Revlon Inc (REV) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Revlon's fourth quarter and full year 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 this time.

I would now like to turn the call over to Mr. Alan Ennis, Revlon Executive Vice President and Chief Financial Officer. You may begin, Mr Ennis.

Thank you, Amy. Good morning, everyone, and thanks for joining our call. Here with me today to discuss our results is David Kennedy, President and Chief Executive Officer, and Calandra Matthews from our Investor Relations Group. Earlier this morning we released our results for the fourth quarter and full year 2006. If you haven't received a copy of the earnings release, you can obtain one from our website at www.revloninc.com. Before we get started, I would like to remind everyone that our discussion this morning might 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 material from such forward-looking statements is set forth in the Company's filings with the SEC.

Our remarks today will include a discussion of adjusted EBITDA, which is a non-GAAP measure that is defined and reconciled to the most directly comparable GAAP measure in the footnotes and attachments of our earnings release issued this morning. In relation to marketplace performance, unless otherwise noted, our discussion this morning of market share and retail consumption is that of the U.S. mass market according to ACNielsen, which excludes Wal-Mart and regional mass volume retailers. The ACNielsen data is an aggregate of the drug channel, Target, Kmart, and food and combo stores, and represents approximately two thirds of the Company's U.S. mass market dollar volume. And finally, as a reminder our discussion this morning should not be copied or recorded. With that, I will now hand it over to David Kennedy.

Thank you, Alan, and good morning, everyone. As we have previously communicated to you, our results for the year reflect the important decisions we have made to position Revlon for success. Namely an organizational restructuring of certain U.S.-based functions designed to improve accountability and decision making and the discontinuance of Vital Radiance. As you know, these actions significantly affected our reported financial results and Alan will review those in detail with you later in the call. With those actions behind us, moving forward we are fortunate to have a strong portfolio of brands, particularly the Revlon brand, which we fully intend to leverage worldwide. In terms of some financial highlights for the year, let me note the following, all of which are consistent with our previous guidance. Full year 2006 net sales were $1.3 billion, which is essentially even with 2005. Adjusted EBITDA was $78.2 million for the full year. Restructuring actions taken during 2006, the total impact of Vital Radiance and executive severance negatively impacted full year operating results by approximately $145 million and adjusted EBITDA by approximately $123 million.

In terms of market share for the full year 2006, the U.S. color cosmetics category increased approximately 4.2% versus 2005. Our color cosmetics dollar share remained essentially even compared to 2005 at 21.5%. However, the Revlon brand lost 1.2 share points to 14.1% share, while the Almay brand held steady at 6.2% share. The Vital Radiance brand, which was discontinued, registered a 1.2 share. Our portfolio of beauty care brands continues to perform very well, led by strong share gains from our hair color and beauty tools businesses and solid performance from our antiperspirant and deodorant business. As we move into 2007, we are going to focus on the following key strategies. We intend to build and leverage our strong brands, particularly the Revlon brand, across the categories in which we compete. In addition to Revlon and Almay brand color cosmetics, we plan to drive growth in other beauty care categories including women's hair color, beauty tools, fragrance and antiperspirants and deodorants. We tend to implement this strategy by first reinvigorating our new product development, fully utilizing our creative marketing and research and development capabilities.

Second, reinforcing clear consistent brand positioning through effective innovative advertising and promotion. And three, working with our retail customers to continue to increase the effectiveness of our in-store marketing, promotion and display walls across categories in which we compete. We are already taking actions to implement these strategies. Within our Revlon and Almay marketing organizations, we have recently taken steps to integrate brand strategy, communication, category management and product development functions to form one cohesive organization, fully responsible and accountable for brand growth and profitability. Also, we have engaged a new creative agency for brand Revlon and a new media planning and buying agency. The new agencies are bringing an innovative approach to reinforcing the Revlon brand positioning through communication and media planning in addition to ongoing media cost reductions.

We plan to improve the execution of our strategies and plans, and provide for continued improvement in organizational capability through enabling and developing our employees, primarily through a focus on recruitment and retention of skilled people, providing opportunities for professional development, and expanded responsibilities and roles in rewarding our employees for success. Specifically, as a result of the restructuring actions taken during 2006, we have created expanded roles and responsibilities for key capable individuals throughout the organization. These include key promotions within our marketing, finance, operations, legal, and human resources groups. We have also provided a restricted stock grant program for a broad group of key contributors, who will be important in executing our strategies and goal of long-term profitable growth. We plan to continue to strengthen our international business by leveraging our U.S.-based marketing, research and development, and new product development.

