Revlon Inc (REV) 2002 Q2 法說會逐字稿

Good morning, and welcome to the Revlon second quarter 2002 earnings conference call. All participants have been placed in a listen only mode and the floor will be open for questions and comments following the presentation. If you do have a question throughout the presentation, you may press one followed by four on your touch tone phone. At the request of Revlon, today's conference is being recorded. If you have any objections, you may disconnect at any time. Now, it is my pleasure to turn the floor over to your host, Maria Sceppaguercio, Senior Vice President of Investor Relations.

Thank you, Mandy, and good morning to all of you, including those of you listening in via the web. Before we get starred let me say that in the two months that I've been at Revlon, I have had the pleasure of meeting with some of you and I look forward to working with and getting to know you all. This afternoon, the company is hosting a meeting with investors to discuss the current state of the business and our strategic outlook for the future. The event will be accessible on a realtime basis via the Revlon web site at www.revloninc.com. Given the events this afternoon, our prepared remarks and the Q and A session will be brief and focus exclusively on the second quarter. As usual, we will open the call up for your questions on the quarter at the end of our prepared remarks. Before I turn the call over to Jack Stahl, Revlon President and CEO and Doug Greeff, Revlon Executive Vice President and CFO, a couple of reminders. First, you should all have a copy of our results released earlier this morning. If you haven't received one, you can get one on our web site. Our discussion today may include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements for a number of reasons, including those set forth in the company's filing with the SEC, including the company's annual report on Form 10-K, quarterly reports on form 10-Q and press releases, including the release issued today. Our discussion will focus on our results on an ongoing basis, which excludes one-time items such as restructuring and plant consolidation costs, executive severance, and results from gains and losses on businesses sold. A detailed reconciliation to our as-reported results accompanies the press release we issued earlier today. Results for 2001 have been reclassified to reflect the company's adoption in January, 2002 of the new accounting standards for sales incentives. Regional results for 2001 have been reclassified to include Puerto Rico, previously reported as part of international as part of North American operations. You will notice that the schedules posted on our web site this morning are different than in the past. We will not be disclosing the detailed breakout for SG and A, which includes brand support and departmental expenses, given the highly competitive nature of the information, particularly during this period of time, while we are fine-tuning our marketing mix and investment strategy. We will continue to provide you as much insight and information as we believe is prudent in order for you to understand our performance. And finally, as a reminder, the following discussion should not be copied or recorded. With that, I will now hand it over to Jack.

