Revlon Inc (REV) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Revlon's third quarter 2008 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 Ms. Abbe Goldstein, Revlon's Senior Vice President, Investor Relations and Corporate Communications. You may begin Ms. Goldstein.

Thank you, Heather. Good morning everyone, and thank you for joining our call. Earlier this morning, we released our results for the third quarter 2008. If you have not already received a copy of the earnings release, you can obtain one from our website at www.revloninc.com.

Here with me today are David Kennedy, President and Chief Executive Officer and Alan Ennis, Executive Vice President and Chief Financial Officer. On today's call, David will briefly highlight the third quarter results and provide a strategic update on the business. Alan will then review our financial results for the quarter in detail. I will then introduce our exciting new product lineup for the first half of 2009.

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 as set forth in the company's filings with the SEC, including our 2007 form 10-K and our third quarter 2008 10-Q, which we will file later today.

Our remarks today will include a discussion of Adjusted EBITDA, which is a non-GAAP measure as defined in the footnotes to the release we issued this morning and is reconciled to net income, the most directly comparable GAAP measure in the accompanying financial table.

In relation to US share results, unless otherwise noted, our discussion this morning of mass retail share is that of US 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 cosmetics 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 US mass retail dollar volume.

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

Thank you Abbe, and good morning everyone. Let me go over the highlights briefly with you for the third quarter of 2008 compared to last year. Net sales increased 1.1% to $334.4 million, compared to $330.8 million. Operating income was essentially unchanged at $19.8 million. Net income was $29.2 million, or $0.57 per diluted share compared to a net loss of $10.4 million or $0.20 per diluted share. Net income in the third quarter of 2008 includes discontinued operations of $44.4 million or $0.86 per share, of which $45.2 million relates to the gain on sale of discontinued operations. And, Adjusted EBITDA was essentially unchanged at $42.6 million.

Later in the call, Alan will review the financial results for the third quarter in detail.

We have executed our strategy and profitably grown our business during the first nine months of this year. Specifically, we have launched a comprehensive and successful new lineup of Revlon and Almay color cosmetics products, supported our brands with appropriate levels of advertising and promotional support, increased our margins and improved our capital structure.

As we continue to support our extensive second half 2008 new product introductions, we expect increased levels of advertising and promotional support in the fourth quarter of 2008 compared to the same period last year. For the year 2008, we expect improved operating margins, profitability and free cash flow from continuing operations, compared to 2007, driven by the strength in the Revlon brand, and efficiencies and cost controls throughout the company.

We are extremely excited about the new product introductions for the first half of 2009, which Abbe will review with you later on this call. Our Revlon brand lineup includes comprehensive new offerings in every segment of the category, face, eye, lip and nail. Almay Pure Blends is our first natural collection of color cosmetics and delivers a full range of shades, radiant finishes and eco-friendly products and packaging with no comprise in color and performance.

Looking ahead, we are managing our business with the objective of improving our financial performance and competitive position, while maintaining flexibility in light of the uncertain economic conditions in retail sales environment in the US and around the world, which will likely effect sales for the remainder of 2008. In addition, the recent strengthening of the US dollar will likely impact our reported results in the fourth quarter of 2008. We believe that, as economic conditions stabilize, our focus on the key drivers, including: innovative, high quality consumer preferred new products; effective, integrated brand communication; appropriate levels of advertising and promotion; and superb execution with our retail partners, along with disciplined spending and rigorous cost control, will continue to generate sustainable positive free cash flow, and profitable sales growth over time.

With that, let me hand to you Alan who will take you through the financial results for the third quarter in 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 our financial results.

Starting with the P&L for the third quarter 2008. Net sales of $334.4 million increased 1.1% compared to $330.8 million in the third quarter of last year. Foreign currency fluctuations did not have a significant impact on year-over-year consolidated net sales comparisons.

In the United States, net sales were $189.4 million, compared to $190.9 million in the third quarter of 2007. Third quarter net sales benefited from higher shipments of Revlon color cosmetics, largely due to 2008 new product launches, offset by higher returns and allowances for Almay and lower shipments of fragrances and beauty care.

In our international operations, net sales increased 3.6% to $145 million, compared to $13.9 million in the year ago quarter. Foreign currency fluctuations had no significant impact in year-over-year comparisons. The primary driver of third quarter net sales growth in our operations was higher shipments of Revlon color cosmetics, mainly due to products launched in 2008, partially offset by a decline in fragrances.

In our Asia Pacific region, which is comprised of Asia Pacific and Africa, net sales increased 10.9% to $70.4 compared to $63.5 million in the third quarter last year. This growth was primarily due to higher shipments of Revlon color cosmetics in Australia, South Africa, China, Japan and in certain of our distributor markets.

In our Europe region, which is comprised of Europe, Canada and the Middle East, net sales decreased 2.5% to $49.8 million compared to $51.1 million in the third quarter last year. Higher shipments of Revlon color cosmetics in Canada were offset by lower shipments of fragrances and Revlon Color cosmetics in the UK, lower shipments of fragrances in Italy and other distributer markets, and lower shipments of skin care products in France.

In our Latin America region, which is comprised of Mexico, Central America and South America, net sales decreased 2% to $24.8 million compared to $25.3 million in the third quarter last year, primarily driven by lower shipments of beauty care products and color cosmetics in Mexico and in certain distributor markets, partially offset by higher net sales in Venezuela.

Moving down the rest of the P&L for Revlon Inc. In the third quarter of 2008, gross margin declined by 170 basis points to 62.1% from 63.8% in the third quarter of last year, primarily driven by higher allowances on color cosmetics and higher charges for estimated excess inventory, which were partially offset by favorable changes in sales mix and manufacturing efficiencies.

SG&A expenses of $187.5 million improved by $3.3 million or 1.7% from $190.8 million last year. The third quarter of 2007 included advertising and promotional support related to the launches of certain new products, including Revlon Flair fragrance and Revlon Colorist hair color, which did not recur in the third quarter this year. This year-over-year favorability was partially offset by higher accruals for incentive compensation.

Operating income for the third quarter of 2008 was essentially unchanged at $19.8 million, representing an operating income margin of 5.9%.

Interest expense for the quarter was $29.1 million, an improvement from $34.4 million last year due to lower average borrowing rates and lower average debt levels.

Net income was $29.2 million or $0.57 per diluted share, compared to a net loss of $10.4 million or $0.20 per diluted share in the third quarter of last year. Net income in the third quarter of 2008 includes $45.2 million or $0.88 per diluted share gain on the sale of discontinued operations and a loss from discontinued operations of $800,000 or $0.02 per share. Adjusted EBITDA was $42.6 million compared to $42.8 million in the third quarter of last year.

