Revlon Inc (REV) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Revlon's fourth quarter 2009 earnings conference call. At the request of Revlon, today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Steven Berns, Revlon Executive Vice President, Chief Financial Officer and Treasurer. You may begin, Mr. Berns.

Thank you. Good morning everyone and thanks for joining today's call. Earlier today, we released our results for the year and fourth quarter ended December 31, 2009. If you have not already received a copy of the earnings release, you can obtain one on our website, revloninc.com. On the call are Alan Ennis, Revlon's President and Chief Executive Officer and Chris Elshaw, Executive Vice President and Chief Operating Officer. And on today's call, Alan will provide us with a strategic update on the business, Chris will review our market place performance, and I will then review our financial results.

Before I turn the call over to Alan, 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 on the Company's filings with the SEC including our 2009 form 10K which we intend to file later today. Our remarks will include a discussion of adjusted EBITDA and free cash flow which are non-GAAP measures that are defined in the footnotes to the release we issued this morning and are reconciled in the case of adjusted EBITDA to net income and in the case of free cash flow to net cash provided by operating activities, the most directly comparable GAAP measures in the accompanying financial tables.

Unless otherwise noted, our discussion this morning of market share, dollar volume data and product ranking is based on US mass retail dollar volume according to ACNielsen which excludes Wal-Mart as well as regional mass volume retailers, prestige stores, department stores, internet retailers, direct sellers, television shopping, specialty stores, perfumeries and other distribution channels, all of which are channels for cosmetic sales. The ACNielsen data is an aggregate of the chain drug channel Target, Kmart, food combo stores and in total represents approximately two thirds of the Company's US mass retail dollar volume. And finally as a reminder, our discussion should not be copied or recorded. With that, I'll turn it over to Alan Ennis, the Company's President and Chief Executive Officer.

Thank you Steven and good morning everyone. The execution of our business strategy in 2009 has enabled us to overcome many challenges and achieve success. We stabilized market share around the world, significantly improved our operating performance, generated positive free cash flow, improved our capital structure and strengthened our organizational capability. Our focus in 2010 and beyond will be to build on the solid foundation and competitive margin structure we have established. The path forward for us now is to realize our growth opportunities, drive true globalization, and groom our future leaders. While staying true to our vision of glamour, excitement, and innovation through high quality products at affordable prices, we are evolving our business strategy to reflect our path forward specifically build our strong brands, develop our organizational capability, drive our Company to act globally, increase our operating profit and cash flow, and improve our capital structure.

Revlon has incredible talent and capabilities, broad geographic reach, strong global brands and a heritage that recognizes the importance of philanthropy. We continue to take actions to strengthen our brands and to enable Revlon to become a stronger, more financially sound company. The economic environment remains challenging and therefore we continue to manage our resources carefully while maintaining a balanced perspective on the long term growth of our brands.

During this call, Chris and Steven will share with you the specific actions we've taken and progress we have made in 2009 in furtherance of our business strategy. So, with that let me hand over to Chris who will take you through our marketplace performance.

Thank you Alan and good morning, everyone. According to ACNielsen which as you know does not include Wal-Mart, our largest customer, the mass color cosmetics category in the US grew 1.5% in 2009 and grew by 2.6% in the fourth quarter of 2009 versus the prior year. Revlon Color Cosmetics dollar volume increased 1.3% in 2009 resulting in the share of 12.7%, which remained unchanged compared to 2008.

Looking at the fourth quarter of 2009 compared to the same period last year, Revlon's dollar volume increased 6.1% resulting in a share of 12.6% compared to a share of 12.2% in the fourth quarter of 2008. Revlon color cosmetics shares benefited from successful 2009 new product introductions.

Revlon continued to lead the lip segment in 2009 with a 22.3% share driven by Revlon ColorStay Ultimate Liquid Lipstick. Continued positive performance by Revlon Creme Gloss and Revlon Matte Lipstick also added to the Revlon lip segment results.

In the eye segment, Revlon dollar volume grew 4.2% in the year and 12.5% in the fourth quarter of 2009, as Revlon DoubleTwist Mascara and our eye liners continued their strong performance. In the face segment, we benefited from the positive performance of the new Revlon Age Defying Spa Range and the new Revlon Color Stay Minerals introductions. The performance of these 2009 face segment product launches were offset by cycling the successful 2008 launches of Revlon's Custom Creations Foundation, and Revlon ColorStay Mineral Powder Foundation. In the nail segment, Revlon Color Nail Enamel continued its strong performance with dollar volume growing 18.1% for the year and 32.7% for the fourth quarter.

