Revlon Inc (REV) 2003 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Revlon's third quarter 2003 earns conference call. At the request of Revlon, today's conference is being recorded. If any one has any objections, you may disconnect at this time. I would now like to introduce your host leading today's meeting, Ms. Maria Sceppaguercio senior vice president of investor relations. Ma'am, you may begin.

Thank you and good morning everybody, including those of you listening in via the web. Earlier this morning, we released our results for the third quarter. If you haven't received a copy you can get 1 or our website at www.revloninc.com. As you may know, our majority shareholder, REV holding filed a registration statement with SEC on October 17th 2003 for an exchange offer of its 12 percent note due February first, 2004 renew note. As [inaudible], we will hold our discussions on the third quarter and not discuss future periods in any detail. As usual, unless otherwise noted our discussion this morning of market share and retail consumption is of the US mass market according to AC Nielsen which excludes Wal-Mart and regional mass volume retailers. This data is an aggregate of the drug channels, K-Mart, Target food and combo stores and represents approximately 60 to 65 percent of the company' US mass market dollar volume. The quarter was still soft the color cosmetics category showed some improvement shown early in the year with total consumption flat versus year ago. Consumption for Revlon and Almay combined was up 1 percent for the quarter resulting in a market share gain versus a year ago of 20 basis points. For the total company market share of 22.2 percent was essentially even with a year ago reflecting the [inaudible] basis points gain for Revlon and Almay, offset by a 20 basis point decline for ultima (ph) which is currently sold only as select retail outlets in the US. The Revlon brand consumption grew in the quarter by 3.4 percent and gained 60 basis points a share for 17.3 percent. Almay consumption was down 6.6 percent in the quarter resulting in a share decline of 40 basis points to 5.1 percent. This decline largely reflected timing of marketing pressure and the absence of a new product launch in the second quarter of this year versus one launched last year. Before I turn the call over to Jack Stahl Revlon chair man and CEO and Thomas McGuire, Revlon Executive Vive President and CFO,, I would like to remind that you our discussion this morning may include forward-looking statements which are subject to the safe harbor provisions of the Private [inaudible] to differ materially from such forward-looking statements is set forth in the company's filings with the Securities and Exchange Commission including the companies current annual report on form 10-K, 2003 quarterly results on form 10-Q and other SEC documents and press release, including the one released today. Finally as a reminder our discussion this morning should not be copied or recorded. With that, I'll hand it over to Jack

Thank you, Maria and thank you all for participating. We appreciate it very much. I'd like to begin by giving you my thoughts on the business and how we're trending in the quarter, year to date and really where we're going to be going forward. In the process of doing it, I'm going to give you some very clear data about our progress against our growth strategy and which we believe and have every confidence is pointing us absolutely in the right direction and we're making very good progress. After we talk about that, I'll turn it over to Tom McGuire and Tom will walk you through the numbers for the quarter. As we had discussed in the past, our focus for 2003 has been very clearly focused. We wanted to focus on three key business drivers that were going to improve the overall health an profitability and ultimately the value of this business going forward. The key focus for us in 2003 was first we wanted to again to significantly strengthen our brands and restore growth. The second key focus point was building strong retail partners. And the third for 2003 was to continue to strengthen and build the Revlon organization for the future. So those are the key things that we're targeting against '03. And we said that our objectives for the year 2003 are and continue to be moderate sales growth, full year market share growth for the Revlon and Almay brand combined, and a continued reenergizing of our brand, in terms of rebuilding excitement back into the Revlon brand. A strengthening of our retail partnerships of the Revlon organization. And I'll give you some indicators of our progress on all of these fronts, but we have made real progress despite the softness of the overall cosmetics category in the United States. One indicator of our progress is our consumption growth relative to that of the overall category. For the first 9 months of 2003, while the category according to AC Nielsen is down 2.5%, if you include all mass retailers, the category based on our analysis is actually flat to up slightly through nine months. In this context, and I think this is the most important indicator of our progress and where our focus was and has been in 2003, in this context against a flat category overall, Revlon and Almay combined are growing 5 percentage points year-over-year 9 months. So the category is basically flat we're outgrowing the category by about 5 points.

