Revlon Inc (REV) 2003 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Revlon's first quarter 2003 earnings conference call. At the request of Revlon, today's conference call is being recorded. If you have any objections you may disconnect at this time. And now I'd like to introduce your host leading today's meeting Miss Maria Sceppaguercio, Senior Vice President, Investor Relations. Ma'am you may begin.

Thank you Lisa and good morning everyone, including those of you listening via the web. Earlier this morning, we released our results for the first quarter, including a correction to clarify certain cash flow information. If you haven't received a copy of the final release, you can get one on our website at www.revloninc.com. In connection with the SEC's new Regulation G, we are no longer recording our results on an ongoing basis, which as you know is a non-GAAP measure. To help you understand our results on an as-reported basis, we have provided details of certain charges in our press release.

In addition, we are continuing to report adjusted EBITDA, which as you may recall, we define as net earning before interest, taxes, depreciation, amortization, gains and losses on foreign currency transactions, gains, or losses on sale of assets and miscellaneous expenses. In accordance with Reg.G, we have reconciled adjusted EBITDA to cash flow from operating activities and net loss, which we believe are the most directly comparable GAAP, financial, and performance measures respectively. This reconciliation was attached to our press release, issued earlier this morning and is posted on our website.

As you know, in February the Revlon board accepted a substantial investment from Andrews and Forbes, that included both dept and equity components. Because we are in registration for the equity rights offering component of the investment, we must limit our remarks to actual results and information contained in our registration statements. Therefore the Q&A portion of today's conference call will be strictly limited to the results of the quarter.

As we have previously indicated, we expect to consummative the rights offering, during the second quarter of this year. Finally, before I turn the call over to Jack Stahl, Revlon's President and CEO and Doug Greeff, Revlon's Executive Vice President and CFO, I would like to remind you that our discussion this morning 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 of form 10-K and press releases, including the releases viewed today.

And finally as a reminder, our discussion this morning should not be copied or recorded. With that, I'll hand it over to Jack.

Maria, thank you and good morning everyone and thank you for participating today. We appreciate very much. With me today, I've got most of my senior leadership team and you'll hear not only from Doug, but from Debra Leipman-Yale who runs the Revlon brand, Liz Kenny who has responsibility for our portfolio brand, including Almay and I may draw on David Kennedy as well who is here relative to our international business. But before Doug takes you through the numbers, I thought I'd give you a quick update on progress in our business since the last time we talked about six weeks ago.

Safe to say, I do believe that we have made a great deal of progress at Revlon over the last twelve months or so and as we've talked about in the past, our initial focus was on day to day execution to make sure that we were meeting our commitments to our retail customers and then we began to step up significant pressure against our consumers with our marketing effectiveness, as well as focusing on our organizational strength inside of Revlon, and I think we are making very good progress on our overall plan.

Now, the way we think about that plan and we've talked about it consistently is, the first phase of the plan was cost rationalization and, where we closed production plants and reduced our administrative cost and that phase was really completed before I arrived at Revlon and that was really completed in 2001. The second phase of our strategy which we're in today, we developed a detailed action plan around last year based on very in-depth consumer research, as you may recall, and market testing with a number of our customers and we're calling that the stabilization and growth phase of our plan. This the heaviest investment phase of our plan and we recognize that, and we have communicated that, and it does involve increasing our advertising levels, our media spending, it involves significantly increasing the effectiveness of our consumer pressure, it also involves significantly strengthening the way we appear in store, with our wall displays and really our total consumer experience that we bring to life with Revlon, inside of our retail customers. It involves revising our pricing strategies on a few, but important key SKU's and strengthening our new product development process. So all of those things are underway and we believe we're beginning to make progress there.

The third phase of our plan, which we'll call the accelerated growth phase, and at that point we would expect all of these levers to work together to deliver strong revenue and earnings performance over the long term and we certainly recognize that's our obligation to ourselves and those of you who've have invested in our business. So I am pleased that the actions that we're taking in line with this gross -- growth plan are continuing to result in improvements and I'll focus first on market share.