In addition to the Revlon and Almay brands, we will continue to focus on our well-established strong national and multi-national brand, investing at appropriate competitive levels, controlling spending and working capital, and optimizing the supply chain and cost structure. By focusing on this strategy, we have achieved profitable net sales growth in all three regions, Europe, Latin America, and Asia-Pacific, excluding the effect of foreign currency. We plan to capitalize on what we believe are significant opportunities to improve our operating margins in cash flows overtime, with key areas of focus continuing to reduce sales return, reducing cost of goods sold, and G&A expenses and improving working capital management and supply chain efficiencies. We have taken actions in 2006 which have included our previously announced 2006 restructuring program, which have reduced headcount and enabled us to consolidate office space. We have reduced onetime promotions, which reduction has lead to lower rates of product returns. And we have improved our working capital by reducing inventory and receivable levels.

Finally, we plan to continue to improve our capital structure by taking advantage of opportunities to reduce and refinance our debt, including refinancing the remaining balance of our 8.625 senior subordinated notes which mature on February 1, 2008. Actions we have taken with respect to our capital structure include -- The successful refinancing of our term loan, which gives us greater financial flexibility and lower interest margins; Reducing our term-loan rate by 200 basis points and our revolver rate by 50 basis points; And we have completed to rights offerings during 2006 for a total of $210 million, the proceeds of which was used to reduce the indebtedness. So with that let me hand it over to Alan, who will take you through the financial results for the quarter and the full year.

Thank you, David. As we normally do, I would like to take you through the financial results for the fourth quarter and full year 2006, starting with the fourth quarter. Net sales in the fourth quarter of 2006 declined 13.5% to $378.9 million, compared with net sales of $437.8 million in the fourth quarter of 2005. This decline was primarily driven by lower shipments, partially offset by lower returns, allowances and discounts. As you will recall, the fourth quarter of 2005 benefited significantly from the sell-in associated with the complete re-stage of Almay and the launch of Vital Radiance. Foreign currency fluctuations had a negligible impact on the results for the quarter. In the United States, net sales for the quarter declined 20.7% to $227.1 million, versus $286.3 million in the fourth quarter of 2005. This performance was driven by lower shipments in color cosmetic, partially offset by lower returns, allowances and discounts and higher shipments in our beauty care businesses. As mentioned, the fourth quarter of 2005 benefited significantly from the sell-in associated with the Almay re-stage and the launch of Vital Radiance.

In our international businesses net sales for the quarter were essentially even at $151.8 million versus $151.5 million in the fourth quarter of 2005. Double-digit growth in Latin America was offset by low single-digit declines in Asia-Pacific and Europe. Operating income in the fourth quarter was $70.1 million, versus operating income of $99.6 million in the fourth quarter of 2005. Adjusted EBITDA in the fourth quarter of 2006 was $108.2 million, compared with adjusted EBITDA of $126.8 million in the same period last year. Operating income and adjusted EBITDA in the fourth quarter of 2006 were negatively impacted by $20.8 million and $9.7 million respectively, as a result of the previously announced February and September, 2006 restructuring program and the discontinuance of the Vital Radiance brand. Net loss in the fourth quarter of 2006 was $5.5 million or $0.01 per share compared with net income of $64.3 million or $0.17 per share in the fourth quarter of 2005. Net cash used for operating activities in the fourth quarter of 2006 was $13.9 million, compared with net cash used for operating activities of $23.8 million in the fourth quarter of 2005.

This performance reflected an overall improvement in the levels of working capital and lower spending on permanent displays, partially offset by the higher net loss in the fourth quarter of 2006. Capital expenditures in the quarter were $6.9 million versus $9.8 million in the fourth quarter of 2005. Permanent display expenditures in the quarter were $17.3 million versus $30.9 million in the fourth quarter of 2005. I would now like to take you through the full year results. As David mentioned, net sales for the full year were essentially even at $1.3 billion compared with 2005. Higher shipments and lower returns were offset by higher allowances. Foreign currency fluctuations had a negligible impact on the results for the full year. In the United States net sales for the year declined by 3% to $764.9 million, versus $788.3 million in 2005. This decline was primarily due to the discontinuance in September, 2006 of Vital Radiance, which launched in 2005, partially offset by higher net sales of Revlon and Almay color cosmetic products and our beauty care products.

In our international businesses net sales for the year increased by 4.1% to $566.5 million, versus $544 million in 2005. The increase was driven primarily by higher shipments in the Europe and Latin America regions. Excluding the impact of foreign currency fluctuations, international net sales increased in all three regions in the aggregate by $19.8 million or 3.6% in 2006 as compared with 2005. Operating loss for the full year of 2006 was $50.2 million versus operating income of $64.9 million in 2005. As David mentioned, adjusted EBITDA for 2006 was $78.2 million, versus adjusted EBITDA of $166.6 million in 2005. Restructuring actions taken during 2006, the total impact of Vital Radiance and executive severance negatively implanted full year operating profitability by approximately $145 million and adjusted EBITDA by approximately $123 million. Net loss in 2006 was $251.3 million or $0.62 per share, compared with a net loss of $83.7 million or $0.22 per share in 2005. Net cash used for operating activities in 2006 was $138.7 million, compared with net cash used for operating activities of $139.7 million in 2005.