Looking now at the P&L for the first nine months of 2008. Net sales of just over $1 billion increased 1.9% compared to $993.8 million in the first nine months of last year. Excluding the favorable impact of foreign currency fluctuations, net sales in the first nine months of 2008 increased 0.4 of a percentage point compared to the year ago period.

In the United States, net sales were $583 million, compared to $588.4 million in the first nine months of 2007. A slight decrease in net sales was primarily due to lower shipments of Revlon Colorist hair color and certain fragrances as well as higher returns and allowances of Almay color cosmetics, and these were partially offset by higher shipments of Revlon color cosmetics.

In our international operations, net sales increased 6% to $429.6 million, compared to $405.4 million in the year ago period. Excluding the favorable impact of foreign currency fluctuations, net sales in the first nine months of 2008 increased 2.3% compared to the year ago period. The primary driver of net sales growth in our international business was higher shipments of Revlon color cosmetics, partially offset by a decline in fragrances.

In the first nine months of 2008, gross margin increased by 80 basis points from 64% from 63.2% in the year ago period, primarily due to favorable changes in sales mix.

SG&A expenses of $548.5 million improved by $33.4 million or 5.7% from $581 million last year. The first nine months of 2007 included advertising and promotional support related to the launches of certain new products, including Revlon Colorist hair color, which did not recur this year. This year-over-year favorability in SG&A was partially offset by higher accruals for incentive compensation.

Operating income for the first nine months of 2008 was $111.0 million compared to $39.1 million in the year ago period, representing an operating income margin of 11%.

Interest expense for the period was $91.9 million, an improvement from $101.4 million last year, due to lower average borrowing rates and lower average debt levels.

Net income was $46.6 million or $0.91 per diluted share, compared to a net loss of $56.9 million or $1.13 per diluted share in the first nine months of last year. Net income includes a $45.2 million or $0.88 per diluted share, gain on the sale of discontinued operations and a loss from discontinued operations of $0.5 million.

Adjusted EBITDA was $181.4 million compared to $116.3 million in the first nine months of last year.

At the end of July 2008, we completed the sale of our non-core Bozzano brand, a leading men's hair care and shaving line of products and certain other non-core brands that are sold only in the Brazilian market. The transaction was effected through the sale of our Brazilian subsidiary to Hypermarcas, a Brazilian diversified consumer products corporation.

The purchase price was approximately $107 million, including approximately $3 million in cash on our subsidiary's balance sheet. The net proceeds, after payment of taxes and transaction costs, are expected to be approximately $95 million.

Importantly, Revlon brand color cosmetics continue to be marketed in Brazil through our current third party distributor.

In the third quarter of 2008, the results of our Brazilian subsidiary were a loss of $800,000 compared to income of $1.7 million in the third quarter of last year. The results of our Brazilian subsidiary up to the date of disposition and the $45.2 million gain on sale are reported as discontinued operations in accordance with GAAP.

Moving now to mass retail share. In the US, according to ACNielsen, the color cosmetics category grew 3.4% in the third quarter of 2008 compared to the same period last year. The Revlon brand achieved a 13.4% dollar share in the third quarter of 2008, up four-tenths of a point from the same period last year and in line with the approximately 13% dollar share that the brand has maintained since the fourth quarter of 2006.

Importantly, Revlon brand share grew each month in the third quarter over the comparable periods in the third quarter 2007.

In the third quarter of 2008, the Revlon brand share benefited from successful new product introductions. The Revlon brand continued its recent strength in the face segment with quarterly dollar volume up 23.5% from the year ago period, driven largely by Revlon ColorStay Mineral foundation and Revlon Custom Creations, both of which were introduced in the first half of 2008 and continued to be ranked in ACNielsen's top 10 new products through September 2008. In addition, the Revlon brand's share in the face segment benefited from the second half 2008 launch of Revlon Beyond Natural Makeup.

In the third quarter of 2008, Almay continued to maintain its approximately 6% dollar share, in line with its quarterly performance since the fourth quarter of 2006. The Almay brand's positive performance in the eye category was driven primarily by Almay Intense i-Color Collection and Almay Bright Eyes Collection, which were launched in the first half of 2008 and the second half of 2008, respectively. The women's hair color category declined by 1.2 percentage points from the third quarter 2008 compared to the same period last year. Revlon ColorSilk recorded an 8.2% share in the third quarter, consistent with the approximately 8% share it has maintained since the second quarter of 2007.

In anti-perspirants and deodorants, the category increased by 2.3% in the third quarter of 2008 compared to the same period last year. In the quarter, Mitchum continued to maintain approximate 5% dollar share in line with its quarterly performance since the fourth quarter of 2006. The beauty tools category expanded 26.6% in the third quarter of 2008, which was significantly higher than the historical growth rate for the category. This unusual category growth continued to be driven by a single pedicure product introduction from a non-traditional beauty tools category participant. Dollar volume of Revlon beauty tools grew 1.8% in the third quarter of 2008. Excluding this non-traditional single pedicure product, Revlon dollar share in the third quarter would have increased by 1.1 points to 24.8%.

In the third quarter, importantly, we supported our brands with increased levels of advertising and promotion compared to the third quarter of 2007.

Moving now on to cash flows. Cash flow provided by operating activities in the first nine months of 2008 was $43.9 million, compared to cash used by operating activities of $49.8 million in the same period last year, resulting in an improvement of $93.7 million.

As I have indicated on previous calls, while we are not providing specific guidance for adjusted EBITDA for 2008, we have provided information to assist you in understanding the factors that will impact our expected full year 2008 cash flows. I would like, therefore, to update you on the information provided on our July call, excluding the impact of net proceeds from the sale of our non-core Bozzano brand. Capital expenditures are expected to be approximately $20 million. Permanent display expenditures are expected to be approximately $50 million. Interest paid is expected to be approximately $125 million. Our total debt at September 30 was approximately $1.33 billion, of which approximately 60% is currently at fixed interest rates and approximately 40% you had floating interest rates. Taxes paid are expected to be approximately $15 million, and finally, all other cash flows, including changes in working capital, are anticipated to result in cash usage of approximately $20 million. Therefore, you can reach your own conclusions about expected full year 2008 cash flows based on these factors, collectively, in conjunction with your own expectations for Adjusted EBITDA.

Our unutilized borrowing capacity and cash as of September 30, 2008 was $201.3 million, comprising $139.6 million available under the revolving multi-currency facility and $61.7 million of cash and cash equivalents.