Obviously the category this year in the United States, has softened considerably over the last several months, I don't think that should be a surprise to anyone; we do we believe its due principally to the uncertainties that are currently weighing down our economy. But even in this environment, with those factors that are difficult to control, we are taking the right actions to grow our brands and strengthen our business and there's no question that, based on every customer contact that I've had, every contact with retailers that I've had, our customers are very eager and enthusiastic about partnering with us to drive growth and excitement inside of their stores with the Revlon brands and with the Almay brands as we go forward.

As we've looked at the remainder of 2003, we do believe that our ability to execute, meet our commitments, see our marketing brought to life in store; you'll see that become increasingly evident in the marketplace and we are already beginning to see it through our promotions and through our advertising. The effectiveness is beginning to be evident in the first quarter. Both our gross sales increased, and we saw gross sales increase in the forth quarter, but importantly, our net sales as well we're up above 2002 levels in the first quarter of 2002, compared to 2001; and that's the first time that's happened for our company in several years where we've had a net sales increase. So we believe that's a good leading indicator that our business is moving in the right direction, on top of significant market share gains that we've experienced year-over-year for the last six or seven months as we look back.

Now let me quickly share with you some of the important actions that we're taking and a few highlights of the quarter, which we believe will, over time, have a positive impact on our business and not only that but actually impact on a category in the United States as well. In the last few weeks, what we're calling our 360 degree brand experience, we're beginning to bring that to life. You've seen, I hope, the launch of our new television and print advertising on both Revlon and Almay and we really began to turn on our advertising, I would say the beginning in the fourth week in March for Revlon and Almay and we're beginning to see that come to life. This advertising, leverages our brand strength consistently across all forms of our communication, including in store graphics, which are beginning to flow out in the marketplace and obviously our media. Initial reaction that we've seen to the new advertising and positioning, which was based on the extensive research that we've done, has been very positive from consumers and from our retail partners, and I'd encourage you to look for our new -- four of our new Revlon commercials and four of our new Almay commercials.

Our momentums in the marketplace in the form of share growth, all-be-it in a somewhat soft category, again translated into improve sales performance for the company for the second consecutive quarter. Gross sales increased about 8% in the quarter, and importantly, our net sales were up about 6% in the quarter. Our growth came both from the United States and international, contributing to this, what we believe is a solid sales performance in the quarter.

In the color cosmetics category, the company grew market share in the United States by 80 basis, points to 23.2%, with the Revlon brand advancing about 110 basis points, to 17.2% and Almay increasing 20 basis points, to 5.9%. The difference there is the -- primarily the Ultima brand, which we are de-emphasizing as part of our growth strategy overall. So a continued healthy performance. I believe, Maria, that's the seventh consecutive month of year-over-year share gains for the Revlon brand, -

Yes.

-- and with Almay now being up four months, --

Four consecutive months.

-- four consecutive months as well. So it's also important to point out Almay, we're still really in the strategy development phase, but we have gained share, even in that environment, over the last four consecutive months.

As you may recall we significantly increased our brand support and our spending levels in the second half of last year and our business did respond very positively, in terms of improved consumption and market share trends. So we began the heavy investment stage late last year, obviously that continues as we go forward in 2003. In the first half of the year, we're comparing against a year-ago level, where the investment levels were still at much lower levels and the comparisons become a little bit more normalized as we get into the third and fourth quarters of the year. But importantly, we are getting responsiveness in terms of market share growth, gross sales increases and net sales increases.

A good example of how our improved marketing and execution plays out in the marketplace is in the area of new products, and this morning, our team was looking at new product success in the first part of 2002; Neilson actually measures the top 20 new products. Last year's first quarter I believe we had two products in the top 20 and I'm please to report that during the first quarter of this year, Neilson would report that 9 of the top 15 new color cosmetics products as tracked by Neilson, were either Revlon or Almay brands, 9 of the top 15. Again these are initial sighs of progress, not meant to over state the case, but you can't help but be encouraged by what we're seeing in a number of these important areas.

At this point I'm going to ask Debra who heads up our global marketing for the Revlon brands and then Liz Kenny who heads up our portfolio brands, to share with you some of the specific new product highlights with you. So I'll just turn it over to Debra.

