Revlon Inc (REV) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Revlon's first-quarter 2006 earnings conference call. At the request of Revlon, today's conference call is being recorded. If you have any objections, you may disconnect at any time.

I would now like to introduce your host leading today's meeting, Ms. Maria Sceppaguercio, Senior Vice President Investor Relations.

Thank you, Amy, and good morning everyone. Earlier this morning we released our results for the first quarter 2006. If you haven't received a copy, you can get one on our website at www.RevlonInc.com.

As you know, during the quarter we successfully consummated our planned $110 million equity rights offering. We subsequently used the proceeds from the offering to redeem approximately $110 million of our outstanding 8 5/8% senior subordinated notes in April. In addition, you will recall that we previously announced our intention to conduct an additional $75 million equity offering to be completed by the end of June this year.

We are also pleased to report that we have signed commitment papers with Citigroup and JPMorgan for what we believe will be a very favorable refinancing of our credit agreement. The new credit agreement would be essentially the same structure as our current agreement and would provide a seven-year, $800 million term loan and a six-year $160 million revolving asset-based facility. Proceeds would be used to refinance our existing credit agreement, and approximately $75 million would be used to redeem senior subordinated notes.

We expect the new credit agreement would provide more favorable interest rates and greater financial and other covenant flexibility. The commitment is subject to a number of customary conditions, including completion of full documentation. For the record, until we have a signed credit agreement and closed the deal, there is no assurance that we will consummate the transaction. We will provide more details publicly if and when we finalize the proposed new agreement, which we currently anticipate will be in July.

Turning to the results of the quarter, let me quickly provide the financial highlights. David Kennedy, Revlon Executive Vice President Chief Financial Officer, will take you through the details a little later.

Net sales advance 8% in the quarter, driven by an 11% gain in North America. Adjusted EBITDA was $15.3 million after giving effect to $9 million in restructuring expense stemming from the organizational realignment or announced in February. This compares with adjusted EBITDA in the first quarter of 2005 of $21.6 million, which included $1.7 million of restructuring expense. You will recall that adjusted EBITDA is a non-GAAP measure that is defined and reconciled to the most comparable GAAP measure net loss in the footnotes and attachments of our press release issued this morning. Net loss in the quarter was $58 million or $0.15 per diluted share, including the $0.02 per share expense related to the realignment charge.

Turning to marketplace performance, let me start with the retail execution of our new and increased space. We had a very good quarter and executed well against our retail space game plan. As you will recall, this process began in mid-January in some accounts and continued across our U.S. customer base throughout the quarter and into Q2. As of the end of April, the majority of the retailer resets were complete, and we had achieved a retail space gain of over 20%.

On market share, unless otherwise noted, our discussion this morning of market share and retail consumption is of the U.S. mass-market according to ACNielsen, which excludes Wal-Mart and regional mass volume retailers. This data is an aggregate of the drug channel, Target, Kmart, and food and combo stores, and represents approximately 70% of the Company's U.S. mass-market dollar volume.

For the quarter, the color cosmetics category grew 3.8% versus year ago. During this period, the Company registered a share of 21.3%, which was down 0.8 share points versus the same period last year. The Revlon brand registered a share of 14.3% compared with 15.6% in the year-ago period, while the Almay brand held share in the quarter at 6.4%, and Vital Radiance achieved a quarterly share of 0.6%. Given the magnitude of the retailer reset process this year, it is important to note that our overall market share performance improved as the quarter progressed.

Specifically, in January, total Company share was 20.2%. In February, total Company share grew to 20.9%, and for the month of March, our share advanced 22.3%. Almay and Vital Radiance share momentum drove this improvement, with Almay achieving a share of 7.0% for the month of March versus a share of 5.9% in January, and Vital Radiance achieved share of 1.1% in March versus essentially no presence yet in January.

Revlon brand marketshare was down for the quarter, which we expected as the brand was cycling against relaunching of Age Defying and Super Lustrous, two fairly big franchises this time last year. Both of these two businesses posted a consumption decline for the quarter due to timing of heavy promotional activity in the first quarter last year. We expect both Age Defying and Super Lustrous to have a solid year in 2006.

At the same time, ColorStay face makeup, which we are relaunching this year, had a strong performance for the quarter with consumption up 25% and building. We expect ColorStay to have a very good year with more activity for the franchise in the second half. In other key categories we maintained our momentum from last year. In women's hair color our consumption was up 9% in a category that advanced 3%. As a result, we gained a half a share point to end the quarter at just under 9%.