Thanks, Maria, and thank you all for participating today. We appreciate it very much. What I'd like to do first before I turn it over to Doug to walk through the quarter, in particular, the financials, I'd like to give you a quick update on some progress that we're making here at Revlon, particularly in the last three months. I'm going to make my comments really in the same framework we did last time just starting with people because obviously that's the most important building block as we work to get Revlon back on a growth track and we have made some very important moves in the area of our leadership team, really building on the talent that was in place. A couple of key steps I'll highlight today. First, as you may have read in our press release earlier, we have brought on board David Kennedy. David will come on as Executive Vice President and President of Revlon International, and over time, you'll get to know David along with the rest of our team, because there are significant opportunities internationally, which I would say at this stage are really on tap and really have not received a lot of focus to this point, but we're delighted to have David on board. Every bit as importantly, Liz Kenny has come on as Senior Vice President of our portfolio brands, which includes Almay, Ultima and Streetwear. Liz comes to us from Clairol and in total, has about 13 years of senior marketing experience, very successful at profitably growing brands in the beauty business, and we know that Liz is going to make a significant contribution to our portfolio of brands as we go forward, and as you may recall, David comes to us with about 20 years of experience at Coca-Cola, and while David was at Coke, he ran a number of large international businesses for Coca-Cola and also ran a Coca-Cola bottler based in Asia and again, David will bring a lot to our leadership team as well. The final keynote just on the people side, as you may know and Deborah was on the call last time around, Deborah Leiben-Yale. Deborah, you've been in place now for about 100 days, but in that time, Deborah has reorganized the Revlon brand group around categories, and it's an important way of thinking about the business for us. It goes back to where we were several years ago to reorganize around face, nail, eye and lip, and it's a more logical way to focus our growth and achieve, work to achieve category leadership, and underneath Deborah, she's attracting some very capable people from inside the industry that are going to help us grow as we move forward. The second key priority that we outlined on the last quarterly call was just basic blocking and tackling basic day-to-day execution with our customers, and as we said before, I think that it's safe to say there was an opportunity here to really do a better job connecting the dots within Revlon, connecting all the functional disciplines, production, logistics, sales, marketing, to make sure that we were meeting all of our customer commitments, and there are a number of really positive examples that are beginning to take hold where we heard a demand from our customer, for example it might be in a packaging area. We quickly made a change to make our packaging more customer friendly, and the retailers beginning to meet commitments on a more consistent basis are showing more enthusiasm for Revlon and for our marketing programs and that signals well for us as we go forward. If you think about people and execution and building that on top of the cost rationalization efforts that have been completed in 2000 and 2001, I think we've got the beginnings of a good growth track to one on. Now, what about growth itself in the quarter? You'll note that our net sales were down year over year, but Doug will comment on that but what I would like to focus on for the moment is consumption and market share. In the first half and this is a good sign, because obviously consumption leads shipments as it obvious. Revlon color cosmetics actually began to show growth in the first half of 2002, and we were up 1.6% in terms of dollar consumption of Revlon points for Almay quarter over quarter this year, which is a significant slowing of the market share decline. Now, obviously, we're pointing towards a period when we will see our shares stabilize and begin to grow, but it is moving in the right direction. An indicator of that is in the month of June, Revlon color cosmetics market share was at 17%, which was the highest share the Revlon brand has seen in the last twelve months, and you have to go back before that another seven or eight months before you would achieve a 17 share for the Revlon color brand. So market share still down year over year, but certainly up versus the fourth quarter of last year, and as I indicated, beginning to show signs of stabilization. As we look at our marketing activities, we're going to go through a very complete, and I think really a fullsome