As we announced on September 3, we used $63 million of the net proceeds from the July, 2008 sale of our non-core Brazilian brands to repay $63 million of the $170 million MacAndrews and Forbes Senior Subordinated Term Loan, which matures August 1, 2009. This repayment will result in annualized interest savings of approximately $7 million. We are using the remaining proceeds from the sale, of $32 million, for general corporate purposes.

We intend to launch a $107 million equity rights offering that would allow stockholders to purchase additional shares of Revlon Class A common stock. Net proceeds of this equity offering would be used to fully repay the remaining principal balance of the M&F Term Loan. We are monitoring the financial markets closely to assess appropriate timing.

As we announced previously, we affected our 1-for-10 reverse stock split of our Class A and Class B common stock during the third quarter of 2008. So with that, I would like to hand it over to Abbe to talk about our first half 2009 new products.

Thank you, Alan. We continue to focus on building and leveraging our strong brands and believe that consistent development and marketing of innovative new products is a key driver for building brand equity and profitable growth over time. This strategy has contributed to the Revlon's brand's improvement in the marketplace in 2008 as reflected in our US mass retail dollar share improvements.

For 2009, following a strong and successful lineup introduced in 2008, we will introduce an expensive new product lineup for Revlon and Almay color cosmetics and Revlon beauty tools. These product launches include unique offerings for the mass channel, innovations in products and packaging, and extensions within certain franchises.

For Revlon color cosmetics in the first half of 2009, our product introductions are as follows: The Revlon Matte collection is a new, versatile color collection that creates a glamorous, matte beauty look. The four product collection for eye, face and lip includes Revlon Matte Eye Shadow, Revlon Luxurious Kohl Eyeliner, Revlon Matte Powder Blush and Revlon Matte Lipstick. Marketing support will feature Beau Garrett.

Revlon Age Defying Spa Foundation and Concealer are extensions to the highly successful Revlon Age Defying franchise and will offer new formulas and updated packaging. Incorporating antioxidants, Stone Therapy minerals and Vitamin C fusion, these new products help revitalize and brighten skin while protecting against fine lines. Marketing support will feature Elle Macpherson.

Revlon Beyond Natural Blush and Bronzer and Defining Waterproof Mascara are extensions to the Revlon Beyond Natural franchise which was introduced in the first half of 2008. Marketing support for Beyond Natural will continue to feature Jessica Alba.

Revlon ColorStay Brow Enhancer and Revlon ColorStay Liquid Eye Pen are extensions to the Revlon ColorStay franchise. The Revlon ColorStay Brow Enhancer is a self-advancing dual-ended brow styler that wears up to 16 hours. The Revlon ColorStay Liquid Eye Pen is a flow-through, felt tip liquid eyeliner that allows for controlled application and also wears up to 16 hours. Marketing support for these products will feature Elle Macpherson.

Revlon Creme Gloss is our next generation lipgloss in an innovative and unique-to-mass packaging with a flow-through brush applicator. Revlon Creme Gloss provides the full color impact of a lipstick with the extreme shine of a lipgloss. Marketing support will feature Halle Berry.

Enchantment is a collection of 13 new and on-trend shades that will be introduced into Revlon's Super Lustrous lipstick and lipgloss, Revlon ColorStay 12 hour eye shadow quad and Revlon nail enamel.

For Almay in the first half of 2009, we are inducing the Almay Pure Blends Collection. Almay Pure Blends is our new, natural collection of color cosmetics that deliver the pureness of nature in color, radiant finishes and eco friendly products and packaging. These hypoallergenic formulas are made from 95.8% to 98.2% natural ingredients with no compromise in color and performance. The packaging is made from 44% post-consumer recycled materials, on average, and traditional blister cards are being replaced with more environmentally friendly hang tags. This collection of five products for face, eye and lips include Makeup, Loose Finishing Powder, Blush and Bronzer, Eye Shadow and Lipgloss. Marketing support for Pure Blends will debut Leslie Bibb.

In addition to our color cosmetic launches, we are also introducing a number of new Revlon beauty tools products. Revlon Pedi-EXPERT is a superior quality, ergonomically engineered pedicure tool that offers professional quality results at home. Included in the unique Revlon Pedi-EXPERT kit are bonus pedicure tools and a lifetime guaranteed for the product. With Revlon Pedi-EXPERT, we expect to benefit from the recently increased consumer interest in foot-smoothing pedicure tools, which has driven growth in this category this year. Marketing support will feature Elle MacPherson.

As a complement to the new Revlon ColorStay Brow Enhancer that I just mentioned, Revlon is also introducing a unique Revlon Pre & Post Tweezing Cream and Revlon Brow Styling Gel. Revlon Cosmetic Brushes are a complete line of premium quality brushes. The Revlon Travel Compact Mirror is a sleek, double sided mirror which is coordinated to match Revlon's new Matte Collection that I just mentioned. Revlon Easy Squeeze Nail Clip and Revlon Easy Squeeze Cuticle Nipper each offer an innovatively engineered and unique, extended fold away handle. And lastly, Revlon Ceramic Stone Nail File is a gentle, long-lasting file.

With that, we would now like to open up the call for your questions. Operator please begin.

(OPERATOR INSTRUCTIONS) We will pause for just a moment to compile the Q&A roster. First question comes from the line of Todd Harkrider with Goldman Sachs.

Thanks for taking my call.

Hello, Todd.

Since the new product introduction, since June of that will start there, you've had a steady launch of new products that have resonated with the consumer for some time now. And it looks like you have another strong lineup for early 2009. But how do we get comfortable that next year's products will be as successful as the last several years? Are you reinvesting more in R&D? Is there a different process that the organization follows today than in years past? Or can you provide some color on why you think Revlon will continue to maintain or grow its market share profitably?

Todd, first of all, as you know in our strategy, and the way we have articulated our strategy, our focus is really on the key drivers and the key driver, we believe, and we've said this many times before, is the introduction of a competitive level of new products every year for the color cosmetics brands Revlon and Almay. And with that, we began back at the end of 06, to accelerate the development of new products. We saw some of that in '07. We saw what we believe to be is a very good line-up and has been proven to be a very successful lineup of new products for 2008, both in the first half and the second half. So, what we've done to ensure that we can sustain that is: first of all, ensure that we stay on strategy, two, we've got processes, we've got the capability, both within our product development group as well as our marketing group, as well as our R&D group, to do that. And so, I believe that the proof really is what you have seen is a steady build in a successful new product lineup for our brands. So '07 was a solid new product line, '08 was even better and we believe that we have got a very good and strong new product lineup for 2009, including both first and second half launches. Again, let me just remind you that the strength of the Revlon brand really drives this company's sales and drives this company's profitability around the world. I would also say that in terms of what we know about our 2009 new products to date is that they have been sold into retailers in the US and around the world and we've received a very positive feedback from all of those retailers.

