Revlon Inc (REV) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Revlon third quarter 2002 earnings conference call. At the request of Revlon, today's conference call is being recorded. Any objections may disconnect at this time. I would like to introduce your host leading today's meeting, Ms. Maria Sceppaguercio.

Thank you and good morning to all of you, including those listening via the web. We released results earlier this morning. If you have not received a copy, get one at www.revloninc.com. Our discussion will focus on results on an ongoing basis, excluding one-time items such as restructuring and plant consolidation cost, executive severance and businesses sold. A detailed reconciliation to our as reported results accompanies the press release we issued earlier today. In reviewing financials familiars, please note results have been reclassified to reflect adoption in January of 2002, of 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 America operations.

Before I turn over to Jack Stahl, Revlon President and Chief Executive Officer, and Doug Greeff, President and Chief Operating Officer, I would like to remind you this information may contain forward-looking statements in accordance with Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the statements for a number of reasons, including the company's annual report on form 10-K, quarterly reports on 10-Q and press releases, including the release issued today. As a reminder, our discussion this morning should not be copied and recorded. With that, over to Jack.

Thanks, Maria. Good morning, everyone. Before Doug walks you through the numbers, I want to give you my perspective on the business and where we are and give you a quick progress update on what we are doing to grow and strengthen the company. Sufficed to say, in the last three months, since the last time we were together on the call, I believe we have made real progress to strengthen our business for the long term.

Many of you will recall at the August investor conference, with many of you, we communicated that the leadership of our company is taking steps necessary to really begin to grow the long-term profitability and sustainability of our business. We are strengthening our market position. What we said at that time and, this is what we are doing exactly, these steps in the near term would involve strengthening our execution, day-to-day with retail customers because we thought that there was a sales benefit to doing that, how we block and tackle day in and day out to deliver marketing programs. In addition, we said at that time that we would increase the marketing support behind Revlon and our other brands in order to increase consumption of our products and strengthen our competitive position.

So, just as we said, we go begin to step up our marketing programs, really at the end of August. And these marketing programs have begun to drive improved trends in retail consumption and market share for our company in the third quarter. I would like to give you some very specific data on those improved trends.

Retail consumption, that is dollars are retail consumption for the Revlon brand improved 3 percent in the third quarter. And our market share for the Revlon brand advanced 60 basis points, more than half a point, to 16.7 percent, compared to 16.1 percent in the third quarter of last year. So, we began to step up the investment and improve execution. We began to see some stabilization and strengthening, a bit, in market share in the third quarter.

In the month of September, consumption for the Revlon brand increased 11 percent above the prior yore, as measured by Nielsen. Market share increased 140 basis points, in other words, 1.4 share points of market share improvement to 17.1 percent. So, that's a pretty meaningful increase in share, all be it one month and one month doesn't make a year or systemic trend, but it is certainly an early time that our execution and investment behind the Revlon brand is generating results.

So, for the full quarter, our market share was 22.4 percent. That includes all of our remaining color cosmetics brands, including Almay, 22.4 percent, which was even with 2001 levels. So, execution, increased marketing support, beginning to show some early signs of results, which I think is very, very positive for our business as we move forward. I think what these trends indicate is that Revlon responds to basic marketing pressure and well planned and executed brand support. It is a good brand, resilient brand. We begin to do some things with our customers and with our consumers that the brand does respond. We are in the early stages of this process, but it looks like our investments are showing signs they are working.

Moving forward into the fourth quarter, we intend to continue to fund higher levels of brand support and we have an aggressive sales plan against which we are executing. Along the way, as you can expect, we are very closely managing this business, very close communication with our customers, very close communication, day-to-day dialogue, with the people that control resources inside of our company to make sure that we are managing our resources and assets carefully.

As we talked about in August, obviously in a business situation like we're in, we are really turning the ship. You know, combine that with economic slowdown that we see both in the United States and in Latin America, where we have meaningful business. You know, at this point in time, it is obviously difficult to forecast precisely our near-term financial results. And that's consistent with what we said back in August. It is true in the fourth quarter, as well as we close out the year. What I do know is that we will continue to invest aggressively behind the brands. We are beginning to see positive market place response and managing it very closely. All of this tells us this is exactly the right thing to do for our brands and our business as we go forward.