Another way to think about that is overall through 9 months across the total marketplace, we have gained one full share point through 9 months and that follows 4 to five years of share declines, so it's a dramatic shift in trend which is the first step in rebuilding a brand and rebuilding a strong profit model for the long term. In Nielsen measured channels through that 9 months, we gained about 0.8 share points on Revlon and Almay combined. So we have gone from trailing the category over 4 or five years to outgrowing the category by about 5 points in 2003. Now, obviously we have got a lot of work to do as we go forward to continue to transform our business model. There's no question about that. We are making good progress, however, on building growth, the most important part of our business and obviously as we clearly stated, the progress that we're making does require significant investment, much of it one time in nature over the 2002 to 2004 period. And we have called that out very specifically in the past that the initial gearing up of this company did require some up front investment. As you'll hear from Tom, we expect that the cash charges associated with initiating and implementing our growth plan to be about $85 million in 2003 as the cash charges. We're confident that this investment behind our brand will absolutely drive value over time. In our early indicators of stabilizing first, middle of last year and now growing, our share in consumption as well as, and this is very important, restoring the confidence of our retail partners which has hopefully become visible to you, we believe these are the key indicators that are beginning to get traction. As we move forward, we believe that there will be additional signs of progress. We have focused on restoring growth as the first driver but as we look forward we'll be adding an additional layer to the implementation of our strategy. This additional layer relates to the productivity of our growth, the efficiency of our growth and which will benefit our margin structure and our ability to generate cash as we go forward. These initiatives Tom will talk about we can't give away the competitive store today but we will begin to lay out, hopefully give you some confidence that we are layering a new set of cost initiatives on top of the growth initiatives which will benefit our margin structure as we go forward. You should think of these as productivity and efficiency related. So as we go forward and move through our growth plan, our focus will increasingly broaden from reestablishing growth in the marketplace with both customers and consumers which was critical to us and we called that out to meaningfully strengthening our business model and improving our margin structure to produce profitable growth.

As you may know, we have made significant changes in the operating committee, the leadership team of this company over the last 14 or 15 months. Everybody is now in roll and that leadership team from marketing to operations to finance to sales we are now planning the implementation of a number of initiatives that will drive efficiency and profitability of our business model. Tom will again lay out some examples of these initiatives in just a few minutes. In terms of our 2004 outlook, without getting into specific projections or forecasts at this point in time, I will say that we will expect to continue to benefit from top line growth and see some positive impact from the strategic initiatives around productivity and efficiency that we will be putting in place, some impact these initiatives do take some time to implement and certainly as we go forward expecting more dramatic impact in ‘05 and beyond but we will expect some impact in ’04. And in ’04 we will also come out from the heaviest part of the burden of the announced growth plan charges that have affected our profitability in 2002 and 2003. So growth in '04 beginning to implement the productivity and efficiency measures will come out from the heaviest part of the implementation charges related to our growth plan we experienced in ’03. We believe in moving forward our objective of achieving long term profitable growth will create value and this will give us the flexibility to take the actions we obviously need to take and plan to take to strengthen our balance sheet. While we can't provide any details at this point in time, as I said in the past, we're absolutely confident that along the way we will have access to the financial resources we need to execute this plan. And I think these are the same comments I made about a year ago at this point in time and I think it's safe to say that we have demonstrated that we can attract the resources that we need because we have a value creating plan [inaudible] absolute legs. We have confidence that we will continue to attract the resources that we need to grow the business. So turning to the quarter on the brand side we registered a 20 basis point improvement for Revlon and Almay on a combined basis in a very soft US color cosmetics category.

The Revlon brand in terms of absolute dollar growth continues to lead the category. It registered its fifth consecutive share gain versus a year ago. Somebody might note in the month of September we did not experience a share increase, there's always going to be monthly periods where marketing pressure can be up or down. The significant fact is that on over the 9-month period and over 5 consecutive quarters we continue to grow share and lead category growth in the United States. Almay was down in the quarter after posting share gains over the previous two quarters. It's important to realize that Revlon is about 3 times the size in absolute terms as Almay in the United States just to put that in perspective. And Almay share decline does reflect the timing of marketing initiatives and new product introductions that were made last year. For the year we expect Almay market share to be about even as we cycle our second half 2002 lip vitality launch. In terms of new product progress we continue to perform well for the quarter Revlon and Almay combined held 8 of top 20 new color cosmetics products, positions as measured by AC Nielsen so in the quarter we had 8 out of the top 20 top performers. Some of the specifics on new products, color -- Revlon ColorStay Overtime Lip which was launched in January nationally is the best performing launch in the category in the US this year which we're very proud of, ColorStay Natural Face Makeup and ColorStay always on nail enamel which were also launched in January are performing well and they are part of that list of 8 that are included in the top 20 new products for the year. Lip Glide, which we launched last year continues to grow and we reached a share of about 4.5% points of the lip segment in the quarter. Consistent with our strengthening business model we're going to take that franchise and rather as we might have done in years past back away from support, we're going to build on it with the introduction of something called Lip Glide Sheers to compliment the shade line and add some additional ongoing excitement to the brand. And Lip Glide Sheer also made the top 20 new products list. On the eye business, where historically Revlon had a relatively undeveloped market share, we have launched lash fantasy mascara and Eye Glide, and these are two important part of our plan to reenergize our eye business.

