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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- -- ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-- EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER 1-11334
REVLON CONSUMER PRODUCTS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3662953
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 527-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OR 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT IS NOT APPLICABLE AS THERE IS NO PUBLIC MARKET THEREFOR. ALL
SHARES OF COMMON STOCK ARE HELD BY ONE AFFILIATE. THE NUMBER OF OUTSTANDING
SHARES OF THE REGISTRANT'S COMMON STOCK, AS OF MARCH 8, 2000, WAS 1,000.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Revlon Consumer Products Corporation ("Products Corporation" and together
with its subsidiaries, the "Company") manufactures, markets and sells an
extensive array of cosmetics and skin care, fragrances and personal care
products ("consumer products"). REVLON is one of the world's best known names
in cosmetics and is a leading mass market cosmetics brand. The Company believes
that its global brand name recognition, product quality and marketing
experience have enabled it to create one of the strongest consumer brand
franchises in the world, with products sold in approximately 175 countries and
territories. The Company's products are marketed under such well-known brand
names as REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY and ULTIMA II in
cosmetics; MOON DROPS, ETERNA 27, ULTIMA II and JEANNE GATINEAU in skin care;
CHARLIE and FIRE & ICE in fragrances; and FLEX, OUTRAGEOUS, MITCHUM, COLORSTAY,
COLORSILK, JEAN NATE, PLUSBELLE, BOZZANO and COLORAMA in personal care
products. To further strengthen its consumer brand franchises, the Company
markets each core brand with a distinct and uniform global image, including
packaging and advertising, while retaining the flexibility to tailor products
to local and regional preferences.
The Company was founded by Charles Revson, who revolutionized the
cosmetics industry by introducing nail enamels matched to lipsticks in fashion
colors over 65 years ago. Today, the Company has leading market positions in
many of its principal product categories in the United States self-select
distribution channel. The Company's leading market positions for its REVLON
brand products include the number one positions in lip makeup and nail enamel
(which the Company has occupied for the past 23 years), with the top three
selling brands of lip makeup for 1999. The REVLON brand captured in 1996 and
continued to hold in 1999 the number one position overall in color cosmetics
(consisting of lip, eye and face makeup and nail enamel) in the United States
self-select distribution channel, where its market share was 19.7% for 1999.
The Company also has leading market positions in several product categories in
certain markets outside of the United States, including in Argentina,
Australia, Brazil, Canada, Mexico and South Africa.
All United States market share and market position data herein for the
Company's brands are based upon retail dollar sales, which are derived from
A.C. Nielsen data. A.C. Nielsen measures retail sales volume of products sold
in the United States self-select distribution channel. Such data represent A.C.
Nielsen's estimates based upon data gathered by A.C. Nielsen from market
samples and are therefore subject to some degree of variance.
In the United States, the self-select distribution channel includes
independent drug stores and chain drug stores (such as Walgreens, CVS, Eckerds,
Rite Aid and Longs), mass volume retailers (such as Wal-Mart, Target Stores and
Kmart) and supermarkets and combination supermarket/drug stores (such as
Albertson's, Kroger and H.E. Butt). Internationally, the self-select
distribution channel includes retailers such as Boots in the United Kingdom and
Western Europe, Shoppers Drug Mart in Canada and Wal-Mart worldwide. The
foregoing retailers, among others, sell the Company's products.
RECENT DEVELOPMENTS
On October 1, 1999 Revlon, Inc. announced that it had completed its review
of strategic alternatives to maximize shareholder value and had decided to
pursue the sale of its worldwide professional products line and its non-core
Latin American brands Colorama, Juvena, Bozzano and Plusbelle. On March 30,
2000, the Company completed the disposition of its worldwide professional
products line, including professional hair care products for use in and resale
by professional salons, ethnic hair and personal care products, Natural Honey
skin care and certain regional toiletries brands. Proceeds from the sale were
$315 million in cash, (before adjustments), plus $10 million in contingent
consideration based upon the business' future performance. A portion of the net
proceeds of approximately $150.3 million was used to reduce the aggregate
commitment under the Credit Agreement (as described below) and the balance will
be available for general corporate purposes.
On March 28, 2000, Products Corporation executed a definitive agreement
for the sale of its non-core Plusbelle brand in Argentina for $46.5 million in
cash. The closing of the sale, which is expected to occur during the second
quarter, is subject to various conditions. A portion of the net proceeds of the
sale will be used to reduce the aggregate commitment under the Credit Agreement
and the balance will be available for general corporate purposes.
