Revlon Inc (REV) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Revlon fourth quarter 2010 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. Elise Garofalo, Revlon Senior Vice President, Treasurer and Investor Relations. You may begin, Ms. Garofalo.

Thank you, Felicia. 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, 2010. If you have not already received a copy of our earnings release, you can obtain one on our website at RevlonInc.com. On the call with me this morning are Alan Ennis, Revlon's President and Chief Executive Officer, Chris Elshaw, Executive Vice President and Chief Operating Officer, and Steven Berns, Executive Vice President and Chief Financial Officer. Before I turn the call over to Alan, I'd like to remind everyone of a few things. First, our discussion this morning might include forward-looking statements which are subject to the Safe Harbor Provision of the Private Securities Litigation Reform Act. Information on factors that could affect the Company's results from time to time and cause them to differ materially from forward-looking statements is set forth in the Company's filings with the SEC including our 2010 form 10K, which we filed earlier this morning.

Next, our remarks today will include a discussion of the following non-GAAP measures, adjusted EBITDA; free cash flow; and net income, net income per diluted share and the provision for income taxes, in each case excluding the one-time non-cash tax benefit discussed in our earnings release. These non-GAAP measures are defined in the footnotes to our release and are also reconciled to their most directly comparable GAAP measure in the financial tables at the end of our release. In addition, as previously disclosed, effective for periods beginning January 1, 2010, we have made a change in the regional breakdown of our reported net sales. Specifically, Canada is reported as a separate region, where in prior periods before 2010 it was included in the Europe region. And South Africa is included as part of the Europe, Middle East and Africa region, where in prior periods it was included in the Asia-Pacific region. As a result, prior year amounts have been reclassified to conform to this presentation. With that, I'll turn the call over to Alan.

Thank you Elise, and good morning, everyone. The execution of our business strategy in 2010 has enabled us to achieve meaningful progress. Guided by our vision of glamour, excitement and innovation through high-quality products at affordable prices, we are focused on executing our business strategy, specifically, to 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. Let me discuss some of our key accomplishments in 2010 under each element of our business strategy.

First, building our strong brands. From a marketplace perspective we introduced a number of successful, innovative, high-quality consumer-preferred products across our entire portfolio, most notably, Revlon PhotoReady makeup, Revlon Grow Luscious mascara and Almay SmartShade and Intense-I franchise extensions. In addition, we significantly increased investment behind our brands this year. Following two years of declining net sales we grew 2.3% in 2010. Strong performance in all of our regions outside of the US was partially offset by a decline in the US region. As we discussed in our last call, we have taken specific actions to address the challenges in the US region, which Chris will discuss later in this call.

The next element of our business strategy is to develop our organizational capability. We significantly strengthened the capabilities of our leadership team this year through key appointments, including Alan Meyers as Chief Science Officer, Julia Goldin as Chief Marketing Officer, and, we've made several general manager appointments, including David Teasdale in Asia-Pacific, Simon Worraker in Canada, Mark Wood in EMEA and John Collier in the US. These individuals complement our highly capable team, which is focused on achieving our strategic objective of profitably growing our business.

The third element of our business strategy is to drive our company to act globally. This guides how we think, plan and act across all of our brands and regions. We are leveraging our brand positioning, our portfolio planning process and our brand communication plans on a global basis. We are also focused on improving our operating efficiency through many activities, including global supply chain management, which again delivered improved inventory turns in 2010.

The last two elements of our strategy are to increase our operating profit and cash flow and to improve our capital structure. In 2010 we increased profitability, achieving adjusted EBITDA of $260 million and operating income of $200 million. We delivered and sustained highly competitive operating income and EBITDA margins, we achieved our third consecutive year of positive free cash flow, and finally, we improved our capital structure by refinancing our term loan and revolving credit facilities and by reducing debt.

Additionally, in November 2010, our credit rating was upgraded by Standard & Poor's. During this call Chris and Steven will share with you the details of our 2010 performance. So with that, let me hand it over to Chris who will take you through our marketplace performance.

Thank you, Alan, and good morning, everyone. Today I will review our net sales performance, excluding the impacts of changes in foreign currencies, by region and by brand. Total net Company sales were slightly over $1.3 billion, an increase of 2.3% versus 2009. Higher net sales of the US [sic - see earnings release] were partially offset by lower net sales in the US. On a brand basis, higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color were partially offset by lower net sales of Almay color cosmetics and Mitchum antiperspirant deodorant.