In beauty tools we achieved a 16% increase in consumption, which was double the 8% growth of the category, resulting in an almost two full share point increase to 26.5%. In antiperspirants and deodorant we essentially maintained share in a category that grew about 4%.

Before I turn the call over to Jack Stahl, Revlon President and CEO and David Kennedy, our 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 SEC, including the Company's 2005 annual report on form 10-K, our quarterly report on form 10-Q for the first quarter 2006 which we will be filing shortly with the SEC, and other SEC filed and furnished documents during 2006 including the press 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.

Thank you, Maria, and good morning everyone. And as always, thank you for your participation. As you know, 2005 was a very important year for us as we took aggressive action to re-energize a number of our important core franchises. We also set the stage for 2006 and the rollout of what we believe are our most ambitious new product initiatives in recent history. And finally in 2005 we continued to take very important steps to strengthen our capital structure, and these actions and effort as Maria indicated, continue into 2006.

As you think about 2006 and our portfolio of businesses and brands, clearly our restage of Almay and the launch of Vital Radiance are critical elements of our plan this year, along with very important efforts to re-energize important Revlon franchises. Also critical to our portfolio strategy are our actions to strengthen our important related categories like hair color and beauty tools.

You will recall that as we discussed 2006 we said that we expected our actions to strengthen our business, increasingly as the year went on and the impact of those actions would build as well as the year moved on. With that context let me turn to the first quarter. During the quarter we made excellent progress; progress in executing the rollout of and the space gains associated with Vital Radiance and the restaged Almay Brand, and progress in continuing to improve our margin structure, as well as progress in strengthening our balance sheet.

Let me start with the new initiatives. As you may have observed when you visited our retailers over the last few months, the resets that took place on their shelves and those that are just now being completed in the cosmetics aisle were far more significant than in recent years. By this I mean that many of our retailers completely revamped their allocation of space inside the color cosmetics category. And I am pleased to report that our Company increased our space on average by more than 20%. And I might add in many cases we significantly improved our location inside of the stores, as well.

While this was in process the color cosmetics aisle, as you might have seen and would expect, was a pretty tough place for consumers to shop. In the case of the Almay Brand, for example, because the whole retail wall was being replaced, we experienced significant out of stocks during this transitional period from old to new. Not a surprise and clearly only a temporary effect for both us and our retailers of making these important in-store modifications.

With much of the reset effort behind us, Vital Radiance and Almay, along with our ColorStay relaunch are off to a good start with momentum building. As you know, it is still too early to get a definitive read as many stores are just finishing being reset, but we feel very good about our 2006 color cosmetics program and have every confidence that we are building the value of our brands. Both existing and new for the long-term. We also feel very good about the initiatives we've planned for our hair color, beauty tools and Mitchum business in the U.S., as well as our outlook for strong and growing international business.

In terms of market share, as Maria pointed out in color cosmetics our momentum within the first quarter behind Vital Radiance and Almay built as the quarter progressed. In other areas of our U.S. portfolio we also have exciting initiatives in the marketplace, like Custom Effects hair color and a new line of ergonomically designed pedicure tools, for example. That is a part of the beauty tools area where we have been underrepresented historically. And our market share in these important categories continued to expand.

In women's hair color, for example, we grew our consumption by more than 9% in a category that was up 3%. This drove our market share up 50 basis points in the quarter. In beauty tools our consumption growth of 16% doubled that of the category, and we gained almost two full share points in the quarter.

Turning briefly to our organization, as you know we have realigned our organization to among other things, get our brand teams closer to our customer teams, and ultimately have our brand teams closer to our customers themselves. This step is already having positive impacts, and no question we are getting more and expect to get more marketplace insight sooner and faster and make us even more responsive to the needs of our customers and our consumers.

In this context Paul Murphy, our Executive Vice President of North American sales, who did a terrific job for us over the past several years, is leaving the Company and Karl Obrecht, who has been with Revlon for a number of years and headed up our largest customer teams and was a key contributor to all the progress we've made on the customer side is stepping up into Paul's role. Karl has more than 15 years of experience in the beauty industry and has had responsibility for a variety of retail formats. We expect the Karl will add new and important insight and value to this important role as we develop our plans for the coming years and work to continue to maximize 2006.

