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Executives

Abbe F. Goldstein - Senior Vice President, Investor Relations and Corporate Communications

David L. Kennedy - President and Chief Executive Officer

Alan T. Ennis - Executive Vice President and Chief Financial Officer

Analysts

Bill Chappell - SunTrust Robinson Humphrey

Lance Vitanza - Concordia

Carla Casella - JPMorgan

Mary Gilbert - Imperial Capital

Joe [Radgar] - Polygon

Patrick Trucchio - BMO Capital Markets

Revlon, Inc. (REV) Q4 2007 Earnings Call February 28, 2008 9:30 AM ET

Operator

Good morning ladies and gentlemen and welcome to the Revlon’s fourth quarter full year 2007 earnings conference call. (Operator Instructions) I would now like to turn the call over to Ms. Abbe Goldstein, Revlon’s Senior Vice President, Investor Relations and Corporate Communications.

Abbe F. Goldstein

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

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

Before we get started, I would like to remind everyone that our discussion this morning might include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Information on factors that could affect the company’s results from time to time and cause them to differ materially from such forward-looking statements is set forth in the company’s filings with the SEC including our Form 10-Qs filed during the year and in our 2007 Form 10-K, which we expect to file next week.

Our remarks today will include a discussion of adjusted EBITDA and free cash flow, both of which are non-GAAP measures that are defined and reconciled to the most directly comparable GAAP measures in the footnotes of and attachments to our earnings release that we issued this morning.

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

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

David L. Kennedy

Good morning everyone, first, I’d like to briefly review our financial results for the full year 2007 compared to last year. Net sales increased to approximately $1.4 billion from $1.331 billion. Operating income increased to $121 million compared to an operating loss of $50.2 million. Net loss was $16.1 million or $0.03 per diluted share compared to a net loss of $251.3 million or $0.60 per diluted share.

Adjusted EBITDA was $224.5 million which was reduced by $7.3 million of restructuring expenses, compared to $78.2 million in 2006 which was reduced by 122.9 million related to Vital Radiance, executive severance and restructuring expenses. In the full year 2006, Vital Radiance, executive severance and restructuring expenses collectively reduced net sales by $19.7 million and unfavorably affected operating income and net loss by $145.1 million.

We are executing our strategy and our financial results in 2007 were our best in many years. As I mentioned, we generated $224.5 million in adjusted EBITDA and, importantly, our negative free cash flow was $13.8 million compared to negative free cash flow of $161.1 million last year.

Our improved financial performance was driven by increased net sales, continued benefits from our restructuring actions and ongoing control of our cost. Later in the call, Alan will review the financial results for the fourth quarter and the full year in more detail.

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

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

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

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

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

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

For the month of January 2008, Revlon color cosmetics share was largely unchanged compared to the year ago period and up more than one percentage point compared to December 2007.

Revlon’s positive performance in eye and lip categories was partially offset by declines in the face and nail categories. Products launched in 2007 including Luxurious Color eyeliner and 3D Extreme mascara were again the primary drivers of the positive performance in the eye category. Our positive performance in the lip category was driven by Revlon Renewist and ColorStay Lipliner.

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

Turning now to new products, as we discussed during our previous quarterly calls with you, we remained focused on building and leveraging our strong brands around the world, and we believe that consistent development and marketing of innovating new products is a key driver for building brand equity and should result in profitable sales growth and share growth over time.

Throughout 2008, we are introducing an extensive line-up of Revlon and Almay color cosmetics products. These product launches include differentiated and unique offerings for the mass retail channel, innovations in products and packaging, new technologies and extensions within existing Revlon and Almay franchises. We are also executing our strategy by supporting these new products with advertising and promotions at competitive levels using our talented spokesmodels.

As we discussed in our third quarter conference call for the Revlon brand in the first half of 2008, we are introducing among others first ColorStay Minerals, the first-ever long-wear minerals collection for face and eye using our ColorStay long-wear technology.

Second, Custom Creations Foundation, a first to market face product Customs Creations Foundation is packaged in an innovative bottle with an adjustable dial used to customize the shades to match the skin tone. The bottle contains two chambers of product dispensed through a single pump.

And third, the Revlon 2008 Limited Edition Collection, an exciting new line-up of six product introductions in face, eye, and lip.

For Almay in the first half of 2008, we are introducing first TLC foundation which stands for truly lasting color. TLC foundation is our first healthy beauty long-wear liquid makeup.

