, nonexclusive (except as set forth in Section 2.2), right and license, under all intellectual property rights in the BioKool Mineral Technology to (a) use, develop, make, have made, sell, offer to sell, and import Licensed Ingredients and Licensed Products, (b) use and perform any Licensed Method, and (c) use, reproduce, perform, and practice the BioKool Mineral Technology.

Page 2 of 15

2.2 Exclusivity. For a period of *** years from the Effective Date (“Exclusivity Period”), (a) the license granted in Section 2.1 shall be exclusive (even as to BioKool) in the Field of Use and (b) BioKool shall not sell the Licensed Ingredients to any third party for use or distribution in the Field of Use.

(a) Extension of Exclusivity. The Exclusivity Period shall automatically be extended for the duration of the then-remaining term of this Agreement upon the first to occur of the following: (i) the date on which annual aggregate gross revenues earned by Bare Escentuals as a result of the sale of Licensed Products in the Field of Use are greater than or equal to *** or (ii) the date on which Bare Escentuals elects to extend the Exclusivity Period by paying to BioKool a one-time payment of ***.

2.3 Duration of License. The license granted in Sections 2.1(a) and 2.1(b) shall remain in effect until all Licensed Patents have expired, been abandoned, or been ruled invalid or unenforceable in a final non-appealable decision by a court of competent jurisdiction.

2.4 Price of Licensed Products. This Agreement does not set or otherwise regulate or control the sales price of the Licensed Products, and Bare Escentuals shall establish such prices in its sole discretion.

2.5 Delivery. Within fifteen (15) days after the Effective Date, and thereafter promptly after any request from Bare Escentuals, BioKool shall deliver to Bare Escentuals all documentation for, and other tangible embodiments of, the BioKool Mineral Technology. In addition, BioKool shall provide to Bare Escentuals reasonable training to enable Bare Escentuals to use the BioKool Mineral Technology in accordance with this Agreement.

2.6 Ownership. Except for the rights granted in this Agreement, BioKool reserves and owns all right, title, and interest in and to the BioKool Mineral Technology.

3. SALE OF LICENSED INGREDIENTS

3.1 Purchase Orders. Bare Escentuals or its authorized manufacturing contractor may issue to BioKool, by mail, email, or facsimile transmission, written orders for Licensed Ingredients (each, a “Purchase Order”) from time to time. Each Purchase Order will specify (a) the type and quantity of Licensed Ingredient ordered; (b) the unit price of each Licensed Ingredient purchased as per pricing schedule on Exhibit A, and the total purchase price; (c) the required delivery dates; (d) the billing and ship-to addresses for the order; and (e) any special instructions requested by Bare Escentuals. BioKool shall accept each Purchase Order submitted in accordance with this Agreement if the requested delivery date for each such Purchase Order is submitted within the Lead Time. Unless otherwise agreed by the parties in writing, the “Lead Time” for the Licensed Ingredients is and shall be thirty (30) days. BioKool shall notify Bare Escentuals of the acceptance or rejection (including the reasons for rejection) of each Purchase Order within two (2) business days after receipt of the Purchase Order. If within such time period BioKool does not provide notice of acceptance or rejection to Bare Escentuals, then the Purchase Order shall be deemed accepted.

*** PORTIONS OF THIS PAGE HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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3.2 Modification of Purchase Orders. Bare Escentuals shall have the right at any time, in its sole discretion and without penalty or liability, to modify or cancel any Purchase Order, including by increasing or decreasing the volume of Licensed Ingredients or changing the shipping date or ship-to address, by providing written notice to BioKool at least thirty (30) days prior to BioKool’s scheduled shipment date for the applicable Licensed Ingredients, as such date has been notified to Bare Escentuals by BioKool (“Scheduled Shipment Date”). If BioKool has not notified Bare Escentuals of the Scheduled Shipment Date for a given Purchase Order within two (2) days after BioKool’s receipt of such Purchase Order, Bare Escentuals shall have the right to modify or cancel such Purchase Order at any time upon notice to BioKool.