Turning to international, we posted another quarter of solid growth. This important part of our business has been a consistent contributor to our overall progress, and we believe it represents an excellent platform for growth as we move forward. On the margin side we continue to make good progress, and this is evident in the quarter in the areas of manufacturing and product returns. As you will recall, two very significant components of our long-term objective are reducing our rate of product returns and increasing our gross margin. David will take you through the results of the quarter in these areas a little bit later.

Finally on the capital structure front we continue to take actions to strengthen our balance sheet and improve our capital structure. During the quarter we completed our $110 million equity rights offering, and we used the proceeds to pay down debt in April. We also intend to issue an additional $75 million in equity by the end of June 2006. As Maria indicated, we also have a commitment in place to refinance our credit agreement, which if consummated will result in significant interest savings. So while we have much work left to do, we continue to make progress against our strategy to build the value of our brands, strengthen our retail partnerships, strengthen our margins, improve our capital structure -- all with a goal in mind of creating significant, long-term value in the years ahead.

With that, I will now turn it over to David who will take you through the numbers for the quarter.

Thanks, Jack, and I will start with sales. We had a very good quarter. Gross sales advanced 8% to $407 million. Net sales also advanced 8% in the quarter to $326 million. The net sales growth was driven by North America and to a lesser extent by international. Partially offset by unfavorable foreign currency translation. Excluding the impact of foreign currency translation, net sales advanced 9% in the quarter.

Turning to North America, in North America which includes the U.S. and Canada, net sales grew 11% to $216 million. Largely reflecting strong growth in color cosmetics stemming from the Vital Radiance and Almay rollouts, partially offset by lower shipments of Revlon. Also impacting the sales comparison was shipment strength in hair color, beauty tools, antiperspirants and deodorant as well as lower returns partially offset by higher sales related brand support.

Looking at international, net sales in international for the quarter advanced 2% to $109 million. The shipment strength in Latin America and Europe partially offset by unfavorable foreign currency translation, excluding the unfavorable impact of foreign currency translation international net sales advanced 5% in the quarter.

Looking at gross profit, we had a good quarter also. Gross profit as a percentage of net sales increased 2 percentage points to 64% in that quarter -- in the first quarter -- versus 62% in the first quarter last year. The same improvement is evident on a percentage of gross sales basis. Driving this improvement were lower factory cost of sales and lower returns partially offset by higher sales related brand support.

Turning to SG&A (indiscernible) as we expected SG&A increased significantly in the quarter largely due to higher advertising and promotional spending as well as increased departmental expenses associated with both spending to support the new initiative and higher compensation expenses including the amortization of stock based compensation. Profitability, we generated an operating loss in the quarter of $17 million versus an operating loss of $2 million in the first quarter last year. Adjusted EBITDA in the quarter was $15 million versus adjusted EBITDA of $22 million in the first quarter last year.

As Maria mentioned, this performance included restructuring expenses of $9 million in the current quarter and approximately $2 million in the year ago quarter. The primary drivers of our adjusted EBITDA performance in the quarter was a growth in the dollar value of shipments, lower returns expensed and higher manufacturing margins, offset by significantly higher brand support, higher compensation related costs and higher restructuring expense.

Net loss in the first quarter was $58 million or $0.15 per diluted share compared with a net loss of $47 million or $0.13 per diluted share in the first quarter of 2005. Again, restructuring impacted both periods with the current quarter reduced by $9 million or $0.02 per share due to restructuring expense, and the year ago quarter reduced by approximately $2 million with minimal impact to diluted EPS.

Let's look at cash flow. Cash flow and liquidity. Cash flow provided by operations was $9 million in the quarter versus cash flow used for operating activities of $8 million in the first quarter of 2005. This improvement reflected a favorable change during the quarter in working capital versus the year ago quarter and partially offset by higher permanent display purchases and a higher net loss.

Let me take one moment to discuss inventories. At the end of the quarter our inventory position was $240 million versus $241 million at year end. This increased inventory level largely reflected our anticipated build associated with the launching of Vital Radiance and restaging of the Almay brand. We expect our inventory to return to more normalized levels in relation to sales during the second half of the year.

Talking about capital expenditures in the quarter they were $4.8 million compared with capital spending in the first quarter of last year of $2.7 million. Permanent display spending in the quarter was $48.3 million versus $17.5 million in the first quarter of 2005. This increase, as expected, reflected the cost of rolling out the Vital Radiance and Almay retail wall fixtures during the retailer reset process. For the year we expect permanent display spending to be in the range of $85 to $95 million.