Thanks Jack. Let me start by saying how pleased I am with the traction we are gaining in the market place on the Revlon brand as we roll out the growth plan. And I think the early results we are seeing on these new products, while early, are encouraging, specifically, ColorStay Over-Time Lip color, which as we talked about before, is a unique dual-ended product that provides 8 hours of lip color with shine, was previewed in December with 8 shades, but wasn't really launched nationally until January. And because of that, it's not included in that new product ranking that Jack mentioned a moment ago. I do think it's worth noting however, that if it had been included in that ranking, ColorStay Over Time Lip Color would have been the number one new product launched in 2003, and by all indications it is off to a great start.

The second product, also a part of the ColorStay rejuvenation we've talked about in the past, is ColorStay Stay Natural, face make up, a natural long-wearing foundation, and ColorStay Always-On nail enamel, were both launched in January and are both also off to a great start and are in those top 15 new products. In addition, Revlon recently launched Moisturous, which is a unique 24-shade line of refreshing hydrating lip color that has a triple-patented technology not found in any other product that instantly infuses lip with 100% moisturization. Moisturous [inaudible] is also off with good early results as the number three-ranked product in the first quarter of 2003.

Shifting for a moment to the Revlon hair color side where Revlon is the fastest growing manufacture in the first quarter, we've added some excitement and news to our new high dimension hair color business, with the introduction this quarter of a product called High Dimension Color Accents Highlighting Accents highlighting kit. This new line is also backed by patent-pending technology and it simplifies the process of highlighting hair. It's a great complementary category for our Revlon color cosmetics business and also, also seeing some very early positive results. So clearly, we have a lot of activity going on the Revlon brand. And as Jack said, while it is early, the indicators would appear to be quite positive.

Now I'd like to hand it over to Liz to comment on the Almay brand.

Thanks Debra. I going to start by reiterating Debra's sentiments that I too, am very pleased with the results that we are beginning to see on the Almay business. In particular, I'm pleased, given that we are still in the testing phase of our long-term strategy and therefore have not yet implemented all the levels of growth, that we believe will prove to be effective on Almay.

We benefited from some early learning, which we have begun to implement and which we believe is helping to drive the traction that we're seeing today in the market place. In terms of new products for the quarter for Almay, in January, we introduced Almay Bright Eye. This is an exciting new line of eye products that create the illusion of bigger, brighter looking eyes and it includes Bright Eyes color cream shadow, Bright Eyes mascara, and Bright Eyes defining color duo eyeliner.

We also recently introduced Almay Nearly-Naked, a super lightweight liquid foundation that features a unique, touch pad delivery and this is the first touch pad liquid makeup available at [indiscernible]. All of these new Almay items made the top 15 new products list and we believe we're off to an excellent start in the market.

Now I'd like to hand it back to Jack.

Okay. Let me just take a moment to focus on our international business just for a second, because I think its safe to say that many of the things that David is initiating overseas, draw upon the work that Debra and Liz are doing here. Our international business is beginning to strengthen in some key markets and that's evidenced by our sales performance, which was particularly strong in the UK, South Africa and several markets in the Far East. We have stepped up our marketing efforts in these important markets and we're beginning to see some responsiveness to our programs and improvement in our sales trends. One good example is the UK where our consumption growth significantly out-paced out of the category, with both Revlon and Almay contributing to the increase.

David, do you want to add anything just to my overall comment there?

Jack, in the international business we're seeing the benefits of new products. As you know, in certain cases we launched those new products somewhat after they do in the United States. Now a great example is in the UK where, again, mirroring the strategies that we're rolling out in the US, we're launching effectively Skin Lights, for example, Lip Glide is performing very well as well as Almay Bright Eyes.

Great. That's just one example internationally but if these initiatives take hold here, our folks outside the US are quick to capitalize on them and you can expect that to be a pattern [point] going forward.

So to summarize, before I turn it over to Doug, we believe we are making steady progress; we're on track with implementing our growth plan. We recognize that we we're making a significant investment in the business, but we have attracted the resources that we need that will enable us to make progress as we go forward, as we begin to build the platform for long-term profitable growth. So with that, I'll turn it over to Doug for review of the numbers for the quarter.

Thanks Jack. Let me start by updating you on where we are in terms of the expenses associated with the implementation of our growth plan. On the last call about six weeks ago, we said that we expect the aggregate charges related to the stabilization and growth phase of our plan, over the 2002 to 2004 period, would be no more than $160m and that we had expensed approximately $104m in 2002.