Also, you may recall we talked about one part of our growth plan was to move in a merchandising approach for eye that we call carded or pegabel, which fits very well in line with retailer merchandising strategies which are largely pegable items in stores. Our mascaras and liners are being restages as [inaudible] and our presence at the wall. This reduces shrink or threat at the retailer level and we are seeing that benefit our eye business. This is an example of an important marketing initiative that we're just in the midst of that will give us continuing benefit as we go forward next year and results so far are very good. On the Almay business, Almay Bright Eyes, Almay Nearly Naked our products for Almay continue to perform very well. All of our new product activity builds upon the more effective advertising campaign that we are now running as well as the changes to our in store Plano gram and merchandising approach that we're executing as part of our overall plan. I should also point out that Revlon and Almay have been recognized by allure magazine as winners of 5 of the best beauty product awards and getting this kind of recognition from the beauty press is important as they are an influencer of the products that women buy across the country and this kind of recognition for us is important. So just to summarize the US side of the business, there's no question that we're making progress. You can see it with our customers. You can see it with our brands and it's important to point out that these initiatives that we're implementing, whether it be the changes to our wall, our Plano gram, [inaudible] the pricing initiatives, all of these marketing drivers are drivers that we are in the midst of implementing and we will have continuing benefit going forward as we get a 12 month benefit, for example on carded eye as opposed to a 6-month benefit in '03. So we have a lot of work to do but we're very focused on the marketing drivers and you will hear about the most efficient drivers in just a moment. On the international side of the business our focus continues to be on strengthening our brands in key markets and we are making progress here. For the quarter we have achieved growth in several key markets that really help to offset softness that we continued to experience in Brazil and Mexico in a number of our distributor markets in Russia and Europe. I'd like to take just a few minutes to talk about the customer side of our growth strategy.

In some ways this is where the rubber meets the road because our retail partners in many ways are the best judge of the progress that we're making to strengthen our brands and customer service. We have dramatically improved our relationships with our key customers and we have I believe regained significant credibility with the [inaudible]. Over the past several months and this is very important, we have been successful in securing incremental space for retail for the Revlon and Almay brands for 2004 as well as incremental distribution next year for not only color cosmetics but hair color and beauty tools. This is a significant shift from the trend that the company experienced over the years leading up to 2002. So we have held space in many locations and we have gained space in 4 of our top 8 customers for 2004. And these are very tangible signs of progress against our plan. On the people side of our strategy, the third quarter was particularly important for our company, and I indicated to you that we have locked in on an operating leadership team that is now in place and in this regard in the quarter we made some significant changes to the team which I'd like to just headline for you. First of all, Tom McGuire was named Executive Vice President and Chief Financial Officer. Tom comes to us from Coca-Cola and Tom worked in some very difficult and challenging environments for coke outside the US, where strengthening controlled cash management, operating in unpredictable environments was kind of the hallmark of Tom's career and he brings that solid experience to us at Revlon and will help us continue to build a strong finance organization as we go forward. Doug Greeff as you know moved into a newly create roll of Executive Vice President strategic finance and Doug who was here with us today along with Tom, Doug will be focusing on our longer term capital structure and he'll be invaluable as our plans take shape to strengthen our balance sheet. But back to Tom he does bring extensive consumer products experience to Revlon and I have ever confidence that he will effectively build Revlon’s finance in support of the next phase of our growth plan. We also filled our open treasurer position in the quarter with the appointment of Steve Shipman to the position of senior VP and treasurer. He comes from a company called G log which was a private logistics software company where he was CFO in that particular roll. Steve also brings experience from Ford motor company and we're thrilled that he comes to our team.

A very significant leadership team change that occurred in the quarter was appointment of Stephanie Peponis as our Executive Vice President and Chief Marketing Officer. Stephanie had been with us for 4 or 5 months as our chief planning and business development officer but more importantly Stephanie has been with us on our journey along the way because she was the senior partner from Boston consulting group who helped us develop our marketing strategy for growth. She has a very strategic approach, a laser like approach to developing marketing strategy and as we implement our efficiency programs the linkage between marketing, sales, production and other parts of our business is going to be critical and Stephanie has the skills necessary to help create those strong linkages so we can effectively implement these productive initiatives. I am very excited that she is now playing the role that she is. So a lot of progress, obviously a lot of work to do, which we are undertaking. And as we indicated in the past, 2003 would be a year of significant investment in our business to set the stage for 2004 and beyond. We are doing that and we're making progress. Throughout this process, we'll obviously continue to fine tune our plans and our outlook, we'll benefit from the learnings that we are doing with our customers and consumers and the competitive realities that we confront. We will share our outlook with you for 2004 when REV holdings has completed its exchange offer. However I will say we continue to believe 2004 will be a year of significant growth and progress for the company and begin to bring us closer to achieving our objective of long term profitable and sustainable growth. Let me say again with all the emphasis that I can convey to you just as we said a year ago at this time and demonstrated as we move forward I'm very confident the actions we're taking to strengthen our business will be effective and increase our ability to strengthen our balance sheet and just as emphatically along the way, I have every confidence that we will have access to the financial resources we need to execute our plan. So with that, I'd like to turn it over to Tom, who will provide his thoughts on the business and review of the numbers for the quarter.