Looking out to 2003, we are in the process of developing and really beginning to communicate aggressively to our customers, as we have been for a period of time, our marketing programs for next year. And I can tell you I am very encouraged by the positive response and dialogue that we're having with our retail partners as we plan in detail for 2003. That planning process to make sure that our marketing programs and new products our in store activity gets executed in a quality way is happening in a positive way with our customers.

In terms of some key progress indicators from the quarter, as I always do, I will start on the people side of the equation. We took another important step in the quarter to strengthen our leadership team. We added Pamela Vaile as Senior Vice President Global Product Development, reporting to Deborah Leiben-Yale, who is with us today. Pamela is new product development expert. She has history of success in the industry and she has stood behind a lot of exciting innovation with other major cosmetics companies over the last 10 or 12 years. We are delighted that Pamela has joined the team. She has been on board for about 30 days and will impact our progress going forward.

In terms of new products during the quarter, we introduced ColorStay lash tint, which is really a unique product that both darkens and defines eyelashes for up to three days, tints the eyelash and color stays true for three days. We also introduced ColorIllusion nail enamel which was an on-trend nail color with a prismatic effect. It got a nice response from people across the country. We had strong quarterly shade statement with Amber Ablaze. The take rate was positive from our customers and consumers.

Earlier we talked about Lip Glide, which continues to perform very well. In September, Lip Glide had market share of 3.6 percent and about 2.8 percent market share for the quarter. So, that's heading in a good direction. For the balance of the year, we have a number of exciting new products and programs planned and will carry us into next year, next generation of ColorStay products, including ColorStay overtime lip, which is a dual-ended lip product that on one end provides color and the other shine, which lasts for eight hours. We think this will give us competitive advantage. We will previewing that this quarter in the market place.

We also recently launched, as you know, global cosmetic promotional partnership with the 20th James Bond film. As you know, that film stars Halle Berry. The promotion includes exclusive, limited-edition 007 color collection and the early data points we are getting is excitement from consumers. It has been well received by customers. We are beginning to see excitement with consumers as they see the display in stores.

Finally, during the quarter, I think everybody knows how important it is in terms of the beauty press. We got great recognition from Allure magazine. We were awarded four Best of Beauty awards for Skinlights Solution 1 product, Super Lustrous lipstick brand that has been around for decades. We got award for Luminous Cream Shadow and a ColorStay foundation make-up. Almay was also awarded editor's choice award for Almay Kinetin Skin Care age decelerating cream. These awards are recognition we are climbing on a good track in terms of product activity, which bodes well as we go forward. These awards are voted on by editors and readers of Allure magazine.

We are beginning to see signs of progress in the quality of our marketing and strengthening of our share. I think it is safe to say these are important first steps that create a platform that will build upon financial, meaningful growth as we move forward. Regarding our liquidity, which I know is a question that is on many people's mind. I know there has been a lot of focus on this. Doug will give the details of our liquidity position. What you will hear is that we remain very, very confident we continue to have access to the liquidity we need to run the business. And I think you will see that when you hear our third quarter numbers in terms of our liquidity position from Doug.

Finally, in accordance with Sarbanes-Oxley regulations, Doug and I will certify without qualification that our quarterly report 10-Q does fairly represent our financial condition, our results of operations and cash flows and that we have assessed our internal controls and disclosure controls and that we're confident they work for their designed purposes and that we are not aware of any deficiency in our internal control of any significance.

So, that's a quick update. We're beginning to get traction in the market place, early signs. But, I think will position us well as we move forward to begin to grow this company in a profitable way. Let me turn back to Doug. I will come back and make a couple of comments and then we will take questions at that point. Doug.