In the first quarter of 2003, we expensed approximately $11m associated with the implementation of the plan, bringing the cost of the program, including the 2002 charges, to approximately $115m to the first quarter of 2003. These expenses cover the following activities associated with the plan, that as you know, we began implementing last year. First, sales returns for discontinued SKU's, which as you know, reduces net sales. Sales allowances for selected price adjustments, which also reduces net sales. The cost of rolling out reconfigured wall displays, which is mostly merchandiser labor to reconfigure the wall, this increases SG&A. Inventory write-downs for discontinued SKUs, which increases the cost of goods sold. Also, returns in inventory and inventory write-downs relating to a selective product rationalization. Also, expenses for professional resources relating to research, development and the execution of the plan, which increases G&A. And there are other minor miscellaneous expenses.

It is important to note that there estimates of the growth plan charges do not, let me repeat, do not include any increased brand support expenses or any increase in training and development cost for our employees, which we view as on-going business expenses. And finally, let me remind you that in accordance with GAAP, there is no differentiation or segregation of these charges in our GAAP financial statements.

So turning the numbers for the quarter on a GAAP basis, let’s start with sales. Total company sales advanced approximately -- gross sales, approximately 8% to $368m in the quarter, compared to gross sales of $341m in the first quarter of last year. This solid performance reflected growth from both the US and international markets. Returns, allowances, discounts, and other revenues combined, grew 15% to $75.5m in the [third] quarter versus $65.7m in the first quarter of last year. This increase reflected the growth in sales and an increase in returns and allowances associated with the company's growth plan.

Net sales for the quarter grew 6% versus a year ago to $292m, versus $275m last year, reflecting the growth in gross sales. Moving to regional results. In North America, net sales were up 4%, to $205m in the first quarter, compared with $196m in the same period last year, reflecting strong growth of color cosmetics and to a lesser extent, hair color.

For international, net sales advanced 10% to $87m, versus $79m last year, driven by the growth in the UK, South Africa and several markets in the Far East, as well the benefits of favorable foreign currency translation, partially off set by softness in Brazil, and Mexico. Excluding the impact of foreign currency translations, net sales advanced 5% in the quarter.

Now moving to our operational results. Total cost of sales, including brand support as a percentage of gross sales, declined 170 basis points to 30.3%, versus 32.0% last year. This improvement was driven by lower factory cost of sales and lower brand support in the form of [BOGO] type spending that impact the cost of sales.

Moving to SG&A. Total SG&A, including departmental expenses and other G&A and certain components of brand support, increased 10% to $184m in the first quarter, versus $167m in the first quarter last year. This increase was driven by higher brand support and higher general and administrative expenses, including cost associated with the company's growth plan, higher compensations, including higher medical and pension expenses and higher depreciation and display amortization. Partially offsetting these factors was the absence of executive severance in the current quarter, versus $6.5m expensed in the first quarter, last year.

In the first quarter, the operating loss was $4.2m, versus an operating loss of $ 4.3m in the first quarter last year. This performance included the impact of approximately $11m of expenses in the current quarter associated with the company's growth plan, as well as the net benefit in the current quarter of about $10m, stemming from the absence of executive severance and significantly lower restructuring expenses this year, versus last year.

Also impacting operating performance for the quarter was the benefit of the growth of sales --- in sales, offset by higher brand support and higher general and administrative expenses.

Now turning to adjusted EBITDA. Adjusted EBITDA, which as you know is a non-GAAP measure. We define adjusted EBITDA as Maria mentioned earlier, as net earnings before interest, taxes, depreciation, amortization, gain or losses on foreign currency transactions, gain or losses on the sale of assets and miscellaneous expenses. In the first quarter, adjusted EBITDA was $23.4m, versus EBITDA of $19.1m last year. This performance included the impact of approximately $11m of expenses in the current quarter associated with the company's growth plan, as well as the net benefit in the current quarter of $10m, stemming from the absence of executive severance and significantly lower restructuring expenses this year, versus last year.

Net loss in the first quarter was $47.8m, or 93 cents per diluted share, compared with a net loss of $46.1m, or 88 cents per diluted share in the first quarter of 2002.