Second, Intense i-Color collection: we are re-launching our already highly successful Intense i-Color Collection with new Play Up shadows, eyeliners and mascara to coordinate with eye color.

And third, for our popular Makeup Remover, we are introducing an enhanced formula and an improved package while keeping all of the features that have made our Makeup Remover so successful.

Turning out now to business strategy, we continue to execute our business strategy first building and leveraging our strong brands. We are developing and sustaining an innovative pipeline of new products and managing our product portfolio with the objective of profitable sales growth and share growth over time. We are focused on reinforcing clear consistent brand positioning through effective, innovative advertising and promotion. And, we continue to work closely with our retail partners.

Throughout 2007, we launched several exciting new products in our core brands and believe that we have exciting and strong new product offerings throughout 2008. We are supporting and planned to continually support our new product launches at competitive levels. And, we are developing and strengthening our pipeline of new products beyond 2008.

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

Third, continuing to strengthen our international business, we continue to strengthen our international business by leveraging our US-based Revlon and Almay brand marketing, as well as our strong regional brands. We continued to adapt our product portfolio to local consumer preferences and trends, structure the most effective business model in each country, and strategically allocate resources and control cost.

In the fourth quarter and full year 2007, international operating profits and margins continued to improve compared to the same periods last year. We believe the focus on building the Revlon brand will also further strengthen the international business.

Fourth, enhancing operating profit margins and cash flow, our financial results demonstrate improved margins and significantly improved levels of cash usage. In 2007, we achieved an operating income margin of 8.6% of net sales. Our negative free cash flow was $13.8 million, an improvement of $147.3 million over last year.

And additionally, we generated $3.8 million in cash from operating activities, again a substantial improvement over last year. These margins and cash flows are the best our company has achieved in many years. And, we are focused on driving towards profitable sales growth and positive free cash flow. We expect continuing sustainable benefits from our previous restructuring actions and ongoing cost controls.

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

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

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

Alan T. Ennis

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 over the financial results for the fourth quarter and full year 2007.

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

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

In the United States net sales in the fourth quarter of 2007 decreased 5% to $215.8 million compared to net sales of $227.1 million in the fourth quarter of 2006. You will note that the fourth quarter of 2006, net sales were reduced by $4.7 million from Vital Radiance. Excluding the impact of Vital Radiance in the prior year, the decrease in fourth quarter 2007 net sales was driven by three factors.

Firstly, we recorded a higher sales returns expense, primarily related to anticipated product discontinuances in advance of our new product launches throughout 2008. Secondly, we had lower shipments in beauty care, primarily women’s hair color, as a result of hurdling the initial shipments pipeline from the launch of Revlon Colorist in the fourth quarter of last year. And lastly, these two factors were partially offset by higher shipments of color cosmetics, primarily related to first half 2008 new product launches.

In our international operations, net sales increased 9.9% to $166.8 million, compared to $151.8 million in the year ago quarter. Excluding the favorable impact of foreign currency fluctuations, international net sales increased by 1% compared to the same period last year. As David mentioned, in the fourth quarter of 2007 international operating profits and margins continue to improve compared to the same period last year.

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

In our Europe region, net sales for the fourth quarter of 2007 increased by $6.8 million or 12.9% to 5$9.5 million compared to $52.7 million for the fourth quarter of last year. Excluding the favorable impact of foreign currency fluctuations, net sales in Europe increased by approximately $600,000 or 1.1% as lower shipments in Italy, the UK and Canada were more than offset by significantly lower charges for returns and allowances.

And finally, in our Latin America region net sales in the fourth quarter of 2007 increased by approximately $800,000 or 2.3% to $35.3 million compared to $34.5 million for the fourth quarter of last year. Excluding the favorable impact of foreign currency fluctuations, net sales in Latin America were down by approximately $800,000 or 2.3% year over year as lower shipments in Brazil and Mexico were partially offset by higher shipments in Venezuela.

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

SG&A expenses of$ 157.2 million improved by $6.2 million or 4% from $163.4 million last year, driven primarily by the non-recurrence of certain costs incurred last year in connection with Vital Radiance as well as the realization of savings from our previously announced and implemented restructuring actions and our aggressive ongoing cost controls.

In the fourth quarter of 2007, we continued to support our existing brands worldwide with increased dollar spending versus last year. In addition, we incurred higher performance-based incentive compensation expense.