Moving on to regional sales performance for the year. In the US, net sales were $729.1 million, a decrease of $18.8 million or 2.5% compared to last year. The decline was primarily driven by lower net sales of Almay color cosmetics, Revlon ColorSilk hair color and Mitchum antiperspirant deodorant. These declines were partially offset by higher net sales of Revlon color cosmetics. Net sales of color cosmetics in the US benefited from lower promotional allowances, as we continue to optimize our brand support mix, and also benefited from lower returns, which is one of the benefits of our rolling portfolio planning process.

As we discussed in our last earnings call, we have several actions underway to improve our US performance. Firstly, we continue to optimize our brand support mix between advertising, promotional activity, and other drivers to be more effective. Secondly, we are in the initial stages of enhancing our in-store execution. By the end of 2010, we have increased in-store promotional display pressure and, in addition, we are currently implementing some exciting new graphic and layout changes to our permanent display walls. And lastly, as we also said, we appointed a dedicated general manager who is providing day-to-day focus on the US region. We believe the actions we are taking will enhance our marketplace effectiveness over the long-term, and we remain focused on delivering sustainable, profitable net sales growth in the US.

Moving on to Asia-Pacific, net sales increased $6 million or 3.2%. Higher net sales of Revlon color cosmetics, Revlon ColorSilk hair color and other beauty care products in the region were partially offset by lower net sales of Revlon color cosmetics in Australia and Japan. In Europe, Middle East, and Africa net sales increased $8.6 million or 4.7%. This increase was primarily due to higher net sales of fragrances throughout the region, as well as higher net sales of color cosmetics and other beauty care products in South Africa.

In Latin America, net sales increased $32.1 million or 29.5%. Approximately half of this increase was due to higher selling prices in Venezuela as a result of market conditions and inflation. From a brand standpoint, the increase was primarily due to higher net sales of Revlon ColorSilk hair color, Revlon color cosmetics and other beauty care products in both Venezuela and certain distributor markets.

Lastly, in Canada, net sales increased to $1.4 million or 2.1%. This increase was primarily driven by higher net sales of Revlon color cosmetics, which were partially offset by lower net sales of Revlon Beauty Tools.

Now moving on to the performance by brand, Revlon color cosmetics net sales increased as compared to the prior year. Building upon our previous discussions throughout 2010, and with respect to our product performance, in the face segment Revlon PhotoReady makeup continues to perform very well globally. We extended the PhotoReady franchise with the addition of a new compact makeup, containing an innovative screen which transforms cream to liquid and results in a soft powder finish. We look forward to continued positive performance from our PhotoReady franchise.

We also introduced Revlon ColorStay Aqua mineral makeup. This is a first mineral foundation that captures the hydrating benefits of coconut water in a lightweight powder foundation. Revlon ColorStay's patented Long-Wear technology helps keep skin looking luminous and radiant all day.

In the eye segment, following the successful global performance of Revlon Grow Luscious mascara, our best mascara launch in recent years, we introduced Revlon CustomEyes mascara. CustomEyes provides two different lash looks, length and drama or length and definition, with one revolutionary adjustable brush. We are delighted that in January of 2011, CustomEyes was recognized by Women's Wear Daily as one of only eight "Game-Changers in Beauty." This award recognizes those products that either change a woman's beauty regimen or create a new product category.

In the lip segment we introduced our strong-performing Revlon Just Bitten Lipstain plus Balm. In a review of the year's product launches in the US, Women's Wear Daily awarded the Best Executed Launch Strategy to Just Bitten. This award, which according to Women's Wear Daily, showcased "big ideas implemented flawlessly," is an exceptional award for our brand, and is also a tangible demonstration of our focus on enhanced marketplace effectiveness in the US.

Continuing in the lip segment we also introduced Revlon ColorBurst lipgloss. This new, luxurious lipgloss contains our revolutionary Elasticolor technology and micro-pearl crystal formula, which distribute rich color pigments evenly for weightless color and vivid mirror-like shine.

And lastly, in the nail segment, we have expanded our product offering to include a range of scented nail color as well as Revlon Top Speed, an advanced line of nail color that dries in 60 seconds. These new products have now been introduced in the US and Canada and are performing very well.

