Revlon Inc (REV) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Revlon fourth quarter and full year 2007 earnings conference call. At the request of Revlon, today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the call over to Ms. Abbe Goldstein, Revlon's Senior Vice President of Investor Relations and Corporate Communications. You may begin, Ms. Goldstein.

Thank you and good morning, everyone, and thanks for joining our call. Earlier this morning, we released our results for the fourth quarter and full year 2007. If you have not already received a copy of the earnings release, you can obtain one at our website at www.revloninc.com.

Here with me are David Kennedy, President and Chief Executive Officer, and Alan Ennis, Executive Vice President and Chief Financial Officer. David will briefly highlight the full year financial results and provide a strategic update on the business. Alan will then provide our financial results for the fourth quarter and full year in more detail.

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 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 our Form 10-Qs filed during the year, and in our 2007 Form 10-K, which we expect to file next week. Our remarks today will include a discussion of adjusted EBITDA and free cash flow, both of which are non-GAAP measures that are defined and reconciled to the most directly comparable GAAP measures in the footnotes of and attachments to our earnings release that we issued this morning.

In relation to U.S. share results, unless otherwise noted, our discussion this morning of mass retail share and consumption data is that of U.S. mass retail dollar volume according to ACNielsen, which excludes Wal-Mart as well as regional mass-volume retailers, prestige department stores, internet, door-to-door, television shopping, perfumeries and specialty stores, all of which are outlets for cosmetic sales. The ACNielsen data is an aggregate of the drug channel, Target, K-Mart and Food and Combo stores, and represents approximately two-thirds of the company's U.S. mass retail dollar volume.

Finally, as a reminder, our discussion this morning should not be copied or recorded.

With that, I would now like to hand it over to David.

Thank you, Abbe, and good morning, everyone.

First, I would like to briefly review our financial results for the full year 2007 compared to last year. Net sales increased to approximately $1.4 billion from $1.331 billion. Operating income increased to $121 million, compared to an operating loss of $50.2 million. Net loss was $16.1 million or $0.03 per diluted share, compared to a net loss of $251.3 million or $0.60 per diluted share. Adjusted EBITDA was $224.5 million, which was reduced by $7.3 million of restructuring expenses, compared to $78.2 million in 2006, which was reduced by $122.9 million related to Vital Radiance, executive severance and restructuring expenses.

In the full year 2006, Vital Radiance, executive severance and restructuring expenses collectively reduced net sales by $19.7 million and unfavorably affected operating income and net loss by $145.1 million.

We are executing our strategy and our financial results in 2007 were our best in many years. As I mentioned, we generated $224.5 million in Adjusted EBITDA, and importantly, our negative free cash flow was $13.8 million, compared to negative free cash flow of $161.1 million last year. Our improved financial performance was driven by increased net sales, continuing benefits from our restructuring actions and ongoing control of our costs. Later in the call, Alan will review the financial results for the fourth quarter and full year in more detail.

In the U.S., according to ACNielsen, the color cosmetics category was unchanged in the fourth quarter of 2007, compared to the same period last year. For the full year 2007, the category increased 0.3%.

In the fourth quarter of 2007, Revlon's color cosmetics share declined 0.5 percentage points year-over-year, which reflected a decrease in share by products launched in prior years, offset in part by performance from new products launched in the second half of 2006 and throughout 2007.

In the fourth quarter of 2007, Revlon's positive performance in the eye and lip categories was offset by declines in the face and nail category. Revlon's positive performance in the eye category was driven primarily by new products, including Revlon Limited Edition eye collection, Luxurious Color eyeliner and 3-D Extreme mascara, which were all launched in 2007. Our positive performance in the lip category was primarily driven by Revlon Renewist, which was also launched in 2007.

In the fourth quarter of 2007, Almay color cosmetics share declined 0.4 percentage points year-over-year. In the fourth quarter 2007, Almay's positive performance in the face category was offset by declines in the lip and eye categories. Almay's positive performance in the face category was principally driven by the Smart Shade makeup, and its new line extensions, Smart Shade blush and bronzer.

In the fourth quarter and for the full year 2007, we continued to support our existing brands worldwide with increased dollar spending versus last year. Since the fourth quarter of 2006, the Revlon brand has maintained an approximate 13% dollar share each quarter, and the Almay brand has maintained an approximate 6[%] dollar share each quarter.

For the month of January 2008, the color cosmetics category grew 1.1% compared to the same period in 2007. Although it is still too early to confirm contributions from our first half 2008 new product launches, we continue to benefit from products launched in 2007.

