Revlon Inc (REV) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen and welcome to Revlon Inc.'s second 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.

I would now like to introduce your host for today's meeting, Ms. Maria Sceppaguerico, Senior Vice President Investor Relations. Ma'am you may begin.

Thank you Jessie and good morning everyone including those of you listening in via the web.

As you know earlier this morning we released our results for the second quarter. If you haven't received a copy, you can get one on our website at www.revloninc.com.

During the quarter, we completed our previously announced rights offering which was fully subscribed by the public for pro rata share. The rights offering raised as expected approximately $50 million in gross proceeds and resulted in the issuance of 17.6 million additional Revlon class A common shares together with our class B shares outstanding, Revlon total shares outstanding are now 69.4 million shares.

You will notice in the financial statements that accompanied this morning's release that in accordance with GAAP, our total average weighted shares outstanding used in the calculation of EPS for the second quarter, are 55.2 million shares. This relatively minor increase in weighted shares outstanding reflects the completion of the rights offering late in the quarter.

Our discussion this morning of market share and retail consumption is of the U.S. mass market according to AC Nielsen, excluding Wal-Mart and regional mass volume retailers, unless otherwise noted, 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.

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. Information on potential factors that could affect the company's results from time to time and cause them to differ materially from such forward-looking statements is set forth in the company's filings with the S.E.C., including the company's current annual report on form 10-K, 2003 quarterly reports on form 10-Q and other S.E.C. file documents and press releases including the release issued today.

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

Thanks, Maria.

Good morning, everybody and thanks for participating today. I really appreciate your involvement and attention to our company. Before Doug takes through the numbers for the quarter what I would like to do is give you my thoughts on the business and where we stand in our growth strategy.

I think the headline would be we are very pleased with our progress, so far. We recognize we've got a lot of work to do from this point going forward but we are absolutely pleased with the progress that we are beginning to make in strengthening our company.

I'm going to get a little bit of help today as I go through describing where we are in our progress. Debra Leipman-Yale, our Executive Vice President and Chief Marketing Officer and liz Kenny, our Senior Vice President of our Portfolio Brands will talk about the Revlon business and the Almay business respectively.

So, let me give you the key points. As we have discussed in the last 12 months or so, our focus for 2003 will be and continues to be centered around our three key business drivers: First, would be strengthening our brands, secondly, building strong retail partnerships with our customers both in North America and around the world and then the third key element would be strengthening and building Revlon's organization and building our muscle and our strength to make sure we can do what we need to do with our brands and our customers around the world. On all three fronts, we are really pleased with the progress we're making and our performance in the second quarter.

First on the brand side, we have absolutely maintained our traction as it relates to Revlon and Almay brands even in a very soft overall color cosmetics market and we've maintained that traction through our marketing actions and we've demonstrated continued market share growth. That market share growth is a result of more effective and increased brand support, both effectiveness and weight, if you want to think about it that way.

Our new products are performing well. The quality of our advertising has significantly improved around the core positionings for our brands and our focus against what we call 360-degree branding, in other words every marketing touch point with the consumer would have an integrated look and feel, is beginning to resonate in the marketplace and, as I said, we've got a lot of work to do but we're very pleased with our progress so far.

For the quarter, we again grew share versus a year ago. This is our third consecutive quarterly share increase for the company and I'm talking about the color cosmetics business in the United States. For the second quarter, total company color cosmetics market share grew to 22.6%, up 40 basis points versus the second quarter of last year in both the Revlon brand and the Almay brand contributed to the growth.

Specifically for the Revlon brand, which registers fourth consecutive quarterly share increase, we advance 60 basis points to 17% and the Almay brand advanced 30 basis points to 5.6% and these improvements were fueled by actions associated with our growth strategy, I would say materially better marketing effectiveness, increased higher brand support, which was up double digit in the quarter. So again, it is a combination of effectiveness and more investment that's driving our brand success and our progress that we're making with our retail customers. For 10 consecutive monthly periods, our company has gained share versus a year ago in the color cosmetics category and the Revlon brand has done it for 11 consecutive months.

On Almay, we've now gone 7 for 7 over the last 7 months as well and I believe we're doing it due in part to strong new products, the increased investment, the increased effectiveness and stronger in-store marketing programs with our customers that are beginning to attract the confidence of our retail partners for both Revlon and Almay.

Another way of thinking about it is since we enhanced our marketing programs beginning in the back half of last year, the Revlon and Almay brands combined have outperformed the category. In other words, the entire cosmetics industry in the U.S., we've outperformed the category in terms of growth rates by about 4-5 percentage points. For example, in the second quarter, Revlon and Almay combined consumption growth was about 3% while the category was down about 1 1/2%, as measured by AC Nielsen. So we were up, the category was down about a point and a half.