This performance reflected the higher net loss for the year and higher spending on permanent displays, which was more than offset by improvements in working capital. Capital expenditures for the full year were $22.4 million, compared with $25.8 million in 2005. Permanent display expenditures for the full year were $98.7 million, compared with $69.6 million in 2005. I would now like to take a moment to review our recent successful financing activities, which we executed over the last few months. First, in December, 2006 we successfully refinanced our 2004 credit agreements, which we expect will result in significant annual interest savings due to lower interest margins and will provide us with greater financial and covenant flexibility. In refinancing the credit agreement we entered into a new $840 million term loan facility and an amended and restated $160 million multi-currency revolving credit agreement, both with a maturity of January, 2012. The interest rate on the new term loan facility, which is fully drawn as of today, was reduced by 200 basis points.

The interest rate on the revolving credit facility, all of which is undrawn as of today other than $15 million in letters of credit, was reduced by 50 basis points. Second, in January 2007, we completed a significantly oversubscribed $100 million rights offering, which we launched in December, 2006. The proceeds from the offering were used in part to redeem $50 million in aggregate principal amount of our 8.625 senior subordinated notes, reducing the outstanding balance on these notes to $167.4 million. The balance of the proceeds from the $100 million rights offering was used to repay all of the approximately $43.3 million of indebtedness then outstanding in January, 2007 under the revolving credit facility, with approximately $5 million after fees and expenses being available for general corporate purposes. Also, upon the consummation of the $100 million rights offering, $50 million of our existing line of credit from MacAndrews & Forbes will remain available through January 31, 2008. We currently have no borrowings under this line of credit. As you know, the balance of the 8.625 senior subordinated notes are due to mature in February, 2008.

Given our history of highly successful financing and refinancing activities, we are very confident in our ability to refinance these notes prior to their maturity. Our un-utilized borrowing capacity and unrestricted cash, as of February 28, 2007, totaled approximately $225 million, comprising $134 million under the multi-currency facility, $50 million under the MacAndrews & Forbes line of credit, and $41 million of unrestricted cash. Before I hand you back to David, I wanted to update you on our progress in executing against our restructuring actions, which we announced in February and September of 2006. In terms of headcount, we are on track to reduce our U.S.-based headcount by approximately 300. As of February 28, 2007, headcount had been reduced by 271. In terms of office space optimization, we have vacated approximately 100,000 square feet of leased space by giving up two floors and consolidating space on the remaining two floors here in the New York headquarters. This space optimization was executed ahead of schedule and will result in substantial annual rent savings.

In addition, yesterday, we announced our plan to consolidate all packaging of beauty tools into our main Oxford, North Carolina facility with the resultant closure of our facility in Irvington, New Jersey by the end of June, 2007. We expect this step to result in annualized savings from supply chain efficiencies. Including the impact of consolidating beauty tools packaging into our North Carolina facility, we are on track to deliver total annualized savings of approximately $55 million. With that, I'll hand it back to David.

Thanks, Alan. In summary, we will continue to concentrate on bringing innovation and excitement to the market in a way that is intensely focused on improving our profitability in cash flow. And we remain confident in our ability to achieve adjusted EBITDA of approximately $210 million in 2007. So with that, we will open it up for your questions

[OPERATOR INSTRUCTIONS] And our first question comes from Bob Labick of CJS Securities.

Hello, Bob.

Good morning. First question I wanted to ask, obviously there were lots of moving parts during 2006 and you mentioned in your opening remarks 2007 should see a continued focus on driving the Revlon brand. Share was obviously down a little during '06. Can you give us a sense of your expectations for Revlon brand itself, the share there and impact you can have in the intermediate term on -- on that brand and maybe discuss the shelf-space expectations for '07 as well for the brand?

I'll start out by saying -- reiterating our strategy about leveraging that great brand in the U.S. and around the world and what we're going to focus on, which is first of all implementing a very solid marketing plan for 2007 with significant new product introductions. And then for the longer term, as I'd indicated, reinvigorate our new product development and bring more innovative and effective marketing to that brand. So obviously that's the key focus of our strategy and we would expect over time that we would gain our targeted results from that.

But do you think that some of -- maybe the focus on Vital Radiance caused some of the decline in Revlon or was that unrelated? Or how should we view the stability of -- of that brand share?