Thanks, Jack. First let me start by saying how delighted I am to be here at Revlon. Since joining the team in August, I have had the pleasure and the opportunity to get to know the team at Revlon and begin to fully understand the magnitude of the opportunities we have to strengthen this business. As Jack indicated, a lot of progress has already been made to strengthen our brands and our relationships with our retail partners and to build the capability of Revlon's organization. As we move into 2004, our focus is on continuing the momentum we have established in 2003 but doing so in a much more efficient and profitable manner. In this regard advancing the capabilities of Revlon’s organization is critical to the successful implementation of our strategy and the challenges and opportunities that lie ahead. As Jack indicated we have identified very significant opportunities to generate productivity gains across our operations over time. We are launching major productive initiatives with the objective of improving our margin structure to a place that we will feel affordable and continuing business at appropriate levels and move us towards our objective of long term profitable growth. Clearly the speed with which we can fully implement these initiatives and generate improved margins will determine the magnitude of the benefit we can achieve in '04 but we're absolutely certain that significant opportunities exist and we expect that at least some benefits will begin to materialize in 2004. As an example we have launched a full strategic sourcing initiative at the company which involves creating the necessary internal center of expertise and critical processes for the purchase of goods and services at the lowest possible price. Many companies source this way and benefit from significant savings. At Revlon this is clearly a significant opportunity as we move forward.

Another example is packaging rationalization. For example we currently purchase more than a dozen different compacts for our make up products causing us to keep inventories of each different item and limiting the opportunity to consolidify and get volume discount on large quantities. Without giving up any quality or damaging the consumer experience by streamlining our compact lineup. In fact, having just a few different compacts can improve the consumers and customers experience. we could save 40 percent annually for one of our face make up lines and this is before we even go to the next step and strategically source the compacts and find a fitting process for qualified vendors. So the opportunities are real and we are going after them. Other opportunities involve critically evaluating how we grow, in other words, the productivity of our growth and the return on investment of all of our decisions all the way from promotional effectiveness to package designs to new products. This critical evaluation of our go to market [inaudible] and exercising the discipline to maintain internal thresholds for return on investment are already leading us to make what we believe will be better and more profitable choices for '04 and beyond. Needless to say we believe there's a lot of opportunities on the productivity and efficiency fronts to drive down our overall cost of doing business and improve margins and we are organizing internally to aggressively focus against this effort to reap as much benefit as we can in 2004 with the objective at 2005 and beyond will benefit significantly. Turning to the numbers for the third quarter on a GAAP basis, total company gross sales of 392 million were even with last year, primarily reflecting growth and favorable currency translation in international offset by lower sales in North America. North America results largely reflect timing of shipment tied to the company's fourth quarter promotional events this year which span much of the fourth quarter versus last year when we had the bond promotional events which shipped out much of the related products already by the end of Q3. Returns, allowances and discounts combined improved by declining 6 percent in the quarter, consistent with and related to the company's growth strategies. Other revenues were down significantly in the quarter and were negatively impacted by a 12 million dollars licensing last year for certain minimum royalties under one of our license agreements. As a result of these items, net sales declined 2 percent to $317 million for the quarter versus 323 million last year. In North America in the third quarter which includes the US and Canada, net sales declined approximately 9 percent to 212 million compared with 232 million in the same period last year. The decline primarily reflected the impact of the 12 million dollars royalty received last year and the timing of shipment tied with the company's fourth quarter promotional events which I mentioned a minute ago.