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The Company continues to pursue the sale of its non-core Colorama, Juvena
and Bozzano brands in Brazil and is in discussions with prospective purchasers.
If a transaction is consummated, a portion of the net proceeds will be applied
to reduce the aggregate commitment under the Credit Agreement and the balance
will be available for general corporate purposes.
In the fourth quarter of 1998, the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate, realign
and consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines. During 1999, the Company recorded a
net charge of $20.5 million relating to such restructuring plan, principally
for employee severance and other personnel benefits. Additionally, the Company
adopted a plan to exit a non-core business as to which a charge of $1.6 million
was recorded.
During the fourth quarter of 1999, the Company continued to re-evaluate
its organizational structure and implemented a new restructuring plan
principally at its New York headquarters and New Jersey locations resulting in
a charge of $18.1 million principally for employee severance. As part of this
restructuring plan, the Company reduced personnel and consolidated excess real
estate. In the fourth quarter of 1999, the Company also recorded a $22.0
million charge in connection with executive separation costs. The Company will
continue to evaluate its organizational structure, which may result in
additional restructuring charges in the future.
BUSINESS OBJECTIVES AND STRATEGY
The Company's objective is to become the most dynamic leader in global
beauty and skin care by being the most trusted supplier to its customers and
consumers, the most innovative in meeting their needs, and the first to market
with these innovations.
To achieve its objectives the Company's business strategy, which is
intended to improve its operating performance, is:
o to attract and retain the best people in the industry;
o to build consistent global equities;
o to gain unique insights into its consumer needs and to execute flawlessly
against those needs;
o to understand the needs of and to exceed the expectations of its trade
partners; and
o to operate at benchmark levels of efficiency in all aspects of its
business.
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PRODUCTS
The Company manufactures and markets a variety of products worldwide.
The following table sets forth the Company's principal brands (a).
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BRAND COSMETICS SKIN CARE FRAGRANCES PERSONAL
CARE PRODUCTS
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REVLON Revlon, ColorStay, Moon Drops, Charlie, Flex, Outrageous,
Revlon Age Defying, Revlon Results, Charlie Red, Aquamarine, Mitchum,
Super Lustrous, Eterna 27 Charlie White, Lady Mitchum,
MoistureStay, Ciara Hi & Dri, ColorStay,
Moon Drops, Colorsilk,
Line & Shine, Frost & Glow,
New Complexion, Revlon Shadings,
Jean Nate
Top Speed, Wet/Dry
Shadow, EveryLash,
Timeliner,
StreetWear,
Revlon Implements
ALMAY Almay, Time-Off, Time-Off, Almay
Amazing, One Coat, Moisture Balance,
Stay Smooth, Moisture Renew,
Skin Stays Clean, Stay Clean
Moisture Balance
ULTIMA II Ultima II, Beautiful Glowtion,
Nutrient, Wonderwear, Vital Radiance,
The Nakeds, Full CHR
Moisture
SIGNIFICANT Colorama(b), Juvena(b), Jeanne Charlie Gold Plusbelle(b),
REGIONAL Jeanne Gatineau(b), Gatineau(b) Bozzano(b),
BRANDS Cutex(b) Colorama(b),
ZP-11
(a) Brands relating to the Company's professional products line, ethnic
products and Natural Honey products are not listed.
(b) Trademark owned in certain markets outside the United States.
Cosmetics and Skin Care. The Company sells a broad range of cosmetics
and skin care products designed to fulfill specifically identified consumer
needs, principally priced in the upper range of the self-select distribution
channel, including lip makeup, nail color and nail care products, eye and face
makeup and skin care products such as lotions, cleansers, creams, toners and
moisturizers. Many of the Company's products incorporate patented,
patent-pending or proprietary technology.
The Company markets several different lines of REVLON lip makeup (which
includes lipstick, lip gloss and liner). The Company's breakthrough COLORSTAY
lipcolor, which uses patented transfer-resistant technology that provides long
wear, is produced in approximately 50 shades. COLORSTAY Liquid Lip, a patented
lip technology introduced in 1999, is produced in approximately 40 shades and
builds on the strengths of the COLORSTAY foundation by offering long-wearing
benefits in a new product form, which enhances comfort and shine. SUPER LUSTROUS
lipstick is produced in
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approximately 70 shades. MOON DROPS, a moisturizing lipstick, is produced in
approximately 50 shades. LINE & SHINE utilizes an innovative product form,
combining lipliner and lip gloss in one package, and is produced in
approximately 20 shades. MOISTURESTAY uses patent-pending technology to
moisturize the lips even after the color wears off, and is produced in
approximately 40 shades.