Cash restructuring spending including executive severance, was approximately $2 million in the quarter, somewhat lower than in the first quarter last year. And cash interest expense paid in the quarter was $32.5 million. Looking at our bank borrowings, outstanding at March 31, 2006, our term loan facility was drawn at $700 million. Letters of credit issued but undrawn were $16 million. We had $1 million drawn on our revolving multicurrency facility. We had no borrowings under the MacAndrews & Forbes line of credit, which you will recall expires following the consummation of our planned $75 million equity offering in the second quarter of 2006.

At the end of the quarter our unutilized borrowing capacity and unrestricted cash totaled approximately $242 million, including $143 million under the multicurrency facility, $87 million under the MacAndrews & Forbes line of credit and $12 million of unrestricted cash. And with that, I will hand it back to Jack.

Thanks, David. So if I were going to summarize it for a moment before turning it to questions and answers, and I might add that with us today is Stephanie Peponis, Carl Kooyoomijian and Tom McGuire. If I had to summarize, we are very pleased with the progress that we're making, and importantly we continue to have great confidence in our ability to continue to strengthen our brands, to strengthen our customer relationships, our margin structure and as well and importantly our ability to create long-term value for our Company. So with that, we would be happy to take on any questions that you might have.

(OPERATOR INSTRUCTIONS) Lori Scherwin, Goldman Sachs.

Good morning. Can you talk about international and the slowdown in both Europe and Asia, which even was down, and I guess I'm curious, how much was due to currency so what were both of those regions excluding currency, and what is driving the slowdown?

Okay, David, you want to take that and Tom you can build on that?

As we indicated, Lori, international sales for the quarter were up 2%. However, excluding unfavorable currency they were up 5%. So yet another solid quarter of sales growth. That was driven by, again as we indicated just to recap, Latin America and Europe. And so that is the story. That was pretty solid, and I think that all regions had good growth. Tom you want to add to that as far as the drivers?

I'll take everything out and say we continued to roll out our new product introductions in international, which mirror some of the introductions in the U.S., the ColorStay restage throughout the first, second and third quarters of this year. So everything is on track.

Was Asia and Africa up excluding currency? Because it was down about 4% this quarter, and it has sort of been a decelerating momentum last year and into this quarter. I am just curious if that is really all currency or if there is something else slowing it down.

It is about flat, as I recall on as reported basis, and I think a couple things are going on there. One is recycling very good growth I believe on last quarters, and if you remember also in international business, and Tom can provide more color on that, but we also launched our products at different times internationally, so there is a timing effect as well.

On the gross margin you called out lower factory costs and lower returns as the drivers, but was there any benefit from mix given the higher price points from Vital Radiance, and what does that contribute?

Well, there was benefit from mix, but not necessarily from Vital Radiance. So the mix was around -- the mix of businesses other than a brand mix.

One of the things to keep in mind there, Lori, an important part of our overall strategy that we talked about in terms of re-energizing our core franchises; you know when you look over the long-term that franchises like Super Lustrous lipstick and core nail, because those products have been in the marketplace for a long time, we have had a long time to value analyze them and optimize the packaging and the componentry costs in a way that works really well for us. So as we look to continue to keep these franchises alive and turn them into annuities, it does create a nice mix benefit for us over the long-term.

Okay, and just lastly -- and this is sort of a broader question -- what are your expectations for the mass category this year? It seems as though growth has been okay kind of at this low to mid single digit range, but certainly less than historically and it also seems to be all price mix driven with unit growth continuing to be down. So what is your outlook for how the category will shakeout over the course of this year?

Stephanie, you want to take that one?

As we look at the mass category actually this quarter and last year are some of the strongest periods we've had in mass over the last five, and I think this is largely [drew] as we went through the slower period of '02,'03,'04 -- all of the manufacturers looked at that and saw an opportunity in mass to continue to drive it. And a lot of the innovation you are seeing in the marketplace today is focused exactly on that, to drive incremental growth into mass in a profitable way. We see units holding, so we have seen growth both on price and on units in the marketplace, which we feel is a positive indicator of the health of this channel.

Great. Thank you.

Bill Chappell, SunTrust Robinson Humphrey.