For international net sales advanced 14 percent to 104 million versus 91 million last year, driven by growth in several key markets and favorable foreign currency translation partially offset by softness in Brazil and Mexico as well as several distributors markets in Russia and central and Eastern Europe. [inaudible] International net sales were up approximately 5% versus a year ago. Total cost of sales, including brand support as a percentage of gross sales increased 140 basis points to 32.4 versus 31% last year. This increase was largely driven by higher factory cost of sales, product mix and lower production volumes. As we move forward, operations is an area where we believe applying our strategic sourcing principals among various other strategic initiatives that we plan to put in place will yield significant savings, clearly the benefits in 2004 will depend upon the timing of full implementation of a given initiative and the nature of the opportunities. Suffice it to say that we believe that meaningful savings are achievable and we expect the impact will be significant in 2005 and beyond. Total SG&A, including departmental expenses and other G&A and certain components of brand supports increased 11 percent to 191 million in the third quarter versus 178 million in the third quarter last year. This increase was primarily driven by higher brand support and cost associated with the growth plan, partially offset by lower display amortization. In the third quarter operating loss of $7.9 million versus operating income of 21.8 million in the third quarter last year adjusted EBITDA was 14.6 million versus adjusted EBITDA of 48.9 million last year. This performance was primarily driven by the impact of the 12 million dollars licensing revenue in the third quarter last year, higher brand support, growth plan charges of approximately 5 million dollars and lower gross margins reflecting unfavorable product mix and lower production volume. Positive factors benefiting operating loss in the quarter were lower depreciation and amortization. Adjusted EBITDA, as you know, is a non GAAP measure. We define adjusted EBITDA as net earning before interest, taxes, depreciation, amortization, gains and losses on foreign currency trend, action, gains and losses on the sale of assets and miscellaneous expenses. Included in operating loss in the quarter were previously mentioned growth plan charges of approximately $5 million as well as .6 million for restructuring an additional consolidation cost. The prior year quarter included 4.2 million for restructuring, additional consolidation costs and [inaudible] adjusted EBITDA in addition to the growth plan charges of 5 million in the current quarter also included 0.4 million charge for restructuring while the third quarter of 2002 included charges totaling 4 million for restructuring, additional consolidation costs and executive severance. Attached to our press release, which is posted or our website, 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. Unlike previous quarters with much of our growth plan expense impacted returns and allowances, the charges in the first quarter primarily impacted SG&A while we experienced a reduction in returns based on our improved performance in this area. Net loss in the third quarter was 54.7 million or 78 cents per diluted share compared with the net loss of 22.1 million or 41 cents diluted share in the third quarter of 2002. Turning to cash flow, cash flow use for operating activities was 49 million in the quarter versus 8.5 million in the third quarter of last year. For the first 9 months of the year, cash flow use for operating activities was 184 million versus 111 million used for operating activities in the same period last year. Of the $135 million growth plan charges expense to date, including the fourth quarter charged last year, we expect approximately 80 percent to be cash charges with the balance in cash. In 2002 we disbursed approximately 5 million dollars associated with the plan. In 2003 we expect to disburse about $85 million associated with the plan of which about 55 million has already been spent. Capital expenditures in the quarter were 6.5 million versus 4.6 million in the third quarter last year. For the year we continued to expect capital spending to be in the 30 to 35 million dollars range. Permanent display of spending in the quarter was 15.9 million dollars versus 18.9 million in the third quarter of 2002. For the year, we continued to [inaudible] be approximately 75 to 80 million dollars.

Cash restructuring spending including executive severance was $2.5 million dollars in the quarter. For the year we continue to expect tax restructuring spending to be approximately 10 to 15 million dollars. Cash interest paid in the quarter was 41.8 million. The composition of our bank borrowings outstanding as September 30th 2003 was, our term loan facility 116.6 million. Our multi currency revolver, 107.2 million. Letters of credit issued but undrawn [inaudible]. In addition, the hundred million dollars term loan from Mac Andrews and Forbes that we obtained earlier in the year was virtually fully drawn. At the end of the quarter our unutilized borrowing capacity and unrestricted cash totaled approximately $86 million, including 65 million under the M and F line of credit, about 3 million under the multi currency revolver and approximately $18 million of unrestricted cash. As of October 29th, the comparable number was 58 million. As discussed previously, the company is aggressively focused on working capital management and various other efficiency initiatives that we believe will benefit cash and profitability as we move forward. I'll hand it back to Jack for some closing comments before we open it up to Q&A.

Okay. Thank you, Tom. Very quickly I'd like to leave you with a few thoughts just to summarize. We do continue to make progress. This progress results directly from the actions we're taking around our brand marketing, our customers and our organization. And we're confident that the objectives that we set for ourselves for 2003 are achievable and importantly are the right once for us at this stage of our plan. Obviously the softness of the category causes our growth rate to be somewhat lower than would otherwise be the case but we're staying on track because we know that we're building value for the long term as we strengthen our brands, as we position ourselves more effectively with retailers and as we improve our margin structure through the very focused productivity initiatives that Tom alluded to earlier. I know that you have questions about our liquidity and our longer term financial structure and as we indicated last quarter we are beginning to focus on our longer term capital structure and will begin to address our balance sheet as we move forward. However, let me emphasize again, just as I have said in the past and we have demonstrated, which is that I'm confident we will have access to the resources we need going forward to run the business, to invest in the business for long term value creation. So with that, let's open it up to Q&A.

We will now begin the formal question-and-answer session using our Q&A polling feature. If you would like to ask a question at this time, simply press star 1 on your telephone touch pad. If you're operating speaker equipment you may need to lift your hand set prior to pressing star one or unmute your telephone. To cancel or withdraw your question, simply press star 2. And once again, that's star 1 if you have a question. Our first question comes from Russell Goreman with Merrill Lynch. You may ask your question.

Good morning. Just a couple of housekeeping questions and then maybe a little strategic insight from you, Jack. On the housekeeping side I was just curious if you could give me apples and apples give me your view of trailing 12 month EBITDA versus the 85 million in charges that you characterized as one time for repositioning the company.

Okay. Trailing 12 month EBITDA. I guess we have done, what, 50 -- through 9 months, $58 million. The fourth quarter number a year ago I don't have at my fingertips, Russ. Do you have that number?