We've had that similar relationship since the second half of last year. Now, that's in contrast to where prior to late last year, in 16 previous quarters, Revlon and Almay consumption performance trailed the category by a very significant margin. For example, in 2001, Revlon and Almay consumption trailed the category by about 10 points, in growth points. So, the change in trend that we've achieved was necessary and it absolutely underscores the importance of our growth strategy.

There is no question the primary issue that we're facing today is the softness, I would say the current softness that we're seeing in the category, which is below our earlier expectations and it is, you know, quite honestly below the expectations of most retailers that are out there as well. We believe the category softness really traces itself to the slowdown in the economy and what retailers would tell us, they're seeing decreased foot traffic and the average shopping basket size has shrunk somewhat in this economic downturn.

Just to put it in perspective, for the five-year period ending in 2002, the color cosmetics category as defined by Nielsen grew at an annual rate of about 3 1/2% while the category was down 3 1/2% through the first six months of this year. When you include all retailers, including some that aren't included in the Nielsen data, the five-year growth rate in the category was about 6%. So it was certainly a very healthy category coming into 2003, but the economic softness is currently affecting the category.

Now within that, as I said, we're continuing to grow market share and as you saw in our press release, we again grew our top line and net revenues and importantly we are beginning to see some signs of improvement in the category and we're optimistic that the category will begin to show additional strength in the back half of the year and the category did improve somewhat in the month of June relative to where it was in the early part of 2003.

So along the way, we are very pleased with the progress that we're making with our growth plan. We're getting the right kind of feedback from consumers, the right kind of feedback from our major retail partners and we're absolutely committed to continuing to take the actions that we believe are necessary to build value and profitability over the long term.

So with that top line summary, I'm going to turn it over to Debra and Liz to give you some of the highlights of the Revlon and Almay brands for the quarter. Maybe Debra, why don't you start?

Sure, Jack, thanks.

Let me start by saying how pleased I am with the progress we're making in the marketplace and the results that we're seeing on the new products that we launched last quarter. As Jack indicated, since we initiated our growth strategy in the second half of last year, the Revlon brand has consistently outperformed the category in terms of consumption growth by a healthy margin. We believe the color cosmetics continues to be a great category and we do expect to see some improving trends in the category later in the year, as Jack indicated, started to happen in June.

Now, in terms of some of the new product highlight, for the quarter, Revlon and Almay combined held five of the top 10 new color cosmetics products as tracked by AC Nielsen, a significant improvement versus a year ago where combined Revlon and Almay would have had only one of the top ten new products in that ranking. Our ColorStay franchise continues to perform very well as we re-energized it this year, with consumption of both new and established products combined up 28% in the quarter.

ColorStay Overtime Lip, launched nationally in January, is off to a very fast start. In fact, Overtime Lip is the best performing launch in the color cosmetics category so far this year. ColorStay Stay-Natural Face Makeup, a natural long wearing extension to the ColorStay line and ColorStay Always-On Nail Enamel, a product unique to the market that resists chipping cracking and fading for ten days, were both launched in January and performing well in the market. In fact, these two products also made the top ten list of new products in the category for the quarter.

Now, Lip Glide, a product launched last year continues to gain momentum reaching a share of almost 4% in the latest five-week period. To maintain the momentum and to further build and strengthen this franchise, we've just introduced Lip Glide Sheer, a new sheer lip color that has already received rave reviews in the press and is beginning to demonstrate results in the marketplace with market share of a little over one.

On the eye business, next week we will begin advertising for our new Lash Fantasy Mascara, which began shipping earlier this month. Also new in the category is Eye Glide, a revolutionary new product that goes on like a cream eye shadow but dries down like a powder and uses similar packaging technologies to Lip Glide. This product has already been named best cream shadow and recently received the 2003 Cosmo Girl's "Kiss of Approval" award by the editors of Cosmopolitan Girl Magazine.

These two new products, Lash Fantasy and Eye Glide are the center piece of our plan to re-energize and grow the eye business. As you might recall, one of the significant parts of our growth plan was a revamp of the Revlon eye business as carded peggable goods that hang on the wall. Revlon mascaras and liners are being completely restaged as target goods to improve shoppability and presence at the cosmetics wall, to reduce shrinkage and to grow our overall eye share.

This fully tested restage is really rooted in consumer insight and is now being executed with intense attention to detail. The early results are extremely positive with the newly carded eye products showing high double digit lift in the first few weeks in the marketplace.

Turning our attention for a moment to the hair color category, Revlon continues to gain share in this market behind the strength of the established businesses and new products including High Dimension. In the second quarter, our share advanced 90 basis points to 6.8% which is up a full share point versus a year ago as we outpaced the market growth. Our new High Dimension color accents highlighting kits, which we launched last quarter, are also off to a great start.