First I guess the big scheme of this earnings season has been inventory destock at some of the retailers, particularly at Wal-Mart. Can you talk about whether you saw any of that this quarter, last quarter or whether you expect to see any on a go forward basis?

Systemically I think these folks are continuing to get smarter and smarter. There weren't any dramatic effects in the first quarter. We did talk in the latter part of last year how there was some inventory drawdown in a number of our large customers, but there wasn't anything particular to call out in the first quarter of 2006.

Okay, and then switching just to the rollout of both Vital and restage Almay, you said you are most of the way there. I think there's still a couple of retailers that have yet to convert mainly into CVS. Is that still on track or is that still a possibility or is some of that been scaled back?

Our outlook really hasn't changed, Bill. You know, there are some retailers whose reset calendars stage out even as we speak that are still underway, but the vast majority of what you're going to see is now in the marketplace.

Got it. Is there any way to quantify the disruption in sales in the quarter from restaging?

I'm not sure you can quantify it, Bill. I think you can sum it up by that all the pain was had in this past quarter and a little bit of the gain. This is a front ended process, and I think if you look at -- and Almay, as an example, the transition costs of being out of stock as we went from the old Almay to the new Almay were significant for our shopper, for our retail partners and for ourselves. In the process of relaunching a brand to the magnitude of what we're doing with Almay we expected transitional cost.

And one last -- or you did -- are you still comfortable with your guidance for the full year of -- and I've forgotten if it is strong and solid or EBITDA versus revenue growth?

Yes, we are confident in the outlook for the year. We talked about that as strong and strong.

Thanks. And one other, Stephanie, can you maybe talk a little bit about the initiatives in the fragrance category? I've seen it sounds like a fair amount of spending going behind your new launch and the timing of that and the expectations there?

In terms of fragrances we talked about and I think on our last call we talked about our partnership with Gemini and our reentry into the department store channel with a fragrance launch in the second half of this year. We have not either shipped or started to spend behind that launch. We are in the sell in process as we speak.

Okay, thank you.

Bob Labick, CJS Securities.

I wanted to ask question regarding Vital Radiance. Could you give us a sense of roughly the amount of space for Vital Radiance now versus Almay or versus Revlon? And I'm asking to try to get a sense of where your share can grow. Obviously it is going from zero and it shows some very good ramp throughout the quarter, but could you help us put it into a context of where that share could go in your opinion?

Bob, I think if you go into the doors where Vital Radiance is today you will see that it is a consistent four-foot set across the marketplace and that was the appropriate amount of footage to engage the consumer in the system, prepare color finish and to showcase the face, eye and lip products that are integral to the launch of Vital Radiance.

And that relative to the average Almay size or opportunity?

Almay in most sets and it varies quite a bit, probably averages a 5 to a 6 foot. We have sets as big as 12, but I would say the heart of the Almay presentation is a 6 to 7 foot.

Okay great. So it is -- its safe to say we're certainly obviously early in the share for Vital Radiance that you believe it could get similar?

We're going to continue to build it, Bob, and we feel great about our ability to do that. But to make a kind of a downstream look I think would be premature at this stage.

I think the way to think about it is Vital is targeted at one of the largest and growing and affluent segments in the marketplace, and we felt like a four-foot set was just the beginning, but the right place to position something with as much potential as we feel Vital has.

Great. That's very helpful. And in terms of -- I know it's very early, but the retailer response so far, how has that been? And when do you start talking about stuff say for '07 and what are the possibilities there?

The retailer response, Bob, has been terrific. From the time they first saw these initiatives to partnering with us to optimize them, to all the of the scheduling from start to finish that had to go to get them into their doors, and we just came out of meetings at NACDS. Executives in Florida where we've gotten just terrific feedback as to their positive outlook on these brands and their partnership with us on this and the innovation for the future. In terms of 2007, Bob, those conversations around space ten to run the course of the line reviews of the summer and into the fall.

Great. Thank you very much.

[Matthew Palazzolo], Prudential.

Good morning. Can you just characterize the type of investments that went into Vital Radiance and Almay for the quarter? Was it largely startup and one time? How much of this investment that we saw will be continuing to the next few quarters?