Bob, I think -- I think as you look back -- as you look back over 2005 and 2006, the focus was clearly off the Revlon brand, except for the re-stages of certain key franchises, all of which, by the way, were very successful, so wherever we focused on the brand, we -- we were successful. The problem is that we allocated resources and our intellectual capital to Vital Radiance and, to a certain extent, to the relaunch of Almay, and I strongly believe that that detracted from the performance of Revlon.

Right.

So now that Vital Radiance is behind us, Almay re-stage is behind us, clearly the strategy going forward will be to focus on the Revlon brand, both with resources in terms of it being the number one priority -- and that's around the world, too, because the Revlon brand, as you know, drives our international business as well. So to the extent that we drive the Revlon brand, not only do we drive the business in the U.S., but we drive the worldwide business. And we drive the results in the categories where we utilize that brand, for example, hair color, and implements.

Great. Thank you. Regarding-- I guess a little more on the P&L side. It's sometimes hard to get a good sense of the factory or product gross margins based on the returns allowances and discounts in any given quarter. Could you give us a sense how 2006 faired in terms of, I guess, product gross margin and expectations in the next few years?

Well, I can give you an overview, I think, of 2006 and then I'll turn it over to Alan, perhaps to build on it. First of all, as you look all the way back to 2003, since 2003 we have continuously improved our gross profit margins, primarily from two factors. We've continued to improve our returns percentage, in other words reduce them overtime relative to our gross sales, and we have made very good progress on factory cost of goods sold. Albeit, that's been masked, to a large extent, by a couple of factors, one being write-offs associated with Vital and, to a certain extent, Almay. So with that sort of overview, I'll turn it over to Al. And by the way, I would also just like to highlight that the restructurings in '06 also had a positive, will have a positive impact on our cost of goods and the recently announced closure of the Irvington plant and the consolidation of our packaging operations for beauty tools into Oxford will also have a positive impact. So we continue to take steps to drive the cost of goods down.

I guess I would add-- I would add two things to that just for clarity. Two factors that significantly impact the cost of goods, if you like, and the cost of goods margin, are obsolescence charges for estimated slower moving inventory and sales returns charges. And just for your information, if you look at the obsolescence charges that we took in 2006 for Vital Radiance and Almay, it was about $24 million. And then if you look at the returns and markdowns charges that we took, again, in relation to Vital Radiance primarily, it was about $31 million. So you really have to be aware of that when you look at your cost of goods sold in absolute terms and as a percentage of sales. And as David mentioned, we are intensely focused on our factory cost of goods and driving down our standard costs as we move forward.

Great. Kind of last question, just to tie that together. Now that you have been at the helm a little longer, are you ready to give -- ?

Six months--

It's a little longer than last call. Are you ready to give potentially a long-term margin outlook for the business? Or when can we expect your thoughts on that?

Well, I'm not ready to do it currently and I think that we need to get a few more weeks and months under our belt before we're ready to evaluate whether we should do that or not. Today we're really focused on the 2007 plan and building our plans for '08 and even out into '09 in terms of new products and marketing. So-- but I hear what you're saying and we'll certainly take that into account.

Fair - .

Remember also that we continue to call out that we're confident today that we're going to make the 210 EBITDA.

Great, thank you very much.

Thanks, Bob.

Thank you, our next question comes from Bill Chappell of SunTrust.

Good morning, this is actually Mark in for Bill. Just to be sure, are you guys completely done taking all of Vital Radiance returns?

Yes-- well, let me clarify. We have, from an accounting standpoint, we have adequately reserved for the expected returns. Obviously the product will come back in from the retailers over the course of the next several months, but we have, from an accounting standpoint, as of 2006 taken all charges in relation to the Vital Radiance discontinuance.

And that includes amortization of displays? Yes. There will be some, approximately $2 million, I think, in the first quarter in relation to finalizing the accelerated amortization of the walls.

Obviously the product in January and February is still at the walls in certain retailers, so there will be about a $2 million charge for accelerated amortization that we will take in the first quarter. Other than that we're done.

Okay, great. As far as the cost savings, the $55 million you called out, let me make sure I understand that correctly. That-- that includes the consolidation of the beauty tools and the headcount reductions taken in fourth quarter?

Yes, it's a couple of thing, Mark. It's the -- the February 2006 program we called out would save $15 million on an annualized basis. The September program we called out would save approximately $34 million on an annualized basis. And then we've some additional savings, as we mentioned this morning, from the closure of the Irvington facility, which will result in some supply chain efficiencies, and of course the exit of the 100,000 square foot of space here in New York. So it is a collection of all of those actions.

Okay, great, thanks. And then I guess on the international segment, just if you could comment a little bit on what happened there. That had been one of your strongest segments over the last few quarters, just looked like it slowed down a little bit. So, just looking for a little more color on that.

Sure, I think that we can do that. First of all it would be partially a function of the marketing program, if you are talking about the fourth quarter. The year, I think, was reasonably consistent in terms of profitable growth from what we had in prior years. Alan, you want to comment on the specifics -- ?