For the first half of 2010, we will continue to be an innovation leader with the recent introductions of key new products, including Revlon's Photo Ready Makeup, containing innovative photo chromatic pigments that bend and reflect light to give a flawless airbrush appearance in any light. The advertising campaign for Revlon's Photo Ready Makeup features Halle Berry. Revlon Color Burst Lipstick, a luxurious lipstick available in 20 shades with revolutionary Elasticolor technology that provides an instant burst of rich, true color that feels virtually weightless on the lips. The advertising campaign for Revlon Color Burst Lipstick features Jessica Alba.

Moving to Almay, dollar volume decreased 6.6% in 2009 and 9.8% in the fourth quarter of 2009. Gains from 2009 new product introductions including Almay Smart Shade Smart Balance makeup and Almay Pure Blends benefited Almay in the face segments, partially offsetting declines from products launched in prior years and from discontinued lines. Since the second quarter of 2009 Almay has maintained an approximate 5.5% share. Almay continues to maintain its leadership in the eye makeup remover segment. And for the first half of 2010, we will build upon Almay's differentiated offering in the face category with the launch of Almay Smart Shade Anti-aging Makeup, which benefits from Almay's proprietary technology and contains skin sensing micro spheres to instantly reduce the appearance of lines and wrinkles.

In 2009, dollar volume in the women's hair color category declined by 3% while Revlon ColorSilk Hair Color grew by 13.8%, resulting in a share gain of 1.4 points to 9.7% share for 2009. In the fourth quarter of 2009, dollar volume in the women's hair color category grew by 0.1% while Revlon ColorSilk grew by 22.7%, resulting in share gain of two points, increasing share to 10.7%. As we have said before, more units of Revlon ColorSilk Hair Color continue to be purchased more in the US market than any other brand.

Moving to antiperspirant deodorants. Dollar volume in this category in 2009 declined by 0.1%, while Mitchum declined 9.1%, resulting in the share of 4.6%. In the fourth quarter of 2009, dollar volume in the antiperspirant deodorant category declined 0.5%, while Mitchum declined 9.4%, resulting in a share of 4.4%.

Since the second quarter of 2009, Mitchum has maintained an approximate 4.5% share since the second quarter. Mitchum holds the leading position in gels, a sub category that has been negatively impacted by the expansion of clinical type products.

For the first half of 2010, we will build on Mitchum's established efficacy positioning with the launch of Mitchum's Smart Solid clinical performance, a clinical strength antiperspirant deodorant in an invisible stick form available for both men and women. Mitchum is a key strategic brand for us; we continue to focus and support the brand with appropriate levels of advertising and promotion as well as new product introductions.

And finally, beauty tools. Dollar volume in the beauty tools category declined 16.1% as the category cycled the launch of nontraditional pedicure tool in 2008. Revlon beauty tools dollar volume declined by 6.1% in 2009, however, gained 2.2 share points, resulting in a share of 21%.

In the fourth quarter of 2009, dollar volume in the beauty tools category declined by 17.1%. Revlon beauty tools declined by 4.5% and gained 2.8 share points resulting in a share of 21.2%. Revlon continues to hold the number one position in the beauty tools category.

With regard to market share information, beginning with the first quarter of 2010, we will no longer be reporting ACNielsen US market share information, which as noted in our introduction, represents only a portion of our channels in only the US market. We believe that our consumption through all of our retail partners in our markets globally is better reflected by observing our net sales trends rather than this partial share information. Now, I'll turn it over to Steven to review the financial results.

Thank you, Chris. Starting with the P&L for 2009, net sales in 2009 were approximately $1.3 billion, a decrease of approximately $51 million or 3.8% versus 2008. However, excluding unfavorable foreign currency fluctuations of $26 million, net sales decreased by 1.8%.

From a brand standpoint, lower net sales of Revlon and Almay Color Cosmetics and certain beauty care products, were partially offset by higher net sales of Revlon ColorSilk Hair Color. In the US, 2009 net sales were approximately $748 million, a decrease of $34.7 million or 4.4% compared to $782.6 million in the same period last year. The decrease was driven by lower net sales of Revlon and Almay Color Cosmetics and Mitchum Antiperspirant Deodorant which were partially offset by higher net sales of Revlon ColorSilk Hair Color.

During the year, Revlon ColorSilk was a top performing brand in the women's hair color category. In our international operations net sales in 2009 were $548 million a decrease of approximately $16 million or 2.9% compared to $564.2 million in 2008. The entire decline was due to unfavorable foreign currency fluctuation which negatively impacted net sales by $26 million in 2009. Excluding the unfavorable foreign currency fluctuations net sales increased 1.7% driven by higher net sales in the Latin American region and Asia-Pacific region, partially offset by lower net sales in the Europe region.