Maybe the way to think about that is there are a number of components. Obviously we had investment that relates to remerchandising retail outlets for both Vital Radiance and Almay. And to a lesser extent, Revlon color as well. And so obviously establishing a four-foot presence on Vital and a larger presence on Almay, there is some element of upfront merchandising investment, both in capital and in people. We haven't quantified that but it is fairly meaningful. At the same time we are also beginning both our media investment. We began our media investment in the quarter, and that investment will continue on an ongoing basis as the brands grow. And so I would not think of that as onetime. The last piece of the puzzle is there is a lot of in-store promotional pressure. There is a sampling programs in certain areas. Some of that is associated with the launch, but as we grow the brands and extend out, that type of investment would continue into the future as well. Overall it was a substantial increase in marketing spending in the quarter in total.

So is it possible to quantify, then, are you willing to quantify how much of that will be the ongoing, the media the promotional as opposed to that upfront portion?

Just for competitive reasons we really don't want to do that.

Okay. On the restructuring, then, how many positions were eliminated there, and were all of the charges taken in Q1? Is there any more spillover or should there be a spillover into Q2 at all?

On the number of positions I think you'll have to go back to our release, I don't recall the number but we can get that for you. As far as the charge is concerned, we took a $9 million charge for the quarter. And as we indicated in our prior release, that we were expecting about a $10 million charge as I recall and that most of that would be incurred in the first quarter. I think the number of people we expressed as a percentage, I think it was around 2%; yes, 2% of our total worldwide workforce as I recall.

Okay, and then lastly on or at least going back to fragrance, I guess bigger picture how big do you think the fragrance can get within Revlon? Are you expecting to make further investments in that category? How should we think about that?

Matthew, the way we think about the fragrance category, it is a significant category. It is probably in the beauty category the most emotional for women. And we feel the perfect place for our Revlon brand to participate. As we look back over the history, and this is just one datapoint as we think about, it in the mid '70s when Charlie was introduced, that brand was the largest brand in the world. So we feel there is tremendous potential. We're going to build our way into it. So this year is just the start for us.

Okay, great. Thank you.

Ilias Papazachariou, Lehman Brothers.

Could you talk about the expected impact of higher commodity and energy costs on your profitability? It looks like you haven't changed your outlook.

That's right. I think we talked about this in the past, but while we do have increased costs related to the commodity cost increases in energy as they flow through our supply chain, we have been able to offset those through productivity measures. So we don't have any particular changes of outlook associated with that. Carl, do you want to add anything?

No, just that we are very focused on it and we are very focused on our productivity program to offset them.

Okay, thank you. Can you tell me how much was the pipeline shipment in Vital Radiance and Almay?

While we are not going to quantify that for you what I will say is that there was some benefit in the quarter from pipeline on those two initiatives, but it was not a significant factor. The vast majority of what benefit we got in the quarter from those two brands related to replenishment orders.

And I believe Jack in your comments you said that shelf space increased in color cosmetics was more than 20%. Was it different from that 23% you had previously announced?

No, we said it was going to be approximately 23%, and we're still right on that quarter.

And finally housekeeping item, what was the share count at the end of the quarter?

It was on a diluted basis weighted average share count was 378.8 million.

Is that what you were after or (multiple speakers) the average shares outstanding?

Exactly.

The average shares outstanding at the end of the quarter (indiscernible) were 380,041,688 and then of class C, [31,000,250,000].

Thanks a lot.

If you need any more preciseness on that one you have to call Maria.

Thank you.

(OPERATOR INSTRUCTIONS) Karen Miller, Bear Stearns.

Good morning. I got on the call a little bit late. Just when Maria was talking about refinancing the term loan. Can you just tell me a little bit about if you expect to keep it at the same dollar amount outstanding or expect to reduce the amount?

What I said earlier, Karen, was that we are expecting the new credit agreement would be essentially the same structure as our existing agreement, and it would provide for a seven-year $800 million term loan and a six-year $160 million asset-based facility. What we also indicated that we would take those proceeds and that would refinance our existing credit agreement and that $75 million or so would be used to redeem senior subordinated notes. That's how we are thinking about it right now. We do expect the new agreement will provide us more favorable interest rates and greater financial and other covenant flexibility. But at this stage that is about all the detail that we can provide.

So that is 800 million on the term, seven-year and 660 on the multicurrency?

160.

Right I thought that was -- because you had paid down the term loans so that only 700 million was outstanding, correct?

That is correct.

In terms of the 75 million equity offering, that is just going to be used for internal purposes in a brand support?

What we indicated was that would be general corporate purposes, that's correct.