Sure. If you look at the three regions, and again, just to remind you from our perspective, Europe includes Canada from a management standpoint. But if I look at the full year, excluding the impact of currency, Latin America was up double-digit, 12.6% excluding the impact of currency, driven primarily by strong growth in Brazil, Mexico, Venezuela, and our distributor business in Latin America. In Europe we were up approximately 2%, driven by strong growth primarily in the UK. And in our Asia-Pacific region we were up approximately 1%, excluding currency, driven primarily by our continuing strong performance in South Africa and in our Australia/New Zealand operation.

Okay. So that was full year numbers?

Correct.

As far as the quarter, you were up -- Latin America flat, Europe, Asia-Pacific.

Actually, yes, I'll go through those with you as well. Excluding currency, Latin America was up 14.5% in the quarter, Europe was down 9.5% and the Far East was down 1%.

Okay. Thank you very much.

Sure.

Thank you. Our next question comes from Connie Maneaty of Prudential.

Good morning, I have a couple of questions. First to continue on the international, I'm not sure I understand what the progression was in the fourth quarter that caused Europe to decline 9.5% ex-currency.

Alan, do you want me to start out?

Yes.

It was primarily in some of the distributor markets. We converted a couple of countries over to distributors, over to new distributors and that caused some slow-down. And there was some slow down, ex-FX, in the UK which was primely a function of the marketing calendar, Connie.

In addition, I think Canada -- net sales in Canada were down slightly in the quarter driven primarily by a bit of slow down in the Revlon color business.

Okay. So these-- this transfer of distributors, should we expect a couple more quarters of transition issues?

I don't think they'll be significant, would be my view. I think the-- the conversion or the transition is over with now, so we would not expect that-- these trends to continue.

And were these transitional issues, were they a surprise or were-- did you expect something like this to happen?

No, we expected it.

So this is typical for that sort of event?

That's right. And it's all under the headline of strengthening our distributor system in Europe.

Okay. All right. The market share decline in Revlon color cosmetics got worse as the year went on. If it declined 140 basis points for the full year it was down 170 in the fourth quarter. The CMR data suggests that the Revlon Company flashed advertising to zero in the fourth quarter. There was no advertising for either Revlon or Almay, was that a mistake in the data or did that happen?

I think that's a mistake in the data, because we did advertise in the fourth quarter for certain of our products. We did not have a heavy program of advertising in the fourth quarter as we normally would. In other words, we usually have less advertising in the fourth quarter relative to the second and third quarter.

Because the data also suggests that L'Oreal and P&G spend about 20% of the year's advertising in the fourth quarter. And last year, Revlon spent 10 to 12% of the year's advertising in the fourth quarter. So I guess my question is, if the other competitors are spending relatively evenly, or at least significantly, in every quarter and Revlon typically doesn't spend a lot in the fourth quarter, how can you hope not to lose market share when that's going on?

What the competitors have been doing, Connie, at least over the past two years, is they've been launching new products in the U.S. in the second half and of course spending behind those launches. We have chosen to do that last year. We launched ColorStay Soft and Smooth in the second half and we spent against it, but we didn't launch the same number of new products that our competitors did. So largely the advertising spending is a function of the new product launches, and we -- we're certainly considering launching in the back half, and in fact have plans to launch two new products under the Revlon brand, two major new products in eye and face in the back half. So you could see our spending, then, go up accordingly.

Okay. So is the industry changing such that new products don't necessarily launch around plan-a-gram changes, but it's becoming a full year process?

Well, it's an interesting question, I don't know that the industry is changing. We have seen somewhat of a trend just over the past two years, I think '05 and '06, where more new products, major new products have been launched in the U.S. in the second half. However, having said that, retailers expect performance all year long and they are still looking for really strong performance in the first half of the year as they go through their line reviews. So whether that will become some structural change remains to be seen.

So what have you introduced to retailers?

We have seen the advertising now for Limit Edition.

Right. What else have you introduced to them?

Well, in addition to Limited Edition, of course we continue to support our ColorStay Soft and Smooth product, that we launched in the second half of '02. And then we have launched, or launched in the second half also luminous eye shadow, which we continue to support, and Luxurious Lengths, which we launched in the first half, all of that which we continue to support. And then we have launched under the Revlon hair color portfolio, Revlon Colorist, with the ad on the Super Bowl, and then Almay we've launched Smart Shade, which we actually launched in '06, kind of a soft launch with full support, then, in '07.

Just one or two more things. What were the fourth quarter '05 shipments of Vital Radiance, just so we can get our models straight?

Fourth quarter '05. Let me get that for you, one second. Fourth quarter '05 shipments of Vital Radiance was about $37.6 million on a worldwide basis.