Now, in terms of marketing news, we continue our focus on fewer, bigger and better integrated marketing events to drive meaningful excitement behind the business. This is one recent example Revlon was a sponsor of a very hot and well-rated new summer television program called "America's Next Hot Model". The program featured ten young women and they competed for a shot at becoming a super model. Revlon products were featured extensively during the program's run and a significant amount of media coverage and press coverage was generated against this program and its winner.

We also have an exciting fourth quarter program called "Red Rock" or "Revlon Rocks the Holidays" planned for the fourth quarter which was just unveiled to the press last week.

Overall, while we have much to do, we are pleased with our progress and encouraged by the response of this to marketing and good execution that our brands have demonstrated. This would include Almay, which Liz will talk about briefly now.

Thanks Deb and good morning, everyone.

Let me start by saying how pleased I am with the results that we're achieving on the Almay business. Share growth is stronger than it has been in years, including the highest year on year share growth since 2000 that we achieved in the month of June. Our growth has been driven by new advertising, new products and improved retailer relationships.

Starting with our new advertising creative, we found that it has proven to be extremely effective in market and has achieved very strong sales lift when it is on air. In terms of new product, last quarter, we introduced Almay Bright Eyes, an exciting new line of eye products that creates the illusion of bigger, brighter looking eyes. Thus far, this product line is off to a terrific start it is ranked in the AC Nielsen top ten list of new products for the quarter and has helped drive Almay share growth in the eye segment and for the overall brand.

Another new product introduced recently is Almay Nearly Naked. The super lightweight liquid foundation that features a unique touch pad delivery system, in fact, it is the first touch pad liquid makeup involved en masse. Like Bright Eye, Almay Nearly Naked is performing very well and is already the best performing Almay foundation on the market and ranks in the top ten new products for the quarter.

Finally, our relationship with our key retail partners has improved dramatically and this has resulted in much better in store programming which has also helped drive the business. For example, Almay experienced a substantial improvement in consumption at one major mass retailer due to their willingness to support the brand in the second quarter with the first chain wide full end cap in three years. Year to date, our consumption at this retailer has improved by 10 percentage points versus our first quarter results growing at double digit rates in the second quarter beyond this strong program.

Back to you, Jack?

Thanks, Liz and Debra and I appreciate your perspective on the progress that we're making. I will briefly touch on the international side of our business. David Kennedy is here with us today and will be happy to address any questions that might come up there.

But just to point out that our focus internationally does continue to be on strengthening our brands and our key markets and we are making some very good progress in our major markets as our U.S. developed initiatives, as you would expect, translate well into a number of our more developed international market. For the quarter, excluding the favorable impact of foreign currency translation, we registered growth in several of our key markets, in other words not even taking into account the benefit of exchange and that growth in those key markets was offset by continued softness in Brazil and Mexico.

Overall, I would say that we're also making terrific progress around the world on the customer side of our growth strategy. Liz gave you one reference to a mass volume retailer on Almay but I think it is worth pointing out that I think we are dramatically improving our relationships with our key partners and more and more, we're working with them to develop programs to drive growth in their stores for our brands.

We have dramatically improved our customer planning process, we've successfully secured some better in-store positioning and we've recently secured some additional space in several key accounts and I think if there is a leading indicator of positive change in this industry, the securing of additional footage which is precious to retailers is an important leading indicator. As some evidence of that, during the quarter, Revlon was named "Vendor of the Quarter" in the broadly-defined category of color cosmetics, fragrance, skin care and implements by Wal-Mart, so we were named "Vendor of the Quarter" by Wal-Mart, in the beauty category. Very important sign post of progress with obviously our largest customer.

In addition, a few months ago, Wal-Mart Canada named Revlon "Vendor of the Year" for 2002 and that is also true at H.E.B., which is a large Texas-based food retailer. Which is -- you might think of as a lead grocery retailer, just a leading retailer whose progress is followed by many other grocery retailers across the country. So these are just a few examples of the progress we're make can on the sale side and which we believe represent good indicators of our strength and sales capabilities and as you know we did make a change at the top of our sales organization about three months ago, Paul Murphy, a person coming in from Coca-Cola is already making good progress there.

Just continuing on the people side of our growth strategy, we've also made progress in other parts of our business. We've added a number of very talented senior executives to our leadership team and we've begun to add core skills training and development programs for all of our employees to help everyone be more effective and successful in growing our brands and retail relationships.

A couple more data points here. During the quarter, we announced the appointment of Carl Kooyoomjian, who I think has the most difficult name to pronounce in the western world, Carl comes to us as Executive Vice President of Technical Affairs and Worldwide Operations and he replaces Elias Hebeka Ph.D., who has done a fabulous job running manufacturing and distribution and technical affairs. Carl brings extensive manufacturing, logistics, procurement and distribution expertise from various companies, including Pacer International, where he was Vice Chairman, his experience includes several years at the Coca-Cola Company, where he had several management positions, including Corporate Vice President for Commercial Product Supply, Manufacturing and Procurement and then prior to that, Carl had a very strong career at Digital Equipment, where he was for 23 years and I have every confidence that Carl will bring in strong capability to lead these functions following upon Elias's retirement later this year.