Yes, the fourth quarter of last [inaudible]

Right.

So you need to back out the growth plan charges if you want to get -- even though year to date number includes growth plan charges. Russ, if you want, I can give you the details off line.

Sure, that's fine. I'm trying to get apples to apples

Because I think what you would want is pull out the growth plan charges that we have taken to date, right

Precisely. So I can get sort of a normalized EBITDA number for the last 12 months

I think the number a year ago, Russ, including the growth plan charges was negative 110 million.

Okay

And I believe we included in the fourth quarter 100 million dollars of growth plan charge in the fourth quarter of last year.

Okay. So we're at about 68 and then 85 in one time charges

That's a little bit of a mismatch because the 85 is actually the cash spending we expect for the full year 2003. So there's a little bit of a mix and match there which I think Maria can help you get to what you're looking for on that.

Sure. Just was curious if you had that handy. And then the other housekeeping was you indicated that at I think October 29th you said you had 58 million in cash.

That's correct. Available, that's right.

Okay. Great. And then the final housekeeping was you indicated that you had slowed down the depreciation levels on the displays. I was wondering if you could give me a little color on your rational of that and the degree of the slowdown

Tom, why don't you pick that one up.

We haven't slowed down amortization on displays but I think for what happened is in the prior year we had sped up the amortization on some of the older loans at the time. That was really the whole cause of that variance.

So it was an acceleration and recognition last year to more call it normalized activity in '03, Russ.

Ok. Meaning full change [inaudible] life of the displays as a result of that.

We went to I guess a 3 year life at that point in time.

Okay. Great. Sorry for all the detail stuff there.

I guess underneath your question, though, Russ, in terms of the display spending, which is driven by largely by the display spending in the United States, the investment, last year we did about 6500 doors, putting the new her wall fixture in. This year we'll do about 7500 doors. Next year, importantly, the rate of display spending will dramatically decease because we will probably only do say close to 1500 doors next year, as we kind of wrap up the need to put the her wall into retail outlets in the United States. So that gives us a significant cash benefit relative to '03.

Okay. All right. Great. I guess it will be helpful to understand, you indicated that and these numbers are always tricky when you're talking about market share and sell through and [inaudible] versus Nielsen. But you indicated you had a 5 percent increase of growth in the Revlon and Almay products. Can you help me reconcile that with the quarterly sales reduction and basically you know kind of maybe 3 percent 9 month growth?

Yeah. Absolutely. First of all, I think it's Revlon and Almay let me just reemphasize the consumption figure in terms of dollars take away by consumers, our estimate across all outlets in the United States was in 9 months we were up 5 percent compared to a flat category. Now, those two brands in the United States represent let's make the assumption they are about half of our total retail, our total growth sales dollars for the company as a whole, okay. So you have two brands that account for about half of your growth sales dollars for the company as a whole. The remainder of that is you've got the remainder of the US business and then you've got international which is growing. If you look at gross sales through 9 months, those two brands in terms of growth sales dollars as contrasted with consumption are in fact growing at that same level. However, in the quarter and through 9 months the Almay brand because of the timing of shipments is not growing as much, it relates to new product shipment levels last year and our other brands, including [inaudible], our implements business, and the Ultima brand, which was largely discontinued as you may recall about a year ago, but the shipments associated with those brands were actually down in both periods. So that gets you back to the gross shipment pattern that we have described. One other point here I think it's important to make as well.

As we mentioned earlier, there's also when you compare shipment, the consumptions and shipments is obviously what drives our numbers. We had the timing of the fourth quarter promotion that impacted our third quarter last year that the one big time promotion had virtually been shipped out, largely shipped out in the third quarter whereas this year's shipments will ship out more evenly end of the third quarter and fourth quarter combined.

All right. One closing strategic question that will be helpful to have you respond to. There was a big article in the journal this morning about the competitiveness about consumer brands and it cited Colgates. [inaudible] up 13 percent, showing a 20 percent profit increase, and also there was an item that indicated that Estee lauder was moving into Coles, which is sort of a mid range department store which is essentially a bit of a departure for them. I was wondering if you could see competitively how you see this shifting and how you put Revlon ahead of that fierce competitive environment?

Okay. And Stephanie, anything that you would want to add to my response on this one, please do I think a couple of things, Russ. Additional question that we have very viable strong competitors in the United States. There's absolutely no question about that. I think the important thing for us is that if you look at the key drivers of our brand, whether it be our consumer communication in the form of our advertising, whether it be our in store discussion with our customers, whether it be the marketing that we were doing in terms of our customer driven promotions and so many important building blocks, there's no question that over the last 4 or 5 years these marketing drivers were underleveraged at this company and one way to think about that is if the brand was significantly bigger than the business. And that's because we weren't driving our marketing appropriately. So the brand has a very big space in consumer's minds based on all the research that we have done. And what we are doing is we're talking the marketing actions that I called out around the in store Plano gram, the advertising, new product development to bring the business back to being as the brand as it occupies consumers minds. So there's some simple catch up that we're doing even as we really build on our longer term capability and our retailers know this because they know that the brand has been under managed and that's why they are beginning to give us more space for 2004 as we increase the effectiveness of our marketing programs. But I think in any competitive environment as long as we do better what we're supposed to be doing better there's room for us to show significant growth and certainly in a better economic environment. Stephanie, anything you want to add around the Coles or otherwise?