For the month of January 2008, Revlon color cosmetics share was largely unchanged compared to the year ago period, and up more than 1 percentage point compared to December 2007. Revlon's positive performance in eye and lip categories was partially offset by declines in the face and nail categories. Products launched in 2007, including Luxurious Color eyeliner and 3-D Extreme mascara were again the primary drivers of the positive performance in the eye category. Our positive performance in the lip category was driven by Revlon Renewist and ColorStay Lip Liner.

For the month of January 2008, Almay's share was largely unchanged from the year ago period, and up 0.7 percentage points from December 2007. Positive performance in the face category was offset by declines in the lip and eye category. Almay's positive performance in the face category continues to be driven by Smart Shade makeup, blush and bronzer.

Turning now to new products, as we discussed during our previous quarterly calls with you, we remain focused on building and leveraging our strong brands around and world, and we believe that consistent development and marketing of innovative new products is a key driver for building brand equity and should result in profitable sales growth and share growth, over time. Throughout 2008, we are introducing an extensive lineup of Revlon and Almay color cosmetics products. These product launches include differentiated and unique offerings for the mass retail channel, innovations in products and packaging, new technologies and extensions within existing Revlon and Almay franchises.

We are also executing our strategy by supporting these new products with advertising and promotions at competitive levels, using our talented spokesmodels.

As we discussed in our third quarter conference call, for the Revlon brand in the first half of 2008, we are introducing, among others, first: ColorStay Minerals, the first ever long wear minerals collection for face and eye, using our ColorStay longwear technology. Second: Customs Creations Foundation. A first-to-market face product, Customs Creations Foundations is packaged in an innovative bottle with an adjustable dial used to customize the shade to match skin tone. The bottle contains two chambers of product dispensed through a single pump. And third: the Revlon 2008 Limited Edition collection, an exciting new lineup of six product introductions in face, eye and lip.

For Almay, in the first half of 2008 we are introducing: first, TLC Foundation, which stands for Truly Lasting Color. TLC Foundation is our first healthy beauty, longwear liquid makeup. Second, Intense i-Color Collection. We are relaunching our already highly successful Intense i-Color Collection, with new Play Up shadows, eyeliners and mascaras that coordinate with eye color. And third, for our popular makeup remover, we are introducing an enhanced formula and an improved package, while keeping all of the features that have made our makeup remover so successful.

Turning now to business strategy. We continue to execute our business strategy. First, building and leveraging our strong brands. We are developing and sustaining an innovative pipeline of new products and managing our portfolio, with the objective of profitable sales growth and share growth, over time. We are focused on reinforcing clear, consistent brand positioning through effective innovative advertising and promotion, and we continue to work closely with our retail partners. Throughout 2007, we launched several exciting new products in our core brands, and believe that we have exciting and strong new product offerings throughout 2008. We are supporting, and plan to continually support, our new product launches at competitive levels, and we are developing and strengthening our pipeline of new products beyond 2008.

Secondly, improving the execution of our strategies and plans, and providing for continued improvement in our organizational capability through enabling and developing our employees. During 2007 we strengthened our U.S. marketing and sales organization with the creation of our U.S. region, and the recruitment of talented and experienced executives in marketing, product development and sales. In addition, we issued a broad-based restricted stock grant to incent and retain key employees.

Third, continuing to strengthen our international business. We continue to strengthen our international business by leveraging our U.S.-based Revlon and Almay brand marketing, as well as our strong regional brands. We continue to adapt our product portfolio to local consumer preferences and trends, structure the most effective business model in each country, and strategically allocate resources and control costs. In the fourth quarter and full year 2007, international operating profits and margins continued to improve compared to same periods last year. We believe the focus on building the Revlon brand will also further strengthen the international business.

Fourth, enhancing operating profit margins and cash flow. Our financial results demonstrate improved margins and significantly improved levels of cash usage. In 2007 we achieved an operating income margin of 8.6% of net sales. Our negative free cash flow was $13.8 million, an improvement of $147.3 million over last year. Additionally, we generated $3.8 million in cash from operating activity, again a substantial improvement over last year. These margins and cash flows are the best our company has achieved in many years, and we are focused on driving towards profitable sales growth and positive free cash flow. We expect continuing sustainable benefits from our previous restructuring actions and ongoing cost controls.

Finally, improving our capital structure. On February 1 of this year, we refinanced the remaining balance of our 8 5/8% senior subordinated notes, with a $170 million 11% senior subordinated term loan from MacAndrews & Forbes.

Looking ahead, we fully recognize the need to further improve our performance.

We enter 2008 with a continued focus on increasing the value of our company. We believe that our strong new product offerings throughout 2008 will help build the Revlon brand. We continue to drive towards both profitable sales growth and positive free cash flow, and we continue to anticipate generating mid single-digit sales growth, over time.