And do you have that also for the first two quarters of '06?

Yes, I do. Shipments in the first quarter of '06, and this is a worldwide number obviously, was $18.6 million and the second quarter was about $9 million.

And was there anything in the third quarter?

Yes there was, there was about $14 million in the third quarter.

Oh, no kidding. Okay. So then let me ask you about the fourth quarter '06.

Fourth quarter '06 was minimal.

Okay. And just finally, in the U.S. were sales up or down excluding Vital Radiance in the fourth quarter?

Compared to '05?

Yes.

They were down.

They were down as we called out.

There was also the Almay launch in '05.

If you recall in '05 there were significant sell-in pipeline of Almay as well as Vital.

Thank you. Our next question comes from Reza Vahabzadeh of Lehman Brothers.

Good morning.

Good morning.

On the cost savings front, the $55 million of cost savings target, is that going to be actually realized at that $55 million level in '07 or is it going to be at a run rate of 55 by sometime in '07?.

I think we're going to get to-- it's more of a run rate. I think we should see the full impact of the $55 as we move into 2008. We announced the February program, obviously in early 2006, and so 2006 benefited significantly from some savings associated with that program. And then we announced the September program obviously in the back half of 2006. So there is some of that savings already captured in the 2006 results. We expect the preponderance of those to be realized in 2007 and then some residual savings to trickly into 2008. So it's really 2008 when you see the full impact of that. But by the end of 2007, we should be substantially in-line with that $55 million.

On a run rate basis, kind of ballpark, by -- I don't know by the end of 2007, will you be at the $55 million level by 4Q '07?

Well, let me give you a specific example, we announced the closure of the Irvington facility and we expect to exit that facility in June of this year.

Okay.

So we expect to realize half of the savings associated with that action in 2007, with the full year impact in '08. So really as you start 2008 and as 2008 unfolds is when we would see the full impact of that $55 million.

Cash restructuring spending related to any and all restructuring charges, is there any cash restructuring spending this year?

Yes.

We have a number of smaller restructuring programs.

Cash restructuring.

The cash piece, obviously we'll pay out, continue to pay out severance in relation to restructuring actions that we have taken, including the impact of the Irvington facility. In terms of -- from an accounting stand point, we have, in 2006, largely taken all of the charges associated with that. But the cash, as we release those reserves, that will turn into cash.

But what's the number? Is there a number?

There is, but we haven't disclosed it.

Okay.

And I don't have it in my head.

I'm just trying to get a feel for -- .

And I understand that, you are trying to see what the -- how the savings is going to flow out, in and out of the cash.

Really, I'm just trying to get to the cash flow kind of a number, so I'm just trying to see if it's 20 or 30, just kind of ballpark figure.

I would think although I need to really have Alan analyze it -- how about if we get back to you?

That's fine. That's fine. In terms of -- in terms of overall marketing spend for Revlon and Almay --

Right.

ex-vital, is the overall marketing spend in '07 going to be comparable with '06, higher? Lower?

We do not want to disclose the levels of our spending for obvious competitive reasons, but we're going to ensure that we launch our products with competitive marketing support as we have done in the past and will continue to do that.

Okay. I don't even know your marketing spending in 2006, I just want to know if the level of those two brands will be about the same or higher or lower.

As I said, we're going to launch our products at competitive spend levels and marketing support levels, both advertising and in-store support, and we wouldn't want to call out absolute levels for competitive reasons.

Okay. Along those lines, you have an EBITDA guidance out there and you have the cost-savings guidance out there, would you anticipate the marketing spend and your new products will allow you to have flat or improving market shares in '07 versus '06, ex-Vital Radiance.

I wouldn't predict what our share is going to be, that's a function of not only what we do but what the competition does, and obviously what impact we all have on the category. So our intention, clearly overtime, is to maintain and grow our share in a profitable basis. But with respect to any period, I wouldn't be in the-- I wouldn't want to call it.

Thank you.

It's always our intention to be competitive. I think that goes without saying.

Got it. Thank you.

Thank you, our next question comes from Mary Gilbert of Imperial Capital.

Good morning. When you talked about your two major product introductions for Revlon, those are coming in the second half so there's nothing else until then and could you discuss what they are specifically and also what do you have going on for Almay?

I'm sorry I missed the first part of the question. Could you repeat it, I apologize.

You mentioned earlier in the call that you have two major product introductions that are coming on stream in the second half for Revlon, right?

Correct, yes.

For the Revlon brand. So there's nothing coming on ahead of the second half, and when in the second half are those -- ?

We launched Limited Edition Collection, which is a major line of 16 product families, which is a significant launch. We continue, as I said, to support in the first 12 months of its launch a very successful lip product, Revlon ColorStay Soft and Smooth, and then we have got some ancillary products as well. So we think we have got a very solid program for all of 2007.