Results for the fourth quarter of 2007 included restructuring expenses of approximately $400,000 related to our previously announced restructuring program, compared to restructuring expenses of $4.1 million in the year ago quarter.

We have executed our previously announced restructuring programs on schedule, and are clearly seeing the benefits in our financial results. As of July 2007, we have reached our planned total annualized reduction in cost base of approximately $55 million.

Operating income in the fourth quarter of 2007 was $80.4 million, compared to $70.1 million last year. Interest expense for the quarter was $34.4 million, an improvement from $39.4 million last year due primarily to lower average borrowing rates on comparable average debt levels.

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

Adjusted EBITDA in the fourth quarter of 2007 was $106.3 million compared to $108.2 million in the same period last year. In the fourth quarter of 2006, Vital Radiance and restructuring expenses unfavorably affected our operating income and net loss by $20.8 million and adjusted EBITDA by $9.7 million.

Excluding the impact of these items, the decreases in operating income and adjusted EBITDA were largely attributable as I just mentioned to increased brand support on our existing brands and higher performance-based incentive compensation.

Net income was reduced by the same factors that affected operating income and adjusted EBITDA. Of note, net income in the fourth quarter of 2006 included a charge of $23.1 million related to the early extinguishment of debt.

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

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

In our international operations net sales in 2007 increased by 5.2% to $595.9 million compared to $566.5 million last year. Excluding the favorable impact of foreign currency fluctuations, international net sales in 2007 advanced 0.6% versus year-ago. This reflected increased net sales in both Asia Pacific and Latin America region and lower net sales in the Europe region, primarily in Canada.

Net sales in 2006 in Canada included the positive effect of certain promotional programs in color cosmetics which, for the most part, did not recur in 2007. International operating profits and margins continued to improve compared to last year.

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

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

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

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

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

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

In order to assist you in understanding the factors that will impact our expected full year 2008 cash flow, while we are not providing specific guidance for adjusted EBITDA in 2008, I would indicate the following. Capital expenditures are expected to be approximately $25 million, permanent display expenditures are expected to be approximately $55 million. With respect to interest, as I just indicated interest paid in 2007 was $137.6 million.

You will note that at the end of 2007, our total debt was approximately $1.4 billion of which roughly 50% is floating and 50% is fixed. With respect to our floating rate debt currently, LIBOR is lower than it was on average in 2007. With respect to our fixed rate debt as David mentioned earlier on February 1, 2008, we refinanced the $167.4 million balance of our 8-5/8% senior subordinated notes with a $170 million 11% senior subordinated term loan from MacAndrews & Forbes.

Moving on with the remaining factors that will impact our expected full year 2008 cash flow, taxes are expected to be approximately $15 million and all other cash flows including changes in working capital are anticipated to result in the cash usage of approximately $15 million. Therefore, expected full year 2008 cash flow is based on these factors collectively in conjunction with your own expectations for adjusted EBITDA.

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

And so, with that we would like to open it up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Bill Chappell - SunTrust Robinson Humphrey.

Bill Chappell - SunTrust Robinson Humphrey

Looking at kind of the Nielsen numbers on both beauty tools and underarm, for several years those were kind of the bright spots gaining share what have you and they seem to kind of fallen off and didn’t know if that’s part planned as you focus more on the color cosmetic space with marketing and advertising, or if there is new products coming out this year that will offset that, and then maybe in that same line, what differences if any does it make with Sally Hansen, now part of Coty?

David L. Kennedy

Well, with respect to the share losses first of all on our beauty tools that are not something that we had planned, in fact, we had planned for just the opposite. Our new products simply haven’t worked as well, Bill, for the last couple of years. And we are very focused on that. It’s a good business, highly profitable and our target there is to have a line-up of new products, and do the right marketing in order to improve our share there over time. We can’t accept those kinds of share losses.

Secondly AP/Deo is slightly different, a couple of the manufacturers, the large folks have brought out products with a claim based on some clinical trials that they did and they’re comparing it to prescription deodorants. So, while our share has gone down somewhat, is it primarily because of the actual growth in dollar terms in the category.

So again, we’ve got a very good strategy on the Mitchum brand, and we feel like that over time that we will maintain and grow that share. But clearly, whatever has happened in share is not because we planned or we’ve taken the focus off those two brands.