Moving onto the Almay brand, net sales of Almay declined as compared to 2009. Net sales were lower in the US; however, outside the US net sales were up slightly. We remain focused on building the Almay brand, and in support of this our recent new products introductions include Almay Wake-Up Makeup, a lightweight powder foundation that uses encapsulated water to instantly deliver cooling hydration to soothe the skin while providing full coverage and giving a healthy, well-rested glow.

Wake-Up Makeup was also one of just eight products recently recognized by Women's Wear Daily as "Game Changers in Beauty." Next, Almay SmartShade pressed powder, which is an extension to our successful SmartShade franchise utilizing Almay's patented technology. This is the first pressed powder for this franchise, as we continue to broaden the SmartShade product assortment to meet additional consumer needs. And lastly, Almay Intense-I Smoky-I Kit, which helps consumers achieve a smoky-eye look with ease. Smoky-I is performing extremely well in the marketplace.

In women's hair color, we were pleased with the increased net sales of both our core Revlon ColorSilk hair color and our new Revlon ColorSilk Luminista range. We continue to expand distribution of this highly successful brand around the world. In antiperspirant deodorants, net sales of Mitchum declined year-over-year. We continue to support the Mitchum brand, and in 2011 we will build on Mitchum's established efficacy positioning with the introduction of Mitchum Advanced Control, containing FreshDefense technology.

And finally, with regard to Revlon Beauty Tools, we continue to bring innovative new products to the market, including Crazy Shine, a nail buffer that gives bare nails 400% more shine instantly. Crazy Shine has shown early signs of success in the marketplace. Now I'll turn it over to Steven to walk you through the rest of our financial results.

Thank you, Chris. Since Chris has already discussed our net sales performance, I will begin with gross margin performance for the year. Our gross margin improved to 65.5% versus 63.4% in 2009. Gross margin in 2010 was positively impacted by a few factors. First, lower costs related to inventory obsolescence and sales returns, second, savings related to procurement initiatives and our 2009 restructuring actions, third, lower allowances, and last, the positive impact on cost of sales from foreign currency fluctuations. These improvements were partially offset by the unfavorable impact of product mix during the period.

SG&A increased $37.5 million to $666.6 million, primarily due to higher advertising spending to support our brands. We increased media pressure while benefiting from lower advertising rates as compared to 2009. In addition SG&A was also impacted by higher compensation expenses, which were partially offset by savings from our 2009 restructuring and lower pension expense. Operating income was $199.8 million compared to $170.8 million, and adjusted EBITDA was $260.4 million, compared to $236.5 million in the same period last year. Both operating income and adjusted EBITDA in 2009 included net restructuring charges of $21.3 million. We achieved the total $30 million of expected annualized savings associated with our 2009 restructuring program. Our 2010 results include incremental savings of $15 million from this program as compared to 2009.

Next, let me take a moment to discuss the impact on our 2010 results of a significant one-time non-cash tax item. For those of you who have followed us know, and as we discussed in our third quarter 10Q, we have significant US deferred tax assets on our balance sheet, against which, given our historical losses, we maintained a valuation allowance. Since we have delivered three years of cumulative positive taxable income in the US as of December 31, 2010, we reduced the valuation allowance on those tax assets in accordance with US GAAP. As a result of this reduction the provision for income taxes in 2010 included a one-time non-cash tax benefit of $260.6 million.

So, on the face of the P&L, the provision for income taxes in 2010 was a benefit of $247.2 million, which is comprised of two components. First, the $260.6 million one-time tax benefit I just discussed, and second, income tax expense of $13.4 million. The provision for income taxes in 2009 was an expense of $8.3 million. It is important to note that the reduction in the US deferred tax asset valuation allowance has no impact on the Company's cash flow or liquidity.

And with regard to cash paid for income taxes, we paid $16.2 million in 2010 compared to $14.9 million in 2009. Net income was $327.3 million, or $6.26 per diluted share, compared to net income of $48.8 million, or $0.94 per diluted share, in the same period last year. Excluding the one-time tax benefit of $260.6 million, net income in 2010 would have been $66.7 million, or $1.28 per diluted share. Also, net income in 2010 included $9.7 million of expenses associated with the March refinancing of our revolving credit and term loan facilities. In 2009, net income included $21.3 million of net restructuring charges and a $5.8 million net loss related to the early extinguishment of debt.

Moving on to cash flows, net cash provided by operating activities was $97.2 million compared to $109.5 million, and free cash flow was $82.3 million compared to $97.7 million.