Okay. And then are you changing the way that you are advertising? For example, are you using less or more print? Are you using more media? Can you talk about what your marketing strategy is specifically there?

At this point we have continued to use approximately the same mix of television and print and on-line and others for our color cosmetics brands. We haven't changed at this point our approach to the media mix.

How do you see that evolving going forward?

Well, we just have engaged a new media planning and buying agency, which we are very excited about. They are affiliated with our new advertising agency for the Revlon brand and we believe that they'll bring some very new and exciting ideas for us to consider. Out of the bat, or out of the gate I should say, we came up to bat at the Super Bowl, if you will. And we thought that that was a very good idea. That was brought to us by our new ad agency, along with this new, at the time, media planning agency and we think that that worked very well for us in launching Revlon Colorist.

Okay. And then what about for Almay?

For Almay, we -- the most significantly launched this year is Almay Smart Shade, which is doing extremely well. It's a face product, very few SKUs and the technology is patented. And so far the consumer acceptance has been phenomenal. That's the key product for Almay for the first half. Along with-- along with a lip product, Hydrocolor, which is also off to a reasonably good start, although it's early days.

Okay. What about the second half?

In terms of Revlon, as I indicated, we're going to launch-- our plans are at this time to launch major products in eye and face. But I wouldn't want to talk in detail about those at this point for obvious competitive reason.

Right. And then also for the second half you have some launches for Almay as well.

Yes, we do, and we're pretty excited about those, but, again, just for competitive reasons I don't really want to speak.

Okay. Could you talk about working capital management and the types of improvements that you expect there, given new product introductions and the work down of Vital Radiance getting sort of rid of the last of that product. Where do you see working capital year-over-year this year?

Yes, I guess just for context, if we talk about 2006 compared to 2005. 2005, as you know, was somewhat of an anomaly when it comes to working capital because of the buildup associated with the launch of Vital Radiance and the re-stage of Almay. And in 2006 we significantly reduced our working capital. Receivables were down significantly. Inventory was down significantly. We continue to focus on and drive working capital efficiencies as we move forward. But our 2007 levels of working capital are expected to be in-line with our level of activity. We continue to focus on those and drive efficiencies there.

Yes, do you see overall that you would be a net generator of cash from working capital of '07, or would we see an increase? I'm trying to figure out what the opportunities are on the working capital side overall.

We're not budgeting for an increase in working capital year-over-year. Obviously, it depends on how our plan and our year unfolds, but as of now we are not anticipating an increase in working capital year-over-year.

We're going to continue to manage very closely on our working capital, but we wouldn't want to predict where it's going to come out, but I would say this, that given our business plans for '07 and '08, where we're focusing on the Revlon brand and Almay brand in the U.S., and the Revlon brand around the world, and we're not doing any major relaunches, that that's obviously going to be somewhat beneficial or allow us to manage our working capital much closer than we have in the past. So not only does the focus on the key brands help us with respect to the marketplace and the consumer, but it also helps us to manage our supply chain, which in turn helps us to better control and manage our working capital.

Okay. What about the timing of refinancing the 8.625s?

Alan, you want to speak to that?

Yes. As I mentioned earlier, we have had a history of very successful financings and refinancings and based on our on-going discussions with our advisors, and we regularly confer with them, we don't have any specific plans right now, but we feel very confident in our ability to refinance those prior to -- prior to maturity.

That would be more like a second half event?

Well, prior to maturity.

Okay. Thank you.

Thank you. Our next question comes from Filippe Goossens of Credit Suisse.

Good morning, David and Alan, few questions here on my side as well here. First just as a follow-up on Connie's question, can you give us a clear number for the sales performance in the fourth quarter adjusted for the Vital Radiance and Almay shipments in 4Q '05?

Well, we have to get back to you on that. There's a lot of moving parts on that, Filippe, but we can do that.

I guess I can answer one thing, though. In relation to -- I gave out earlier the numbers for Vital Radiance for the four quarters. In the fourth quarter of 2005 we had a significant pipe build in the fourth quarter of approximately $40 million in relation to Almay. And that's a shipments number. If you take that, and that's an approximate number, if you take that as a point and you work in the Vital Radiance numbers I mentioned earlier, you can probably get to it.

Okay. Then my second question, the market share of Almay. If I look at the press release from this morning here, we had basically an improvement, let's see here, of 20 basis points in Q4, for the full year we are flat, basically 6.2% dollar market share. And given the re-staging of the Almay brand, is that pretty much in-line with your internal plans or do you fall a little bit short here?

I think we've said in the past that Almay didn't perform up to our expectations. I think we have been fairly clear about that.

Okay.