Looking over that is similar to our competitors to look to take their brands into the channels most appropriate for those brands you can expect from us to be doing similar kinds of things in the future in terms of evaluating how far a brand like Revlon can go and where it can be best accessed by the full consumer base.

Okay. Thank you very much for that.

Thank you, Russ.

Thank you. And our next question comes from George Chalhoub with Deutsche bank.

I'm [inaudible] I don't think we can. I don't think we know what the one time items are, I think we only know what the charges associated with the growth plan are, but according to what I have been following the company for since the plan started, there were other one time items that were never quantified. So I'm not exactly sure how you can tell anybody what the EBITDA is on a fully adjusted basis. The only thing we can do is maybe add back the growth plan charges which are very well known, but I'm not quite sure what else we can do. I'm surprised to Maria's answer that we can reconcile the EBIDTA on a if you will [inaudible] basis.

George, the intention with my response on that question was to help Russ add back the growth plan charges as we have provided them in all of our public documents and would be my help in how they can do that. Certainly I am not in a position, nor would the company with one investor spend time to try to create a P&L that's different from anything that we have already provided. So the intention is not the create a normalized P&L but to create P&L excluding unusual charge that is we have previously disclosed.

Okay. Jack, on the second quarter conference call you and Doug both mentioned that the second half of the year is going to be a cash generation period. Particularly due to working capital being a source of cash and that the company liquidity is going to ends up the year at a favorable rate. I'm obviously looking at the numbers today and the numbers as of October 29th the cash burns continues to be high and while I can hear you and I can completely agree with you that there is demonstration that the owner of the company is putting cash on an existing liquidity basis things have not gone, it appears to me, as you have expected. Am I wrong?

No, I think, George, I think as a practical matter you've got it exactly right. The question really is are we making deliberate choices to continue to support the business in an environment of category softness? And the answer to that question is absolutely yes. While we have done some cutting where we could slow spending in a way that made sense for our business but would not diminish category softness? And the answer to that question is absolutely yes. While we have done some cutting where we could slow spending in a way that made sense for our business but would not diminish the momentum that we're building with our retail partners and with the brands while we have done some cutting and some shaving we have made very deliberate and strategic choice to maintain support behind the brands despite the fact that the category is flat after growing at a rate of 5 to 6 percent over the previous 5 to 6 years on average. So you're right, we have chosen to continue to invest in the brands and the business because that's where the value is going to be over the longer term. That an impact on our overall reported results. But we're being very deliberate in those choices just as we are going to be deliberate in the choices that we make to improve the productivity going forward around the initiatives, around efficiency an cost to strengthen our margin structure. But you're right, we have chosen to stay the course because we know that's what's right for the business.

So Jack, as we look at those numbers and you know from where I'm sitting I'm looking at the numbers being, you know, like choppy in terms of how bad they have gone and liquidity obviously still declining by a significant amount very fast, and I hear you being very confident of the business and obviously you looking into the [inaudible] of manufacturing retails and that sort of stuff and you seem to have a huge amount of on [inaudible]. It's like there's a huge bridge between where the numbers are and how we can conclude from looking at these numbers and your statements. I'm not exactly sure how we can bridge that or if we can bridge that, except maybe to get at face value with management statements at this point in time. Otherwise from an analytical standpoint I don't know if we can deduce anything about significant disappointments. What am I missing? I'm trying to be a little bit, I'm questioning myself at this point in time because I'm like 180 degrees opposed from your comments in terms of how I'm looking at this business.

Well, I think the important thing, George, and we certainly would always like to be in a position of meeting your very specific expectations, that would be an ideal position for us to be in. As we went into 2003, we made the very deliberate decision that we were going to invest for growth and build the value of this franchise for the long term. And as I indicated with the category softness we're obviously not in a position to recognize all the top line growth and as a result all of the liquidity position that we would have liked to. But having said that, we're going to -- we have made the decision to stay the course on our investment and as we look forward, it is -- you know, it will be a very different situation if you didn't see the life blood of this business, which is brand health as measured by how we're doing relative to the category and retailer confidence as measured by shelf space. Those are the 2 underpinnings of a consumer company. And while the numbers are not what we might have hoped for in terms of EBITDA performance we have every confidence that as we look into the intricacies of how we are doing and how we expected to attract funding going forward we're in a very good position to continue to grow the business. And so hopefully in the future we can reconcile, you know, our numbers and yours in a way that satisfies you but along the way we're confident that we are going to build value. By the way, George, that's precisely why we didn't think it made sense to provide specifically earnings guidance in '03 because of the unpredictable nature of taking a brand and a company like this in an uncertain economic environment and doing what's right for the business for the long term.