3.3 Delivery. BioKool will deliver Licensed Ingredients on the dates and in the quantities specified in each accepted Purchase Order. In the event of any delays to the scheduled delivery date, and without limiting Bare Escentuals’ other rights and remedies hereunder, BioKool will notify Bare Escentuals of such delay and work diligently to remedy such delay immediately. In the event of any delay in delivery of more than *** weeks, in addition to any other rights or remedies otherwise available, Bare Escentuals shall have the right to take any of the following actions: (a) cancel or reschedule the affected order in Bare Escentuals’ sole discretion without further liability under this Agreement; or (b) enforce the Purchase Order subject to revised pricing terms that are discounted by *** per each day that BioKool fails to make delivery, up to a maximum of *** of the total price for the items not shipped on-time. All shipments will be made DDP (Incoterms 2000) the shipping point designated by Bare Escentuals in the applicable purchase order, and title and risk of loss to the Licensed Ingredients shall pass to Bare Escentuals upon delivery to such shipping point. For the avoidance of doubt, no royalty shall be payable by Bare Escentuals as a result of the sale of Licensed Ingredients to Bare Escentuals by BioKool.

3.4 Acceptance. All Licensed Ingredients purchased and shipped hereunder are subject to acceptance by Bare Escentuals at the ship-to address designated in the Purchase Order. Bare Escentuals shall have thirty (30) days after delivery of any Licensed Ingredients to inspect and accept or reject such Licensed Ingredients (the “Acceptance Period”). Any Licensed Ingredients that are not rejected during the Acceptance Period are deemed accepted by Bare Escentuals. Acceptance of any Licensed Ingredients shall not preclude any subsequent claim with respect to such Licensed Ingredient under Section 7. If during the Acceptance Period, Bare Escentuals identifies any Licensed Ingredient that does not conform to the Specifications (“Nonconforming Product”), Bare Escentuals shall have the right, at its sole option, to (a) reject such Nonconforming Product, (b) require replacement of the Nonconforming Product, (c) accept the Nonconforming Product with an adjustment in price, or (d) return such Nonconforming Product for credit or refund. Any rejected Licensed Ingredients must be replaced by BioKool, at its expense, within seven (7) business days after the request of Bare Escentuals. Upon delivery of replacement Licensed Ingredients, Bare Escentuals shall accept or reject such replacement in accordance with this Section 3.4.

*** PORTIONS OF THIS PAGE HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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4. FEES AND CONSIDERATION

4.1 Commencement Payments: Subject to the terms and conditions of this Agreement, Licensee shall pay BioKool *** within two (2) days of the Effective Date, *** within one hundred eighty (180) days of the Effective Date and *** within three hundred sixty-five (365) days of the Effective Date.

4.2 Royalty. As long as the license granted to Bare Escentuals in Section 2.1 is in effect, Bare Escentuals shall pay to BioKool a royalty on the annual aggregate, cumulative Net Revenue received by Bare Escentuals from the sale of Royalty-Bearing Licensed Products, at the royalty rates set out in Exhibit B. Payment of the royalties owed by Bare Escentuals will be due along with the report required in Section 4.2. Bare Escentuals shall be entitled to offset the amount of any royalty due hereunder with any amount that is payable by BioKool to Bare Escentuals under Section 6.3.

4.3 Bare Escentuals Reports. Within thirty (30) days after the last day of each calendar quarter during the term of the license granted in Section 2.1, Bare Escentuals will provide BioKool with a written report setting forth a calculation of the royalties accrued from the sale of Royalty-Bearing Licensed Products during such quarter. Each royalty report shall be deemed the Confidential Information of Bare Escentuals.

4.4 Taxes. BioKool will be responsible for and will indemnify and hold Bare Escentuals harmless from payment of any taxes, fees, duties, and other governmental charges, and any related penalties and interest, in each case arising from the payment of any amounts owed to BioKool under this Agreement.