So with that, let me hand it over to Alan, who will take you through the financial results for the fourth quarter and full year in more detail.

Thank you, Abbe and David, and good morning everyone.

As we normally do, I would like to build upon David's introductory financial comments and take you through a more detailed review of the financial results for the fourth quarter and full year 2007.

Starting with the P&L for the fourth quarter of 2007, net sales in the fourth quarter advanced 1% to $382.6 million, compared to $378.9 million in the fourth quarter of last year. Excluding the favorable impact of foreign currency fluctuations, net sales decreased by 2.6% versus a year ago.

Vital Radiance, which was discontinued in September 2006, affected our year-over-year comparability. Net sales in the fourth quarter of 2006 were reduced by $4.4 million related to Vital Radiance, as the dollar value of shipments was more than offset by charges for returns and allowances in that quarter. Just as a reminder, a summary of the impact of Vital Radiance by quarter for 2006 and 2007, on both net sales and operating income, is posted on our website.

In the United States, net sales in the fourth quarter of 2007 decreased 5% to $215.8 million, compared to net sales of $227.1 million in the fourth quarter of 2006. You will note that the fourth quarter of 2006 net sales were reduced by $4.7 million from Vital Radiance. Excluding the impact of Vital Radiance in the prior year, the decrease in 2007 net sales was driven by three factors. Firstly, we recorded a higher sales returns expense primarily related to anticipated product discontinuances in advance of our new product launches throughout 2008. Secondly, we had lower shipments in beauty care, primarily women's hair color, as a result of hurdling the initial shipment pipeline from the launch of Revlon Colorist in the fourth quarter of last year. And lastly, these two factors were partially offset by higher shipments of color cosmetics, primarily related to first half 2008 new product launches.

In our international operations, net sales increased 9.9% to $166.8 million, compared to $151.8 million in the year-ago quarter. Excluding the favorable impact of foreign currency fluctuations, international net sales increased by 1% compared to the same period last year.

As David mentioned, in the fourth quarter of 2007, international operating profits and margins continue to improve compared to the same period last year.

In our Asia/Pacific region, net sales for the fourth quarter of 2007 increased by $7.4 million or 11.5% to $72 million, compared to $64.6 million in the fourth quarter of last year. Excluding the favorable impact of foreign currency fluctuations, net sales in Asia/Pacific increased by $1.8 million or 2.8%, which was due to higher shipments in South Africa and Japan, and in certain of our distributor markets.

In our Europe region, net sales for the fourth quarter of 2007 increased by $6.8 million or 12.9%, to $59.5 million, compared to $52.7 million for the fourth quarter of last year. Excluding the favorable impact of foreign currency fluctuations, net sales in Europe increased by approximately $600,000 or 1.1%, as lower shipments in Italy, the U.K., and Canada were more than offset by significantly lower charges for returns and allowances.

And finally, in our Latin America region, net sales increased by approximately $800,000 or 2.3% to $35.3 million, compared to $34.5 million for the fourth quarter of last year. Excluding the favorable impact of foreign currency fluctuations, net sales in Latin America were down by approximately $800,000 or 2.3% year-over-year, as lower shipments in Brazil and Mexico were partially offset by higher shipments in Venezuela.

Moving down the rest of the P&L for Revlon Inc., in the fourth quarter of 2007, our gross profit margin decreased by 50 basis points to 62.2% from 62.7% in the fourth quarter of last year, primarily driven by unfavorable product mix, which was partially offset by lower charges for estimated excess inventory.

SG&A expenses of $157.2 million improved by $6.2 million or 4% from $163.4 million last year, driven by the non-recurrence of certain costs incurred last year in connection with Vital Radiance, as well as the realization of saving from our previously-announced and implemented restructuring actions, and our aggressive ongoing costs controls. In the fourth quarter of 2007, we continued to support our existing brands worldwide with increased dollar spending versus last year. In addition, we incurred higher performance-based incentive compensation expense.

Results for the fourth quarter of 2007 included restructuring expenses of approximately $400,000 related to our previously-announced restructuring program, compared to restructuring expenses of $4.1 million in the year-ago quarter. We have executed our previously-announced restructuring program on schedule, and are clearly seeing the benefits in our financial results. As of July 2007, we have reached our planned total annualized reduction in cost base of approximately $55 million.

Operating income in the fourth quarter of 2007 was $80.4 million, compared to $70.4 million last year.

Interest expense for the quarter was $34.4 million, an improvement from $39.4 million last year, due primarily to lower average borrowing rates on comparable average debt levels.

Net income in the fourth quarter of 2007 was $40.8 million or $0.08 per diluted share, compared to a net loss of $5.5 million or $0.01 per diluted share in the fourth quarter of last year.