Now moving on to the P&L for the fourth quarter of 2010. Net sales were $369.2 million, or an increase of 9% as compared to the fourth quarter of '09. This increase was driven primarily by higher net sales of both Revlon and Almay color cosmetics. In the United States, net sales increased 7.5% to $201 million compared to the fourth quarter of 2009. This increase resulted primarily from lower returns as well as lower promotional allowances as we continued to optimize our mix of brand support.

Moving now to Asia-Pacific, net sales increased $7.5 million, or 14.9%. This increase was driven by higher net sales of Revlon color cosmetics and other beauty care products throughout the region, most notably in Australia. In Europe, Middle East, and Africa, net sales increased about $0.5 million, or 0.9%.

In Latin America, net sales increased $8 million, or 24.1%. This increase was primarily due to higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color. Higher selling prices in Venezuela, reflecting market conditions and inflation, accounted for approximately two-thirds of the $8 million net sales increase in the region.

Lastly, in Canada, net sales increased $1.2 million, or 6.4%. This increase is primarily due to higher net sales of Revlon color cosmetics.

Moving on to operating income for the fourth quarter of 2010, operating income was $67.8 million compared to $62.3 million, and adjusted EBITDA was $83.3 million compared to $77.9 million in the same period last year. The provision for income taxes was a benefit of $256.4 million, which is again comprised of two components. First, the $260.6 million one-time tax benefit I noted earlier, and second, tax expense in the quarter of $4.2 million. The provision for income taxes in the fourth quarter of 2009 was an expense of $8 million. Net income was $269.2 million, or $5.66 per diluted share. Excluding the one-time tax benefit, net income was $35.6 million, or $0.68 per diluted share, compared to $12.8 million, or $0.24 per diluted share, in the fourth quarter of last year. Net income in the fourth quarter of 2009 included a $13.6 million loss related to the early extinguishment of debt.

Turning now to cash flow, operating cash flow was $47.2 million compared to $32.3 million, and free cash flow was $43.5 million compared to $28.5 million in the same period last year. On the liquidity front, our unutilized borrowing capacity and cash on hand as of December 31, 2010 was $185 million, which is comprised of $73 million of available cash and $112 million available under our revolving credit facility. Our revolver was undrawn at year-end, and we had $21 million of standby letters of credit issued under this facility. As it relates to capital structure in 2010, we refinanced our term loan and asset-based revolving credit facilities, which extended maturities; we reduced debt by over $17 million, and we continued to improve our debt to EBITDA ratio.

Now moving on to 2011, let me update you on several factors we expect to impact our 2011 financial performance. First, consistent with our historical practice, I'm going to provide you our expectations regarding certain 2011 cash flow information. Capital expenditures are expected to be approximately $20 million. Permanent display expenditures are expected to be approximately $40 million. Pension plan contributions are expected to be approximately $30 million. Cash interest expense can be estimated by reference to our public filings, which detail the composition of our capital structure and applicable interest rates. And lastly, cash paid for income taxes is expected to be approximately $20 million.

Next, with regard to 2011, I have two P&L items to note. First, with respect to taxes and as a reminder to what we mentioned in our Q3 earnings call, as a result of the reduction in the US deferred tax valuation allowance, going forward we expect that our tax provision on the income statement will reflect a higher effective tax rate. Any increase in the effective tax rate is not expected to impact the company's cash taxes paid until our US tax loss carry-forwards are fully utilized. We refer you to our tax footnote in the 10K filed this morning for further information regarding the composition of our taxable income and the expiration dates with respect to our tax loss carry-forwards.

Second, with respect to the P&L, consistent with our strategy to build our strong brands we currently intend to support our brands with increased advertising spending in the first quarter of 2011, as compared to the first quarter of 2010, due to increased media pressure and higher advertising rates. This concludes our prepared remarks and we would now like to open up the call for your questions. Operator, please prompt the participants for questions.

(Operator Instructions) Your first question comes from the line of Reza Vahabzadeh with Barclay's Capital.

Good morning. When you look at the categories that you compete in, in the US and international markets, what is your general outlook for the category performance as a whole?

As you know, Reza, we don't forecast category performance in any of the markets. Clearly what we do is we focus on driving net sales growth, and doing that profitably at the time. So we are not in a position to forecast growth.

I was guess I was looking more for directional color more than specific percentage change.

We don't provide that forward-looking [information], Reza.

Got it. And then, as far as retailers, inventory levels, are we at roughly flat levels versus the prior year, or are we getting to maybe 2007 levels?