That sounds good, appreciate the comment. Then the company's done a great job of taking cost out of the system which is something that keeps profitability up more than in years past. As we look out into 2009 with a more difficult sales environment, is there more to be done on the SG&A front to help offset some of the incremental aspect?

Todd, first of all we are always vigilant to any opportunities to restructure our business, change our work, change our processes in order to achieve a much better cost profile and improve our margins. We'll continue to look for those opportunities. And I think if you look back, particularly since '06 and '07, you have seen the continuing -- the results from continuing initiatives that we've put in place, both restructuring and in cost of sales in particular. Let me call out to you that over this period of time, when commodity costs have been going up, we have offset all those, really improved our cost of goods as a percent, based on focusing on cost controls, restructuring the work and efficiencies in our plan and supply chain in total.

Appreciate it. Great job and good luck with the fourth quarter.

Thanks, Todd.

Thank you, Todd.

Our next question comes from the line of Karru Martinson with Deutsche Bank.

Good morning guys.

Good morning, Karru.

Just to follow-up on the last comment on the commodities. As we look forward into 2009, across-the-board we are seeing some easing there. How does that fit into your planning as we look forward to the year?

A couple of things, Karru. First of all, you are obviously referring primarily to oil. Oil, while it does impact our products and our packaging, it is not a significant cost to us. Having said that, as we go through 2008, we have seen some cost pressures, but we have been able to offset those cost pressures, as David mentioned, by improving our efficiencies in our plant. Also, an important point to consider as you think about this, is that we turn inventory around three times a year, so there tends to be a lag effect on increases and decreases in oil prices. Plus, we are pretty far down the supply chain, so it takes some time and it gets muted as it gets to us. I think, net/net, if oil stays where it is today as we move into 2009, obviously, we should have some benefit, albeit small, given that it is a relatively insignificant part of our cost base.

Okay. I'm sure you guys are going to not want to answer the question, but as we look out to October, a dismal month for retail in general, more pickup in mass, how do you guys feel about your presence in the mass channel and then the traffic that you are seeing there?

Well, Todd, as far as looking out -- I'm sorry, Karru, as far as looking out, what we have said is that we would expect that the slowdown that we have seen in the category really and other economic factors that impact our sales in the fourth quarter, and we think that's likely. Having said all that, if you look at the ACNielsen channels in the US, you will see a slowing. But what's good about it is we still are seeing growth. So, as we mentioned in the quarter, the category grew 3.4%, year-to-date 3.8% even though we have seen some slowing, recently, in the channel. So, there is still growth there, which we believe is very, very important. And we also believe that being positioned in the mass channel is a very good place to be today. So, of all the places you can be in a very uncertain, very difficult to call, economic environment, we believe that we are well positioned. I would also say our brands, Revlon and Almay, and our other brands, are well positioned to cope with the uncertainties of this environment.

An important point to add to that, Karru, is as we built our plans over the last couple of years, we have ensured that we have flexibility in our spending. That is a change from what we used to do prior to 2006 where we used to commit to longer term expenditures. We have maintained flexibility in our spending. So, as the economic conditions unfold, we have the leverage to be able to pull back on spending, as needed, to ensure that we maintain and drive consistent improvements in the bottom line.

Okay. Just in terms of the FX impact, do we have a sense of the magnitude that we are expecting here in the fourth quarter as these swing?

Well, I would say if you look at current rates, you would have to expect the impact will be reasonably significant. But then again, you don't know what's going to happen to rates between now and then, and again, that's the translation impact. Let's be clear. Even though it's real in terms of the reported numbers, it is a measurement impact.

The major currencies that impact us in terms of where our bigger, more profitable operations are would be South Africa, Australia, Canada and the UK. If you look at where rates were around the end of October, relative to the start of the year, and you well know that the South African rand is down almost 40%, the Australian dollar almost 30%, and the Canadian dollar and the pound sterling down around 20%. So that clearly has an impact on translation as it relates to converting those non-dollar denominated financial results back into US dollars. There is also a transaction impact. As you know, we produced about 70% of our worldwide production in our manufacturing plant in North Carolina. And obviously, as we export those products to our international markets, there will be an impact to cost of goods in those specific economies.

But let's be clear that the translation impact is the major impact, and the translation impact is just that. So it does affect the reported numbers, but it is cyclical and, as you well know, currencies go up and down.

Absolutely. And just lastly, with the $32 million of cash that you are holding on to for general corporate purposes and you have the liquidity kind of improving results here, what's your kind of view on paying down other parts of the capital structure beyond just the senior unsecured -- senior subordinated term loan here?

A couple of things I would say there, Karru. In the current markets, obviously we are leaning towards maintaining flexibility and liquidity. There are a number of requirements in the term loan where we have to make quarterly amortization payments of about $2.1 million. That started in April of this year, so we would continue to make those amortization payments in 2009. Additionally, there is an excess cash flow calculation that requires us to pay approximately 50% of our excess cash flow in a calendar year. We have to pay that within 100 days from the end of the calendar year. So there are two things that we have to do to comply with the term loan. But again our focus, certainly in the short-term, would be maintaining flexibility and liquidity.

Thank you very much, guys.

Thank you.

Our next question comes from the line of Bill Chappell with SunTrust Robinson Humphries.

Just wrap up on a prior question. As we look to '09, assuming rates and commodities are status quo from today, the net impact would be negative to margins from currency versus commodities?

Well Bill, it's very difficult to say and I would never try to project that out. I think what you are saying -- I think what you are saying, if I understand your question, is that you are saying that the commodity potential positive impact would not offset the potential translation adverse impact. Is that right?

Yes.

And I'm just saying that there is no way that we can call that out today.

No, but again, I'm just assuming spot rates --

You can assume it and you can work to the numbers on your own if you make those assumptions, but the question is, what's the right assumption? I don't think that we can call those things today, do you?

Let me ask a different question. Year to date, how much has translation effect boosted operating profits?

I can tell you that in one second.

Relatively small.

Relatively small amount.

It's a relatively small amount, he'll look up the number, but it is a relatively small amount.

In terms of year to date, currency, it is less than -- in terms of EBITDA, it is less than $1 million dollars. Favorable.

Favorable, right. Second question, beyond fixed cost leverage, are there any other initiatives in terms of improving margins as we go to '09, or is it really going to be leveraging off that sales growth number?