4.5 Audit by BioKool. For a period of two (2) years from the date of sale of given Royalty-Bearing Licensed Products (“Audit Period”), Bare Escentuals shall keep accurate records as necessary to determine the royalty payable to BioKool under this Section 4 for such products (“Records”). During the Audit Period, upon at least thirty (30) days prior written notice, Bare Escentuals shall permit BioKool, or its designated representative who is bound by confidentiality obligations no less protective of Bare Escentuals than those set forth in this Agreement, to inspect and review the Records, at BioKool’s expense, during Bare Escentuals’ normal business hours. All such inspection and review shall occur at Bare Escentuals’ offices and shall not unreasonably interfere with Bare Escentuals’ regular business operations. BioKool shall only have the right to inspect and review Records dating back two (2) years from the end of the year for which review is requested. If such inspection reveals that Bare Escentuals’ payments were less than the amount which should have been paid, then Bare Escentuals shall pay to BioKool any sums shown to be due. If the underpayment was in excess of ten percent (10%) of the total sums accrued and due during the period for which such inspection and audit was made, Bare Escentuals shall also pay to BioKool the reasonable costs of such audit and inspection upon receipt of an appropriate invoice justifying the costs.

*** PORTIONS OF THIS PAGE HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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5. CONFIDENTIALITY

5.1 Definition of Confidential Information. For purposes of this Agreement, “Confidential Information” means, subject to Section 5.2, all non-public or proprietary information disclosed by one party (the “Disclosing Party”) to the other party (the “Receiving Party”) in the course of activity pursuant to this Agreement, including such information disclosed in contemplation of this Agreement prior to the Effective Date, whether disclosed in oral, written, graphic, machine recognizable model or sample form, or any derivation thereof, except as otherwise provided in Section 5.4. Confidential Information may include data, know-how, algorithms, computer programs, data bases, processes, improvements, designs, devices, systems, test results, sketches, photographs, plans, drawings, product concepts, specifications, reports, laboratory notebooks, business and financial plans, strategies, budgets, vendor, customer and distributor names, pricing information, production or manufacturing information, product sales information or forecasts, inventions and ideas.

5.2 Identification of Confidential Information. All information as described in Section 5.1 will be deemed “Confidential Information” only if: (a) in the case of a written disclosure, there is affixed to the document an appropriate legend, such as “Proprietary” or “Confidential” or (b) in the case of an oral or visual disclosure, the Disclosing Party makes a contemporaneous oral statement or delivers to the Receiving Party a written statement within thirty (30) days to the effect that such disclosure is confidential or the like.

5.3 Protection of Confidential Information. The Receiving Party will only use the Confidential Information of the Disclosing Party as necessary to perform obligations pursuant to this Agreement and for no other purpose, and will disclose such Confidential Information only to the employees and agents of the Receiving Party (a) who have a need to know such Confidential Information for purposes of this Agreement and (b) who are under a duty of confidentiality no less restrictive than the Receiving Party’s duty hereunder. The Receiving Party will protect the Confidential Information from unauthorized use, access, or disclosure in the same manner as the Receiving Party protects its own confidential or proprietary information of a similar nature and with no less than reasonable care. The Receiving Party shall inform each such employee and consultant of its confidentiality obligations under this Agreement, and will be liable for any breach of confidentiality by any such employee or consultant.

5.4 Exceptions. The Receiving Party’s obligations under Section 5.3 with respect to any Confidential Information will terminate if such information: (a) was already known to the Receiving Party at the time of disclosure by the Disclosing Party, without any duty of confidentiality to the Disclosing Party; (b) is disclosed to the Receiving Party by a third party who had the right to make such disclosure without any confidentiality restrictions; (c) is, or through no fault of the Receiving Party has become, generally available to the public; or (d) is independently developed by the Receiving Party without access to, or use of, the Confidential Information. In addition, the Receiving Party will be allowed to use or disclose the Confidential Information to the extent that such use or disclosure is (w) approved in writing by the Disclosing Party, (x) necessary for the Receiving Party to enforce its rights under this Agreement; (y) required by law or by the order of a court or similar judicial or administrative body, provided that the Receiving Party notifies the Disclosing Party of such required disclosure promptly and in writing and cooperates with the Disclosing Party, at the Disclosing Party’s reasonable request

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and expense, in any lawful action to contest or limit the scope of such required disclosure; or (z) necessary to exercise any licenses granted to the Receiving Party under this Agreement.