We haven't seen any significant changes in our total business over [or] inventory levels in the recent months. We continue of course to work very closely with our retailers. We want to optimize our inventory levels with them because that's good business for both of us. So it's a constant thing we work on with them.

Fair enough. Then you talked about marketing pressure being up in the first quarter, any color as far as marketing pressure for the full year?

No, we only issued that for the first quarter. Obviously we're very focused on supporting our new products and driving profitable sales growth, and hence we are going to increase marketing pressure in the first quarter.

You talked about the gross margin benefit from currencies, could you just elaborate on that and whether that is sustainable into 2011?

The change in 2010 was a result of the fact that we have favorable foreign currency fluctuations versus the US dollar, okay, so because our products, for a large portion of our US markets, a large number of those products are manufactured in our Oxford, North Carolina facility. When there is a weaker US dollar, it makes it favorable for those markets to purchase from the North Carolina facility. Obviously, as a result of currency changes this year, that could be positive or negative. We just don't know how that will play out.

Let me add on that, if I can, Reza, as you know we don't provide gross margin guidance. As we've stated in the past our focus has been on competitive operating margins. Period-to-period, as you know, there are a number of factors that contribute to that including gross margin. So, all in all we're pleased with where our operating margins finished in 2010, and I think it's at a highly competitive level.

I guess another way to ask that question is, if that benefit represents a tough comparison in the following year?

Once again, we don't know what currencies are going to do, so clearly that's a variable that'll just be played out.

Got it. Thank you.

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

Hi, I'm wondering if you could give us a little bit more color in terms of your ship-in versus sell-through at the retailers, and how that trended during the quarter, and if you've got any insight into the new year and how that looks so far?

As you know we don't discuss shipments and we're not discussing retailer performance per se. What we say is, if you look at our net sales over time they're the best indicator of the success of our product portfolio.

Okay. I'm trying to get a sense for -- your sales in the fourth quarter were a lot stronger than we expected and I'm wondering if you could give a sense of how much of that was new product ship-in versus just a regular holiday replenishment.

If you talk about the US in particular, yes, our sales in the fourth quarter were up 7.5%, I would say one quarter doesn't make a trend and I would remind you that for the full year in the US we were actually down 2.5%. However, as we said on the last call, and I reminded you earlier, we are very focused on addressing the US performance. We said in Q3 and had been working on in Q4 three specific things in order to raise our US performance. One was optimizing our brand support mix to be more effective; secondly was improving our in-store execution so we can more positively influence the consumer at point-of-purchase, and then third, as we said, we appointed a US general manager, and he's focused on the day-to-day performance. So while we are pleased with the progress of those actions, it is important to note that in the fourth quarter the increase in net sales of color cosmetics resulted primarily from low returns, which is one of the benefits of our rolling portfolio planning process, as well as lower promotional allowances, and that is one of the benefits of optimizing our mix of brand support. So, as you know, there's also, in addition to returns allowances, there are a number of factors that can impact net sales from period to period. I'm thinking of things like timing of new product introductions, advertising behind them, promotion activity, retailer action, all these things. So, I reiterate, I think the best guide to our performance is our net sales over time.

Okay, great. And as we look to 2011 and the new products that you've launched and are launching, is the timing pretty similar to last year or is there going to be any significant changes?

The timing's broadly similar because it's driven by retailer reset dates.

As you know, Carla, in the US -- the US operates somewhat differently from outside the US. In the US there are typically two resets during the year, first half and second half. Outside the US it's not as strict as that, and so new products launch throughout the year.

I'm trying to remember back to see are we lapping any big launches that we'll have to be aware of in the first or second quarter?

I think 2010 launches were fairly typical, so there's nothing to be concerned about there from a lapping standpoint.

Great, and then, when you talk about in-store execution, point-of-purchase, can you give more color on exactly what has changed and when you started executing the changes? I might have missed it, if you gave your outlook for display spend.

Well, we said, back on the prior earnings call that we had in place some activities on improving our in-store execution, focusing on two areas. One was promotional display pressure, and as we ended 2010, we had an increase in our in-store promotional display pressure, and secondly on our permanent wall displays. We're just in the process now, with the resets, of implementing some exciting changes to our graphics and approach on our walls. Those are the two main areas.