discussion of our marketing actions that we're putting in place and that we'll see for the back half of the year at the analyst meeting this afternoon. There are just a couple of things that I'd like to highlight this morning in terms of new product activity. We highlighted Lip Glide last time, and as you may know, Lip Glide is really a high shine, high gloss product in a unique applicator which comes through sort of a sponge by creates a great feel as you apply Lip Glide, again, high gloss, high shine. Importantly, Lip Glide is the number two new product in the category for the month of June and as you know, one of the areas we had been losing shares significantly was the lip category, and it's important that we've got a new product entrant which is gaining some traction for us. We had about a 3-3 dollar share in the month of June for Lip Glide. So again, it doesn't mean we've completely turned the corner but a good leading indicator on an important new product. In the quarter we also launched Revlon nail color chromes, and as you may know, there's a significant trend in terms of chromes for nail enamel. We also introduced a number of Almay products, in this case, Kinetin skin care, including a firming and pore refining serum, a brightening eye cream and we've got a lip entrant with Almay as well, lip vitality smoothing lip color, which also has Kinetin, which is again, an anti- aging ingredient. So in the nail area, in the Almay skin care area and in lip for Almay on top of Lip Glide, there are some new product activities that are important. I should point out that in the month of June, again, we actually had four of the top ten new product entrants in the Nielsen categories for the month of June and that includes a Revlon Skinlights product on top of Lip Glide and on top of a couple of Almay products as well. Over the balance of the year, you'll hear later today that we do have a number of exciting products planned and there's two or three important products on Colorstay, including an overtime lash tint and overtime lip product, and we also have a product called Colorelusion, which is a prismatic nail enamel, a unique product. The reason I highlight that one is that historically, and we talked about this on the last call, I think it would be safe to say that if we saw a new product idea come into the house, it might have taken us 12 or 18 months to get the product into the marketplace. Under Deborah's leadership, Elliott Sebecca, who is with us today on the operating side of the business, the idea came in about three months bag and we're going to be on shelf in September with Colorelusion. So in terms of new product activity, a lot of work to do as you'll hear, but we do have some near-term successes which we're working to aggressively capitalize on over the remainder of 2002. One other marketing initiative that I'll focus on is for Revlon, I think a unique partnership. As you may know, later this year there will be the 20th James Bond film will come in November of 2002, and the leading lady in that movie is Halle Berry which as you know say Revlon spokesperson. What we're going to do is link the movie, Halle, a custom made cosmetics line advertising for Revlon that ties into the movie and then a kind of promotion, kind of an integrated marketing partnership that is really taking hold with our retailers, and typically in the fourth quarter, our Revlon color promotion let's assume for the moment it might be a 6 or $7 million idea. This one is going to be meaningfully bigger than that and you'll hear about that later today from Deborah. So there's some excitement that's kind of creeping back into the business. We're all very positive on that. We're building on the actions that we're taking in the last couple of years by some very capable people, and as we move through this transition stage, we're going to continue to focus on the details of execution and the discipline of creating great marketing as we go forward. I would just hope that you'll attend this afternoon or listen on the web because we're going to lay out our future outlook in terms of our actions and plans as we go forward. Just one final note from me before I turn it over to Doug. I would like to point out that kind of in accordance with the SEC guides, Doug Greeff and I absolutely will be in a position to certify without qualification our 2001 annual report first and second quarter 2002 quarterly reports and our proxy statement, and we'll be doing that inside of the August 14th time line that's called for there. So we're getting people in place, people who are focused on the details and execution. We're beginning to translate that into better and stronger marketing actions, and again, I would encourage you to participate this afternoon if you have the opportunity to do that. I'll come back and host the Q and A once Doug gets through the numbers. Doug, you want to pick it up?