We also announced Stephanie Peponis has joined Revlon in a new position for us, Executive Vice President and Chief Planning and Business Development Officer. Stephanie joins us from the Boston Consulting Group and where she was most recently Vice President and Co-Head of Boston Consulting Group's New York consumer goods and retail practice. So she brings a hugely important and relevant experience to us.

Also noting that Stephanie led the strategy and development work that BCG performed for us over the past 18 months. So she comes in hitting the ground running, providing important insight and support to Revlon at this important time in our growth strategy. So, I'm thrilled that she is now a member of our team as well.

Also on the organizational side of our growth strategy, we reorganized our corporate finance department to create separate treasury and controllers functions just to strengthen ourselves up against our business needs. In this regard, John Matson, who is here today, joined Revlon as Senior Vice President and Corporate Controller, replacing Larry Winoker, who has done a great job for us and will move back to MacAndrews and Forbes and at the same time, John comes to us from Senseon Technologies, where he was Chief Financial Officer of the flavors and fragrances businesses. Larry is here today, I want to thank Larry for his contributions at Revlon, they have been terrific and at the same time, I want to welcome John into his job as controller. With regard to the treasury role we expect to name a new treasurer very shortly.

So all in all, I believe our strategy of building the platform for long-term profitable growth is working. Clearly, our results in the quarter would have been helped by a stronger economy and a stronger category but we are managing I think very effectively the things that are inside of our control and despite this current softness, we do feel very good about the responsiveness of our brands to our growth strategy, both Revlon and Almay and the fact we have consistently gained share in this market.

For some time now, we've been unable to share with you our going-forward outlook for a number of reasons. Not the least of which we were in the very early stages of launching our growth plan and our disclosures were limited because we were in the midst of a rights offering. With those events behind us, I would like to begin to share some of our early thinking about how we see the business going forward and how we define success for 2003 and we'll look forward to meeting with many of you as we look out over the next 12 months or so.

As we indicated last year, the stabilization and growth phase of our plan is a transition phase. 2003 is the year during which we intend to dramatically improve not only the effectiveness of our marketing and our customer relationships but we also intend to increase the investment behind the business to set the stage for growth in 2004 and beyond. We are currently doing that and we believe we're making excellent progress.

We knew going into this year that various aspects of our growth plan would result in charges and in addition to these one-time charges, they would obviously reduce our reported results. Both of these impacts, as expected, have had a negative impact on our reported results to date this year.

At the same time, we also expect and continue to expect that our results at the end of this year and into 2004 would be stronger. This is due to the fact that the lion's share of the growth plan actions will be behind us, in particular those aspects of the plan that are one time in nature and the benefits of our early growth plan actions should begin to have an even more positive impact.

Also benefitting us beginning in the fourth quarter of this year is the fact that our brand support levels, by the time you've moved through the third quarter and into the fourth quarter, our brand support levels will begin to lapse similar year-ago levels. So we begin to have that benefit in the fourth quarter and in 2004, another important element of our resource management, our permanent display spending behind the "her wall" roll-out, that's the fixture in store, particularly in the United States, the spending behind that should begin to moderate considerably because we put in the vast bulk of the "her wall" that we would need to put in by the end of 2003.

We also expect to continue sales gain in the second half of this year and we expect that the positive business drivers that I discussed will benefit us as we move forward. We do have to recognize that the softness of the category will take the benefits of these actions to take somewhat longer than they would have otherwise taken to fully materialize.

Reflecting all of this reality as well as the confidence and conviction in our plan and the progress that we're making, in July, MacAndrews and Forbes, our principal shareholder has agreed to make available in the second half of 2003, the $25 million of additional liquidity that would have otherwise been available to us beginning in 2004. Given our liquidity at the end of the quarter and including this action by MacAndrews and Forbes, we're absolutely confident that our liquidity needs are more than satisfied through year end.

So, our objectives for this year are moderate sales growth, driving full-year market share growth, a continued re-energizing of our brands, continued strengthening of our retail partnership and continued building of the capability of the Revlon organization. We're committed to making the investments we believe are necessary to position Revlon for long-term profitable growth over time.

As it relates specifically to 2004, we expect continued sales growth to benefit us, along with the other actions that we're taking to strengthen the business, recognizing that we will also come out from under the burden of the one-time charges that have affected our profitability in both 2002, and 2003.