Thanks, Jack. I will try to speak slowly, as I have in prior calls. I will give a lot of information. I will try to pause so people can take notes if they want to. Let's start with sales. As a reminder, my remarks are on an ongoing basis. Let's start with sales. Total company gross sales advanced 1.4 percent to 391.8 million for the quarter, compared to 386.3 million in the third quarter of last year. Moving down the income statement, returns, allowances, discounts and other revenues combined increased 3.3 percent to 68.6 million in the current quarter, versus 66.4 million in the third quarter of last year. This increase largely reflected higher brand support spending, partially offset by lower returns and approximately $10 million of licensing revenue stemming from the prepayment by one of our licensees of certain minimum royalties. Net sales of 323.2 million in the third quarter of 2002 were up 1 percent, versus 319.9 million in the same period last year. On a comparable currency basis, net sales for the quarter were up 3.1 percent, versus last year.

Moving to sales in North America. In North America, which includes the United States, Canada and Puerto Rico, net sales for the quarter advanced 1.5 percent to 232 million, compared with 228.5 million in the third quarter of last year. This growth reflected the licensing revenue previously discussed, as well as net sales growth in hair color and color cosmetics, partially offset by lower sales in fragrances, antiperspirants and deodorants and implements.

For international, net sales of 91.2 million in the quarter were substantially even with the prior year third quarter sales of 91.4 million, largely reflecting the unfavorable impact of foreign currency translation in Latin America, deteriorating economic conditions in Argentina and Venezuela, and lower sales in several European markets stemming from production difficulties with our principal European supplier, offset by growth in several markets, most notably the Far East. On constant U.S. dollar basis, international sales grew 7.3 percent in the quarter.

Now, moving to operations. Factory cost of sales, which excludes brand support expenses as a percentage of gross sales, were essentially even with the last year, reflecting cost savings from the Phoenix consolidation program into Oxford, offset by unfavorable mix and the absence of pricing actions to cover higher input costs. Total cost of sales, including brand support as percentage of gross sales, declined 90 basis points to 31.0 percent, versus 31.9 percent in the prior year. This improvement reflected lower sales incentives in the current quarter in favor of other forms of marketing and spending as well as the benefit of the insurance claim in Latin America.

Moving to SG&A. Total SG&A, including departmental and other G&A and components of brand support, increased approximately 10 percent to 175.9 million in the third quarter of 2002, versus 159.4 million in the third quarter of 2001. This increase was largely driven by higher brand support and professional services, as well as higher display amortization, largely stemming from our rollout of new permanent display fixtures, partially offset by lower distribution expenses stemming from our facility consolidation program last year, as well as the elimination of goodwill amortization.

Moving to operating income. Operating income in the third quarter was 26 million versus 37.3 million in the same quarter last year. This decline primarily reflects materially higher brand support and incremental professional resources, partially offset by higher licensing income, the benefit of higher growth sales and lower returns and distribution expenses.

Now, let's move to EBITDA. EBITDA in the third quarter was 52.9 million, compared with 61.0 million in the third quarter of 2001. EBITDA, as defined in our credit agreement for the 12 months ending September 30, was approximately 191 million, which exceeded covenant requirements of 185 million by approximately 6 million dollars. Net loss for the quarter was 17.9 million, or 34 cents per diluted share, compared with net loss of 2.2 million or 4 cents per diluted share in the third quarter of 2001.

Now, let's move to cash flow and liquidity. Capital expenditures in the quarter were 4.6 million dollars, versus 1 million in the third quarter last year. For the year, we expect our capital spending to be approximately $15 to $20 million. Permanent display spending in the quarter was $18.9 million, versus $6.3 million last year. We expect permanent displays spending for the year to be approximately 65 to 70 million dollars. Cash restructuring expending, which includes additional consolidation cost and severance payments, was 7.5 million in the quarter. We expect cash restructuring spending for the year to be approximately $35 million.

Our liquidity at the end of the quarter from all available liquidity sources was approximately $122 million, including availability under the revolver of $32 million and unrestricted cash of $50 million. Now, to break it out for you. The composition of our bank credit agreement borrowing at September 30, 2002, was the term loan facility had outstandings of 117.9 million, multi-currency revolver 73.5, and letters of credit issued, but undrawn of 26.2 million. Now, to answer a question before it comes. Our liquidity is currently approximately $126 million. For the quarter, interest expense was 40.1 million versus 34.1 million last year.