Thanks, Jack. I'm going to go through a lot of numbers so I'll try and speak slowly so you can jot them down. So let's start with sales and as a reminder, my remarks will be on an ongoing basis. Total company gross sales were 386.8 million in the quarter compared to 391.6 million in the second quarter of last year. Returns, allowances, discounts and other revenues combined were 78.6 million in the second quarter, 2002 versus 75.8 million in the second quarter of last year. Net sales of 308.2 million in the second quarter of 2002 were down 2.4% versus 315.8 million in the same period last year. On a comparable currency basis, net sales for the quarter were substantially even with last year. Moving to North America, in North America, which includes the United States, Puerto Rico, net sales for the quarter advanced .4% to 217 million, compared with 216.2 million in the second quarter last year. Moving to international sales, for international, net sales declined 8.4% in the quarter to 91.2 million versus 99.6 million in the second quarter last year. This decline largely reflected the unfavorable impact of foreign currency translation in Latin America, coupled with deteriorating economic conditions in Argentina and Venezuela, as well as softness in Italy and the unfavorable impact of the conversion of the company's Benelux business to a distributor in the first quarter of this year, partially offset by strength in the UK and South Africa. On a constant dollar US basis, international sales were off 1.5%. Now moving to operations, excluding brand support expenses that are included in the cost of sales, cost of sales as a percentage of gross sales or the factory cost of goods sold was 29.1% in the quarter compared to 29.4% in the second quarter of last year, reflecting efficiencies stemming from of approximately 10 million primarily related to compensation and professional fees. These increases were partially offset by a reduction in brand support of 11 million during the quarter, as well as a $4 million reduction in distribution costs and the elimination of goodwill amortization. The reduction in brand support for the quarter reflects our decision to delay certain investments while we conducted an intensive review of all of our programs and their related effectiveness. Turning now to brand support, which includes all marketing investment in our brands except for permanent display fixtures, as you know, new accounting rules require that certain brand support expenses be presented in the SG and A expense line, while others are presented as components of net sales or cost of sales. For the quarter, total brand support declined 9% versus the prior year, reflecting our decision to delay certain investments during the process of developing a going-forward strategy for our business. For the balance of this year, we expect brand support to be meaningfully up versus a year ago. Moving to operating income, operating income in the second quarter was 7.9 million versus 19.5 million in the same quarter last year. This decline primarily reflects increased SG and A of approximately 6 million as discussed previously and the impact of lower net sales. Moving to EBITDA, EBITDA in the second quarter was 39.4 million compared with 46.4 million in the second quarter of 2001. For the quarter, we met our four-quarter roll-in EBITDA covenant requirement as defined in our credit agreement, which was $185 million. Net loss for the quarter was 35.4 million, or 68 cents per diluted share compared with a net loss of 18 million or 34 cents per diluted share in the second quarter of 2001. Turning to cash flow and liquidity, capital expenditures in the quarter were 2.9 million versus 4.5 million in the second quarter last year. Permanent display spending in the quarter was 19.7 million versus 16.9 million last year. Cash restructuring spending including additional consolidation costs and severance payments was 9.8 million in the quarter. Moving to liquidity, our liquidity at the end of the quarter from all available liquidity sources was approximately $130 million, including availability under the revolver of $70 million and unrestricted cash and marketable securities of $20 million. The composition of our bank credit agreement borrowings at June 30th, 2002 were as follows. Outstandings under the term loan facility were 117.9 million, borrowings under our multi-currency revolver were 35.2 million, and letters of credit issued but undrawn were 26.5 million. For the quarter, interest expense was 39.1 million versus 35.5 million last year. Now, let's turn to our customer inventories. Estimated inventories in the United States of all of our products as provided by our top seven accounts, which includes the top three MVRs and our top four drug customers, which represents approximately 70% of our US volume, were down for the fourth consecutive quarter, specifically the inventory amounts were as follows, 306 million at the end of the second quarter, 2002, compared with 312 million at the end of the first quarter, 2002, and 378 million at the end of the second quarter, 2001. These inventories decreased by 6 million versus the previous quarter and by 72 million versus the second quarter, 2001. We believe that certain of our retail customers reduced inventories as a result of the implementation of improved supply chain management systems, as well as having made a conscious effort to reduce inventory. Now, let's turn to consumption and specific market share data. As you know, all market share and consumption data is of the US mass market according to AC Nielsen, which excludes and the regional mass volume retailers. This data is an aggregate of the drug channel Kmart, Target and food and combo stores and represents approximately 60 to 65% of the company's US mass market dollar volume. The Revlon brand registered a .4% increase in dollar consumption for the quarter, marking its second consecutive quarterly consumption gain versus a year ago. For the first six months of 2002, dollar consumption for the Revlon brand was up 1.6%, as Jack said before. By contrast, Almay consumption decreased 4.4% in the quarter, driving the company's total color cosmetics consumption for the quarter down by 2.3% versus last year. In terms of market share, the company's total color cosmetics dollar market share for the second quarter was 22.3%, which was essentially even with 22.4% in the first quarter of this year, but up 140 basis points versus the 21.9% share reported in the fourth quarter of 2001. Importantly, we continue to narrow our share decline versus a year ago in color cosmetics for the quarter with the Revlon brand and the Almay brand each posting a second quarter share decline versus a year ago of 40 basis points, which Jack mentioned previously. Specifically, the Revlon brand market share was 16.4% in the current quarter versus 16.8% in the second quarter of last year. The Almay share was 5.2% in the second quarter compared with 5.6% in the second quarter last year. Also, as Jack indicated, for the month of June, the Revlon brand posted a 17% market share, marking the highest share the brand has achieved since June, 2001. Moving to other categories, in other categories during the quarter, the company gained share versus a year ago in hair color, antiperspirant deodorant and face creams and lotions, while shared declines in the quarter for our implements business. Moving to the specific numbers for those categories, specifically for the quarter, hair color share advanced 40 basis points versus year ago to 5.9%. Antiperspirant and deodorant share advanced 40 basis points to 6.1% and face creams and lotions share advanced 10 basis points to 2.8%, while implement shares declined 370 basis points to 26.9%. That's all I have to say about the numbers, so at this point, we would like to open up to Q and A, which as Maria mentioned earlier, will be entirely 00:30:38 focused and exclusively on the second quarter.