So, that's meant to be a key summary of where we've been, where I think we are right now and begin to give you some thoughts about where we're heading and with that, I will turn it over to Doug for a 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 our last call in April, we said that we expect the aggregate charges related to the stabilization and growth phase of our plan, over the 2002-2004 period, would be no more than $160 million and that we charged $115 million through the first quarter 2003 including $104 million that was charged last year, 2002. We continue to believe that the $160 million is the upper end of the range.

In the second quarter of 2003, we charged an additional $15 million associated with the plan, bringing the charges to date, including those taken in 2002, to approximately $130 million. As I have said in the past, these expenses cover the following activities associated with the plan that as you know we began implementing last year.

One, sales returns for discontinued SKUs which reduce net sales, sales allowances for selected price adjustments was also reduced net sales. Costs of rolling out reconfigured wall displays, which is mostly merchandise or labor to reconfigure the wall, this increases SG&A in our income statement. Inventory write-downs for discontinued SKUs, which increases cost of goods sold, returns and inventory write-downs relating to a selective product rationalization. Also, expenses for professional resources related to research, development, and execution of the plan, which increase SG&A, as well as other miscellaneous expenses.

It is important to note that these estimates of the growth plan charges do not include any increased brand support expenses or any increase in training and development costs our employees, which are clearly ongoing 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 statement. Later, I will discuss the timing of these cash disbursements related to these expenses in my liquidity remarks.

Now let's turn to the numbers in our financial statements. First, sales. Total company gross sales advanced approximately 2 1/2% to $396 million in the quarter compared to $387 million in the second quarter last year. This performance reflected growth from both North America and international markets.

Returns, allowances, discounters and other revenues combined declined 6% to the $74 million in the quarter versus $79 million in the second quarter last year. This decline reflected a reduction in sales allowances, and regular business returns, partially offset by growth plan related returns in the quarter.

Net sales advance 4.6% to $322 million for the quarter versus $308 million last year. In North America, which includes the U.S. and Canada, net sales were up approximately 4% to $225 million in the second quarter compared with $217 million in the same period last year primarily reflecting strong growth of color cosmetics.

For international, net sales advanced 7% to $97 million, versus $91 million last year driven by favorable foreign currency translation, and strength in several key markets, offset by softness in Brazil and Mexico. Excluding the impact of foreign currency translations, international net sales were even with a year ago.

Now, moving to operational data. Total cost of sales, including brand support, as a percentage of gross sales, increased 60 basis points from 31.6% versus 31% last year. This increase was largely driven by higher material costs, related to product mix, partially offset by lower brand support in the form of a "bogo" type spending that impacts 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 11% to $200 million in the second quarter, versus $181 million in the second quarter last year. This increase was primarily driven by significantly higher advertising investment and charges associated with the growth plan, partially offset by lower display amortization. In the second quarter, the operating loss was $301 million, versus operating income of $4.4 million in the second quarter last year.

Let me repeat that, I think I said the number wrong. In the second quarter, the operating loss was $3.1 million, versus the operating income of $4.4 million in the second quarter of last year. This performance was primarily driven by materially higher brand support, and charges totaling approximately $15 million in the current quarter, associated with the company's growth plan, partially offset by the benefits of higher sales, lower sales, returns and allowances, lower display amortization and the absence of restructuring expense in the current quarter.

Turning to adjusted EBITDA, which as you know is a nonGAAP measure, we define adjusted EBITDA as net earnings before interest, taxes, depreciation, amortization, gains and losses on foreign currency transactions, gains and losses on the sale of assets and miscellaneous expenses. In the second quarter, adjusted EBITDA was $20.6 million versus adjusted EBITDA of $36.1 million last year. This performance primarily reflected significantly higher investment in brand support, and charges associated with the company's growth plan partially offset by the benefits of higher sales, lower sales returns and allowances and the absence of restructuring in the current quarter.

Included in adjusted EBITDA in the quarter were the previously mentioned charges associated with the company's growth plan, which impacted EBITDA by approximately $13 million, partially offset by the benefit in the current quarter of $3.3 million, stemming from the absence of restructuring expenses and lower additional consolidations costs this year versus last year.

Attached to our press release, you will see a reconciliation of adjusted EBITDA to what we believe are the most comparable GAAP measures which are net loss and cash flow used for operating activities. Net loss in the second quarter was $37.8 million or 68 cents per diluted share, compared with a net loss of $38.9 million, or 74 cents per diluted share in the second quarter of 2002.

Now, let's turn to cash flow. Cash flow use for operating activities was $74 million in the quarter versus $61 million used last year. For the first six months of this year, cash cash flow used for operating activities was $135 million.

Now, let's move to specific cash flow items and let's start, first, with our growth plan. Of the $130 million of growth plan charges expensed to June 30, 2003, we expect approximately 85% of that to be cash charges with the balance being noncash. In 2002, we disbursed approximately $5 million, associated with the plan.