5.5 Return of Confidential Information. The Receiving Party will return to the Disclosing Party or destroy all Confidential Information of the Disclosing Party in the Receiving Party’s possession or control and permanently erase all electronic copies of such Confidential Information promptly upon the written request of the Disclosing Party or the expiration or termination of this Agreement, whichever comes first, unless the Receiving Party has a continuing right to use such Confidential Information.

6. TERM AND TERMINATION

6.1 Term. Subject to the earlier termination rights of the parties set forth herein, the term of this Agreement will commence on the Effective Date and continue until the ten (10) year anniversary of the Effective Date (“Initial Term”), and upon the mutual agreement of the parties, shall thereafter renew for periods of one (1) year each (each, a “Renewal Term”). With respect to any Renewal Term, either Party shall have the right to terminate this Agreement upon no less than one hundred twenty (120) days’ prior written notice, which may be given at any time during the Term but shall not be effective until the last day of the then-current Renewal Term, as applicable.]

6.2 Termination. If either party commits any default or breach with respect to any of the provisions of this Agreement, the non-breaching party shall notify the breaching party in writing and if the non-breaching party fails to cure such default within sixty (60) days after receipt of written notice of same, the non-breaching party may terminate this Agreement immediately upon providing written notice to the other party. In addition, Bare Escentuals shall have the right to terminate this Agreement immediately upon written notice to BioKool if BioKool breaches any representation or warranty in Section 7.

6.3 Effect of Termination. Upon termination of this Agreement, (a) all rights and licenses granted herein shall terminate except that Bare Escentuals shall have the right to sell, offer to sell, and distribute any Licensed Products held in inventory as of the effective date of termination and (b) promptly after Bare Escentuals’ request, BioKool shall repurchase Bare Escentuals’ inventory of Licensed Ingredients. BioKool shall purchase the Licensed Ingredients at Bare Escentuals’ cost for such materials.

6.4 Survival. The following provision will survive expiration or termination of this Agreement, together with any other provisions necessary for their construction and enforcement: Sections 4, 5, 8, 9, and 10 shall survive any termination or expiration of this Agreement.

7. REPRESENTATIONS AND WARRANTIES

7.1 Performance Warranty. BioKool represents and warrants that all Licensed Ingredients delivered hereunder shall conform to the Specifications. BioKool shall, at its own expense and risk, replace each Licensed Ingredient that does not conform to the foregoing warranty within seven (7) days after receipt of such nonconforming Licensed Ingredient. BioKool shall pay the costs of all shipping and insurance of the nonconforming items and

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replacement items (including, upon repair or replacement, return of the same or replacement item to the original location) and assume the risk of loss during shipping.

7.2 Title Warranty. BioKool represents and warrants that it has all necessary right, title and authority to enter this Agreement and to grant the licenses granted under this Agreement and to supply all Licensed Ingredients.

8. INDEMNIFICATION

8.1 Indemnification by BioKool. BioKool will indemnify and hold Bare Escentuals and its directors, officers, employees, agents, and customers (“Bare Escentuals Indemnitees”) harmless from and against any and all claims, losses, liabilities, damages, costs, and expenses (including attorneys’ fees, expert witness fees, and court costs) directly or indirectly arising from a claim, suit, action, or proceeding (each, a “Claim”) brought against any of the Bare Escentuals Indemnitees by a third party and that is based on an allegation that any Licensed Ingredient or any BioKool Mineral Technology, or the use of any of the foregoing, infringes or misappropriates any copyright, trademark, trade secret, patent or other intellectual property right of a third party. At Bare Escentuals’ request, BioKool will defend each Claim, at its sole cost and expense. Bare Escentuals (a) will use reasonable efforts to notify BioKool promptly of any claim for which Bare Escentuals believes it is entitled to indemnification under this Section 8.1, (b) give BioKool sole control of the defense and all related settlement negotiations (subject to written approval of Bare Escentuals, not to be unreasonably withheld, for any settlements that do not unconditionally release Bare Escentuals or that materially affect the terms of this Agreement). Bare Escentuals will have the right to participate in the defense of any Claim subject to indemnification hereunder, with Bare Escentuals’ own counsel and at its own expense.