Thank you. The floor is now open for questions. If you have a question, we ask you to please press the numbers one, followed by four on your touch tone telephone at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask all participants to please pick up their hand sets while posing their question. Thank you. Our first question is coming from George Shaluv of Deutsche Banc. Please state your question.

Good morning, guys.

Good morning.

You mentioned on the market share front a little bit, you mentioned it's been 17%, the Revlon brand specifically, not Revlon Corp. was 17% the highest since June of '01. In the June of '01, it was 17.5%, it was down 50 basis points. I'm not exactly sure if I'm reading the right numbers here or not, but I think in June of 2001 also the market share peaked at 17.5% and declined from that point, but I just wanted to make sure the statement that I understood it exactly as you said it.

George, that's essentially correct. We were at about 17.3 or so in June of 2001, and you recall, they were higher slightly, not fairly slightly but significantly in Q1. I think at the time you said it was because of the shift in timing due to the early programming whereby you had the revenues going early in the first quarter of '01, but returns appearing higher than expected actually in the first quarter of '02, but actually I'm looking at the returns here of 78.6 million, that's the highest number I've seen since you guys revised the trade terms for the base. I'm trying to understand why is that happening so much in Q2.

To answer you very specifically, the actual physical - remember returns and allowance includes actually physical returns of goods, but also includes allowances from traditional allowances, could be price discounting, sales incentives, things like that, so combining two things, but to be very specific, our actual physical returns were up approximately $1 million from the year before, okay?

Yeah, I know but the year before was a very high number, too. I think what I'm trying to draw a comparison to, Doug, is around of what it was in the mid 50s, through most of, the balance of '01 and then through to the high, mid-60s, 65 in Q1 of '02. It sounds to me by historical standard, it's a very high number. I don't think the comparison to June of '01 is necessarily -

Let me try and answer this way, George. There were earlier plan-a-gram this is year and we expected return versus the prior year, these are physical returns, to be slightly above the prior year. So we are exactly on budget on physical returns. However, we expect that returns in the third quarter will be significantly lower than they were in the prior year, so we expect returns - I don't have the numbers exactly in front of me - to be 8, $10 million lower for the year, okay, for the full year versus the full year last year. So what's happening in physical returns is exactly what we expected.

Okay, I didn't expect it - I mean, that's the first time, you know, I hear about it being expected to be higher in the first half, but -

I think we said that in the last quarter.

Well, I mean, maybe I forgot. On the cash front, you burned through 65 million bucks of cash in the quarter. You know, you have basically a cash balance decline of close to 35 million and then your (inaudible) jumped by 30 million. Your liquidity, you know, while adequate today sounds to me like it's going down fast. Do you expect, Doug, to kind of get some free cash flow going into the second half year? It sounds to me it's happening every quarter in an expected way in terms of liquidity cash burn.

To answer specifically, the direction every year you know we use liquidity in the first six months of the year, so directionally what's happening is not unusual in any way, and if you look specifically at the numbers, we've invested 40, $50 million in network and capital investment as we build for the second half, and so that is absolutely normal. It is also normal that the EBITDA in the first six months of the year is significantly lower than the second half of the year.

Sure, I mean, I'm with you there, but I thought the working capital swing comes back in the month of July.

It does come back in so we expect to generate cash flow in the second half of the year. So what is happening in liquidity is directionally exactly what's happened in prior years, and we're approximately exactly where we thought we'd be.

Okay, so you don't see it going down significantly beyond this level in the second half of the year?

I think the important thing, George, is we absolutely feel confident that we have the liquidity that we need to do exactly what we need to grow the business, including, by the way, in the early part are of the year taking advantage of and capitalizing on the installation of Her Wall, which is an important part of the puzzle as well.

Right, but I'm with, you Jack. I just want to make sure you have that liquidity, because obviously, strategically speaking, you have committed to a significantly higher brand support in the second half of the year, and that's going to eat into the liquidity unless you get a significant EBITDA bump. Sorry?

Absolutely. The reason we're committing brand support is because we believe we now have a higher quality level of marketing programs and there are a number of examples of that which we'll focus on this afternoon, but as the quality of our marketing programs and our execution improves, we absolutely believe we'll get a return on our spending over time.

Okay, my last question here and I'll leave the line to other people. The minimum EBITDA covenant of 185, Doug, the way I'm computing the EBITDA, it's at 188 LTM as of June. Now, as per the bank's definition, is that also 188 versus 185 or is it significantly higher because of some add-backs that we're not aware of, and therefore, the cushion is more than 3 million bucks versus the minimum covenant set by the banks?

The answer to that is, if you look at the adjustments for the bank credit agreement that the adjustments are a positive add to EBITDA so the cushion is significantly higher than $ 3 million.

So the 188 is as you design it, but you have a significant cushion. You're not worried about tripping the covenant here and you're not worried about going to the banks and having to renegotiate a credit amendment?

We expect to meet the covenants for the rest of the year.

Thanks, George.

Our next question coming from Wendy Nicholson of Salomon Smith Barney. Please state your question.

Hi, I just wanted to circle back and talk more on the operating margin front because operating margin actually came in a lot lower than I had been expecting, and particularly given the fact that brand support was down so significantly. I'm surprised that some of the cost savings initiatives and the plant closings and all of that stuff in the last couple of years isn't helping the margin higher than less than 3%. Can you walk me through why even though you had a lower sales base the margin came in so low.

Are you talking about cost of goods sold specifically?

I'm talking about the operating margin as a whole, why we're looking apt a 3% operating margin compared to north of 6 last year.