Adjusted EBITDA in the fourth quarter of 2007 was $106.3 million, compared to $108.2 million in the same period last year.

In the fourth quarter of 2006, Vital Radiance and restructuring expenses unfavorably affected our operating income and net loss by $20.8 million and adjusted EBITDA by $9.7 million. Excluding the impact of these items, the decreases in operating income and adjusted EBITDA were largely attributable, as I just mentioned, to increased brand support of our existing brands and higher performance-based incentive compensation. Net income was reduced by the same factors that affected operating income and adjusted EBITDA. Of note, net income in the fourth quarter of 2006 included a charge of $23.1 million related to the early extinguishment of debt.

I would now like to briefly discuss the key financial results for the full year 2007. Net sales for the full year 2007 advanced 5.2% to $1.4 billion, compared to $1.331 billion last year. Excluding the favorable impact of foreign currency fluctuations, net sales increased by 3.2% versus a year ago. Net sales in the full year 2006 were reduced by $19.7 million from Vital Radiance.

In the United States, net sales in the full year 2007 increased 5.1% to $804.2 million, compared to $764.9 million in the prior year. Net sales in the United States in the full year 2006 were reduced by $20.2 million from Vital Radiance. Excluding the impact of Vital Radiance, the increase in net sales was due to higher shipments of beauty care products, primarily women's hair color and Almay color cosmetics, partially offset by lower shipments of Revlon color cosmetics.

In our international operations, net sales in 2007 increased by 5.2% to $595.9 million, compared to $566.5 million last year. Excluding the favorable impact of foreign currency fluctuations, international sales in 2007 advanced .6 of a percentage point versus a year ago. This reflected increased net sales in both the Asia/Pacific and Latin America regions, and lower net sales in the Europe region, primarily in Canada. Net sales in 2006 in Canada included the positive effect of certain promotional programs in color cosmetics which, for the most part, did not recur in 2007. International operating profits and margins continue to improve compared to last year.

For the full year 2007, operating income was $121 million, compared to an operating loss of $50.2 million last year. Net loss for the full year was $16.1 million or $0.03 per diluted share, compared to a net loss of $251.3 million or $0.60 per diluted share last year. Adjusted EBITDA for the full year was $224.5 million, compared to an adjusted EBITDA of $78.2 million last year.

In the full year 2006 Vital Radiance, executive severance and restructuring expenses unfavorably affected operating income and net loss by approximately $145 million, and adjusted EBITDA by approximately $123 million. As I mentioned, results for the full year 2007 included restructuring expenses of $7.3 million.

So, in summary, the key drivers of our results for the full year were higher net sales, including the impact of lower charges for returns and allowances, and higher shipments of our beauty care products. In addition, we had lower SG&A expenses, lower restructuring costs and lower interest expense.

Moving on to cash flows. Operating cash flow in 2007 was $3.8 million, compared to cash used by operations of $138.7 million last year, resulting in an improvement of $142.5 million year-over-year.

Free cash flow, which we define as operating cash flow plus proceeds from the sales of certain assets less capital expenditures, was a negative $13.8 million in 2007, compared to negative free cash flow of $161.1 million last year, resulting in an improvement of $147.3 million year-over-year. This significant improvement was primarily due to a lower net loss and decreased permanent display spending, partially offset by changes in net working capital.

The components of our negative free cash flow of $13.8 million in 2007 are as follows. Adjusted EBITDA was $224.5 million. Capital expenditures were $20 million. Permanent display expenditures were $50 million. Interest paid was $137.6 million. Taxes paid were $14.6 million, and all other cash flows, including changes in working capital, were a cash usage of $16.1 million. Therefore, these factors, collectively, resulted in our negative free cash flow of $13.8 million for the year.

In order to assist you in understanding the factors that will impact our expected full year 2008 cash flows, while we are not providing specific guidance for adjusted EBITDA in 2008, I would indicate the following. Capital expenditures are expected to be approximately $25 million. Permanent display expenditures are expected to be approximately $55 million. With respect to interest, as I just indicated, interest paid in 2007 was $137.6 million. You will note that at the end of 2007, our total debt was approximately $1.4 billion, of which roughly 50% is floating and 50% is fixed. With respect to floating rate debt, currently LIBOR is lower than it was, on average, in 2007. With respect to our fixed rate debt, as David mentioned earlier, on February 1, 2008 we refinanced the $167.4 million balance of our 8 5/8% senior subordinated notes, with a $170 million 11% senior subordinated term loan from MacAndrews & Forbes.

Moving on with the remaining factors that will impact our expected full year 2008 cash flow. Taxes are expected to be approximately $15 million, and all other cash flows, including changes in working capital, are anticipated to result in a cash usage of approximately $15 million.