Excluding the FX impact, the growth in net sales was primarily due to higher net sales of Revlon ColorSilk Hair Color, Mitchum Antiperspirant Deodorant, and Revlon Color Cosmetics, partially offset by lower net sales of certain beauty care products and Almay Color Cosmetics. In our Asia-Pacific region, which was comprised of the markets in the Asia-Pacific region and Africa, net sales were $266.7 million, an increase of just about $1.7 million or 0.6% compared to net sales of $265 million in 2008. Excluding unfavorable foreign currency fluctuations, net sales increased 2.1% versus 2008. This growth was primarily due to higher net sales of Revlon Color Cosmetics in Australia and China and higher net sales of certain beauty products in South Africa partially offset by lower net sales of Revlon Color Cosmetics in Japan.

In our Europe region, which was comprised of Europe, Canada, and the Middle East, net sales were approximately $172.4 million compared to just under $201 million in 2008. Excluding unfavorable foreign currency fluctuations, net sales were down 5.7%. The decline in net sales was due to a few items across the Europe region. These items were lower net sales of Revlon and Almay Color Cosmetics in Canada, higher allowances for Revlon Color Cosmetics in the UK, lower net sales of certain beauty care products in France, and these items were partially offset by higher net sales of Revlon Skin Care in certain distributor markets.

In our Latin America region, which was comprised of Mexico, Central America, and South America, net sales increased 10.7% to just under $109 million compared to $98.4 million in 2008. Excluding unfavorable foreign currency fluctuations, net sales were up 16% in 2009. This increase was primarily due to the impact of inflation on selling prices in Venezuela as well as higher net sales of Revlon ColorSilk in Venezuela, as well as Argentina and certain distributor markets partially offset by lower shipments of fragrances and beauty care products in Mexico. As a reminder from a financial reporting perspective, promotional allowances are recorded as a deduction to arrive at net sales, while advertising costs are recorded within SG&A on the P&L.

In 2009, our gross profit margin was essentially flat at 63.4% compared to 63.5% in 2008. Gross margin in 2009 was negatively impacted by unfavorable currency fluctuations which resulted in higher costs of goods in most international markets on goods sourced from our facility in Oxford, North Carolina, higher pension expenses impacting our cost of goods, and higher returns and allowances. These negative impacts were offset by favorable manufacturing efficiencies, lower material and freight costs, and favorable changes in sales mix as well as lower inventory obsolescence charges.

Operating income in 2009 was $170.8 million compared to $155 million in 2008. Adjusted EBITDA in 2009 was $236.5 million compared to $248.1 million in 2008. Operating income and adjusted EBITDA included a restructuring charge in 2009 of $21.3 million compared to a net gain in restructuring and other of $8.4 million in 2008.

In addition, operating income and adjusted EBITDA were favorably impacted by a reduction of $80.2 million in SG&A expenses in 2009. This improvement was driven in part by our ongoing approach to take advantage of all opportunities to reduce our direct and indirect input costs. For example, we achieved lower advertising rates while increasing our media presence. So what this means is that we paid less for each gross rating point, also called a GRP. But we purchased more GRPs during 2009.

In addition, we also reduced our media production costs. Therefore, in total, we spent less on advertising in 2009, but purchased a greater amount of media weight. Also other SG&A was favorable in 2009 versus 2008 driven primarily by the realization of restructuring savings following the May 2009 restructuring and lower incentive compensation as well as lower permanent display amortization expenses which were achieved through a significantly improved portfolio planning process which has resulted in lower display spending for several quarters. Lastly, 2009 operating income and adjusted EBITDA included pension expense of $25 million compared to $7.6 million in 2008.

Income from continuing operations in 2009 was $48.5 million or $0.94 per diluted share compared to $13.1 million or $0.26 per diluted share. Income from continuing operations further benefited from a decrease in interest expense of $26.7 million in 2009 as a result of lower average borrowing rates and lower average debt levels. As we disclosed in May 2009, annualized cost reductions from the 2009 organizational restructuring were expected to be $30 million. As expected, $15 million of savings was realized in the second half of 2009 with an incremental $15 million expected to benefit the first half of 2010 for an annualized savings of $30 million. As discussed earlier, we incurred charges of $20.8 million related to this May 2009 restructuring which have all been reflected in the 2009 P&L.

Provision for taxes in 2009 was $8.3 million compared to $16.1 million in 2008. The favorability in 2009 is the result of favorable resolution of several tax matters and lower pretax income in taxable subsidiaries in certain foreign jurisdictions. In addition, cash taxes paid in 2009 were $14.9 million, down from $24.8 million in 2008, due to a withholding tax payment in 2008 of approximately $10 million, related to the sale of the Bozzano Brand. The sale of Bozzano was accounted for as a discontinued operation. Income from continuing operations in 2009 also included the net loss on the early extinguishment of debt of $5.8 million which is the result of a $13.5 million loss related to the refinancing of the 9.5% senior notes in November 2009, partially offset by a $7.7 million gain on the repurchase of approximately $50 million of the 9.5% senior notes earlier in the year.