In 2003, we expect to disburse approximately $100 million related to the growth plan expense through December 31, 2003. Of the $100 million expected to be disbursed in 2003, $40 million was disbursed in the first six months of 2003, therefore, we expect our second half cash disbursements related to the growth plan charges to approximate $60 million.

Now, let's move to capital expenditures. Capital expenditures in the quarter were $8.5 million, versus $2.9 million in the second quarter of last year. For the year, 2003, we now expect capital spending to be in the $30 to $35 million range versus the previous range of $25 to $30 million largely reflecting capital costs associated with the company's headquarters move later this year in the fourth quarter.

Permanent display spending in the quarter was $19.9 million, versus $19.7 million in the second quarter of 2002. For the year, we now expect our permanent display spending to be approximately $75 to $80 million, a reduction of $5 million versus earlier expectations.

Cash restructuring spending including executive severance were $3.6 million in the quarter. For the year, 2003, we continue to expect cash restructuring spending to be approximately $10 to $15 million dollars. Cash interest paid in the quarter was $38.6 million.

Now, let's move on and focus on our borrowings facilities. The composition of our bank borrowings outstanding at June 30, 2003, was the term loan facility had outstandings of $116.6 million, to multi currency revolver had outstandings of $108.8 million, and letters of credit issued but undrawn were $21.9 million. In addition, $43.5 million were drawn under the $100 million term loan from the MacAndrews and Forbes financing we obtained last quarter.

At the end of the quarter, our liquidity from all available liquidity sources, including the additional $25 million from MacAndrews and Forbes mentioned earlier by Jack, which became available in July, was approximately $144 million including $57 million under the M&F term loan, $65 million under the enhanced M&F line of credit, $1 million under the multi currency revolver and $21 million of unrestricted cash. As of the end of the second quarter, we had not drawn down any of the $65 million commitment.

Now, let's focus for a moment on cash flow for the second half of the year, 2003. Starting with EBITDA, we expect to generate more EBITDA in the second half of this year than we did in the first half. We also expect to strengthen our cash flow through a number of corporate initiatives we have put in place.

To name a few, as examples, we have implemented a very aggressive inventory management program which we believe will reduce second half inventories and increase cash flow. We expect to improve our days outstandings on receivables through various initiatives which are now beginning to benefit us and which we also expect to increase cash flow in the second half of 2003 and we have also implemented a strategic sourcing initiative to lower our overall costs, by insuring we purchase goods and services at the lowest possible price. We also expect this initiative to benefit cash flow.

We believe that these factors to strengthen cash flow in the back half taken, together with the normal seasonal cash flow benefit we get later in the year, as well as our higher EBITDA generation, provide us with ample resources to continue to execute our growth plan in 2003.

With that, I will hand it back to Jack for some closing comments before we open it up to Q&A.

Thank you, Doug, I appreciate that. I would like to leave but just a few thoughts before we move into Q&A.

I think to sum it up, we are continuing to make a good deal of progress, it is resulting from the actions we're taking around our marketing of our major brands, the actions that we're taking of our customers and our organization and we're seeing increasing evidence that our strategy is working to grow our brands. Obviously, due to the soft category, the rate of our growth is more moderate than it would otherwise be but our progress does remain on track.

Clearly, you will have questions about our longer term financial structure which we will begin to address as we move forward. However, let me say what I've said in the past and I think which is certainly been borne out by the facts and that is that I am highly confident that we will have access to the resources that we need to run the business and have the resources to invest for the long term.

Great brands with strong margin structure like ours that are well managed and properly supported will attract the necessary resources and create profitability and value over the long term. So, with that, let me just open it up to your questions.

Thank you, sir. At this time we will begin the question and answer session and if you would like to ask a question, please press star one on your touch-tone phone. If you are going to be using speaker equipment today you may need to lift your hand set prior to pressing star one. Once again that is star one if you would like to ask a question.

Our first question comes from Mitchell Spiegel from Credit Suisse First Boston.

Yeah, hi, just I'm trying to understand, if you look at the first half results and look at your spending on the SG&A line, about $200 million a quarter and you're talking about growing EBITDA, second half over first half, it is not -- it is really not clear to me how you continue to finance all of your other spending through the second half of the year, especially given that you've go a $60 million outflow associated with these expenses you've incurred. How do we get comfortable with that?

Let me take a shot at that first, Mitch and Doug, you may want to -- there may be something you want to add to that.

A couple things. I think you have to first look back, Mitch at the historical sales pattern of Revlon and in fact, last year, if you look at the first half gross sales or net sales before the one-time charges, you would note that our second half sales are typically significantly higher than our first half sales. In part, that relates to the fact that you shift in December, your new product activity for the upcoming year. So you get a significant sales differential first half compared to second half certainly based on the historical pattern.