Bill Chappell - SunTrust Robinson Humphrey

If you look at kind of the color side, a little surprised that you haven’t seen any market share gains as we’ve started this year. Is that just cause of the products are still kind of later than normal to hit the shelves. And I think you had talked on the prior call that maybe there was a more of a shift to reset to 2Q versus 1Q, is that the right way to look at it?

David L. Kennedy

I think the reset periods are, in the US are pretty much in line with what they have been and remember that about the only company that’s reset by early February is Wal-Mart. Everybody else, again depending upon specific retailer, resets over the first four months of the year. So it’s kind of strung out, as it always is.

However, January, our market share was reasonably good compared to where it was in December in the fourth quarter. Essentially if you look at 52 weeks, if you look at the trend you’ll see that our share is approximately 13. So we had a sequential improvement, January over December in the Revlon brand. But you really won’t see, we won’t see the full impact of the new products until later on in the quarter perhaps, even in early April.

Bill Chappell - SunTrust Robinson Humphrey

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

David L. Kennedy

We’ve outlined all the elements, we certainly are driving towards that growth, we’ve outlined and we called out for some period of time now, that over time we would be targeting or expect to get net sales growth in the mid-single digits. We continue to target for that, and as we indicated in the release and as we indicated this morning we are certainly driving towards profitable sales growth and positive cash flow.

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

Alan T. Ennis

If I could add just one point, Bill, in terms of guidance, you’ll recall that back in September of 2006, we deemed it appropriate to give an adjusted EBITDA guidance given all of the factors that had happened around that time, and we had the discontinuance of Vital Radiance. We had a significant organizational streamlining restructuring program and we had some fairly deep changes in management.

And, so back at that time, we thought it was appropriate to put at an adjusted EBITDA target for 2007. We believe now that, we’ve come through that, and we’ve given sufficient guidance to enable you to model that going forward.

Bill Chappell - SunTrust Robinson Humphrey

In that same vein, there’s less need for official EBITDA guidance right now because there’s no additional financings needed over the next 6 to 12 months.

Alan T. Ennis

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

Operator

Our second question comes from Filippe Goossens - Credit Suisse.

[Inaudible] - Credit Suisse

[Inaudible] in for Filippe. Question on the US market, do you see any down trading happening in the U.S. drugstore market. And if so, is that more a net positive or a net negative for you?

David L. Kennedy

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

[Inaudible] - Credit Suisse

Did you expect to see a change on that for the next six months?

David L. Kennedy

I can’t call out an expectation because I don’t know quite frankly. And I can just point to data for ‘07 and what we’ve seen then you will have to form your own conclusions about the future.

[Inaudible] - Credit Suisse

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

David L. Kennedy

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

[Inaudible] - Credit Suisse

And you expect that to continue or will it just stay where it is right now the Colorist, will it continue to gain share?

David L. Kennedy

I said that I didn’t expect any major contribution to share growth as we move forward from Colorist.

Alan T. Ennis

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

[Inaudible] - Credit Suisse

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

David L. Kennedy

We called out lower shipments in Brazil and in Mexico. With respect to Mexico, it primarily had to do with the retailers down there, feeling some, I would call it, economic slowdown and they tightened up on inventories to a certain extent. So that was the primary impact there.

And then in Brazil, certain elements of our product line didn’t really work as well as we had anticipated. So that’s the reason for the slowdown there.

[Inaudible] - Credit Suisse

Are you planning to do another restaging of Almay? What will help Almay going forwards to get back to gaining market share? Is it just going to be the product introductions that you mentioned or you’re planning anything else so far?

David L. Kennedy

Almay is a strong brand. For a number of years now it’s been at about a 6% share. The re-launch was done in ‘06. It wasn’t as successful as we would have liked particularly given the investment that we incurred. As we go forward we don’t see a re-launch in the cards, but we will continue to focus on sharpening the positioning and the marketing, and we will continue to focus on improving and delivering a consistent pipeline of new products. We believe those are the growth drivers.

Operator

Our next question comes from Lance Vitanza - Concordia.

Lance Vitanza - Concordia

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

Alan T. Ennis

No, I did not.

Lance Vitanza - Concordia

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

Alan T. Ennis

Well, we didn’t, you’ll have to work up your own numbers obviously Lance.

Lance Vitanza - Concordia

Well, I am using your numbers. I remember you said PD was $55 versus $50.

Alan T. Ennis

The $55 for perm display is yes, $25 for CapEx, $15 for taxes, and all other cash flows, use of $15. So, they are specifics that we’ve given.