On the basis of the relaunch, back at the beginning of 2006, we had clearly expected better performance out of Almay. Although, remember, also, that order of 2006 was significantly impacted by the execution, I would say, of the relaunch. We, in effect, took all the product on the shelves and restocked all of those shelves. So we had a period in there that was clearly disruptive to the overall year for Almay.

Okay. I was actually trying to be polite or diplomatic when I said they didn't meet your expectation. Maybe I should have been a bit more direct. I think you basically addressed a couple of them, I would say, David, but what went really wrong with the Almay relaunch for it not to meet your expectations? Was it execution? Was it the product? Was-- what was it really in your opinion?

Well, in my view, first of all, as I called out, I don't think you should underestimate the impact of execution. Because the execution was very difficult and I think the Company really underestimated what it would take to completely re-stage a brand. You know how difficult it is as we go through the annual cycle of resets, that's difficult enough execution. And then when you re-stage and relaunch an entire brand that has a significant impact. And then after that, I think probably, while it's difficult to pinpoint, I think probably you would have to say that the merchandising probably wasn't as effective in-store as we had anticipated. Having said all that, we do believe that the Almay brand is very strong, that the momentum has turned around on that brand, and we think it's in a very good place in the market. We'll continue to make improvements to it. We have got a very successful new product, which we actually launched in sort of a soft way in 2006 called Smart Shade, and that's doing very well in '06 as we-- I'm sorry in '07 as we turned on the media and other marketing support for that brand.

Okay. Then moving on, Alan, to cash flow. Based on your internal plans, when do you forecast, and obviously you are going to get a big benefit from the refinancing of the bank line, when are you forecasting to be cash flow positive?

Filippe, we're not going to put out a forecast in terms of when that's going to happen. Obviously we have taken some significant and meaningful actions over the last 18 months to drive us towards being cash flow positive. We are not in a position to put out a forecast as to when that will happen.

Okay. Then, David, in the press release you also mentioned in terms of new product activity, fragrance.

Right.

Can you just give some more color on that? Are you planning to relaunch your fragrance in the prestige category or it is more an extension of what you are doing in the mass channel right now?

We're going to focus on the mass channel and we're going to have a launch in the second-- second half.

Okay. And then if I may just ask two final questions. One, Alan, I know about your track record, which has been very successful in terms of stepping the capital markets both on the debt side and the equity side. Given the-- the volatility in the markets right now, and we have seen spreads widening on the high yield side as well, why do you think it's prudent to wait so long to refinance these 8.625s? What if the market closes on you? Nothing specific to Revlon, but that sort of volatility really starts increase significantly and the appetite for high yield credits shrinks dramatically? Why would you want to take that risk?

Filippe, let me start out and then I'll let Alan build on it. First of all, let's be very clear that we're not going to talk about hypotheticals today. We continue to stay in discussions with our investment bankers and other counselors. And we think we have a very good handle on what is going on in the marketplace. And given not only our track record, but where we are today, we're highly confident that we'll be able to refinance those notes. And of course, we're always aware of whatever risks there are out there, but you can guarantee that we're taking that into account as we go forward.

Okay. And then my final question. Since you mentioned it a couple of times, David, the decision behind the ad in the Super Bowl, obviously very expensive air time, did it meet your expectations, David, in terms of the feedback as well as sell-through of the hair coloring product following the ad?

It clearly met our expectations and we have analyzed the ad and the effect of the ad. And you probably are aware that this particular Super Bowl was the highest rated one in 10 years and that our ad was the seventh highest rated commercial for ACNielsen. So we were very pleased with that. And then we got very significant, and we had anticipated this, very significant post Super Bowl PR. Just some examples of the way we have seen the data, for example, we know that we got over 100,000 views on U2. We also know that Revlon website for hair color traffic increased 43% after the Super Bowl. And of course we got some mentions on the adds. Forbes, for example, said Revlon Did Not Fade Away was the best marketing idea of the night. And it was also very successful with our customers. And I might say too that Revlon color is off to a very good start in the marketplace, even though resets are not complete at this point.

Wonderful. I look very much forward to some successful launches in the second half of the year. Thank you so much, gentlemen.

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

Thank you all for participating today and I certainly hope that we have been responsive. And I'll be brief, but I just want to remind you that we are, at this point, very confident that we will be able to meet our adjusted EBITDA target of $210 million. And importantly, I just want to repeat that we intend to fully leverage our strong Revlon brand. That will be our number one priority. It's $1 billion brand around the world. And we're going to do that by reinvigorating our new product development, fully utilizing all of the capability that we have in this Company, reinforcing our clear consistent brand positioning of the Revlon brand, and we're going to continue to work with our retail customers to increase the effectiveness of our in-store marketing. So with that, thank you, again, for your participation in the call and that's it. Thank you.

Thank you.

Thank you. This concludes today's conference call. You may disconnect at this time.