Therefore, expected full year 2008 cash flows is based on these factors, collectively, in conjunction with your own expectations for adjusted EBITDA.

Our unutilized borrowing capacity and cash as of January 31, 2008 was $185.7 million, comprising $135.5 million dollars available under the revolving multi-currency facility, and $50.2 million of cash and cash equivalents.

With that, we would like to open it up for your questions.

(OPERATOR INSTRUCTIONS)

Our first question comes from Bill Chappell from SunTrust Robinson.

Good morning. A few questions. Looking at the Nielsen numbers on both beauty tools and underarm, that - for several years, those were the bright spots, gaining share, what have you, and they seem to have fallen off. Didn't know if that was part planned, as you focus more on the color cosmetic space with marketing and advertising, or if there are new products coming out this year that will offset that. Maybe on that same line, what difference, if any, does it make with Sally Hansen now part of Coty?

With respect to the share losses. First of all, on our beauty tools, that is not something that we had planned. In fact, we had planned for just the opposite. Our new products simply have not worked as well, Bill, for the last couple of years, and we are very focused on that. It is a good business, as you know, highly profitable, and our target there is to have a lineup of new products, and do the right marketing in order to improve our share there, over time. We can't accept those kinds of share losses.

Secondly, AP/DEO is slightly different. As you know, a couple of the manufacturers, the large folks, have brought out products with a claim, based on some clinical trials that they did, and they are comparing it to prescription deodorants. So while our share has gone down somewhat, it is primarily because of the actual growth in dollar terms in the category. So, again, we have got a very good strategy on the Mitchum brand, and we feel that over time we will maintain and grow that share. Clearly, whatever has happened in share, it is not because we planned or we have taken the focus off those two bands.

Okay. And secondly, if you look at kind of the color side, I'm a little surprised that you have not seen any market share gains as we have started this year. Is that just because the products are still kind of later than normal to hit the shelves? I think you talked on a prior call that maybe there was more of a shift to reset to 2Q versus 1Q? Is that the right way to look at it?

I think the reset periods in the U.S. are pretty much in line with what they have been. Remember that about the only company that is reset by early February is Wal-Mart. Everybody else, again depending upon specific retailer, resets over the first four months of the year. So it is kind of strung out, as it always is. However, in January, our market share was reasonably good compared to where it was in December and the fourth quarter. Essentially, if you look at 52 weeks, if you look at the trend, you will see that our share is approximately 13[%]. So we had a sequential improvement, January over December, in the Revlon brand. But you really won't see -- we won't see, the full impact of the new products until later on in the quarter, perhaps even in early April.

And just final, on the guidance or the lack thereof, can you give us any - directionally, would you expect sales to grow in '08, would you expect EBITDA to grow in '08, would you expect market share to grow in '08, or would you expect to be cash flow positive in '08?

You have outlined all the elements. We certainly are driving towards that growth. We have outlined and called out for some period of time now that, over time, we would be targeting or expect to get net sales growth in the mid single digits.

We continue to target for that. As we indicated in the release and as we indicated this morning, we are certainly driving towards profitable sales growth and positive cash flow.

Remember also that we have got what we believe to be a very strong new product lineup for Revlon and for Almay for the entire year, not just in the first half but also in the second half, as well. We also believe that as - the Revlon brand, as we build that brand and develop it, as we continue to - consistently to introduce strong new products, that will also be of a benefit to grow outside the U.S., as well.

If I could add one point, Bill, in terms of guidance. You will recall that back in September of 2006, we deemed it appropriate to give an adjusted EBITDA guidance, given all the factors that had happened at that time.

You know, we had the discontinuance of Vital Radiance, we had the significant organizational streamlining and restructuring program and, as you know, we had some fairly deep changes in management. So back at that time, we felt it was appropriate to put out an adjusted EBITDA target for 2007. We believe now that we have come through that period, and we have given sufficient guidance to enable you to model out going forward.

I guess in that same vein, there is less need for official EBITDA guidance right now because there is no additional financings needed in the next six to 12 months?

From a financing standpoint, the next debt maturity is in August of 2009, which is the MacAndrews & Forbes loan. In addition, you know, we've announced essentially all of the restructuring programs that we plan to execute at this point in time. So we feel that there's enough information out there for you to kind of pull it together.

Sounds great. Thanks.

Okay.

Our second question comes from Philippe Goossens from Credit Suisse.

Actually it's Thilo Wrede filling in for Philippe.

Thilo, good morning, Thilo.

Good morning. A question on the U.S. markets. Do you see any down trading happening in the U.S. drugstore market? If so, is that more net positive or net negative for you?