Now, let's turn to customer inventories. Following four consecutive quarters of decline, estimated inventories in the U.S. of all our products as provided by our top seven accounts, including the top three MBRs and top four drug customers, which represents approximately 70 percent of our U.S. volume, increased for the third quarter versus estimated inventories for the second quarter. During the third quarter, however, two of our top customers changed the manner in which they estimate inventories, which resulted in higher inventory estimates for the period. These changes were not made retroactively into the second quarter. Therefore, the comparison to the second quarter is not meaningful because it uses the old methodology for these two customers. We believe, however, on an apples to apples basis, estimated inventories for the top seven accounts would be approximately even with last quarter.

For your reference, specific data is as follows. The customer inventory at the end of the third quarter 2002 were 332 million, which compares to 306 million at the end of the second quarter 2002, but remember that second quarter reflects the old methodology for those two customers. Our top customers, however continue to maintain a focus on reducing inventory and have implemented improved supply chain management systems to enable them to do so.

Now, let's turn to consumption and market share data. As Jack discussed, we gained traction in the market place during the quarter. Behind the strength of improved execution and more and better marketing, as you know, our market share and consumption data is of the U.S. mass market according to Nielsen, which excludes Wal-Mart Regional mass volume retailers. This data is an aggregate of the drug channel K-Mart, Target and Food and Combo Stores and represents 60 to 65 percent of the company's U.S. mass market dollar volume.

In terms of dollar consumption, the Revlon brand registered a 3 percent increase in dollar consumption for the quarter, marking its third consecutive quarterly consumption gain, versus a year ago. The consumption increase in the quarter was driven by an 11 percent consumption gain for the Revlon brand in the month of September, benefiting from our increased levels of marketing investment. By contrast, Almay's consumption was off 5.2 percent in the quarter.

In terms of market share, the company's total color cosmetics dollar market share for the third quarter was even with last year at 22.4 percent. Importantly, the Revlon brand registered a 60 basis point improvement in share versus a year ago to 16.7 percent. We continued to narrow our share decline on Almay to 20 basis points versus a year ago and a share of 5.5 percent in the quarter. In other categories during the quarter, the company gained share versus a year ago in hair color and antiperspirant and deodorants, while share declined in skin care and implements.

Let me take a moment to elaborate on the European third-party supplier situation I referenced earlier. We have an agreement to revise our supply agreement with our principle third party manufacturer for Europe and certain other international markets. The new supply agreement is intended to provide the parties with the needed flexibility to adapt to the changing needs of the marketplace and to help Revlon create a more efficient supply chain. Under the new arrangement, Revlon will make payments to Cosey-ph, the third party supplier, of approximately 6.3 million dollars over a four-year period, contingent upon Cosey-ph achieving specific service level goals. In exchange for terminating the previous 8-year supply agreement, under which Revlon had a minimum purchase obligation, we will waive Cosey-ph's obligation to pay deferred purchase price arising from the Revlon sale of the Misack-ph facility to Cosey-ph on July 31st, 2002, which was payable over a six-year period. A portion of which was contingent upon certain future events.

With this new supply agreement, we were able to continue an important relationship with a key supplier for Europe and at the same time, add the flexibility that we need to serve the changing needs of our customers going forward. More importantly, we believe this new agreement will lead to significant supply chain efficiencies for Revlon.

Before I open up the call to Q and A, let me address what I would imagine is an obvious question you might have. Which is whether we anticipate meeting our fourth quarter bank covenant? As we said back in August at our investor meeting, our program to strengthen the business is a three-stage process. We have already completed the cost rationalization stage and we are now in the stabilization and growth stage of this process. During this stage, our primary focus is on driving consumption, which will in turn generate sales and long-term profit growth. Given the improvement in consumption, we have seen as a result of more and better marketing support in the third quarter, we will increase brand support materially versus a year ago in the fourth quarter.

While we believe we have an aggressive plan in place to drive strong sales growth, the uncertainty of the U.S. retail environment coupled with the lingering economic difficulties in several Latin American countries, makes predicting precise levels of EBITDA performance particularly difficult at this time. Therefore, we are uncertain at this point as to whether or not we will achieve the EBITDA levels necessary to achieve the financial EBITDA covenant as defined in our credit agreement. Let me state that if we are unable to meet the covenant, which increases from 185 million in the current quarter to 210 million, we are very confident we will be able to work through that circumstance with our lenders.