Recall too now, that we had a rights offering $110 million, we used the proceeds of that rights offering and some other cash to redeem and reduce the 8 and 5/8 subnotes. We're going to take another $75 million, and we're going to further reduce the 8 and 5/8 notes. So just keep that in mind as you think about the capital structure.

Okay, great. And then could you just go over gross sales in terms of returns and allowances? You said returns and allowances were less but I thought I heard you say that gross sales were up 8%?

That's right.

And that net sales were up 8% yet returns and allowances --.

(multiple speakers) indicated that there was also increase in brands related to the (indiscernible) that goes to reduce gross sales or to get the net sales.

You've got some factors going in 2 different directions between gross and net.

Okay, so how should we think about -- there is no licensing payments in there as in the past; there has been some advanced licensing.

That's right. Normal ongoing licensing revenue.

That's in there as well?

Yes but it is a small amount and consistent with what we would normally be (inaudible).

Okay, so how should we then look at gross sales -- can you just kind of tell us returns and allowances then where you said were less. (multiple speakers) Map it out for us please.

I'll try. So you start with gross sales, and then you got essentially two items in that are deductions in order to get you to net sales. And first are allowances, and that includes marketing support in effect. And also returns. So as you think about brand support, that brand support in the P&L that we report is in a number of different line items. And that brand support as we talked about is also included in those allowance (inaudible).

So basically you were experiencing lower returns year-over-year?

That's right.

What do you attribute that to just kind of better product lineup?

It is really if you start with our strategy, it's really an outcome of the strategy and in particular in the quarter that really showed up.

Okay, great. And then just one last question, you talked about your budget for full year permanent display but I don't believe you mentioned what your CapEx budget was.

I don't remember if we said it or not but anyway it is going to be about 30 to $35 million in CapEx.

And sorry just one last question if you will allow me do you -- have you experienced or have you seen any indication that the Vital Radiance and the Almay relaunch because you know it does really look great, does that cannibalize any of your core Revlon products you think?

No, as we look at the overall marketplace there was a lot of activity in the first quarter from us, from our competition and so what we see happening is that overall it's driving the category faster. And there is a fair amount of interplay amongst all of the brands, but part of our strategy was to clearly differentiate the positioning of our three color cosmetics brand against distinct shopper groups. So we are confident that the cannibalization is minimal and expected.

Okay, thanks. That's it for me.

David George, Deutsche Bank.

Can you say what the pension cash funding was this quarter? (multiple speakers) cash contribution?

I don't think we disclose that.

We didn't indicate that.

But in the K indicated you are going to fund $36 million for the full year. (multiple speakers) However you won't break it out for the quarter?

Nothing unusual occurred in the quarter.

Okay, and can you just talk about working capital for the full year? I realize with the launch its a bit skewed versus the previous year, but on a full year basis what we should expect versus 2005 and just given what you're doing with the fragrance in the third quarter, kind of how we should think about the flow throughout the year?

Separate the two questions, I think, first of all on working capital as we indicated inventories are somewhat higher compared to normal. That is as expected in the latest of the build but inventory for the launches is vital in Almay, we expect that number to come down to more normal levels by the end of the year, and it will be noticed I think in the second half, as well. As far as other working capital items, I think you can expect those to be on a normal basis, nothing really unusual.

So the fragrance launch in the third quarter wouldn't really change that either?

I don't believe so. I don't believe it should. You know we've launched new products every year. We've got a higher build towards the end of the year as we start to build inventory to launch those product in the U.S. and around the world. I believe that will be taken into account.

And the rights offering in the second quarter, the $75 million.

The equity offering (multiple speakers)

Sorry, the equity offering (multiple speakers) I thought that was indicated to be to reduce the senior subs as well, or has that just been replaced now with the term loan increase?

That's correct.

That was always earmarked for general corporate services. The proceeds of that were always earmarked for general corporate purposes.

And then the balance on the term loan between the 75 and 100 million incremental, that is going to be 25 will be general corporate as well then?

Correct.

That's right.

That's it for me. Thanks very much.

[Walter Bransom] of Regimen Capital.

Just a quickie, and I might have missed this so I apologize if I did. But what is the planned timing of the term loan refinancing?

Planned timing we would expect to complete that some time in July.

Okay, great. Thanks very much.

Thank you. This ends the question-and-answer session of today's call. We will now turn things back over to Mr. Stahl for closing remarks.

Okay, as always we appreciate very much your participation, and we very much look forward to updating you on our continued progress. So until next time, thanks very much.