Net income in 2009 was $48.8 million or $0.94 per diluted share compared to net income of $57.9 million or $1.13 per diluted share in 2008. Net income in 2008 included income from discontinued operations of $44.8 million or $0.87 per diluted share. Net cash provided by operating activities in 2009 was $109.5 million compared to $33.1 million in 2008. Free cash flow in 2009 was $96.8 million compared to $26 million in 2008. This $70 million improvement in free cash flow was driven by lower interest payments of $25 million, an operating income increase of $16 million, working capital efficiency producing an incremental $15 million of cash flow, and a reduction in permanent display purchases of $14 million.

Net sales were $344.6 million, an increase of $10.4 million or 3.1% compared to $334.2 million in the fourth quarter of 2008. Excluding favorable foreign currency fluctuations of $16.8 million, that's favorable foreign currency of $16.8 million, net sales decreased by 1.9% driven primarily by lower net sales of Revlon and Almay Color Cosmetics partially offset by higher net sales of Revlon ColorSilk Hair Color. In the US, net sales decreased by $12.6 million or 6.3% to $187 million compared to net sales of $199.6 million in the fourth quarter of 2008.

In our international operations, net sales in the fourth quarter of 2009 were $157.6 million, an increase of $23 million or 17.1% compared to $134.6 million in the same period last year. Excluding favorable foreign currency fluctuation of $16.8 million, net sales in our international operations were up 4.6% compared to the same period last year, driven by higher net sales of Revlon ColorSilk Hair Color, Mitchum Antiperspirant Deodorant and certain beauty care products, partially offset by lower net sales of Revlon Color Cosmetics. Higher net sales in the Latin America region were partially offset by lower net sales in the Europe region while Asia-Pacific net sales were essentially unchanged year-over-year.

Operating income in the fourth quarter was $62.3 million compared to $44 million in the fourth quarter of last year. Adjusted EBITDA was $77.9 million compared to $66.7 million in the fourth quarter of 2008. Operating income and adjusted EBITDA in the fourth quarter of 2008 included a charge of $2.9 million in restructuring and other. Income from continuing operations was $12.8 million or $0.25 per diluted share compared to $11.2 million or $0.22 per diluted share in the year ago quarter.

Net income was $12.8 million or $0.24 per diluted share compared to $11.3 million or $0.22 per share in the fourth quarter of 2008. The provision for taxes in the fourth quarter was $8 million compared to a benefit of $700,000 in the 2008 period. The fourth quarter of 2008 was favorably impacted by the resolution of certain tax matters. Net cash provided by operating activities in the fourth quarter of 2009 was $32.3 million compared to net cash used in operating activities of $10.8 million in the same period last year. Free cash flow in the fourth quarter of 2009 was $28.2 million compared to a negative free cash flow of $12.9 million in the same period last year.

On the liquidity front, our unutilized borrowing capacity and cash on hand as of December 31, 2009, was $148.2 million which was comprised of $110.9 million available under our revolving credit facility and $37.3 million of available cash. There were no borrowings under the revolving credit facility at year end 2009, except for the approximately $12 million of standby letters of credit issued under this facility.

In line with our business strategy of improving our capital structure, we took the following actions in 2009. We reduced debt by $81 million with free cash flow generated as a result of lower interest payments, improved operating income, working capital efficiency, and lower permanent display purchases. In October 2009, we consummated an exchange offer, in which we issued 9.3 million shares of Revlon's Series A preferred stock in exchange for an equal number of shares of Revlon's Class A common stock. The exchange offer resulted in the following. It first extended the maturity date of $58.4 million of the senior subordinated term loan from August 2010 to October 2014. And it changed the annual interest rate from 11% to 12%.

And second, it extended the maturity date of $48.6 million of the senior subordinated term loan from August 2010 to October 2013 and changed the annual interest rate from 11% to 12.75%. In November 2009, we issued and sold $330 million in aggregate principal amount of 9.75% senior secured notes due November 15, 2015. and a private placement that was priced at 98.9% of par.

The net proceeds of $319.8 million which was net of original issued discount and underwriters fees, together with $42.6 million of other cash and borrowings under our revolving credit facility, were used to repay or redeem all of the $340.5 million of aggregate principal amount outstanding of the Company's 9.5% senior notes due April 1, 2011 plus accrued interest, the applicable redemption and tender premiums and fees and expenses related to this refinancing, as well as certain amendments that were made to the 2006 credit agreements which were required to permit these notes to be refinanced on a secured basis.