Now, regarding our liquidity. Let me reemphasize what Jack said earlier. We are highly confident that we have access to the liquidity we need to run the business. Now, let me quickly turn to Jack before moving to Q and A.

Thanks, Doug. Let me reiterate where we are. We got a great business with great brands. Maybe the way to think about it is Revlon has a name. It is right now bigger than the business. Our strategy is to make the business as big as the name. And through the execution focus on the business, through strengthening our marketing programs and bringing excitement to the marketplace, everything that we have seen over the last six months says we can do exactly that. So, we have great brands and the team in place closely managing the business. We do have adequate liquidity to move us forward. So, I think that probably is as good summary as I can provide at this point in time. Why don't we open up to your questions.

At this time, if anyone should have questions press * 1 on your touch tone phone. At this time, if anyone should have questions, press * 1 now. Our first question comes from George Chalhoub.

Good morning. Jack, you and Doug have clearly stressed the fact you are confident with the liquidity. However, the liquidity continues to go down. I think on the last conference call, when we were talking about Q2 numbers, the statement was made by Jack you would be cash in the second half of the year and that I think he also said in Q3 - obviously liquidity is down in Q3 versus Q2. It sounds like you are going to spend more branch support, which is not necessarily a bad thing. I am concerned with how can you have a very high level of confidence when clearly the trend is for more branch support, if liquidity continues to go down, I don't see cash generation in Q3 and I don't see it in Q4 coming through.

George, I appreciate the question. We can hit that one head on right now and then focus on the underlying factors in the business which are so important. I think first of all, just to make sure we communicated accurately and correctly, what Doug said, we as of the end of October, we had 126 million dollars of liquidity, which I think would mean we are within 3.2 percent of where we were at end of the third quarter - end of the second quarter. If it is down, it is down by $4 million, versus where we were at the end of the second quarter. So, I think we are virtually in the same place as a practical matter, George. We have to start there. We are at 126 million dollar level of liquidity. And I think we can agree that the investments we are making are in fact strategically important.

The other side of the equation is, as you know better than anybody, the gross margin structure in our business, you know, we have basically 70 percent gross margin after cost of goods and after distribution costs. So, as we invest behind our customers and our brands, we get a significant amount of gross profit throw as we go forward. We are just beginning in that investment process. There is some immediate impact, but there is also a time lag as we get the shipment benefit from increased consumption that we are now beginning to see.

So, we start with that premise and know we have a high-margin business. Then, you have to keep in mind as we look into 2003 as we've stated publicly in our 10-Q, we do have access to beyond the 126 million. We do have access to the line from McAndrews and Forbes, and that has been outlined in the 10-Q previously. I think most importantly, we have supportive principle share owner who is excited about the business and wants it to work. I think that that 40 is included in the 126. I think it is important to point out that we have a very supportive principle share owner who is very, very excited and very positive about the underlying improvement in the business that we are beginning to experience.

Are you in talks with the banks at this point in time? You clearly were within a stone's throw from the covenant. I personally don't think you are going to make it. I think Doug is clearly trying to help us expect that. Are you talking to those folks to see if they can give you early relief and potentially maybe - I don't know, more liquidity, too?

Yeah, one thing we have always done, been in constant dialogue with the banks. I have met with the major banks in our group. I think it is safe to say they understand exactly where we are and see the same underlying trends beginning to emerge. I will say beginning to emerge, that we do and we communicated today. I think what Doug said is accurate. You know, it is tough to predict in this kind of environment exactly where we will land. But, every conversation we've had and every underlying business indicator says we can move our way through this situation and position ourselves for longer term success.

What was the benefit from that payment by licensee for the top line?

If I understand the question, is they paid us about $10 and-a-half million at the end of the third quarter.

Basically Doug, if you normalize third quarter sales for that $10 million it would have been down by close to $7 million in the U.S..