I think the other thing you have to focus on is simply the benefits of our growth plan. You know, in the early part of the year, the growth plan actions including the advertising, including the marketing program, including the implementation of our new in store plan-a-gram, which in test did demonstrate significant lifts, we have been implementing that throughout the course of the year and do you get a build as the year goes on and as a practical matter that will continue to benefit us into '04.

And then Doug, if there is anything that you want to reiterate on the overall working capital management programs that you would like to add this there, that might be helpful.

I don't want to go into too much detail but we're focusing very much on inventory so we expect very significant reductions in inventory in the second half and going into next year versus historical norms and we're doing a lot of work on the receivables side where what we found globally, we seem to have different terms in each country and as we do competitive studies of what our competitors do with us, there's material opportunities to just standardize our terms throughout the world and get some cash flow benefits from that. Many of which we've already executed and we should be able to see the benefit in the second half.

You can't underestimate the other work, we talked about strategic sourcing, and -- which is basically just a way of saying buying things cheaper than you did before and we have been working with various parties to implement that throughout the company and the savings, I can say, are mind boggling in certain instances. So we expect that to also take effect at the second half of '03 and also in '04, into the future.

So you know, as we have said before, we believe we have adequate liquidity to cover our needs through year-end and we believe we have access to resources moving forward beyond that.

And just so I know, given the level of adjustments that occurred last year, what are you using for second half '02 revenues?

Second half '02? Let me just look that up and I will answer that in a minute.

Okay. Thank you.

Mitch, the other comment that I should have made, too, in addition to the kind of the natural sales seasonality, there is also a natural working capital seasonality in our business and if you look back, you will see inventory levels at the end of the second quarter typically meaningfully higher than they are at the end of the year so that is another driver of liquidity as we move toward the end of the year.

Thanks.

We will come back to your question about second half sales. We have to total the up the numbers from the third and the forth quarters from last year, Mitch.

Can we take next question, please?

The next question comes from George Chalhoub with Deutsch Banc.

Hey, George.

Good morning. I'm not sure what -- why don't you give us some more specifics, Jack? I mean the rights offering is done, we are talking -- and in quantitative terms, I mean Jack says the EBITDA will be higher in the second half than the first half. We're talking -- and in term, I mean Jack says the EBITDA will be higher in the second half than the first That is only 44 million bucks in the first half and we're talking about some liquidity inflow into the company, due to some actions that, you know, we're hearing about for the first time.

I'm not sure, why can't you give us some quantifying measurements around those? I'm not sure you want to give us one number but give us a range of numbers, because it seems to me the cash burden is so high, and that is a significant objective, a significant disconnect between the transfer we're seeing in terms of EBITDA and cash burn and between significant positive comments and you guys are clearly very positive on the future, so I'm -- that is 180-degree difference there.

And I'm not sure why can't you give us something more specific so that we can go back to the drawing board and be able to say this is how the dots get connected?

Yeah, that -- I got you, George. I think there is -- there is no question we could choose to be very specific and we have a very specific cash flow and liquidity plan for '03, it does demonstrate certainly to us that we have the resources we need.

I think the second factor, though, that I think we just have to acknowledge, George, is that we are in the midst of, if you want to say if in plain English, we are in the midst of turning this company and I think whenever you're in a situation like that from my standpoint, we want to make sure that we have all the flexibility that we need to take the actions that are necessary to grow the brands and stabilize and then strengthen the business.

And you know, given the unpredictability of the category, given the fact that we want competitive flexibility to do what is necessary to strengthen these brands, we just don't want to put ourselves in a position where we're going out there with specific guidance at this point in time and I made that quite clear late last year, that we were going to be in this mode for a period of time until we were in a more predictable pattern and the business had been strengthened to a point where there was less risk in putting specific numbers out there.

So, I wish I could be more helpful in that sense but the actions that we're taking are real, the facts that I pointed to that relate to back half versus first half are real and we have absolute confidence that we have the liquidity that we need and I think it is reinforced by the actions of our principal share owner.

Right, but I mean Jack, this -- it is a little bit of a different -- I guess angle.

Clearly, you know, the question that I'm posing is with respect to the current liquidity position of 144. And in my view, this 144 come year-end, is more likely than not not going to be sufficient for you to operate beyond the end of this year at least given the cash burn that I'm seeing and the still significant cash payments you have to make in the second half.

Now granted, you are going to have support from the parent, you've had support from the parent and there is a chance you can get another cash infusion but I mean this becomes a pure speculative event for us, we have to wait for someone to give you money to make sure you can operate beyond this year. I'm trying to be more fundamental than speculative here as to when you're going to be getting more cash infusion.

It just seems more healthy to me because it seems to me, Jack, we look at the numbers and EBITDA margin 6.4% in the second quarter here and clearly have you a certain plan and you are something, you're looking under, we're looking at this from where we are standing, and we're saying things are getting significantly worse from at least a cash flow and liquidity standpoint, as opposed to obviously market share.