Well I would say, Bill, as I said earlier, our history is such is that we have continued to improve our margins, both through some top line growth as well as outcome of initiatives across-the-board. Restructuring initiatives, as well as efficiencies in our supply chain. We will continue to look for those opportunities. So I believe since '06, we have had three successful restructurings, I believe. We closed the plant and you have seen the evidence of our successful initiatives in our cost of goods percentage and overall improvement in our margins. We are always going to be on the outlook for those kinds of opportunities. We've always got initiatives underway and when we complete those, and we have an outcome, we'll report those.

Okay. Then, I didn't understand for the quarter, maybe I just missed it. Were Revlon color sales in line with the category growth for the quarter?

We actually gained share in the quarter in the US.

So they were --

The category grew 3.4% and we actually gained four-tenths of a point, so we gained share relative to category growth in the quarter.

So your consumer take away was better than 3.6% in the quarter.

Better than 3.4%.

3.4%, sorry. Is that also what you are seeing in non-track channels. Fairly similar to what you are seeing in track channels?

Bill, we have never talked about non-track channels (inaudible).

Okay. I'll just leave it at that.

Thanks, Bill.

Our next question comes from the line of Carla Casella with JPMorgan.

Good morning, Carla.

Good morning, most of my questions have been answered. But one question. If you could clarify with how much you paid into your pension in '08 and then the estimates for how that could look in '09?

In terms of 2008, which of course as you know is based on the evaluation at the beginning of this year, in our plans worldwide, we will pay approximately $14 million into our pension plans. We believe that given the decline in the US and global financial markets, the return of pension plan assets for 2008 may be less than the expected way to return used to measure expense for the end of the year in 2008, which could result in a lower fair market value of plan assets at the end of the year. While these conditions have not had a significant impact on our financial position or results or liquidity in the first nine months of this year, unless there is significant improvement in the financial markets between now and the end of the year, we would expect that those conditions would result, could result certainly in increased pension expense and cash contributions in 2009. Suffice to say that we are working closely with our actuaries and our pension fund managers to assess the implications of the current market conditions on future pension costs. It is too early to tell because of the ongoing volatility what that would be in '09.

Okay. Great. Thanks a lot.

Our next question comes from the line of Lance Vitanza with Knighthead Capital Management.

Hey, guys. Thanks for taking the call. Congratulations on a pretty decent quarter given the overall environment. A couple questions. First is, just to go back to -- one of the callers had asked about -- I think Alan, you'd mentioned that you have a 50% excess cash flow sweep in the bank debt. Did you say that the payments, if any, under that provision would be within 100 days of the end of the fiscal year?

The payment is due within 100 days following the end of the fiscal year.

And typically, there are a lot of carve outs and exclusions from that calculation. So is it likely that there might be amounts that would be required to be paid under that provision?

Well, the calculation is somewhat different, but not all that different from our free cash flow calculation. But to the extent as we close out the year, we have positive cash flow, then there would be implications to pay the term loan 50% of what the number would be.

Okay. You had also talked about liquidity, but I think I might have misheard you. Could you just repeat -- I thought you said $201.3 million of total liquidity which was comprised of $139.6 million under the ABL. Did I get that right?

Yes you did. It is important under the ABL, obviously that is defined by the borrowing base as you know, and also, we have about $14 million of letters of credit, which we have had for several years, essentially get allocated against that liquidity.

And how much was outstanding on the line? Actual drawings -- or borrowings, rather?

The revolver was undrawn as of September 30.

Undrawn, okay. Is it possible to discuss advertising, promotional spending levels? I know you report that annually in your 10-K, but do you have the levels year-to-date for this year, for last year?

It's not something that we report mid cycle as you know, Lance. Suffice to say, to repeat some of the comments we had earlier, we did have increased levels of brand support in the third quarter of this year compared to last year, and we expect to have increased levels of advertising and promotional support in the fourth quarter also compared to last year. But it is not a number that we talk about mid year.

Okay.

And for the nine months, I think it's important to note that brand support levels were actually comparable, if you exclude amounts that we stand to launch of certain new products, including Revlon Haircolor Colorist.

Okay. Great. I assume the numbers in your press release were all adjusted to give effect to the Bozzano sale, is that right? The historical numbers?

Yes. So every number you see has been adjusted to collapse the Brazil operation into the continued operations.

Okay. In that case, can you give me the CapEx numbers for the quarter, both this year and last?

Certainly. One second.

And actually, I'm also looking for permanent display spending as well.

Capital expenditures for the quarter, and again, this is for the entire company, were $7.1 million, which is the same as it was third quarter of last year. And display spending this quarter was $10.4 million compared to $6.6 million last year.

Okay. I don't suppose you have the same way for non-cash compensation?

Not with me. That is just something we can talk about off-line after the call.

Great. Thanks guys.

Thank you, Lance.

Next question comes from the line of Arun Seshadri with Credit Suisse.

Hi, guys, thank you for taking my call.

Morning, Arun.

Just a couple of quick questions. Most of mine have been taken. First, just wanted to clarify for the fourth quarter of -- coming fourth quarter versus last fourth quarter, were there any major non-recurring or higher expenses in last year's fourth quarter that we should be taking into account, comping it to this year?

The only thing we have said about the fourth quarter is that we would expect a higher level of advertising and promotionals given our more extensive new product line and the support plan that we have for those products.

Okay. But there wasn't anything like new product launches that you called out for 3Q of '07, correct?

We have new product launches every year, certainly in the US, so there were certainly new product launches that we called out this time last year, we called out our first half '08 launches. So they would certainly be in last year's numbers.

Be embedded in last year's numbers? Okay. And then the other questions were generally tying up cash flows. Just wanted to -- on DSOs, it sounds like -- looks like DSOs increased a little bit in this quarter sequentially. Could you just kind of outline what drove that and kind what your outlook on DSOs is for year end?

Our DSOs -- of course, there's so many different calculations. Our DSO looks like it actually improved slightly. So I'll take a look at that and maybe we maybe we talked about that off line after the call.

Then working capital, just looking through the numbers here. Looks like your fourth quarter working capital and others should be roughly $30-ish million. Is pensions expected -- most of that payment expected in the fourth quarter, or when does that payment normally take place?

We've essentially made most of those payments through the end of September, so there's really limited additional pension payments in the fourth quarter.

And then on the tax line, I noticed that you have -- your current, what taxes you've paid year-to-date compared to your full year forecast implies a refund in the fourth quarter, is that correct?

Bear in mind what I talked about in our cash flow discussion was what we expect our taxes paid to be, which as you know, based on timing, is not always the same as what your tax expense is. So you need to look at kind of taxes paid through the nine months. I don't believe --

Through the nine months is around $22 million if I'm looking at this cash flow statement correctly. And then you said $15 million taxes for full year.