I understand that, Jack. At the one year anniversary I thought we would start to see some of the early signs of the progress. But I guess time will tell.

I think from our standpoint and from where we sit and in the minds of constituencies that include our consumers and resellers and certainly our major shareholder we are absolutely seeing signs of the progress that we need to make as we go forward.

Thank you, Jack.

Thank you, George.

Thank you. And our next question comes from Harrison [inaudible] with Jeffries and company. You may ask your question.

Hi, Jack. Clearly the brand and the market share seem to be moving in the right direction. The question that I have is over the next 12 months in order to continue with the brand and productivity initiatives that you and Mark discussed, do you foresee these initiatives being funded out of internally generated cash flow in the existing availability or do you entail seeking funding from your parent or major shareholder or however you want to classify that

I think you should make the assumption as it relates to our liquidity and our funding you know, a year ago said that we were in the process about this time of year of detailing out and our details for the following year. That's exactly where we are for '04. We are completing our plans, we are in effect putting real hard numbers across our business, including seeing what we can begin to benefit from the productivity initiatives. That will drive a cash flow forecast for next year and then that will put us into the discussions that we need to have with appropriate people about our liquidity situation. But again, I have confidence that will move through that the way that we should. I think it's important to note I already gave you one example of where our liquidity requirements would be meaningful less in the area of displays and remember also that the biggest part of the growth plan charges in terms of the cash, the biggest hit that we're going to take in a particular 12 month period will be 2003. So we'll be out from under the biggest part of the growth plan cash charges as we move into 2004. So I wouldn't look at '03 and simply predict again that we're going to need that kind of liquidity in '04. Again, there's some very positive things happening around these initiatives as well as the diminishment of the one time investment that was required in 2003. But we'll begin to get into those discussion with appropriate people as we nail down our plan for '04.

Secondly, it's not in here and it doesn't look like it from the disclosure and the press release but could you comment on any sub debt repurchases by the company affiliates or otherwise?

I don't have anything to comment on here.

: Okay. Thank you.

Thank you.

Thank you. And our last question comes from Karen Miller with Bear Stearns. You may ask your question.

Hi. Good morning. Your bank waiver expires in January. Have you started talking to the banks yet or have they just [inaudible] appropriate people once you have tied down your '04 outlook? I mean, are the banks looking for anything from you yet in terms of what '04 looks like?

Yeah, we do the normal posting of our banks on our progress and -- but as you would expect we'll get into more specific discussions as we get closer to that date.

Okay.

We have confidence that we'll move through that. You know, I think it's important to point out the underlying assets that we have here are being strength end and those would be our brands and our retailer relationships and I have confidence that we'll be in a position to work effectively with our banks as we move forward.

And could you please tell me what you said your liquidity was in October 29th and go for the components?

Yeah, we

58 million, 59 million?

58 million was the number.

And so how did that change from quarter end? Looks like you had more outstanding on your multi currency and part of the [inaudible] was overdrawn.

86 a quarter.

So what was the difference? It was 20 million Mc Andrews. Was it less cash or more drawn down on your multi currency revolver?

Right. It was mainly the supplemental line of credit from Mc Andrews Fords. But we had drawn on the 65 million was the main item. And we also have unrestricted cash that we -- that that balance was reduced a bit as well.

I thought the 18 million unrestricted cash was reduced?

It was. we ended up with around 12 million in unrestricted cash.

One last question. You talked about making productivity and efficiency gains. In kind of keeping with the way manufacturing has been going in the US would you consider outsourcing, you know, offshore some of your manufacturing. I mean I know you have the Oxford plant. Would you be making any changes in that, is that a considered in your plans?

I think if anything, Karen, we would look for ways to take better advantage of Oxford which is actually from an efficiency standpoint one of the large year cosmetics plants in the world and there may be ways to better capitalize on that kind of installed base of manufacturing capacity than we are today. There are some initiatives that we are looking at that would help us do that. In fact that's one of the major productivity initiatives that Tom did not choose to focus on today but you'll hear more about in the future.

Thank you.

Thank you all very much for participating today. We are deliberately doing the things that will grow the value of this business and increase our margin and profitability in creating the consumer excitement. We recognize that's requiring some investment and we're choosing as we absolutely believe we should and know we should to maintain our investment in the marketplace and have every confidence that that's going to pay out for us over the longer period of time and I think as we have demonstrated in the past, we will have access to the resources that we need along the way to make it happen. And we'll look forward, as we get out from under the registration period that REV holdings is in to keeping you posted on our progress and giving you updates about our outlook as we go forward. So thank you for participating today. We appreciate it very much.

I'd like to thank you for listening to today's conference call and to listen to a replay of the conference please call 800-677-4302 or toll free 4029980977.