Now let’s move to cash flow. Cash flow used from operating activities was $60.5m in the quarter, versus $41.7m last year. Capital expenditures in the quarter were $4.7m, versus $1.9m in the first quarter last year. For the year, we continue to expect capital spending to be in the $25m to $30m range.

Permanent display spending in the quarter was $21.0m, versus $14.9m in the first quarter of 2002. For the year, we continue to expect our permanent display spending to be approximately $75m to $85m. Cash restructuring spending, including executive severance was $4.7m in the quarter. For the year, we continue to expect cash restructuring spending to be approximately $10m to $15m.

Now turning to liquidity. The composition of our bank credit agreement borrowings at March 30th 2003 was outstandings under our term loan facility, or $116.6m, outstandings under the multi-currency revolver were $105.1m and letters of credit, issued but un-drawn, were $21.9m. In addition, $15m was drawn under the $100m term loan from the Mcgandrase and Forbe's (ph) financing we secured during the quarter. As you know, on February 5th, we announced that the Revlon board had accepted enhanced proposal from Mcgandrase and Forbes to invest up to $190m in Revlon in 2003 with an additional $25m of liquidity available to us in 2004. At the end of the quarter, our liquidity from all available liquidity sources, was approximately $203m, including $85m under the M&F term loan, $50m available under the rights offering preferred stock agreement. A $40m line of credit, from Mcgandrase and Forbes, as well as $5m of availability unto the multi-currency revolver and $23m of unrestricted cash and finally cash interest paid in the quarter; first quarter of 2003 was $42.8m.

Now turning to the market place. As Jack discussed, we maintained our recent traction in the market place during the quarter, behind the strength of improved execution and more and better brand support. As you know our market share and consumption data, is of the U.S. mass market according to A.C. Nelson, which excludes Wal-Mart and regional mass volume retailers. This data is an aggregate of the drug channel, K-Mart, Target and food and combo stores and represents approximately 60% to 65% of the company's U.S mass-market dollar volume. In this measured channel, the category declined approximately 6% for the quarter in color cosmetics. Our consumption of color cosmetics declined, Revlon's consumption 2.6%, primarily reflecting reduced distribution of the Ultima brand.

Importantly, the Revlon brand grove consumption modestly in this measured channel, as our performance exceeded that of the category, we grew our total company color cosmetic share by 80 basis points to 23.2 for the quarter. The Revlon brand grew share 110 basis points in the quarter to 17.2 verses 16.1 in the first quarter of 2002. Almay share for the quarter was up 20 basis point to 5.9 verses 5.7 in the first quarter of last year.

In other categories during the quarter, the company gains share verses year ago, in hair color and antiperspirant and deodorants, while share declined in skincare and implements. Finally, as mentioned earlier, we are currently in registration for the equity rights offering, which limits what we can discuss with you today, to our results of the quarter. I will point out that we will be amending, our September 30th 2002 10-Q, to make a few minor wording changes, requested by the SEC as part of our registration process for the rights offering. For example, the SEC has requested that we change the word "we" in certain items discussing our controls and procedures to change "we" to read the “CEO and CFO”, with that I'll it back to Jack for some closing comments, before we open it up to Q&A.

Thanks Doug. Just very quickly, I'd like to leave you with a couple of key thoughts. Again, we do believe we are continuing to see, good initial signs of progress in our results, both in what we report externally, but even more importantly what we see in the day-to-day activities that occur behind the scenes, to drive our longer term results. As we move forward we do expect to continue to make progress, obviously these things are never going to be a straight line, but day-to-day and week-to-week and now quarter-to-quarter, we are making continuing progress.

We do believe and have confidence that we're a company with great brands, that generate a tremendous amount of energy for our customers, we're going to be meeting with our largest customers over the weekend and early next week at the chain drug store convention in Florida. We're very excited about what we're going to present to them and we have confidence that we're going to capitalize on the energy of our brands and our people and our retail relationships, so that we continue to position ourselves, for long term profitable growth overtime.

So with that, we'd be delighted to take any questions that you all have.