As I said before, that is one reason we break out. Gross sales were up by $5 million. Gross sales is purely shipment information, does not include licensing or anything like that. So, actually shipments were up by $5 million. That is notable because it has basically been down every quarter for two or three years. Shipments have turned the corner. Obviously to get to net sales you have certain brand support expenses, you have other types of revenue like licensing, which is the way we normally account for it.

I know, but Doug, what I am saying is your returns were 78.6 in Q2. They are up to 68.6 in Q3 . Sounds like most of the drop is the $10 million drop in the benefit.

Actual returns - remember, between gross sales and net sales, the incentive accounting has added a lot of items into that which are not normally there. To try to be very specific, our returns, which are returns of product, was actually down 2.4 million dollars. OK. We had - let's call it unusual license payment of 10, but other licensing revenues in there, as well. Our brand support expense, which we include that, was materially higher than it was in the prior year.

I know. I am trying to focus on the one-time payment you got. I think the point I am trying to make, Doug, if you normalize the quarter for that prepayment to get to net sales and net EBITDA number, I think both of the numbers would have been materially lower than the 323.2 and 52.9 EBITDA. Am I ...

George, your math is correct. I think at the same time, I think it is important to remember that we had - if you want to think about the licensing activity this way. The priority of this business is to focus on building consumption and stabilizing and now beginning to grow our market share position and strengthening our position with retail customers. That's the strategic focus of the business. To the extent we did a licensing agreement and your math is very good, that licensing arrangement helps us fund the growth that is important to our success going forward.

Right. Absolutely. I am not (inaudible) net benefit going forward. All I am saying, trying to look at Q3 and look on a normalized way to see exactly how the performance went. Some of the numbers we're talking about are little bit higher because of the slight agreement giving you boost of the top line.

It helps at the level. As Doug pointed out, it grows. We shipped more product than we did a year ago. That is the first time in probably how many quarters, Doug?

A while.

A while. That is the best indicator of the sustainability and getting that traction in the marketplace.

Thank you.

Next from Wendy Nicholson.

Couple of questions. In terms of target impacting cash flow, such as permanent displays, as well as cash restructuring, I think the targets you provided today are little bit higher than what you had provided back in August. So, could you help me understand what changed over the last two years - 2 months, excuse me.

One is just to go through items one by one. The first is capital expenditures. That is approximately what we had before, I think. The display - permanent display spending, you know, we estimated how many doors we would put in about 6,000 6,500. We might be slightly ahead of that. There are other costs in there. So, I think that was 60 to 65. We just upped it by 5. I wouldn't be surprise if it is around the low end of the range. Cash restructuring, I think we said 30 to 32 million before. That went up basically because of the Cosey-ph transaction we discussed before, restructuring of the contract. It will add from 2 to 4 million dollars in the quarter for restructuring.

OK. In terms of your Her Wall, it sounds like you are actually going to open it up - or going to have more doors at the end of this year. Can you tell us sort of what have you seen thus far in terms of the recent successes driving customers in?

Yeah, we're seeing lists that range anywhere from low single digits up into the low teens, if you want to think about it that way. It depends on the customer. So, we're very excited about what we are seeing and we will continue to roll the Her Wall out aggressively next year. I think the other thing I would say, we will continue to make refinements, not structural refinements because we have the right structure. But, as we look at the graphics we apply to the Wall, we are doing testing in terms of the level and amount of graphics we are putting on the wall and the messages we convey. We are doing testing with a number of customers and seeing nice impacts there, as well. We will continue to be aggressive next year with it. Probably the best indicator, Larry Aronson is here and can reinforce this. Our customers are seeking more and more, which tells us that it is working for us and for them.

OK. Lastly, your increase in brand support, it clearly helped your Revlon brand, yet consumption was still down for Almay. Is it safe to assume most of the increase in promotion support was dedicated to the Revlon brand?

Yes, that is right. And Liz Kenny-ph is here today, who runs the Revlon brand. She is nodding and saying if she develops her strategy, which she has underway right now, we will look for ways to significantly reinforce Almay, as well. We will do that when we are confident we will get the right pay-off and have the right message and brand strategy there, which we are developing as we speak. Revlon is under Deborah's leadership, is - we're probably months ahead on Revlon. You're beginning to see the traction and we will begin to go through the same process with Almay. But, we very much believe and know this brand will respond, as well.