Interest expense, they went through roughly $700 million of our debt is attached to LIBOR. Our term loan is LIBOR plus 400 basis points. Now, you will recall that we have, in relation to interest expense, $150 million of the term loan is essentially fixed, as we have a swap in place that we put in place in September of 2007, that’s a two-year swap. So, you look at the remaining balance of $700 million of our term loan and that’s attached to LIBOR.

And again we have various tranches of maturity in our LIBOR, six and three-month tranches usually. So we’re carrying some of our 2007 maturities into 2008. And so there is not a direct immediate impact of a LIBOR shift downward on our interest expense but there will be over time. Somewhat offsetting that on the fixed side, we replaced the 8-5/8% notes with an 11% term loan, that has somewhat of an offsetting impact.

Lance Vitanza - Concordia

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

Alan T. Ennis

Well, I guess a couple of things. First of all, I’m not going to give specific guidance in terms of what we should expect or what you should expect going forward. Suffice it to say, if you look at the $6.2 million in the quarter increase year-over-year, there was an impact certainly from Vital Radiance, negative impact in last year’s number.

To bring that down somewhat additionally there are the kind of the tail end of the restructuring savings benefiting this year’s fourth quarter and we continue to tighten on cost control. So, to kind of broadly answer your question, the $157.2 million number is a fairly clean quarterly number.

One other point to note, if you’re trying to model this out by quarter is, if you go back and look at 2007, our SG&A isn’t static by quarter. Included in there, obviously, is the brand support, which is generally tied to when our new product launches reach distribution. So, you will see that it moves up and down as we launch new products.

David L. Kennedy

And also the incentive comp accrual will move as well and so it will be more backend loaded. Just as you earn your number then you accrue pro rata against the number. Just keep that in mind too when you start looking at the quarter.

Operator

Our next question comes from Carla Casella - JPMorgan.

Carla Casella - JPMorgan

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

Alan T. Ennis

Well, it’s broadly in the numbers in 2007. Just to remind you there’s three components to it. There is the February 2006 program. So, clearly all of that is in the 2007 number. There is the September 2006 program and again, all of that will be in the 2007 number.

The only tail really is in relation to the closure of our Irvington plant, which we executed at the end of June in ‘07 and there was some smaller restructurings within our Canadian operation and within our Information Management Group. So, by and large, most of it is in the 2007 numbers. There is a small tail that will help 2008.

Carla Casella - JPMorgan

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

Alan T. Ennis

No, we did not.

Carla Casella - JPMorgan

And then on the timing of new products, it sounds like its spring, April timeframe, is that what you said for all of the new products? What would be the bulk of it? If you could give us a sense of when we’ll primarily see the increase?

Alan T. Ennis

Well, from a shipment standpoint, on the top line, we started to ship our first half 2008 product in late November, starting in early December. So that’s already in the numbers largely. Our second half 2008 new product launches we’ll start to ship in the kind of April-May timeframe.

And then there is somewhat of lag in relation to the brand support that you spend behind that. So, you have to wait until your products get into distribution and then you would start your brand support campaign in the US, be it advertising or in stores. So, there is a little bit of a time lag between the shipments and the brand support.

Carla Casella - JPMorgan

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

Alan T. Ennis

Well, we’ve already started.

David L. Kennedy

Already started with that, we started to a certain extent in January, more will come online in February and, then we’ll continue in the US again. Just to be clear, in the US, then we’ll continue to support throughout the quarter and the year.

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

Carla Casella - JPMorgan

I was asking, not so much really the shares, thinking about in sales and then also on the brand support side. But what I’m also trying to get a sense for is between the first half and second half products, are they similar magnitude or are some of the first half products relatively small and second half larger or vice-versa?

David L. Kennedy

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

Carla Casella - JPMorgan

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

David L. Kennedy

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

Carla Casella - JP Morgan

You mentioned $150 million of the term loan is fixed; can you give the rate or approximate?

Alan T. Ennis

Yes, the rate is about 4.692% plus the 4 points.

Carla Casella - JPMorgan

Plus the spread.

Alan T. Ennis

Yes, so, it’s about 8.7%.

Carla Casella - JPMorgan

And that’s $150 million is fixed at 8.7%, the rest will fluctuate with LIBOR.

Alan T. Ennis

Correct.

Operator

Our next question comes from Mary Gilbert - Imperial Capital.