Thank you. And at this time, if you would like to ask a question, simply press star one on your touch-tone phone, if you're using speaker equipment, please lift your hand-set prior to pressing star one. To cancel your question is star two. Once again that's star one to ask a question and star two to cancel. Our first question comes from George Chalhoub with Deutsche Bank, you may ask your question.

Hello George.

Hi, excuse me good morning. Jack in looking at looking at the rest of the year, I'm just trying to understand, how do we assess potential early signs of success. In terms of measuring what's already been spent on the big plan, call it $115m in total verses $160m, up to $160m as a maximum progress, that's over 70% of the money, already spent. We have not seen yet, the pick-up for example in EBITDA that should get the company on a stand-alone basis to be able to survive going forward beyond '03. And obviously with the cash burn rate being very strong especially in this quarter, close $60m. Are we to expect Jack that as the benefits of what management is doing right now, start being reflected in the numbers? Looking into EBITDA, maybe in Q3 or Q4 of this year, we start reproving to the point, whereby the company becomes close to some funding. I'm just trying to understand the time line, or the sequential line of events here, that should get us to start looking at a cash flow improvement, you're not saying improvement is good, but it's really coming with a lot of bad support which is weighing down on the EBITDA line.

So how do we look at the company and how do we start measuring signs of success, given that over 70% of the money, targeted towards this restructuring or growth plan, has been already spent, yet the results has not been reflected in the numbers from a cash flow standpoint?

Right, okay George you always ask the right questions and that's great, because it helps frame out how we're thinking about the business.

A couple of things I'm going to be a bit narrowed in terms of my response to comments that we've already made about the business and comments that are already reflected in our public filings, related to the registration. But I think I can give you and others a way of thinking about it. Obviously we're in the business of selling more cosmetics and our other brands, that's the first building block in strengthening a company's financial statements.

The company I think have done a very good job of cutting cost, over the last couple of years, but as we've talked about, this is a business that has very solid [growth] margins and as we begin to rebuild the top line, as we began to do in the first quarter of this year. You could look at our financials and know that our margin structure, that would suggest that, that would improve our EBITDA picture over the longer term and we've very clear about that and that would be a normal expectation.

A couple of things that relate to timing that I think you can draw from our financials and are already public communication. I said earlier, in the communications today, that we began the investment phase of our growth late last year and we're continuing that into the early part of this year. I think you've got to think about that in two building blocks George, in terms of the advertising cost, that began late last year and that's continuing in the first part of the year and we begin to lack that affect as the year goes on as we get into the third and fourth quarters. You can just look at publish media spending and reach to that conclusion. So obviously that as beneficial impact, if you look at our year over year trends, as time move forward.

One element of what you said though, is not quite accurate, we did accrue late last year, over $100m of charges related to initiating the growth plan, that was the accrual or the P&L effect, of making commitments to our retailers and others that we're late to pulling back product and reducing prices on certain key items. The cash affect of that, and the actual implementation that relates to that P&L accrual, that occurs as the year goes on. Just to give you an example of that, a number of our larger customers for example, will be resetting their store shelves with our new [Planogram] layout, as we talked about, putting lip on one side and nail on the other, to frame the wall with color and excitement. But that new Planogram, for example in the case of many of our large customers, doesn't get actually implemented until the back half recesses, which really begin in June, July as an example.

So the cash effect and the investment, that's related to that in economic terms and the resulting benefit you’d expect to see as the year goes on. We are already beginning to get some benefits from our improved media weights, which only began four weeks ago as a practical matter, our new advertising campaigns. But I don't think you can - I think it's more reasonable to say, that the economic of affect of the investment, the cash affected the investment and the resulting impact are closely linked, that didn't occur - that really begins to occur as we saw in the first quarter and increases in it's impact in weight as the year moves forward and into 2004 certainly.

So if we looked at it from two angles Jack, with the first one being the [inaudible] on growing branch support, which strategically you've decided to beef up and this is something that should anniversaried by the end of Q2 this year. That's one shot of the equation, the remaining shot of the equation is, what is if we can conceptually separate them and I'm not sure we can, I'm sure there's some blurredness in the lines here. That there is also this growth stabilization and growth plan effect, most of which is going to start showing up in the numbers, the benefits of what should show up in the numbers, particularly in the probably back half of the year, as the cash expenditures [stop] basically filtering through the system, [inaudible] excuse me to look at this?