Just a couple of things to remind you that Doug said, Wendy, in the quarter, we had higher investment in departmental. Some of that is just the process of getting strategy and plan developed with the help of some outside people. Remember, the biggest single item, while you had brand support going in one single direction was the accelerated amortization, which is the OI margins in the quarter. That's the biggest single item there. Anything you want to build on that?

Maybe I can just - the three biggest components to maybe help answer that question, one is depreciation was accelerated by approximately $11 million due to the acceleration or decrease of useful life of our remaining displays in the United States in-store. I also said we're going to upgrade our information systems so there was approximately, you know, $4 million of accelerated depreciation from that. talked last year about consolidation savings from our plants of significant numbers. Our cost of goods sold in the aggregate only went down .3 tenths of a point to 29.4% to 29.1%. In the US, however, our cost of goods sold just in the US wept down by well over 1%. So we are seeing the savings of the plant consolidation as we sold you last year, this year, we are actually realizing those savings. What is happening on the other side outside the United States, our cost of goods is actually going up as a percent of gross sales versus the prior year, okay, which is offsetting some of the savings in the US. We have identified the problem areas. We are working extremely aggressively with our outside suppliers outside the United States to lower the cost of goods, and in the short and long-term, I'm very confident we will be successful in decreasing the cost of goods sold outside the US.

And in terms of kind of the middle stuff and I guess it's harder now that you're not breaking it out with all the different lines we're used to seeing just to understand the moving pieces. In terms of looking into the second half, the items you talked about, the accelerated depreciation and whatnot, are most of those one-time acceleration, so the second quarter is disproportionally hit or are we going to see higher expenses on those line items in the second half in addition to brand support?

You'll see higher expenses, and we'll outline that this afternoon, but just so everybody in the call understands, what we're doing on the wall in the US, we normally amortize that over three to four years. Since we intend to replace much of the existing walls over the next year or two, what we've had to do under the accounting rules is decrease the useful life of the walls from approximately to three to four years down to one to two years. So that increased - that decrease in useful life will increase amortization every quarter over the next couple of years.

Okay, that's helpful. Thank you very much.

Thank you, the next question is coming from Olivia Tung of Merrill Lynch. Please state your question.

Good morning. I'm looking at the consumption data and I want to know why is Q2, why are consumptions slower versus Q1?

Can you repeat the question and talk a little louder?

It's tough to hear you, Olivia.

I wanted to know why consumption slowed in Q2 versus Q1, it looked like it slowed sequentially.

Okay, I think a couple of key numbers that may help, again, these are Nielsen measured. The key factor there would be while we had Revlon consumption growth in the first and second quarters, Almay consumption was down 4.4% in the second quarter and down also in the half. The rate of growth on the Revlon brand was actually slightly lower in the second quarter than in the first quarter, but the key factor behind the decline would be the Almay brand. You've also got Ultima, which is a relatively small brand, but it showed a pretty meaningful decline in the second quarter, an increasing rate of decline in the second quarter compared to the first quarter.

Okay, thanks.

Thank you. Our next question is coming from Zofar Nazima of JP Morgan.

It's actually Carla Casella from JP Morgan. My question is related to the market share gains that you've seen in June. Is that mostly hair, face implements?

Well, the number that we cited for the 17% was actually for Revlon color cosmetics. In the quarter, and then Doug cited some numbers for hair and he cited some numbers for antiperspirants and deodorants. In the quarter, both hair and antiperspirants and deodorants did show market share gains, while implement shows a significant market share decline in the quarter.

Why don't I just repeat the numbers. For the quarter, hair color advanced 40 basis points versus year ago to 5.9. Deodorant advanced 40 basis points to 6.1. Face creams and lotions also increased 10 basis points to 2.8, and the only one showing a decline was implements going down to 29 - sorry, 26.9.

Okay, and then color cosmetics was 16.4 versus 16.8 last year?

That's correct.

And then color increased to 17% in June. What drove that increase? That's what I'm trying to get at.

Primarily two categories, face and eye, and we've been experiencing much better performance on the eye business, the eye category as well as face. As you know, we did have the benefit of Lip Glide in the month of June, but on our core list business, we really have not yet begun to turn the corner on our core lip business. So the combination of face and eye moving positively, the core lip business and our nail business not yet having responded.

And just last question, related to color cosmetics, can you compare your skew count this year's second quarter versus last year? Does this difference reflect any ESKY (phonetic) reductions?