We've always been focused on that, Carla. We made, I think, a concerted effort once we'd appointed John Collier to the US region to really focus on making sure that we get the point-of-purchase as effective as it can be, so that when consumer is at our wall or looking at a bank of promotional displays that she selects a Revlon or an Almay product ahead of the competition. Displays, you asked a question about display spend, our permanent display spending, as in the walls, around the world, is, we expect it to be about $40 million in 2011.

Thank you.

Your next question comes from the line of Grant Jordan with Wells Fargo.

Good morning. Thanks for taking my questions. Some of my questions have been answered, but really just to follow up on the US business. You have talked about changing your brand support away from promotion, more to advertising. Was there anything in the fourth quarter that you could gauge as to how that's working and how that's resonating with the consumer?

Well, as we say, we're continually optimizing brand support mix. It's not just a question of advertising, I mean, advertising's obviously very important, not only it promotes short [term] spend sales but it builds longer term brand equity. But it's a mix between advertising, promotion, in-store display, in-store activity, it's all those things, and we adjust them continually through the year because they also move in relation to new product launches. It's something we are very focused on, and as Alan mentioned, now having our US general manager focus on that day-to-day is a big help.

As you have reduced the promotional spending, have you gotten much push-back from retailers on that?

We work extremely closely with our retailers on our promotional time. So when we work with them we have a joint business planning process every year, which is pretty typical for major retailers, and in that joint business planning process we agree activities with those retailers to drive their retail sales and our retail sales in their stores.

Just to clarify, promotional spending over the last number of years has been fairly consistent. We haven't reduced promotional spending.

The 2010 promotional spending was similar to what you've been spending the past several years?

Yes, and that's in relation to the walls. So, resets at the walls. Chris talked about putting in some new graphics and some new displays, but again, that's all within the confines of that $40 million that we're talking about.

You mentioned earlier about, I think the term you used was "marketing pressure" in the first quarter, is that just you guys spending more money on your brands or is there something competitive that you're expecting?

What we actually said was our advertising spending would increase in the first quarter, and media pressure means more GRPs and better quality of GRPs, and there also is, as we said, increased rates in the first quarter, too.

And my last question, on the balance sheet there was a pretty big increase in deferred income taxes under current assets. I assume that's part of some of the tax issues that went on in the quarter? Maybe just put some color on--?

That's correct. The deferred tax assets showing up on the balance sheet are in relation to the release of the valuation allowance that I discussed earlier in my prepared remarks.

Will that balance come down as you go throughout the year?

As I mentioned, the assets that are now on the books, as the assets are utilized in conjunction with profitability on a prospective basis, that's when the assets will be reduced. As I referred to on the call, if you refer to the tax footnote in the 10-K filed this morning you will see the expiration dates of those NOLs detailed in that footnote.

Great. That's all I have.

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

Good morning. Can you help us, just for modeling purposes, since it's not going to affect cash taxes paid, what we should be using for an effective tax rate in 2011?

Well, we think that -- as you know, we don't guide on tax rate. What we think is appropriate is that you look at our business totality, and look at the places in which we refer to our net sales activity. I don't think -- we have never guided to effective tax rate and we think it's not really a focus for us. Our focus is on cash taxes, we have provided guidance on cash taxes. And as we've indicated, the valuation allowance reversal which results from the profitability change over the past three years is not -- does not impact cash taxes. So, cash taxes will not change, and that really, once again, is the guidance that we can provide. So I understand that on effective tax rate you will have a change, but what we've guided to is just that the composition of our taxable income and the jurisdiction in which it's earned will be the driver of that.

So essentially we should just guess?

I think you just have to use the information we provided in the 10-K and the statutory rates that are out there to make your own conclusion.

Connie, in the 10-K, I think it's footnote 12 when you take a look at that, there's a comprehensive disclosure around all of our taxes, it talks about taxable income in the US and outside the US. It talks about the NOLs that we have, it talks about the expiration of the NOLs, there's a whole body of disclosure in there. And, our view is that there's adequate information there to allow you to do something more than guess. I think you can get a lot closer than this.

Okay. In the US -- first of all, in the fourth quarter, were US shipments up or down?

As you know, Connie, we don't actually report shipments. A number of factors, of course, affect net sales from period to period. We talked about returns and allowances, but also new product launches, promotional activity, all those kinds of things. So, we're not going to disclose shipments, but, as we said, net sales over time are going to be the best indicator.

Okay. In the last eight quarters, there have been two instances of US sales growth, the first quarter of 2009 and the fourth quarter of 2010. I think in your prepared remarks you indicated that you thought you were on a path toward sustainable US sales growth, did you say that, or was I imagining it?