Moving on to 2010, let me update you on several factors that are likely to impact our 2010 financial performance. Starting with Venezuela. Effective January 1st, 2010, Venezuela has been designated as a highly inflationary economy under US GAAP. As a result, effective January 1, 2010, the US dollar is the functional currency for our subsidiary in Venezuela. Through December 31, 2009, prior to being designated as highly inflationary, currency translation adjustments of Venezuela's balance sheet were reflected in shareholders equity as part of other comprehensive income.

However, subsequent to January 1, 2010, such adjustments will be reflected in earnings on our P&L. On January 8, 2010, the Venezuelan government announced the devaluation of its local currency, the Bolivar, relative to the US dollar. As a result, the official exchange rate for nonessential goods has changed from VEB2.15 to the dollar to VEB4.3 to the dollar. We use Venezuela's official exchange rate to translate the financial statements of Revlon Venezuela. Since the devaluation of Bolivars relative to the US dollar occurred in 2010, it did not have an impact of our 2009 results of operations or financial position. However, we expect the following impacts to our financial statements in 2010.

Our consolidated financial results in 2010 are expected to be adversely impacted as a result of the currency devaluation. Revlon Venezuela accounted for approximately 4% and 7% of our 2009 consolidated net sales and operating income respectively. And as a result of Venezuela being designated a highly inflationary economy as of January 1st, 2010, we expect to recognize a foreign currency loss in the first quarter of 2010 of approximately $3 million related to the remeasurement of Revlon Venezuela's balance sheet during the first quarter of 2010 to reflect the impact of such currency devaluation. As previously stated, since Venezuela has been designated as a highly inflationary economy effective January 1st, 2010, this foreign currency loss will be reflected in earnings. Once again, the devaluation had no impact on our 2009 results.

Separately, during the fourth quarter of 2009, as a result of currency restrictions in Venezuela, Revlon Venezuela exchanged Bolivars for US dollars through a parallel market exchange transaction in order to pay for certain US dollar denominated liabilities which resulted in a $2.8 million foreign exchange loss which was recorded in the fourth quarter of 2009.

Next, consistent with our practice in 2009, while we are not providing specific guidance for adjusted EBITDA for 2010, we are going to provide certain information to assist you in understanding the factors that may impact our expected full year 2010 cash flows. First as it relates to pensions, we expect our pension expense and contributions in 2010 to be in line with our 2009 levels, which were $25 million of pension expense, and approximately $24 million of cash contributions. Next, we expect capital expenditures to be approximately $20 million, permanent display expenditures are expected to be approximately $40 million. With respect to cash interest, you can refer to our public filings which detail the composition of our capital structure and applicable interest rates as well as details on our current interest rate swap. Taxes paid in 2010 are expected to be approximately $15 million, consistent with 2009. All other cash flows in 2010, including changes in working capital, are anticipated to result in cash usage of approximately $25 million.

Lastly, as we disclosed yesterday, as part of the Company strategy to continue to improve its capital structure, we have scheduled a meeting with a group of potential lenders for later today to discuss a possible refinancing of our existing term loan and asset based revolving credit facilities. These credit facilities represent our next debt maturity due in January 2012.

It is expected that our 2006 term loan facility, which is our current facility, with $815 million outstanding at year end 2009, would be replaced with a new, approximately $800 million term loan facility and that our existing $160 million revolving credit facility would be replaced with a new approximately $140 million facility. There can be no assurances that the refinancing will be executed, and later today, we expect to file an additional 8K with information to be shared at the lenders meeting. This concludes our prepared remarks and we would now like to open the call for questions. Operator, please prompt the participants for questions.

(Operator Instructions) We'll pause for just a moment to compile the Q&A roster. Your first question comes from Todd Harkrider with Goldman Sachs.

Congratulations on the good quarter.

Thanks, Todd, good morning.

Want to say thanks for giving us the sales and operating net income breakdown. Can you talk a little bit more about how you expect the currency devaluation to impact your line items for the year? Since it's pretty, I guess consistent in sales year round, should it be pretty smooth during the quarters? Thanks.

It's Steven Berns. Thanks, Todd. As you know, we don't provide guidance. We talked about [Venezuela accounting for 4% of net sales in 2009 and 7% of OI] (corrected by company after the call). It's difficult for us to predict what will happen actually happen in local economy and how consumers will react. At this point in time, we certainly are not breaking out any line items. We're just looking at the business and continuing to do our best to perform in local currency. And we have had very good success as we mentioned with our products in Venezuela specifically launching Revlon ColorSilk Hair Color there. And that has almost a 5% share in the marketplace. So, we're very pleased with our performance there. Keep in mind that Venezuela overall is not a material part of the business and therefore it's a very important part but not a material part.