We don't see any indications of any down trading. In fact, if you look back at 2007 at the Nielsen shares, you will see that L'Oreal gained share on the back of a Bare Naturale product line that was priced at the high end of mass, and the consumer responded extremely well, even in a situation where, for the whole year, sales were almost unchanged. So we don't see any evidence of any -- of any shifts just because of price. Everything continues to be driven by the preference of the consumer for the new products.

Do you expect to see a change in that for the next six months or so, given that the -

I cannot call out an expectation because I do not know, quite frankly. I can just point to data for '07 and what we have seen then. You will have to form your own conclusions about the future.

Fair enough. I will get out my crystal ball.

Exactly. I don't have one.

In hair color, you are now lapping the introduction of Colorist. What do you expect to see going forward and how much will that anniversary of the Colorist introduction impact you?

ColorSilk is the key brand, and it continues to grow in a category that is flat to down and has been flat to down. Colorist, the last I saw, had about a 2[%] share, and so I don't expect anything overly positive from Colorist in terms of share growth, but ColorSilk, we do believe, is a very strong brand and has been on a growth trend for some time now.

And you expect that to continue or will it just stay where it is right now?

Which is that?

The - Colorist, will it continue to gain share?

I said that I did not expect any major contribution to share growth, as we go forward, from Colorist.

Okay, fair enough.

Just in terms of your question, Thilo, on the shipments of Colorist, as you know we don't get into specifics around shipments within products. Suffice to say that it was a meaningful driver of the year-over-year comparability. That's what we called it out.

Okay. For your international business, why was Latin America so apparently weak?

We called out lower shipments in Brazil and in Mexico. With respect to Mexico, it primarily had to do with the retailers down there feeling some, I would call it economic slow down. And they tightened up on inventories to a certain extent. That was the primary impact there. And then in Brazil, our product line -- certain elements of our product line, didn't really work as well as we had anticipated. That is the reason for the slow down there.

Okay. And then the last question on Almay. Are you planning to do another restaging of Almay? What will help Almay going forward to get back to gaining market share? Is it just going be the product introductions that you mentioned, or are you planning anything else there?

Almay is a strong brand. As you know, for a number of years now it has been at about a 6 [%] share. The relaunch was done in '06. It was not as successful as we would have liked, particularly given the investment that we incurred. As we go forward, we don't see a relaunch in the cards, but we will continue to focus on sharpening the positioning and the marketing, and we will continue to focus on improving and delivering a consistent pipeline of new products. We believe those are the growth drivers.

Great. Thanks a lot.

Thank you, Thilo.

Our next question comes from Lance Vitanza of Concordia.

On the cash usage that you outlined for '08, I heard your comments regarding interest expense, but did you offer a point estimate the way that you did for CapEx and the permanent displays and so forth?

No, I did not.

Okay. By my numbers, it looks like it is going be about $20 million lower than it was last year. CapEx and permanent displays are each up $5 million. So I think adding that all together would imply that you need to improve EBITDA by about $5 million to hit cash flow break even for the year. Does that sound right?

You have to work up your own numbers.

Well, I'm using your numbers. You said PD was $55 [million] versus $50 [million] --

The $55 [million] for permanent displays, yes, $25 [million] for CapEx, $15 [million] for taxes. And all other cash flows, a use of $15 [million].

So there are the specifics that we have given about interest expense, you know, that we went through. Roughly $700 million of our debt is attached to LIBOR. You know, our term loan is LIBOR plus 400 basis points. You will recall that we have, in relation to interest expense, $150 million of the term loan is basically fixed as we have a swap in place, that we put in place in September 2007. That is a two-year swap. You look at the remaining balance of $700 million of our term loan, and that is attached to LIBOR. Again, we have various tranches of maturity in our LIBOR, six and three-month tranches usually. So we're carrying some of our 2007 maturities into 2008. So there is not a direct, immediate impact of a LIBOR shift downwards on our interest expense, but there will be over time. Somewhat offsetting that, on the fixed side, we replaced the 8 5/8% note with an 11% term loan. That has somewhat of an offsetting impact.

Okay. Great. On the SG&A line, my Q4 estimate proved wrong by an embarrassing amount here. I need some help in terms of modeling this out. Is $157 [million], should I be thinking of that as the new run rate? It sounded like, in your commentary; it didn't sound like there were a lot of one-time things, where you would expect that number to grow. That being said, obviously you are going to be launching some new products. So how should I think about where SG&A is going to play out over the next few quarters?