There's no significant - I'm looking at Elliott, but it looks like there's no significant change year over year.

That's all I have. Thank you. 00:48:18 >>MARIA SCEPPAGUERCIO: Thank you.

Thank you.

Thank you. Our next question is coming from Tom Shandell of Golden Tree Asset Management. Please state your question.

Hi, good morning. A few questions. One is that I apologize, I didn't get the inventory numbers for your customers. I was wondering if you could repeat those.

Doug you want to provide those again. Hold on just one second, Tom.

Okay, the inventory - remember, this is our top seven customers, which includes the top MVRs and our top four drug customers, which represents 70% of our volume. The specific numbers are second quarter of June 30th, 2002 was 306, which was a decrease of 6 from the first quarter, 2002, which was 312. If you go back and compare a year ago second quarter, let's see, inventories were 378 million at the second quarter, 200 1. So since then we've decreased about 72 million.

Okay, great, and before when George was asking you questions, it was mentioned that your typical, you know, working capital cycle would result in July, you know, I guess working capital reductions and therefore pay down revolver and I was wondering if that was the actual result now that it's August.

The revolver availability, yesterday, July 31st, went up by about $10 million, so the availability went from 70 at the end of June to 80 at the end of July, which is exactly what I think we implied.

Okay, great, and then in terms of your SG and A, I guess I would have expected it to be, I would have expected it to be lower than it was, increase was about $7 million, and most of that, half of that was salary and half of it was a bonus accrual.

I guess I'm asking a different question. On the press release, SG and A was 180.8, and you indicated that severance and professional fees was about 10 million bucks, which you view as nonrecurring and then I'm not sure where the accelerated amortization number is that you stated were about 11 million bucks fell, if you take out that 11 and the 10 that I mentioned just before, can you look at it as sort of recurring number would have been 160?

Well, I don't want to predict -

Maybe I stated recurring wrong but if those things hadn't gone through your P and L, would it have been 160?

That's approximately right.

Okay, thank you.

Thank you, our next question is coming from Ridar Fahab of Lehman Brothers. Please state your question.

Good morning. It sounds that the new Lip Glide was extremely successful. I wonder if you can share with us what percentage of overall Revlon sales were from new products in the second quarter and where do you see that going for the balance of the year?

We typically don't break it out that way, but just to give you some feel for it, in the quarter, I indicated or I said in the month of June, for example, Lip Glide was about a 3.3 share, and that particular brand would have represented about our total market share in lip for the month of June would have been about a 21 or so. So you could say that that particular new product inside of lip would have been about 20% of our category for the month, just to give you a sense of its importance.

Right, so really net of the new products market share fell?

That's correct. Yes, that's correct.

And was that decline in the core products in line with your expectations or below your expectations?

Well, you never want to lose market share on your core brand, so whatever our expectations were, we've got some work to do, and you're going to hear more about that this afternoon from Deborah, but I think it's safe to say we'd be disappointed any time we see a meaningful decline in our core brand.

Right, and then just going back to the G and A question, Doug, the 7 million that is compensation-related increase, is that a permanent increase in the G and A on a year over year basis for the balance of the year?

Probably not, no, not at this time we don't think it's permanent.

Is some of this permanent or none of it is permanent, is one-time?

It's hard to look at the question and look to each to answer it exactly, but most of it's not permanent.

So most of it is just for the second quarter, all throw there might be some additional G and A increases here of a modest quantity?

We, generally, just in terms of thinking about our head counts going forward, you know, as you know, there was a significant cost-cutting platform in the last couple of years. As I've looked at it coming in, there may be a need to add relatively few people and a couple of, I'll call it key volume-driving activities. For example, around the Revlon brand, we've approved, just to give you an order of magnitude, eight or nine people, these are not dramatic numbers of people, you know, as we look at how we match up with our customers, for example, we may add a handful of people to make sure we're calling on our customers, particularly our large ones effectively but we're not talking about meaningful numbers of people going forward.

Fair enough, and then just going back to the question of the trade allowances and returns, Doug, your comments suggest that returns were in line with your expectations and were up a million or so, but trade discounts or really trade spending was higher than last year by a significant amount; is that accurate?

I'm not sure what you mean by significant, but sales incentives were up approximately $2.5 million, and discounts were off by a half a million, so it's a couple million bucks higher, and that's hard to gauge quarter to quarter because the program activity changes. The level of activity changes quarter to quarter, so movement of a couple million dollars is not meaningful. You almost have to look at it on a calendar year basis.