Well I don't - again we are in a period of registration George which makes it difficult to me, which makes it difficult and really unadvisable for us to make or for you to hear for that matter, forward looking statements. But I think if you were simply to look in the market place and certain of our customers you would see our new Planogram already executed and up and looking great and looking beautiful. But in many others you would see the implementation rolling our as the year moves forward. And you know, like any thing in life you get output that relates to input and implementation with out, you know making a forecast on what the pattern of our quarterly earnings or sales are going to look like.

Okay.

I hope that helps.

Thank you.

Thank you our next question comes from Mary Gilbert with Imperial Capital. You may ask your question.

Yes the $11m of expenses used in [investment] spending in the quarter, and I want to make sure I understand this as you were discussing just now with George, you know the total amount that you plan to spend the $160m. Are you saying that over time that as we tract against that expenditure that we are not going to see that same expense? In other words does this $11m in this particular quarter, we shouldn't see it recurring next year?

Yeah the way we characterize that is that the charges connected to initiating the growth plan. For example, the fact the we have decided to pull back some slower moving SKUs or the Revlon brand for example. There is a cost associated with that in that the product comes back to us and we reimburse the retailer for that. That's a rationalization of our product line, which means that we are going to be focused on marketing the faster moving SKUs. And that's the strategy designed to improve our revenue and velocity over all as we move forward. But we don't anticipate repeating the elements of those charges that make up the $160m as you look out into the future. We are building a growth strategy that requires some initial investment to kick start the program. And that $11m is part of what we would expect to be up to $160m of total charges. Does that help?

I think so, but I just want to make sure I understand that the --- to a certain extent aren't you always going to have a certain level of these rationalization expenditures because your product lines are going to evolve over time. So you are going to have a -- you know I would imagine you would have a certain amount of expenses that, you know that would be characterized such as this.

Absolutely and that would be -- and it is important to make that distinction. In a normal year you would expect to introduce a number of new products. Typically you would announce, you know in the June period for the following February of March. And you would expect normal discontinuances of products, which is reflected in our returns line on our P&L. There will be an on going normalized level of returns that you would expect on a go forward basis. What we have done here is based on consumer research and very, you know, I think very focused discussion with our customers. We just reach the realization that by, call it a more dramatic rationalization of the product line, unrelated to introducing new products and needing to make room for new products, but by rationalizing the product line and using more of our merchandising fixture as a point of marketing if you want to think about it that way. More exciting graphics, doing things that re more creative in the wall. Using some of that space to actually market the faster moving SKUs that we can get an over all benefit to our business. And that's what we tested thoroughly during the course of 5 or 6 months of 2002. And bases on those test results move to this strategy. So there is an going piece of the equation like across the industry, but this is a, kind of a stepping up to a new level of focus on our Planogram fixture that we don't expect to repeat.

Okay so this is meant to be more a fixed[extraordinary]and not recurring so that the $160m of investments that we are seeing conceivably will be eliminated as we go forward. You may have typical increases in other cost but that would be unrelated to the $160m?

Yeah.

But we assume that all costs stay the same to a certain extent except the variable portion like you just said, we could strip out the $160m and that could us - are you sort of saying that, you know, we could see the EBITDA growth later? In other words does we start tracking against these numbers then we may then see the DA recover with the sales increases that we are seeing and the gross margin improvement that we are also seeing as a result of the sales increase.

Yeah again we are kind of getting into a forward-looking view of our EBITDA. I think, you know, if you just go back to your original premise, there is a certain one time element to rationalizing the business, focusing on the fastest moving products are creating a new imaging store with our retail customers. To get to that point required a kick start of investments that was admittedly significant and important for our business. On an on going basis we are going to be more effective with our spending, with our advertising. I believe we are beginning to see signs of that today. And as we did say, we are on an ongoing basis going to be advertising at higher levels. So I wouldn't want to imply that was one-time. Our media weights are higher than they have been historically and they will continue to be. But the number that you are focused on, the 160, you can think about that as some thing that was required to kick the business up ward, reposition the business for success as we go forward.