Yes. Well bear in mind when you look at the cash flow statement, that the cash flow tax impact of the Brazil transaction. So the taxes we paid are included in the tax number. So you take that $22 million, you back out the $10 million taxes that we paid on the Brazil transaction, you get to $12 million. You compare that to $15 million for the full year.

Perfect, thank you. That's all I had. Appreciate it.

Thank you.

Next question comes from the line of Mary Gilbert with Imperial Capital.

Good morning.

Good morning, Mary.

I thought we could discuss just some of the flexibility that you have with some of your expenses. So when you talked about some of the levers you could pull, would that be related to some of your cash requirements? For example on CapEx, you could reduce that? Or permanent display costs - you could reduce that? Is that what you are referring to in terms of responding to the slower growth environment?

We have a number of levers that we could pull. And obviously, the extent to which we pull those levers really depends on how we forecast how read the economic environment, including whatever the current situation would happen to be at the time. We also, I would say, always have a number of initiatives ongoing to improve our costs and control our costs and improve our -- which result in the improved margins. So those will also continue to have an impact. As far as the levers, there are a number of them. Certainly CapEx is one where you could defer or perhaps reduce; permanent displays is really a function of your new product launches. So you can think of it as analogous to brand support to the extent that you have new products, new product launches, you have got to continue to provide for the merchandise and graphics and so forth, on the walls. I would say there is a number of levers we can pull. It would depend on how we read the situation, how we see the situation going for the future, and it will also depend on, of course, how we read demand for our products overall, and specifically.

With regard to permanent display costs, the $60 million this year, and that's consistent with what it was last year, should we use that number also for 2009? When we look at your overall cash requirements, do you think they will be fairly consistent in 2009 versus 2008, except there might be an adjustment on the pending funding portion?

That's probably a fair statement. If you look at what we have spent over the last two years, if you go back prior to 2007, particularly in permanent display spending, it becomes difficult to compare. But if you look at the last two years, '07 and '08, we have spent around $20 million a year on CapEx, we have spent around $50 million a year on permanent cabinetry. Our interest expense has come down and will come down further in 2009 as we have already repaid about $63 million of the M&F loan. Clearly, as our international business continues to become more profitable, there's probably an increase in taxes internationally. But broadly, I think your assumptions around expectations for '09 are reasonable.

And also, I forgot, but with regard to pension funding, how much is the pension funding -- the amount that you are funding, how does that compare to the amount that you are expensing?

The expense in 2008?

Yes.

The funding was about $14 million, and I'm just going to check on the expense piece. But I think the cash contributions were higher than the P&L expense.

Okay. By how much? The full amount, or like half as much? In other words -- I'm sorry?

In the full year 2008, our pension expense was pretty small. So the cash contributions of $14 million was significantly higher than the expense.

Okay. Great. So that way we can use that full amount. Okay. So when we are looking at the $20 million, $14 million is basically pension funding and then the other $6 million is just an increase in working capital year-over-year?

Yes, that is a fair estimate.

Okay. And then also, I wanted to clarify on revolver availability. We had $139.6 million available, but I think you said there was, is this correct, was it $14 million in LCs outstanding?

Yes.

Was there something else that I'm missing, because there is a $160 million revolver --

The revolver is based on a borrowing base calculation. So to the extent that your asset base that='s used to calculate that availability falls below $160 million, then it reduces your borrowing capacity, aprri passu, dollar-for-dollar, on that basis.

And that borrowing basis is primarily accounts receivable in inventory.

Got it, that makes sense. I just wanted to clarify that, so that was helpful. Also, in talking about the trends that we are seeing in October and the outlook for the business, are there any trends that you have identified in terms of what the customer is focused on? Like where you are seeing better velocity and where you are seeing weakness?

Anything that we have called out as of yet, I wouldn't even call a trend. We have seen and we have reported on the growth in the US and Nielsen category for the quarter and year-to-date. That growth rate slowed significantly in October, but that's one month. Again, I wouldn't call that a trend. We've also not really seen or been able to discern anything going on in the category that I would say that is different from what the normal consumer behavior has been in the past. At this point. But remember, that this is early November, so there's not yet a trend. So you can't say whether the category is going to -- whether growth is going to improve, or what. So I wouldn't call anything a trend.

Got it. I just didn't know if there was anything that you observed in October that would be sort of helpful in giving us an idea of what's going on with the consumer.

No, I understand. I think again, I think the most important thing is to stay with what we know. We know the category has been growing and year-to-date has grown faster than it did last year. We did see some slowing in October of the rate of growth. We have seen no real, at least discernible difference in consumer behavior in the category, so that's where we are. We continue to monitor very, very carefully.

Okay. One last thing, with regard to the currency translation impact in the fourth quarter, given the decline in the currencies as you pointed out, I mean, there is going to be a cash impact to the extent that you pointed out with using the US currency for over 70% of your costs, right? So we should see; there could be a negative impact from that standpoint, correct?

Yes, but it's relatively small. In fact, as currencies have gone up and down in past years, we have not even seen the impact, we have never called it out because it has not been that significant, so I wouldn't overplay that point at all. I think the most significant point is the translation impact. Again, underline translation impact, which will turn around at some point.

Okay. All right, that is most helpful. Thank you very much.

Thank you, Mary.

Our next question comes from the line of Arin Wolfson with Resolution Partners.

Good morning.

Hello. Sorry about that. I had a question about the Matte collection you are introducing. Is that new line similar or analogous to the Age Defying, Beyond Natural and ColorStay?

No. It is completely -- it is a unique and new line of Matte collection. It is not like anything else we have offered.

I didn't mean product wise, but analagous to that, it is a new category that you are going to build off of similar to these other --

We would call it a new franchise, not necessarily a new category or new segment.

Got you.

It is a collection that as it is outlined, as Abbe called it out, but it is unique. We are obviously very excited about it. It is a beautiful collection, great shades and great packaging. It looks, on the wall, it looks really upscale at the mass price.

Got you. And you think this is something you will add products to over time similar to the other --

If it is successful, we sure will. We'll extend it. It is a perfect vehicle for extension.

Got you. Do you anticipate adding any other new lines similar to this, going forward?

Well, as we have indicated, I mean, we have a very strong lineup of new products. We'll continue to have a very strong lineup each year of new products. Matte is just one of those collections that we are launching now.

Got you. So, would this be your core stable of collections now, the Age Defying, Beyond Natural, ColorStay and Matte and then --

It depends what the opportunity we see in the future. So it is the offering as it stands today, but as we have said in the past, we are planning three years out. So we know what we are going to do in 2010, we know most of what we are going to do in 2011 and, if opportunities arise between now and then, we are flexible enough to be able to include those in our lineups or modified lineups.