Mary Gilbert - Imperial Capital

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

David L. Kennedy

First of all, Mary, I think our market share trend for the last 52 weeks is approximately stable. We lost about a point of share overall compared to the prior year. So, I think you can say that would indicate that our share is stable. Of course it’s going to fluctuate some from month to month depending upon marketing activity that’s going on within the marketplace.

And, as far as share in the future, again we’ll say it, we believe we’ve got a strong new product lineup but we are not calling out some inflection point, but it’s clearly our objective to improve our share over time. We want to do that profitably.

Mary Gilbert - Imperial Capital

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

David L. Kennedy

Well, and I said that we had lost a share over the past year not just compared to the previous year but quarter-to-quarter, month-to-month over the last 52 weeks that’s measured in the US in Nielsen, our share has been about a 13% for the Revlon brand and about a 6% for Almay. So, I think mathematically that would be stable.

Alan T. Ennis

And just one other comment in relation to the share, and I mentioned this earlier also in relation to our rationale for giving EBITDA guidance in 2007. What we’ve talked about is, since October 2006, post the organization’s focus on Vital Radiance, we have kind of readdressed our focus to the Revlon brand and focused on building a strong portfolio of new products, not only for 2008, but going ahead into the 2009, 2010, 2011 timeframe.

So, it’s kind of been a refocus since October of 2006 on the Revlon brand and so since that time, it’s roughly maintained a 13% dollar share.

Mary Gilbert - Imperial Capital

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

Alan T. Ennis

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

Mary Gilbert - Imperial Capital

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

Alan T. Ennis

Not at this time.

Operator

Our next question comes from the line of Joe [Radgar] - Polygon.

Joe [Radgar] - Polygon

Can you give us, as we await the K can you give us the pension cash and GAAP charge in ‘07 and what to expect for each in ‘08?

Alan T. Ennis

Yes, the pension expense is about $9.1 million, and this is for all of our pension and post retirement collectively, globally. It’s about $9.1 million for the expense.

The cash was about $38 million. And then for 2008, we would expect to see a pension expense that’s roughly comparable, I believe, with 2007. The cash contributions will go down somewhat in 2008 as we made some accelerated contributions in 2007 relative to our plan to get fully funded in accordance with the Pension Protection Act.

It is worthy to note Joe, that and you will see it in the K, the unfunded status of our plans at the end of ‘07 is approximately $120 million and that’s a significant improvement from where it was at the end of the prior year at $175 million. And again, that’s reflective of asset performance during the year and also the accelerated contributions.

Joe [Radgar] - Polygon

I take it that accounts for most of the negative working cap use in ‘08?

Alan T. Ennis

It’s certainly in that number, yes.

Joe [Radgar] - Polygon

And then I’m trying to back out the Vital Radiance losses fourth quarter ‘06, could you remind us of what that figure was at restructuring? In terms of coming up to the EBITDA for the quarter of around $107 versus about $118 a year ago which seems a little bit odd considering all the restructuring savings you’re achieving?

Alan T. Ennis

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

Operator

Our next question comes from Patrick Trucchio - BMO Capital Markets.

Patrick Trucchio - BMO Capital Markets

We were looking for gross margin expansion, and it looks like it actually came in about 50 basis points of contraction. I’m just wondering if you can sort of reconcile that, how much is mix- related and restructuring?

Alan T. Ennis

Well, a couple of things, part of it are unfavorable product mix. Each of our product lines has different gross margins, and so that’s probably the single biggest driver, and again, that was anticipated certainly internally. And then, somewhat offsetting that, we had lower charges for estimated excess inventory, but they are the kind of two big drivers in there.

Patrick Trucchio - BMO Capital Markets

So, in 2008, would you be expecting gross margin expansions?

Alan T. Ennis

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

David L. Kennedy

And also what happens with commodities too, oil is the commodity that most affects our cost of goods as it works its way through packaging costs. And we don’t know what that’s going to be at this point, and so that can have obviously a negative impact.

Operator

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

David L. Kennedy

Thank you for your questions today and your interest in Revlon. We know that we need to further improve our performances and we are very focused on that. We’ll continue to execute our strategy as we’ve outlined it to you.

And we enter 2008 with the continued focus on increasing the value of the company by building the Revlon brand and our other key brands around the world and importantly, driving towards both profitable sales growth and positive free cash flow. Thank you very much, again, for being on the call.

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Source: Revlon, Inc. Q4 2007 Earnings Call Transcript
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