Okay. And then can you talk a little bit more about the dynamics of the mass cosmetics category. Since it slowed down in the second and third quarter, then picked back up in the fourth? I know there's not much proof that trade down was occurring during the recession. But at the same time, unit volume is down I think five of the past six years. So, hoping if you could talk about what you think Prestige grew by unit volume during that same period? And what are some of the trends that you're excited about over the next couple of years? Is it still mineral? Or will it be natural, is it vibrating mascara? Any color would be helpful.

If you look at the mass cosmetics category, as we said it grew again at the end of year. The category itself over the year since 2000 has oscillated between minus two and plus six but it doesn't move wildly really in comparison. So it's hard to predict exactly what's going to happen in the category for the future. But what we do know is that the basis of competition remains the same. It's about innovative new products, and making sure you have something that the consumer is really excited about in line with developing trends. And of course, appropriate advertising and a good in-store execution. So, those are the drivers we're focused on. It's hard to precisely predict what will happen with the category. So we are just focused on making sure we perform well against each of those measures.

Okay. And then last question. Last quarter you mentioned the media spend could be lower this year. Is that still the target for the year? And maybe touch on the competitive environment. Have you seen a shift in competitor's strategies this year?

Well, what we said was, due to the change in advertising rates, we had realized significant savings there. What we have done is increased our media pressure in the marketplace while also enjoying savings both in our working media and nonworking media.

Our objective is to make sure that we're competitive. And what you see going through the financial statements as Chris said is a lower dollar cost of advertising. But that represented greater pressure in the marketplace. We expect to continue with the competitive level of advertising spending and pressure as we go through 2010.

Sounds like 2010 on a dollar basis could be flat as opposed to increase in dollars?

We haven't forecast that obviously, Todd.

I appreciate it. Good luck with the rest of this year.

Thanks, Todd.

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

Good morning. Just touching on the Venezuela impact. I mean, it sounds like that's a non-cash impact. Or will there in effect be a cash impact? Do you repatriate any cash? How should we look at that?

So, as I mentioned, in the fourth quarter of 2009, we did repatriate cash from Venezuela in the parallel market, which did cause a $2.8 million foreign exchange loss.

Right. And where did that show up? Did that flow through in revenues so we saw the cash impact there?

No, the cash impacted is reflected on, the loss is reflected on the FX line. So you see it on the FX loss line.

Okay. And that FX loss line is below operating income?

That's correct.

Got it. That's very helpful. I wanted to see where that flowed through. So now in 2010, how should we look at it? Sounds like the first quarter impact is a non-cash impact because it's just a translation on the balance sheet, correct?

Well, that's correct. What were doing, for US GAAP, we have to translate our monetary assets and liabilities, and when we do that, it results in that loss of $3 million which does flow through the FX line. But once again, Venezuela, the overall business is not material. As we look forward in 2010, as we indicated, we're not forecasting anything for Venezuela. What we're doing is telling you what the impact is as a result of our business through 2009. So, when we look at operating income and net sales, we talked about the 7% of OI and the 4% of net sales numbers. But with regard to the impact, we continue to look for the good performance there. But once again, there is uncertainty in the market.

Got it. Okay. That's very helpful there. And then on the working capital side, the changes in working capital, the cash usage of $25 million. What does that reflect?

That reflects all other working capital amounts in 2010 and just bear with me one second...

So, essentially that would be all of the other inventory, receivables, payables, accrued advertising, all of the stuff we didn't call out specifically. That Steven called out specifically. He called out Pension, he called out capital expenditures. He called out permanent display spending. We referred to interest paid. And we talked about taxes. So, everything else that has a cash impact is what falls into that other group.

Understood. Is that largely inventory? I was trying to get an understanding of what specifically? Is it AR and inventory?

It's everything, actually Mary. And with respect to inventory, one of the reasons that we delivered cash flow kind of ahead of expectations in 2009 was the acceleration of our inventory turns program. And so we've talked publicly as you know about getting to an inventory turns target of four. We actually achieved a 3.6 turn metric in 2009. We still expect to get to a four level of turns in 2010. So, we still expect to benefit in cash flow from a reduction in our inventory levels. Except that benefit will be less than the amount of the benefit that we received in 2009. But we still expect a benefit from inventory.

Right. So I guess I was trying to get an idea. Is it because of new business? Or usually, if you see a working capital increase, there could be inflationary aspects there. So, I just wanted to understand the rationale for the increase. Especially given that you're looking at continuing to improve turns. That's why I was wondering if it's growth in the business, anticipated growth in the business, or if it reflects inflation.