Got you. I guess the angle I was going for was to understand some of the advertising spend going forward. Would there be incremental advertising with this new line and to support all these other lines? And as you introduce other new lines, would that be replacing existing advertising with some of these lines or would advertising continue to grow?

I understand. Well we, as we have said, we are going to support these launches with what we believe is the appropriate level. But also remember that there is a certain amount of new products every year, and we have targeted a certain level each year. And that amount, to be competitive, is going to be approximately the same over the next few years. So as we continue to change our offering every year, we continue to spend. But I don't believe that that would result in any major incremental spending, if you follow what I'm saying.

Got you. For the SG&A levels, I've been looking at the fourth quarter historically, it's been a lot lower in the last two years at least relative to the rest of the year. Given the guidance towards increased ad spend, would the SG&A be closer to a run rate of the third quarter of this year, or more similar to the fourth quarters of the past two years and kind of tweaked up for some additional --

What if what you are trying to get at is what the level of advertising promotions spend is, their brand support, I think you can think about it this way. It's more about where we allocate our spending and we've, of course, allocated where we see the priorities and the best investments or the best opportunities, so that's where we have allocated our spending. So we did have a slight increase, I think, in advertising or brand support in the third quarter, and we are going to continue to support our new product lineup -- our launches in the fourth quarter, which will have an impact compared to last year simply because last year, we didn't have the same extensive lineup of new products that we had this year. You have to take all that into account.

Just to add a clarifying point, Aaron. If you look at SG&A on a quarterly basis this year compared to last year, you'll note that each quarter we have had lower SG&A expenses this year than we had last year. That's primarily because we have reduced costs as a result of the restructuring actions that we have taken. We have cycled, essentially, brand support costs related to certain launches in 2007, including Revlon Colorist haircolor. What you would expect to see in the fourth quarter, consistent with what you are saying, is we would have had increased advertising and promotional spending, so it's kind of a leveling edge of the playing field over the four quarter period rather than what you have seen in the past, which is higher spending in the first three quarters and then a significant decrease in the fourth quarter. It's really leveling that playing field over the course of the year.

So the take away would be closer to the third quarter-ish levels than a dramatic drop as we have seen in the past two years. Is that fair to say?

I would say that the dramatic drop piece you will not see.

Okay, fair enough. And then you mentioned the face segment is up 25%.

In consumption terms, right.

I'm sorry?

In consumption terms, in ACNielsen in the US, just to be clear on that.

Oh, it is not your face segment?

No, it is our face segment. But I'm saying in that slice of the marketplace.

Got you. What percentage of the color cosmetic sales is face versus eye, lip and nail?

It is a large percentage. Overall in the category, I believe eye now is number one, face is number two, lip is number three, I believe, and then nail is a small four, but important fourth in the category.

Got you. The last question. As you mentioned, there has been increased returns year-over-year. Can you give a little more color on that?

A couple of things. As we look at the products that we plan to launch in '09 and the products that we have launched in the second half of 2008, we look at our wall in our retailers and we are substantially complete with our line reviews for 2009, and it looks like we are going to maintain space, on aggregate in 2009, relative to 2008. As we launch our new products, we also need to make space on the wall for those new products, so we discontinue under-performing products in the normal course. The increase, I think, in the third quarter of this year is primarily related to some of the Limited Edition Collection products that we plan to scale back as we move into 2009.

Thank you very much.

Our next question comes from the line of [Benjamin Sataratin] with Canyon Capital.

Hi, thanks for taking the call.

Good morning.

The first question relates to the sales growth trend in this quarter versus last quarter. It looks like your color cosmetics have done pretty well in the third quarter, which would imply that everything else is not doing so well. Can you kind of comment on pricing and volume for color cosmetics and everything else? Kind of what trends are seeing in Q3 versus what you have seen in Q2?

Well, I would just say a couple of things and then I'll turn it over to Alan. First of all in Q2, remember that, in terms of our sales, our shipments, that's when we ship the majority of our second half new product lineup. So that is when we recognize those sales. And then, I would say, that as we pointed out, if you look at consumption and sell through, which occurs on those products as well as products launched in the first half and all other products as well, we had very good sell through in the third quarter of our color cosmetics products. And our other brands, in terms of sell through, we had growth in tools in the US. We had reasonably good performance out of Mitchum and we had good performance out of ColorSilk, albeit one product in the lineup did not perform as well as we would have liked. But overall, our sell through in the third quarter we believe was very good, particularly given the market conditions, even though the category was growing quite well. So then, as far as anything else, I'll just turn it over to Alan in terms of trends.

A couple of little things, Benjamin. In terms of pricing, typically, there isn't kind of a across-the-board, in the US, certainly across-the-board pricing increases, as there are in certain other categories. You are able to achieve price as you introduce innovation, either in terms of product or packaging, into the category. So you would like to be in a position to introduce a superior product that has a higher price point than the product that you replace on the wall. But there isn't an across-the-board price increase on existing products. That is one point. Second point is, as we talked about in relation to the second quarter results, we had almost twice the number of SKUs in our second half 2008 launch than we did compared to our second half 2007 launch. So you saw a significant increase in shipments of those new products in the second half of -- second quarter of this year, relative to the year ago period. That was the single biggest driver of revenue growth in the second quarter. As we look at our first half 2009 product launches, we probably had a 50% increase in the number of SKUs compared to the first half of '08. So the rate of increase is certainly not as significant, albeit a very strong collection.

Got it. But so just -- so I'm trying to understand what everything else other than the color cosmetics is doing. In the third quarter, the category was up 3.4%. You guys gained 40 basis points of share year-over-year which would imply color cosmetics is growing faster, revenues are growing at 1%, so everything else must be growing less than 1%. Or even negative. I'm trying to understand, am I thinking about that the right way?

I think if you are talking about our sales or you're talking about consumption or sell through is measured by Nielsen. The reason why I pointed out the sell throughs is that I think that is probably the most important number, if you are trying to look at sales trends, because our shipments vary depending on when we launch new products, we do promotions, et cetera. So shipments don't necessarily match up with whatever the consumption trends are, and that is the reason why I outlined briefly, which is outlined in our release, how we have done with our other products in the personal care category.

Other point Benjamin is, as I mentioned in my earlier remarks, in the third quarter, we have increased our level of allowances, and so what you don't see on reported net sales is the impact of the increase in allowances, and that has been kind of offset by a reduction that we talked about in the brand support that falls within SG&A. So it's essentially a reallocation of our brand support in the P&L from SG&A to above the line. And that's also impacting what looks like the reported net sales number.