Okay, and so the balance of the year over year increase in the line item returns and allowances is really just returns?

Well, it's up by a little more than that. It's newspaper the quarter by about a million or so from physical returns and a couple million from allowances.

Okay, thanks.

Let me do this. Let me suggest we'll take one more question and then I'll make a closing comment or two so that our team can begin to prepare for this afternoon.

Thank you, our final question is coming from Chris Hanrahan of Michael Miller Management. Please state your question.

Yes, I have a few questions. I wanted to ask, you had 32 million in cash at the end of June, I want to see where that level is today.

It's approximately the same.

The same, and then I thought I heard you earlier say you had 97 million in availability under the multi-currency facility or is it 80 million? I got it confused.

Well, we said at the end of June, the availability was about 70, and the availability as of the end of yesterday was approximately 80, up 10.

80, up 10, okay. So 112 million, call it, and I thought, did you say earlier 130 million you have in total -

It's about 130, so today it would be about 140.

140, and could you help me fill in the gap, we're outside of the cash on the balance sheet, outside the stepup and the availability of the multi-currency facility, where's the other piece coming?

Well, basically, at bank facilities we have unrestricted cash and restricted cash, and we also have outside lines of $40 million from affiliates, and that's the three basic components.

Okay. What was operating cash flow in the quarter?

That, I don't have in front of me.

Okay, and you know, maybe you can help me understand something. I'm just looking at some of these numbers, and given that your EBITDA coverage or interest coverage last quarter was below 1, roughly at 1 this quarter, you won't talk about the second half and you won't talk about '03. I think maybe you should give us, shed a little more light on the liquidity front and explain to us, you know, why should we believe you year, okay?

Um-hum.

It's been that way forever, okay, so we have as I said before $140 million of liquidity today, right and I said we expect to generate cash in the next six months. So with that fact pattern and I said we expect the banks to meet our bank covenant, right, with that fact pattern, okay, we feel that we have more than adequate liquidity for 2002 to meet our needs and we're going to meet our bank covenant. That is not a fact pattern that would conclude in a bankruptcy filing.

Could you comment on '03? I understand, you know, all I have to do is look at your numbers in the second half of, you know, each of your fiscal years to figure that out, but given the trends and given how close you guys are bumping up against your EBITDA coverage or your interest coverage, I'm really concerned about '03 and I was wondering if some of your assumptions are based on any more assets sales? You know, it just seems like you're just at the bare bones minimum right now, in my opinion and I wanted to see if you could talk about '03.

Chris, let me pick it up from here. I think that kind of leads us into a couple of closing comments perhaps. One of the things that you'll hear us say this afternoon and it will be very consistent with Doug's comment, as we look to 2003, again, we're confident that we can meet our bank covenants, or even exceed or bank covenant requirements and we'll have the liquidity necessary to grow the business. You know, I think it's important just to go back on a couple of things that I talked about in the last two or three months and then we're going to really bring to life this afternoon, you know, you got to remember, I think that you got a business that now has a cost of goods of about 30%. So you know, before some distribution costs and other things, every dollar of revenue, 70 cents plus or minus falls through, and you had a very important emphasis here on cost going back that's created the right kind of platform as we move ahead, and as I think if you assessed the team that we've now put in place and that is focused on growth, we're going to drive the top line of this company and we're going to maintain the discipline around cost. Given the margin structure, that's a business that will generate, over time, increasing amounts of cash and increasing amounts of EBITDA, and we are confident that we can grow the base this makes sense for everyone, whether they hold the debt or whether they hold the equity. As you'll hear, there's going to be important actions that we're going to take that are going to drive that, but we've got a team in place that's very disciplined, very much focused on the details, we're capitalizing on the things that are already heading in the right direction, and I would just encourage you to come this afternoon and hear the story laid out by the leadership team. So it's worth reinforcing the point about 2002, 2003 as it relates to liquidity and as it relates to our bank covenants. We have the confidence that I think you'd expect us. Okay, let me just end it there and thank you for participating and from a personal standpoint, I look forward to meeting many of you today, I hope, and you having a chance to get some exposure to the team that's going to drive this business and help put it back on the right track as we did ahead. So thank you for participating today.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, ladies and gentlemen and have a wonderful day.