I guess a couple of things. First of all, I am not going to give specific guidance in terms of what we should expect or what you should expect going forward. Suffice to say, if you look at the $6.2 million in the quarter increase year-over-year, there was an impact certainly from Vital Radiance, a negative impact in last year's number to bring that down somewhat. Additionally, there are kind of the tail end of the restructuring savings benefiting this year's fourth quarter, and we continue to tighten on cost controls. So, to kind of broadly answer your question, the $157.2 million number is a fairly clean quarterly number. One other point to note if you're trying to model this out by quarter, is if you go back and look at 2007, our SG&A is not static by quarter. Included in there, obviously, is the brand support, which is generally tied to when our new product launches reach distribution.

So you will see that it moves up and down as we launch new products.

Okay. Great. I had some -

And also the incentive comp accrual will move as well, and so it will be more back-end loaded. As you earn your number, then you accrue pro rata against the number. You can keep that mind when you start looking at the quarters.

Thanks for the help.

We can chat later if you have some other questions.

Very good. Okay.

Our next question comes from Carla Casella from JP Morgan.

Hi. Good morning. On the $55 million reduction in cost you talked about, how much of that is already into the numbers and how much is ahead of us in '08?

It is broadly in the numbers in 2007. Just to remind you, there are three components to it. There is the February 2006 program, so clearly all of that is in the 2007 number. There is the September 2006 program, and again all of that would be in the 2007 number. The only tail really is in relation to the closure of our Irvington plant, which we executed at the end of June in '07, and there was some smaller restructurings within our Canadian operation and within our Information Management group. So, by and large, most of it is in the 2007 numbers. There is a small tail that will help 2008.

Okay. And did you break out how much the incentive comp increased in the fourth quarter? How much was that accrual increase?

No, we did not.

Okay, and then on the timing of new products, it sounds like it is Spring/April timeframe? Is that what you said?

For what?

For all of the new products, what would be the bulk [of the timing]? If you could give us a sense of when we will primarily see the increase?

From a shipments standpoint on the top line, we started to ship our first half 2008 products in late November and starting early December. That is already shown in the numbers, largely. Our second half 2008 new product launches would start to ship in the April/May timeframe. And then there is somewhat of a lag in relation to the brand support that you spend behind that. So you have to wait until your products get into distribution, and then you would start your brand support campaign.

In the U.S.

In the U.S., be it advertising or in store. So there is a little bit of a time lag between the shipments and the brand support.

Okay, so if the shipments were now, the brand support for those would be when, March or...?

We have already started with that in -

That's in this first quarter.

In fact, we started to a certain extent in January. More will come online in February and then we'll continue. In the U.S. again, let's be clear. In the U.S. Then we'll continue to support throughout the quarter and the year.

Around the world, it is a little different. The products roll out more evenly throughout the year and the brand support is more even throughout the year as well. But is your question when will the performance begin to show up, let's say, in the share results?

I guess I was asking not so much the share. I was thinking more about in sales and then also on the brand support side.

Okay. I just wanted to make sure.

I guess what I am also trying to get a sense for is between the first and second-half products, are they similar magnitude or are some of the first half products relatively small and second half larger or vice versa?

The first half products, in the U.S. again, let's be clear, will probably be somewhat of a greater magnitude because of the two face launches. The continuing new products from '07, which are in effect in market for the first part of '08, would continue throughout '08. And then last half though will be reasonably substantial. It will be slightly heavier in the first half because of the two major face launches that we're doing.

Okay. And then when it comes to new product launches, has the trade, or competition for the space in the trade, changed at all? Do you see that you need to spend more either on display or supporting the brand to get the similar space at retail?

No. No the basis of competition remains approximately the same. Of course some quarters or some halves companies will spend more depending on the number and the nature of the new products that they launch, but essentially costs overall are approximately the same per square foot, if you want to look at it that way.

Okay. And then just one quick follow up. You mentioned $150 million of the term loan is fixed. Is that - can you give us the rate or approximate?

Yeah, the rate is approximately 4.692, plus the 4 point spread

Plus the spread?

Yeah, so it is about 8.7%.

That is - $150 million is fixed at 8.7%. The rest will fluctuate with LIBOR?

Correct.

Okay. Great. Thanks a lot.

Our next question comes from Mary Gilbert of Imperial Capital.

I wanted to get some clarity with all the new product launches that you have this year. Is there is a point which we think we will see some stabilization in market share and, potentially, increases in market share?

First of all, Mary, I think our market share trend for the last 52 weeks is approximately stable. We lost about a point of share overall, compared to the prior year. So I think you could say that that would indicate that our share is stable. Of course, it's going to fluctuate some from month to month, depending upon marketing activity that's going on within the marketplace. As far as share in the future, again, we will say we believe we have a strong new product lineup, but we are not calling out some inflection point. But it is clearly our objective to improve our share, over time. We want to do that profitably.

Right. Right. That helps the overall franchise, if you can start to show some increases in share. So you are sort of looking at the 1% decline as being stable. I am sort of thinking of it as further loss but...