8.2 Indemnification by Bare Escentuals. Except for any Claim for which BioKool is obligated to indemnify Bare Escentuals under Section 8.1, Bare Escentuals shall indemnify, defend and hold BioKool harmless from and against any and all claims, losses, liabilities, damages, costs, and expenses (including attorneys’ fees, expert witness fees, and court costs) directly or indirectly arising from any Claim brought against BioKool by a third party and that is based upon (a) an allegation that the Licensed Products infringe upon any patent, trademark, copyright or other intellectual property right, or misappropriate any trade secret, of any third party or (b) misrepresentations regarding the efficacy of the Licensed Products; provided that BioKool (i) promptly notifies Bare Escentuals in writing of a Claim for which it is entitled to indemnification hereunder; (ii) gives Bare Escentuals sole control of the defense and all related settlement negotiations; and (iii) provides Bare Escentuals, at its expense, with the assistance, information and authority reasonably necessary to perform its obligations pursuant to this Section 8.2. BioKool also may participate in the defense of a claim at its option and its own expense.

9. LIMITATION ON LIABILITY

9.1 Exclusion of Certain Damages. EXCEPT FOR ANY BREACH OF EITHER SECTION 2 OR SECTION 5 AND EXCEPT FOR ANY OBLIGATIONS ARISING UNDER SECTION 8, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY, AND REGARDLESS OF

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WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

9.2 Limitation on Damages. EXCEPT FOR ANY BREACH OF EITHER SECTION 2 OR SECTION 5 AND EXCEPT FOR ANY OBLIGATIONS ARISING UNDER SECTION 8, EACH PARTY’S TOTAL CUMULATIVE LIABILITY ARISING FROM OR RELATED TO THIS AGREEMENT, WHETHER IN CONTRACT OR TORT OR OTHERWISE, SHALL NOT EXCEED THE TOTAL AMOUNTS ACTUALLY PAID TO BIOKOOL BY BARE ESCENTUALS PURSUANT TO THIS AGREEMENT.

10. MISCELLANEOUS

10.1 Termination of Original Agreement. BioKool and Bare Escentuals hereby acknowledge and agree that as of the Effective Date, the Original Agreement is terminated and is of no further force and effect (except for the obligations of the parties under Section 12 of the Original Agreement). In the event of any conflict, ambiguity, or inconsistency between the terms of the Original Agreement and the terms of this Agreement that apply to any rights, obligations, matters, events, acts, or omissions pursuant to the Original Agreement, the terms of this Agreement shall prevail. The Original Agreement is being terminated by mutual agreement of the parties, and therefore neither party will have any liability as a result of such termination.

10.2 Patent Enforcement. During the Exclusivity Period, BioKool will promptly notify Bare Escentuals if BioKool becomes aware of any known or suspected infringement of any Licensed Patent within the Field of Use. Such notice will include the identity of the party or parties known or suspected to have infringed the Licensed Patent and any available information that is relevant to such infringement. During the Exclusivity Period, Bare Escentuals will have sole control over enforcement and defense of the Licensed Patents against third-party infringers within the Field of Use. If Bare Escentuals asserts or files any claim (including counterclaims), suit, or action against any such third-party infringer, BioKool will cooperate with Bare Escentuals, at Bare Escentuals’ request, in enforcing or defending such claim, including joining Bare Escentuals as a party to such suit or action. Bare Escentuals will be responsible for all reasonable out-of-pocket costs, expenses, and legal fees incurred by BioKool in connection with any claim. Bare Escentuals will be entitled to all damages awarded as a result of or agreed to in a monetary settlement of any claim. Nothing in this section will obligate Bare Escentuals to enforce or defend any Licensed Patent.