It's based on our internal 2010 plan, really. Clearly, there's a receivables component there. There's a prepaids component. But there's nothing unusual or unique in that. It's normal that we would expect working capital to move in line with volume. So other than the reduction in inventory, it's just normal working capital items.

Ok, that's very helpful. And is there anything new that you can tell us about in looking at 2010 with regard to the business or any opportunities that you've identified either in picking up shelf space or anything like that?

What I talked about earlier on in the call, Mary, the opportunity for us as a company now is to profitably grow the business. I think we've demonstrated to you and to others that we've done a really good job of getting our financial position to a much better place. We have very competitive operating income margins, almost 15% OI margins, almost 20% EBITDA margin. We've demonstrated that we can control our costs. And we've improved our processes along the way. We're a much healthier company today than we have been in the past. The opportunity for us now is with our existing asset base to take the nine core brands that we have and find opportunities to grow those brands both with existing customers and in new distributions and geographies where they don't exist today.

Yes. Can you give us an idea of where those might be?

There's a variety of opportunities. If you look at the Revlon brand in terms of Color Cosmetics, it is truly a global brand. If you look at some of the other brands we have, Almay, Mitchum, Revlon ColorSilk and Revlon Beauty Tools, those brands exist in a strong position in the US but they are really only in certain other markets outside the US. So, we believe there are opportunities with those brands outside of the US marketplace. And additionally, we got two high end skin care brands with Gatineau and Ultima II. And they're really market specific brands outside of the US market place. And we believe there are opportunities to take those two brands and find additional distribution for them. But it's really a variety of moving parts and really making sure that we're investing appropriately behind those brands globally to leverage those opportunities. In terms of geography, clearly the Asia-Pacific region is one where both the population is growing and it represents a significant portion of the population. So, we believe there are opportunities in that region.

And that's going to involve some of these products going into those markets?

It may well do, yes.

That's helpful. Thanks, Mary.

Your final question comes from Connie Maneaty with BMO capital.

Good morning. I have follow-up questions on Venezuela. I'm sorry. I don't have the release in front of me. The $2.8 million loss in the fourth quarter that was booked in the foreign exchange line -- was that to reduce cash balances? Was that what the repatriation was?

That was for Venezuela business to repatriate cash back to the US for amounts owed.

Okay, So, in 2009 there will be both translation and transaction costs, right?

Do you mean in 2010?

I mean in 2010.

In 2010 there will be translation and transaction costs, correct. What we're telling you is that we know in January we know that there'll be a $3 million charge as a result of the remeasurement and translation of the monetary assets and liabilities. We are not forecasting what the transaction costs will be, as we don't forecast guidance.

Do you expect to use the parallel markets or the non essential rate for transactions?

Well, certainly we would prefer to use the most favorable rate which currently is the non-essential rate. And as that's something that we certainly try to use to the extent that our goods qualify for non-essential rate.

Do any of them?

At this point in time, very few do for the essential rate. But that is often changing.

How is it that you can, so now the bulk of your transactions would go through parallel rate. Why is the non-essential rate the best currency rate for translation if most of your transactions are going through the parallel rate?

Once again, we have a local currency manufacturing facility in Venezuela which manufactures local product at local input costs and sells in the marketplace. Second, we purchase some of the products under, from the US facility in Oxford, North Carolina. But the accounting for all of these are pursuant to US GAAP. US GAAP says use the official rate. And that's what we are doing in compliance with that. We don't use the parallel market often, as once again, we do have a lot of local currency offsets for costs of goods as well as revenues.

What's interesting, Connie, is that the rate in the parallel market has not changed there, over the last period of time. So, the 100% devaluation from VEB2.15 to VEB4.30 to the dollar has had really no impact on the parallel markets. If you look at the impact on us in 2010 if I can summarize it. There's two impacts. The Venezuela business essentially will be worth half of what it was worth in 2009. The entire P&L essentially gets cut in half. And the second point is that you've got foreign currency gains and losses that used to be as a result of translation use to flow through shareholders equity. But now because it's highly inflationary they actually flow through earnings. So, there are the two main ways to think about it.

Were there any transaction costs in the parallel market in 2009? Or are all of those fresh in 2010?

Well, we talked about the one transaction cost in the fourth quarter which resulted in the $2.8 million loss

But that was a one time thing?

That was the only time in 2009.

We didn't do that at all in 2008 either, Connie.

Okay. What was your share of voice to share of market on another topic?

We don't talk publicly about share of voice versus share of market. What I can tell you is that we're competitive and we'll continue to be competitive across all of our brands and across all of our key markets.

Okay. And since it's coming out today, what was the advertising spending in 2009?

It's in the 10K. Hold on and we'll get that for you Connie.

Okay.

Actually, that's a follow-up question that we can get back to you on after the call.