Well, and I said that we had lost a share over the past year, just compared to the previous year. But quarter-to-quarter, month-to-month over the last 52 weeks, that is measured in the U.S. in Nielsen, our share has been about a 13 [%] share on the Revlon brand, and about a 6[%]for Almay. So I think mathematically, that would be stable.

Uh-huh.

And just one other comment in relation to the share, and I mentioned this earlier also in relation to our rationale for giving EBITDA guidance in 2007. What we've talked about is since October 2006, post the organization's focus on Vital Radiance, we have kind of readdressed our focus to the Revlon brand and focused on building a strong portfolio of new products, not only for 2008 but going out into the 2009, 2010, 2011 timeframe. So there has kind of been a refocus since October of 2006 on the Revlon brand. Since that time, it's roughly maintained a 13% dollar share.

The other thing that I wondered, have you thought about seeing if there is an opportunity to fix some of your floating rate debt, given that we are at a nice low point in terms of LIBOR? Have you thought of fixing some debt at this point here?

As I mentioned, we did take an opportunity to fix about $150 million of our debt last September, and we believe that having a 50/50 floating/fixed split gives us flexibility to have some predictability in interest expense and also to benefit from what happens in the marketplace. So we're comfortable with a 50/50 split.

Okay. So you are not planning to take that any further, in terms of increasing the mix to fixed?

Not at this time.

Okay. Okay, great. Thank you very much.

Sure.

Our next question comes from Joe Rodbard of Polygon.

As we await the 10-K, could you give us a pension cash and GAAP charge in '07 and what to expect in '08?

The pension expense is about $9.1 million, and this is for all of our pension and post-retirement, collectively, globally. But $9.1 million for the expense. The cash was about $38 million. And then for 2008, we would expect to see a pension expense that is roughly comparable, I believe, with 2007. Cash contributions will go down somewhat in 2008, as we made some accelerated contributions in 2007 relative to our plan to get fully funded in accordance with the Pension Protection Act. It is worthy to note, Joe, that - and you will see it in the K - the unfunded status of our plan at the end of '07 is approximately $120 million, and that is a significant improvement from where it was at the end of the prior year at $175 million. Again, that is reflective of our performance during the year and also the accelerated contributions.

Great. And I take that accounts for most of the negative working capital used in '08?

It is certainly in that number, yes.

And then I am trying to back out the Vital Radiance losses fourth quarter '06. Could you remind us what that figure was ex-restructuring?

I guess I can.

All that is posted on the website, too, right? So you can always get it there.

I am coming up with EBITDA for this quarter of around $107 [million] versus $118 [million] a year ago, which seems a little bit odd considering all the restructuring savings your'e achieving.

We did -- your number are right. We did call out specifically that we have spent more in brand support in 2007 fourth quarter than we did in 2006. And also we had a higher incentive compensation expense, again, in the fourth quarter of '07 versus '06.

Okay. Great. Thank you.

Sure.

Our next question comes from Patrick Truucchio of BMO Capital Markets.

Hi, good morning. I just have a quick question on your gross margin in the quarter. We were looking for gross margin expansion, and it looks like it actually came in about 50 basis points of contraction. I am just wondering if you can sort of reconcile that? How much is mix related and restructuring?

I guess a couple of things. Part of it is unfavorable product mix. You know, each of our product lines have different gross margins.

So that is probably the single biggest driver. That was anticipated, certainly internally. And then somewhat offsetting that, we had lower charges for estimated excess inventory. They are the two big drivers in there.

Okay. In 2008, would you be expecting gross margin expansion?

We are not going to predict or call out what our gross margin would be for 2008. As I mentioned to one of the prior questions, there will be somewhat of a tail, and a small tail at that, in relation to the restructuring savings, particularly as it relates to the savings from the closure of the plant in Irvington. But then, by and large, it will be a function of product mix.

And also what happens with commodities, too. As you know oil is the commodity that most affects our costs of goods, as it works its way through packaging costs. We don't know what that is going be at this point. So that can have, obviously, a negative impact.

Okay. Thanks so much.

(OPERATOR INSTRUCTIONS)

At this time we have no more questions in queue. This does end the question-and-answer session for today's call. I would now like to turn things back over to Mr. Kennedy for his closing remarks.

Thank you for your questions today and your interest in Revlon. We know that we need to further improve our performance and we are very focused on that. We will continue to execute our strategy as we have outlined it to you, and we enter 2008 with a continued focus on increasing the value of the company and building our Revlon brand and other key brands around the world, and importantly driving towards both profitable sales growth and positive free cash know. Thank you very much again for being on the call.

This does conclude today's conference call. You may now disconnect your lines.