10.3 Construction. The headings of sections of this Agreement are for convenience and are not to be used in interpreting this Agreement. As used in this Agreement, “including” means “including but not limited to” and “discretion” means “sole discretion,” and the word “will” and “shall” are used interchangeably and both mean that the specified action or forbearance is mandatory.

10.4 Assignment. Neither party may, in whole or in part, by operation of law or otherwise, assign or transfer this Agreement or delegate any of its obligations under this Agreement without the other party’s written consent. Any attempted assignment, transfer, or delegation without such prior written consent will be null and void and of no effect. This Agreement will be binding upon and inure to the benefit of the parties and their permitted successors and assigns.

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10.5 Independent Contractor. The parties are independent contractors under this Agreement and no other relationship is intended, including any relationship of partnership, franchise, joint venture, agency, employer/employee, fiduciary, master/servant relationship, or other special relationship. Neither party shall act in a manner that expresses or implies a relationship other than that of independent contractor.

10.6 Notices. Any notice required or permitted to be given by either party under this Agreement shall be in writing to the addresses set out below (as such address may be updated by the applicable party in accordance with the provisions of this notice provision) and shall be personally delivered or sent by a reputable overnight mail service (e.g., Federal Express), or by first class mail (certified or registered), or by facsimile confirmed by first class mail (registered or certified). Notices will be deemed effective (a) seven (7) days after deposit, postage prepaid, if mailed, (b) two (2) days after deposited with an express courier if sent by overnight mail, or (c) the same day if sent by facsimile and receipt is confirmed.

If to BioKool:

BioKool LLC

4050 S. Sarival Rd.

Goodyear, Arizona 85338

Attn: Gary Stepenoff – COO

Fax: (623)-932-3533

If to Bare Escentuals:

Bare Escentuals, Inc.

71 Stevenson Street

San Francisco, CA 94105

Attn: General Counsel

Fax: (415) 520-9795

10.7 Waiver and Modification. Failure by either party to enforce any provision of this Agreement will not be deemed a waiver of future enforcement of that or any other provision. Any waiver, amendment or other modification of any provision of this Agreement will be effective only if in writing and signed by the parties.

10.8 Severability. If for any reason a court of competent jurisdiction finds any provision of this Agreement to be unenforceable, that provision of the Agreement will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect.

10.9 Force Majeure. Neither party shall be liable to the other for delays or failures in performance resulting from causes beyond the reasonable control of that party (and not due to the negligence, intentional conduct, or misconduct of such party), including acts of God, labor disputes or disturbances, material shortages or rationing, riots, acts of war or terrorism, governmental regulations, communication or utility failures, or casualties. In the event BioKool fails to deliver Licensed Ingredients due to such causes for a period of ninety (90) days or more, Bare Escentuals may either: (a) terminate this Agreement or any part hereof as to any Licensed Ingredients not shipped or (b) suspend this Agreement in whole or in part for the duration of the delaying cause. BioKool shall resume performance under this Agreement immediately after the

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delaying cause ceases and, at Bare Escentuals’ option, extend the then current term for a period equivalent to the length of time the excused delay endured.

10.10 Controlling Law and Jurisdiction. This Agreement will be subject to and governed by the laws of the State of California, United States of America without regard to any conflicts of laws principles that would require the application of the laws of a different state. The parties hereby consent to the personal jurisdiction of and exclusive venue in the federal and state courts located in San Francisco, California. The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement.

10.11 Order of Precedence. The transaction between the parties under this Agreement shall be subject only to the terms and conditions of this Agreement. Any preprinted terms and conditions of either party in any purchase order, invoice, or order acknowledgement released pursuant to this Agreement shall not be operative or applicable to the transactions under this Agreement.

10.12 Counterparts. This Agreement may be executed in two counterparts, each of which is deemed an original and all of which together are considered one and the same agreement. A facsimile copy of this Agreement sent by any party to any other party also is deemed an original, and has the same effect as if the original hereof were actually received by the party receiving such facsimile copy.