Okay. I just also had -- let's see. When Chris was giving us some of the market share data, could you give us what the dollar volume growth was of the lip category? I think you gave us market share but not the category growth for 2009 in the fourth quarter.

Let me get that number, my recollection is that it was actually flat. But we'll confirm that. What happened in the lip category was we were winners in the category. We grew as we continued to have a lead in market share position with a 22% share.

Okay.

In response to the advertising expenses question, advertising expenses were $230.5 million as compared to $260.2 million in 2008. But as Chris and Alan indicated and I spoke about in my prepared remarks, we bought more media weight in the marketplace even though our absolute spending levels were lower.

And because of the way rates have changed, I think you referenced in the third quarter results, we should expect that 2010 spending should then be a little bit less than 2009?

Well, what we did, if you recall is in 2008, we increased our advertising pressure. We maintained and further increased that due to the rate change in 2009. We'll continue that strong pressure in 2010. Rates are as we said before locked in for the broadcast year until September. And we also recently signed a new media agency which is MediaCom who are part of the group and buying group.

Okay. And then just one final question. I hope this comes out right. If one country is 7% of earnings and it gets cut in half, why isn't that material?

Because it's not.

Okay. All right. I guess that's it for me. Thank you.

Thanks, Connie.

Your next question comes from Dana Telsey with Telsey Advisory Group.

Good morning, everyone.

Hi Dana, Good morning.

Can you talk a little bit about the US market, what you saw there? Whether it was destocking at Wal-Mart? And how do you characterize in US market and the trends there? Thank you.

Well, as we said, the information we talked about is AC Nielsen which excludes Wal-Mart. The category grew in the fourth quarter 2.6% which was higher than the annual rate. As we said over many years since 2000, the category doesn't change that much. It's a fairly narrow range between the -2% and 6% over that period. So it continues to grow. And in terms of the base of competition that continues to be based on new products of course and as we say in the category, something like 15% to 20% of the category sales each year are in new products. So they continue to be important. And of course, the advertising promotion, and the in store execution. So nothing has really changed in what's driving it in that sense.

Thank you.

Thanks, Dana.

Your final question comes from Resa Bafarbanac with Barclays Capital.

Good morning.

Good morning.

So you mentioned the advertising spend was down to I guess 230 from 260. Was that all just the media rates?

As we said, during 2009, we increased our marketing pressure while benefiting from reduced rates. So we have more pressure but at a lower cost. We also had lower what we call nonworking media. Because that's production costs.

Right. It's my understanding, perhaps mistakenly, that media rates have been moving up sequentially and perhaps year-over-year. Is that your observation as well?

The scatter rates move around each month. As part of our broadcast year, we make up from purchases where the rates are locked in. So as we say, the rates are locked in the broadcast year which is until next September. What will happen from May onwards is the new up front period negotiation will start and we'll be entering that with our new media agency, MediaCom.

Irrespective of rates, what we're focused on is the making sure that we're competitive in advertising. So as we continue to launch successful new products, we will continue to make sure we have the appropriate pressure in the marketplace to make sure they're successful. We're willing to do all we can to realize rate benefits and make sure we get the most effective costs for advertising. But we're not going to cut advertising to sacrifice the brand.

But just to ask the prior question, do you think your share of voice and media in 2009 versus your key competitors was the relationship about the same as the prior year?

Our share of voice, share of market was similar to the prior year.

Similar to the prior year.

And it was competitive across the brands.

Right. And the cost savings number you mentioned, $15 million in the second half, how much of that was the fourth quarter?

It was approximately $7.5 million.

Okay. So you're basically at the $7.5 million run rate now.

Yes. And that will be once again through the first half of 2010, we'll have incremental $15 million of savings for the annualized savings of $30 million.

Right. Okay. And I think your press release suggests mass cosmetics category grew 2.5% in the US?

That's correct.

How do I reconcile that with your US sales?

Well, if you look at market share data versus our net sales data, shipment timings and sales timings differ. So, you do get changes. It doesn't always match perfectly. Over the long term it will of course, but in a quarter it may not.

And also due to the other fact is that the share data as Chris mentioned does not include Wal-Mart which represents about a third of our business in the US.

And lastly, as far as promotional intensity in this category, have you seen any changes in promotional intensity in the last few months sequentially or year-over-year?

It continues to be a very promotionally intensive category. And in-store activity is frequent. And I'm sure that will continue. Each retailer is trying to gain share. They're intense. And each competitor is trying to gain share, so it's intense from that.

Got it. Thank you.

Thanks Resa.

This concludes today's question and answer session. Presenters, please proceed with any closing remarks.

Thank you operator and thank you all for participating in today's call. And we look forward to your continued interest in Revlon. Thank you.

This concludes today's conference call. You may now disconnect.