But at some point in time, we need to get some bang for the buck here and it seems to me that the, Jack, this market share pickup you're getting of 60 and 40 basis points is coming at a significant cost to you, which is a huge investment in promotion and the question is, not only, you know, it is a good thing that we're getting market share but what is the return on this money that you're putting to get this market share pickup that, to me, is causing this much cash burn?

So, I just want to be very clear about it, Jack. It gives us a better appreciation if we -- if you can be more specific as to what to expect?

Yeah. Well, George, I think underneath everything that you said, I would believe there is an understanding that brands that are world class brands like a Revlon attract great value over a long period of time and they attract profitability and margin.

There is no question that during this period, we're making significant investment to get to that point where we can attract the value and the profitability and the margin ability that we need going forward. You know, we've been very clear and specific that we are in an investment period.

If it gives you any confidence, I can tell you that through six months, if you look at our own liquidity plan, we are virtually on our plan in terms of our own expectations about where we would be, in terms of the liquidity, through the month of June, we are virtually on our own plan despite the category softness.

So, I can't and won't be more specific about the downhill, again, because I don't want to subject our organization to a place where I put numbers out there that could be plus or minus and I say could be plus or minus from that point, I just don't think that is productive in terms of giving us the room that we need to rebuild the business.

So, we've got some real factors that are working to our advantage as we go forward the growth plan benefit will only accelerate we're just getting started as a practical matter, George and I think the fact pattern beyond that would say that we have demonstrated to you over the last 12 months that we have had the access to the resources that we need to continue the plan. We are attracting the resources that we need and you know, there is no one that is faint of heart about this.

We're absolutely committed to the plan and believe that it is working and we will attract marginability as we go forward.

Do you have an expectation, Jack, when you can give us more specific guidance down the line? You mentioned in the future you might be more, what do you call it, specific?

Yeah, well, I think as a practical matter, George, we're, you know, we're developing our '04 plans over the next 60 days and certainly, I would hope that we can give you a more defined way of thinking about the business as we look forward into '04. It doesn't mean we're going to give specific guidance at that point but hopefully we will be able to provide you more corridors so you can build up your models in ways that work for you.

Thank you.

You're welcome.

Thank you. Next question comes from Walter Branson with Regimen Capital.

Thanks. Just a couple things.

I wonder if you can give us a little bit more specificity on the $40 million that you've disbursed so far this year in connection with your growth plan. Can you break that down first quarter versus second quarter and also can you tell us how much of that is within the categories of sales returns, allowances and discounts, in other words the items that would have otherwise reduced net sales if you hadn't previously taken the reserve for that?

Hi, it's Doug. We haven't broken out by detail those growth plan charges, but what we have said in the past is that over 50% of that number is basically returns for discontinued SKUs and things like that.

And I'm not -- I'm now trying to look at what it would be by quarter. If you give me a second. It is about 20/20. It is about evenly split between the first quarter and the second quarter, give or take a couple million bucks.

Okay. And in terms of noncash charges, how do you define noncash? For instance would an inventory write down be a cash or noncash charge?

The bulk of the noncash is inventory write down.

Okay. Thank you and finally, when do you think you might be able to give us some more details on your plan for financing the company next year?

Doug, you want to respond to that?

Basically, as you know, our wavers expire in January 31, '04 so we would expect to begin discussions in the fourth quarter of this year in terms of a new financing plan for '04 and beyond and you know, as we've stated previously we have every reason to believe that our lenders will continue to be very supportive of the progress we are making and work with us as we move forward.

So I would expect that we would not define what the '04 financing plan is until January of '04. That would coincide with the banks and the waivers and things like that.

So can I assume from that that you think your current liquidity is adequate going into the first part of next year as well?

Yeah, we said that we believe we have more than adequate liquidity to get through the year, to get through '03.

Thank you.

Doug, do you have the second half '02?

Yeah, the fact that Mitch, to answer your question, and I'm going to give you gross sales because net sales has a lot of the growth plan charges in it so it doesn't really work very well. So, second half growth sales in 2002 were $808.4 million, broken out, the third quarter was $391.8 and the fourth quarter is $416.6 which gives you $808.4.

Okay.

Thank you, sir.

Any more questions?

This ends the question and answer session for today, sir. We will now like to turn the call back over to Mr. Stahl for closing remarks.

Okay, again I very much appreciate your being part of the call today. Obviously, we've got a lot of work to do but just as clear we're very pleased with the progress we're making, we are going to stay on track, we're going to strengthen this company and I have every confidence that we will have the resources we need to create the value that we believe is out there over the long term.

So thank you for your participation along the way, we appreciate it very much.

Thank you everyone for joining today's conference call and have a nice day.