OK. Thanks.

Our next question comes from Mitchell Spiegel.

Just a couple of questions. I guess the only major one is could you quantify the benefit from the insurance receipt during the quarter?

Doug?

2.5 million dollars.

Back to George's question on the royalty being kind of a one-time event. What is the period for that payment relates to? Was the contract for a year or two years? If we were to allocate it appropriately, how would we do that?

It is complicated. It prepays minimum royalty payment through 2005. So, three years. It was a revision of existing contract where various things changed. That ended up being the payment.

Last question, do the banks allow you to add back the full 10 million and 2 and-a-half million insurance benefit?

Uh, well I wouldn't even consider add-back. It is ongoing income. The answer to that is yes.

Our Next question comes from Tom Shandle-ph.

The mention of the insurance claim, how much was that?

About $2.5 million.

That runs as reduction of cost of sales?

Yep, most of it. Not every penny, but most of it.

OK. Thanks.

Once again, if anyone should have questions press * 1 now.

Let me just ask Deborah just to give us a sense of some of the product flow that is coming down the pipe late this year or early next year. There is exciting stuff coming. It might be worth Deborah taking a moment to do that.

George, it will be an exciting period for us. We have not only the products that Jack referenced that began to see positive results in the third quarter, including ColorStay Overtime lash tint, which the second wave comes in Q4. We are seeing other products down the pike in Q4. We are previewing ColorStay Overtime lip, which is entering into the long-wearing or new generation of long-wearing lip products with unique advantages versus other products in the market place. That is actually on certain customers' counters today. We are seeing positive signs of early benefit.

We are in the market with the fourth quarter with the Bond event that will sell products in the specific limited edition color collection, but will halo total Revlon brand. That promotion runs through the entire fourth quarter. That will allow us to take advantage of the integrated marketing, which is the first sign you would see of 360 marketing from the Revlon brand. As we referenced that in our August investor conference, we want to connect the pieces so consumers see Revlon and see united imagery and understanding of where our core position is.

In addition, we will also have events on counter, including Illuminance event. Illuminance is an eye shadow category that has had tremendous success and showing double-digit growth. We take advantage of the core brands like ColorStay, it is important to leverage across each element of the category. As we head into next year, while we won't be specific today on the new products, we are launching a major new lip product that will debut in January, that will have a unique positioning, vis-a-vis the lip marketplace. We will share more with you moving into the next quarter. So, as you might imagine, we have great deal of marketing support behind all of these initiatives. It will be of the same pressure and importantly of the same quality and integration that we have begun to see in the month of September and heading into October.

Follow-up from Tom Shandle-ph.

I apologize before. I was away from the phone and thought I would be very long before I got called on. People are at another function this morning. I guess, could you talk about working capital investments going forward toward the end of the year and what the seasonality is with respect to cash that might be used or not used or generated from working capital? I believe your last - big coupon was paid in August. If you can address the flow of interest payments.

Maybe Doug will take that one.

Biggest payments are January 31st and August 1st. Semiannual. In terms of working capital, in third quarter we generated $10 million of cash from working capital. It is hard to predict what will happen in the fourth quarter, but maybe I can answer it this way. It depends when the sales come in exactly. But, we do expect increased sales with increased receivables, but we also expect to dramatically reduce inventory levels from where they were today for year-end. We have been building inventory since the summer for the new product launches that will be shipped in the fourth quarter, January, February and March. People are plan-o-gramming earlier than before. On working capital, we started major focus on working capital. We think over the next six to 12 months we can generate significant amounts of cash from working capital management, which we have not done previously.

OK.

I think from what I understand, that is the last question. Let me just tell you how much I appreciate your focus and interest on the call today. You know, we're beginning to take the steps we need to take to strengthen the business and as I said before, you know, everything points to the fact based on our consumer research, customer dialogue and really with all of our key constituency we have a resilient brand and one that responds well to effective marketing pressure. Ultimately moving forward, you will see that translate into strengthening cash flow and profitability. We will keep you very much posted all along the way. We appreciate all your support. Thank you very much.

This concludes today's call. Thank you for attending.