No, we didn't say that. Couple of things, first of all, we are pleased with the performance in the US in the fourth quarter. We believe that we're doing a lot of the right things to drive US business to be profitable and to grow. Having said that, one quarter doesn't make a trend. We have a dedicated general manager, we're focused on execution and we think we've got the right products for our portfolio planning process. Our expectation is that we would drive profitable growth from that region, as in all of our regions, but we didn't provide any guidance or any expectation as to specifically what would happen in 2011.

So, in 2009 and 2010, and the two quarters where the company reported US sales growth, in each of those quarters was the increase based primarily on lower promotional allowances?

No, there's a variety of factors. Again, above net sales you've got gross sales, you have returns, you have allowances, you have a bunch of moving parts up there. It depends on, and I don't have the first quarter 2009 in front of me, it depends on the specific drivers. What we indicated for the fourth quarter of 2010 is that the increase was primarily as a result of lower returns and lower allowances.

Should this be a factor, though, that we should expect in every quarter, or is there a kind of a year-end cleanup or a once-a-year cleanup of returns and allowances? Is this part of the P&L, or, well, it's just a black box, so there's no way to put any judgment into what one should expect for sales growth without some sort of sense of how you manage this portion of your business.

There's certainly no one-time cleanups in the fourth quarter. Just want to state that first of all. Second of all, we don't provide sales growth targets for any of our regions and we're not going to. What I will tell you is that we are focused on building our brands. We've got a great team of people in place now, and I think we are focused and doing a lot of the right things in our markets around the world. And so, I would expect that over time we'll deliver against our strategic objective of profitably growing the business.

Okay. Thanks so much.

The next question comes from the line of David Wu with Telsey Advisory Group.

Good morning, everyone, and congratulations on a great quarter. First off, can you talk about the sales performance across distribution channels in the US and whether you're gaining a greater foothold in the faster-growing channels such as the drugstore chains?

Our business is broadly representative, since we're a mass business, of the drug and mass-market chains. I'm not quite sure what you're asking.

Whether or not there's any sort of discrepancies across the drugstores versus the mass retailers versus the various outlets within the US.

We continue -- it really goes back to the joint business planning piece. We don't really work it in a channel approach. We are very focused on our individual retailer relationships. So we're focused on, irrespective of what happens in the general marketplace, having a growing business with each of our key retailers, and that's the purpose of our joint business planning approach.

We don't talk about specific performance with any of our retailers, for obvious reasons.

Right, great. Also, how do you see raw materials packaging costs trending in 2011?

If you look at commodities you'll see that certainly in the last few months you've seen some increase in some commodities, including oil. What I will tell you is that we went through a fairly rigorous exercise in 2009 and into the first part of 2010 to make sure that we were getting the best rates regarding all of our inputs. I will also tell you there is no significant commodity that represents a material portion of our cost of goods. So oil would probably be the biggest one as it relates to distribution and also as it relates to plastics, but it's not a material component of our input costs, and having said that, over time what we have done is we've been able to offset any cost pressures with cost efficiencies elsewhere in our operation.

Great. And just lastly, as we look out longer-term, where do you see the opportunity for operating margin expansion?

I think as you'll see from our results we achieved about a 15% OI margin, and that, if you look across the competitive set, you will see it is a highly competitive OI margin. So what we're focused on now is driving profitable growth. I think the next phase for us is to really start to drive growth in each of our regions and do that while sustaining highly competitive margins.

Great, thanks. Specifically, as you grow out internationally, should we expect to see some pretty good expense leverage, particularly in the Latin American markets?

When you say expense leverage, what do you mean?

I mean a better traction on costs -- just given--high, top-line growth.

I think we delivered a competitive margin in 2010, and the objective from here is to drive top-line growth.

Great, thank you.

At this time there are no further questions. I would now like to turn the conference back over to Mr. Ennis for any closing remarks.

Thank you, Felicia, and thank you very much, all of you, for joining our call this morning. As I mentioned, we are strengthening our brands, investing in our people and improving our financial profile. Our focus in 2011 will be to build upon the solid foundation and competitive margin structure we've established. As we start a new year I would like to take this opportunity to express my sincere appreciation to all of our employees around the world for our many accomplishments in 2010. We look forward to reporting our first-quarter 2011 results in April. Thank you.

This concludes today's Revlon Fourth Quarter 2010 earnings conference call. You may now disconnect.