Got it. Second question relates to gross margin. So in the first and second quarter, your year-over-year comparison on gross margins were very good. 100 to 200 basis points, and as you mentioned, gross margin went negative this quarter and that was a function of allowances. Can you kind of just give us more color on what changed between the first two quarters and this quarter and how the environment changed that you were -- that led to this decline in gross margins?

I think an important point to look at is the nine month number. Quarter to quarter, you can see shifts, depending on decisions that we make. The 9-month number shows that our gross margin increased 80 basis points year-over-year. So that is an important first point to understand. The second point is, in relation to the third quarter, as I just mentioned, we did have an increased level of allowances. So your manufacturing cost of goods relates to what you actually ship as opposed to your net sales number. So the rate, relative to net sales, declined somewhat. So really, the trend to look at is in terms of the nine month number where we have shown an increase in margin.

I would also point out again, that because we had a more extensive lineup of new products in the second half of 2008, we had very good shipments in the second quarter, and then, our marketing programs focus on selling through in the third quarter. Hence, as Alan points out, the increase in allowances in the third quarter.

Got it. Thank you.

Our next question comes from the line of Mark Kaufman with MLK Investment Management.

Thank you, my question's already been answered.

Thank you.

Our next question comes from the line of Kevin Ziets with Pali Capital.

Hi guys.

Good morning, Kevin.

Question on the launches -- thanks for mentioning the SKU increase in the fourth quarter -- or I'm sorry, for the first half of 2009. Is the mix shift to beauty tools going to help margins year-over-year?

Well, actually, color cosmetics tends to have a higher gross margin than what we call beauty care. So when we talk about -- generally, in our gross margin, we talk about favorable sales mix. If you look at our results we have talked about increase in shipments and colr cosmetics, so that improved gross margin impact to mix is because of a shift from beauty care to color cosmetics. The beauty tools launches, while they are significant in terms of what we expect in the marketplace, will probably not have a significant impact on our gross margin.

Even though the profitability from beauty tools is quite good. The margin -- the bottom line are very good. So to the extent all other things being equal, that you did have some impact there, it would be positive.

Yes, I guess that's what I meant was more to the operating margins. Because I know that you typically don't spend the same level of advertising support behind those. Is that true in this case?

Yes.

That's true, generally speaking. And will -- do you have any sense at this point in terms of whether these shipments will be made in this fiscal year versus next year as compared to last year's launches?

Typically, the way they work is we ship first half '09, we started shipments in second half of October. They will pick up in November and December and they will trickle into kind of January and potentially into early February. Again, as a function of retailer reset, first of all, and then, based on certain on counter displays, that we will have in advance of the holiday season.

In fact, you'll see some of the -- what we call the first half new products in market over the next two or three months.

Compared to last year, you are not expecting any major shifts in the timing of when those get shipped?

No that's correct. No major timing.

I think that's all I had. Thanks, guys.

Thank you, Kevin.

Next question comes from the line of Connie Maneaty with BMO Capital Markets.

Good morning.

Hey, Connie.

Hi. As far as the new products for next year, I think you mentioned that your shelf space is going to be approximately the same as it was in 2008.

Right.

But I'm wondering about Almay. Is Pure Blends going to add to Almay's facings, or are you swapping out older products, and if --

We are swapping out older products.

Oh, you are swapping out older products?

That's correct.

So is this going to be the core Almay line going forward?

What's "this"? The core Almay lineup is the offering as it is today, essentially. Pure Blends will replace, not 100% of other lineups, but certain parts of the line as it exists today.

Okay. And should we expect returns and allowances related to Almay to be higher in the fourth quarter as well?

Well, typically, returns, the accounting calculations for returns is based on planned discontinuances. So as we launch the Pure Blends collection, we will see increases in returns related to what we take off the wall. Allowances, as I mentioned earlier, is a function of, certainly in the fourth quarter as we increase our level of brand support, we will see that impact both above the line and below the line.

Okay. On the rights offering, I think in the past you have said that you expected to do it in the fourth quarter, and on this call and in the press release, you are alluding to waiting to see what the markets going to do?

What we have said is that -- in the past, what we have said about -- we could launch it as early as the fourth quarter. We are still if the fourth quarter, by the way. And so we are watching the markets. You know what the markets are today, they are very difficult and we don't want to do anything that would produce lower values for our shareholders.

Okay, and then one small question on that fact. Do you intend to offset the transaction impact with price increases in local currencies?

There could be some of that, it depends on the country, really. For example, in Australia, potentially, we could take some price there, but again, let me point out the transaction impact here is very small. Its not significant. Two, we would base our prices on the competitive situation in the marketplace first. That's what would be the primary reference point for our pricing in any country.

Okay, that's all I have. Thanks.

(OPERATOR INSTRUCTIONS) Our next question is a follow-up from the line of Mary Gilbert with Imperial Capital.

I just wanted to sort of sum up the focus on the fourth quarter. In the headline where you talk about that you expect improved operating margins, profitability and free cash flow for 2008, can we use that same language to apply for the fourth quarter?

Well, Mary, you know that applies to the year. We have called called that out. We have also called out a couple things that we believe might impact the fourth quarter. We have been very clear about that.

Okay. All right. Thank you.

Thank you.

There are no further questions at this time. This ends the question and answer session of today's call. We will now turn things back to Mr. Kennedy for closing remarks.

Thank you for participating in today's call and for your continued interest in Revlon.

Let me say first and repeat, we are extremely excited about the new product introductions for the first half of 2009 and, in fact, for the full year 2009. And, as Abbe reviewed with you earlier in the call, let me just remind you again that Revlon brand lineup includes the comprehensive new offerings in every segment of the category, face, eye, lip and nail. Importantly, let me emphasize, Almay Pure Blends, is our first natural collection of color cosmetics that delivers a full range of shades, radiant finishes and eco-friendly products and packaging with no compromise in color or performance.

As I mentioned before, we have demonstrated continued progress in the first nine months of the year and are realizing the benefits of executing our strategy. We expect improved operating margins, profitability and free cash flow for 2008, driven by the strength in the Revlon brand, efficiencies and cost controls throughout the company.

We are managing our business with the objective of improving our financial performance and competitive position while maintaining flexibility in light of the uncertain economic conditions and retail sales environments in the US and around the world.

We believe that as economic conditions stabilize, our focus on the key drivers, including innovative, high quality consumer preferred new products, effective integrated brand communication, appropriate levels of advertising and promotion and superb execution with our retail partners will to continue to generate sustainable positive free cash flow, and profitable sales growth over time. Again, thank you for your participation on the call and your interest in Revlon.