10.13 Entire Agreement. This Agreement, including all exhibits which are incorporated herein by reference and each Purchase Order issued hereunder, constitute the entire agreement between the parties with respect to the subject matter hereof, and supersede and replace all prior and contemporaneous understandings or agreements, written or oral, regarding such subject matter. No modification hereof shall be valid unless in writing and duly signed by a party authorized by each party hereto.

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In witness whereof, the parties have hereby executed this Agreement as of the Effective Date.

DATED: March 9, 2009	BIOKOOL LLC
	By:	/s/ Roger Blotsky
	Name:	Roger Blotsky
	Title:	Founder and CEO
DATED: March 9, 2009	BARE ESCENTUALS BEAUTY, INC.
	By:	/s/ Myles McCormick
	Name:	Myles McCormick
	Title:	COO

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Exhibit A

BioKool Mineral Technology

US Patent Application 20050118279 Titled: Mineral Nutritional, Cosmetic, Pharmaceutical, and Agricultural Compositions and Methods for Producing the Same – By Inventor – Blotsky, et al.

BIOKOOL MINERAL TECHNOLOGY DESCRIPTION

A method for preparing a mineral composition that has a low pH and that produces unexpectedly minimal irritation when contacted with the dermis in a liquid or solid form, said method comprising the steps of

(a) selecting a clay soil having

(i) a selected minimal concentration of cadmium, lead, arsenic, and mercury,

(ii) at least eight macro mineral elements,

(iii) at least sixty micro mineral elements,

(iv) at least ten rare earth elements,

(v) at least four percent by weight calcium,

(vi) at least four percent by weight silica; and,

(b) processing said clay soil by

(i) admixing said soil with water and at last one acid to produce a slurry,

(ii) allowing particles to settle from said slurry to produce a liquid containing at least eight macro mineral elements and at least sixty micro mineral elements,

(iii) concentrating said liquid to increase the concentration of mineral elements in said liquid to greater than 3% by weight.

An article of manufacture comprising a liquid or powder composition including

(c) at least eight macro mineral elements;

(d) at least sixty micro mineral elements; and,

(e) at least ten rare earth elements;

said article of manufacture having a pH of less than four.

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LICENSED INGREDIENT PRICING SHEDULE

LICENSED INGREDIENTS	PRICE
***
LICENSED INGREDIENT SPECIFICATIONS
***

*** PORTIONS OF THIS PAGE HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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Exhibit B

Royalty Rates

1) Royalty rate payable for Royalty-Bearing Licensed Products sold or distributed to a third party in the Field of Use:

Amount of Cumulative Net Revenue	Royalty Percentage
***	***

2) Royalty rate payable for all other Royalty-Bearing Licensed Products sold or distributed to a third party outside Field of Use:

Amount of Cumulative Net Revenue	Royalty Percentage
***	***

The applicable royalty percentage payable by Bare Escentuals shall be based on the annual aggregate, cumulative Net Revenue that has been earned by Bare Escenutal commencing on the Effective Date, as of the time that the applicable royalty is payable, taking into consideration the total Net Revenue resulting from the transaction for which the royalty is then being calculated.

*** PORTIONS OF THIS PAGE HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Leslie A. Blodgett, Chief Executive Officer of Bare Escentuals, Inc. certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bare Escentuals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2009	By:	/s/ LESLIE A. BLODGETT
		Leslie A. Blodgett
		Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Myles B. McCormick, Chief Financial Officer of Bare Escentuals, Inc. certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bare Escentuals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2009	By:	/s/ MYLES B. MCCORMICK
		Myles B. McCormick
		Executive Vice President, Chief Financial Officer and Chief Operating Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Leslie A. Blodgett , Chief Executive Officer, and I, Myles B. McCormick, Chief Financial Officer, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Bare Escentuals, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 29, 2009, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 8, 2009

By:	/s/ LESLIE A. BLODGETT
	Leslie A. Blodgett
	Chief Executive Officer and Director
By:	/s/ MYLES B. MCCORMICK
	Myles B. McCormick
	Executive Vice President, Chief Financial Officer and Chief Operating Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.