Right, so in other words the 160 may not be repeated but also there are other expenses that are probably going up, especially on the media side because we need to spend more to further the brand.

More and more effectively and that goes back to George's question. We began that process late last year. It's continuing in the first quarter and as you see in our market share results and for the first time our net sales results, we are beginning to get some impact for that.

Right.

You know, and we are just beginning that journey and I'm very pleased with initial responsiveness that we are seeing.

But we are probably not going to see the kind of EBITDA [inaudible] you know, we would like to see, meaning the analysts, would like to see until '04 it sounds like.

Well again I think I have said every thing that I can say. We are repositioning the business. First step is getting the top line growth. We have got a good on going margin structure in terms of contribution and gross profit margins. And I think you will need to factor that into your models as you think it's appropriate as you go forward.

Okay great thank you.

Thank you.

Thank you our next question comes from Walter Branson with Regimen Capital. You may ask your question.

A couple of things, of the $115m in charges you have taken so far, how much of that has now been used in cash and how much is available for future uses?

[inaudible] do you want to pick that one up?

In the - what we said last quarter of the - you know, the 104 in the fourth quarter I think we said approximately 70% of that was kind of a cash expense where we will have a cash disbursement, okay. And then the $11m we expense in the first quarter would probably be mostly cash as it proximized. So the first thing the $115m is not all cash, okay. And an example of a non-cash item, just so people understand would be on the SKUs that we discontinued that we announced in December according -- under this plan is we had in-house inventory that, because it accelerated the discontinuance, disallowed us from running down our inventories as we normally would. So we had some in-house inventory right offs for those SKUs. So that would be an example of a non-cash expense in the fourth quarter, which doesn't require cash disbursement in the future. In the quarter we spent related to that about $16m in cash related to those expenses in the first quarter.

Okay and what about in the fourth quarter of last year?

The fourth quarter I think almost zero because it was mostly accruals. I think it's well less than $5m.

So in order to determine the reserve in place now should I take 70% of $104m you know, plus the $11m in the first quarter minus the $16m spent so far.? I'm just trying to determine how large a reserve you currently have?

Well the problem is, you know in accordance with GAAP it's all -- this is -- we are explaining this in such a way so you kind of understand what's going on. But remember in GAAP it's all with all the other reserves. So it would be unfair to try and single this plan out into a single reserve and try and track it. Because you have, you know, base return reserves, which are normal that go up and down. So I don't think it's fair to try and do that.

Okay let me ask another way. Was the $16m spent in the first quarter inclusive of the $11m that you accrued in the quarter or should I add the $11m to the $16m?

More or less, the $11m most of it was not spent in the first quarter.

Okay that makes sense. And did you give any break down of the $42m use of cash form changes in assets and liabilities? Not completely clear from the balance sheet.

No we don't disclose that. Most of that stuff would be in the Q.

Okay and last thing I want to ask is why did the SEC want you to change “we” to the “CFO and CEO”?

I think it's nothing more than they kind of have - you know remember all these rules are sort of enacting all that stuff are sort of in process right? Everyone is doing it for the first time. So I think they kind of have a rule that they want instead of “we”, which I understand, but they want specifically the CEO and CFO to be singled out in writing. And because we are one of the first in registration, that go into registration process, that allowed them to create the rule and make their changes. It's nothing more than I think [glamour] than courtesy.

[Grammar] and I guess personal accountability.

Right.

Which you got to love. Thanks a lot.

You're welcome.

Thank you and at this time I show no further questions. This ends today's question and answer session of today's call. I will now turn things back over to Mr. Stahl for any closing remarks.

No I think that's it. I appreciate everybody's participation and questions. We are in the early stages, we are delighted to see the beginnings of some signs of progress. And again I appreciate your participation. I would like to remind anyone that's still on, for those of you that are in the New York of in Los Angeles. In New York we have got the Revlon Run/Walk on May 3rd; it's an event that our company is very proud of. It raises a tremendous amount of money for helping to eradicate women's cancer. And May 3rd is in New York the walk beginning in Time Square and then the following week May 10th in Los Angles. So anybody that would - we would love to have you there. But again thanks for participating today. We will keep you posted.

Thank you this concludes today's teleconference. Thank you for your participation and have a great day. You may disconnect at this time.