The Company's nail color and nail care lines include enamels, cuticle
preparations and enamel removers. The Company's flagship REVLON nail enamel is
produced in approximately 85 shades and uses a patented formula that provides
consumers with improved wear, application, shine and gloss in a toluene-free
and formaldehyde-free formula. TOP SPEED nail enamel is produced in
approximately 80 shades and contains a patented speed drying polymer formula,
which sets in 60 seconds. REVLON has the number one position in nail enamel in
the United States self-select distribution channel. The Company also sells
CUTEX nail polish remover and nail care products in certain countries outside
the United States.
The Company sells face makeup, including foundation, powder, blush and
concealers, under such REVLON brand names as REVLON AGE DEFYING, which is
targeted for women in the over 35 age bracket; COLORSTAY, which uses
patent-pending transfer-resistant technology that provides long wear and won't
rub off benefits; and NEW COMPLEXION, for consumers in the 18 to 34 age
bracket.
The Company's eye makeup products include mascaras, eyeliners, eye shadows
and brow color. COLORSTAY eyecolor, mascara and brow color, EVERYLASH mascara,
SOFTSTROKE eyeliners and REVLON WET/DRY eye shadows are targeted for women in
the 18 to 49 age bracket.
The Company's ALMAY brand consists of a complete line of hypo-allergenic,
dermatologist-tested, fragrance-free cosmetics and skin care products targeted
for consumers who want "a fresh, healthy, effortless look." ALMAY products
include lip makeup, nail color, eye and face makeup and skin care products. In
1999, ALMAY expanded its flagship ONE COAT franchise to include ONE COAT
MASCARA COLOR & CURL; other ONE COAT products include ONE COAT LIPCOLOR, ONE
COAT NAIL COLOR, ONE COAT GEL EYE PENCIL and ONE COAT LIP SHINE. The Company
also introduced Skin Stays Clean liquid and compact foundation makeup with its
patented "clean pore complex." ALMAY expanded its STAY SMOOTH franchise beyond
its ANTI-CHAP LIPLINER to STAY SMOOTH MASCARA, a defining mascara with a built
in comb. The ALMAY AMAZING COLLECTION features long-wearing mascaras,
foundations and lipcolor.
The Company's STREETWEAR brand consists of a quality, value-priced line of
nail enamels, mascaras, lip and eye liners, lip glosses and body accessories
that are targeted for the young, beauty savvy consumer.
The Company's premium priced cosmetics and skin care products are sold
under the ULTIMA II brand name, which is the Company's flagship premium priced
brand sold throughout the world. ULTIMA II'S products include lip makeup, eye
and face makeup and skin care products including GLOWTION, a line of skin
brighteners that combines skin care and color; FULL MOISTURE FOUNDATION and
lipcolor, VITAL RADIANCE and CHR skin care products; the BEAUTIFUL NUTRIENT
collection, a complete line of nourishing makeup that provides advanced
nutrient protection against dryness; THE NAKEDS makeup, a trend-setting line of
makeup emphasizing neutral colors; and WONDERWEAR. The WONDERWEAR collection
includes a long-wearing foundation that uses patented technology, cheek and
eyecolor products that use proprietary technology that provides long wear, and
WONDERWEAR lipstick, which uses patented transfer-resistant technology. In the
U.S. the Company has broadened the distribution of ULTIMA II into the
self-select channel.
The Company sells implements, which include nail and eye grooming tools
such as clippers, scissors, files, tweezers and eye lash curlers. The Company's
implements are sold individually and in sets under the REVLON brand name and
are the number one brand in the United States self-select distribution channel.
The Company also sells cosmetics in international markets under
regional brand names including COLORAMA and JUVENA in Brazil.
The Company's skin care products, including moisturizers, are sold under
brand names, including ETERNA 27, MOON DROPS, REVLON RESULTS, ALMAY TIME-OFF
REVITALIZER, CLEAR COMPLEXION and ULTIMA II VITAL RADIANCE. In addition, the
Company sells skin care products in international markets under internationally
recognized brand names and under various regional brands, including the
Company's premium priced JEANNE GATINEAU.
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Fragrances. The Company sells a selection of moderately priced and premium
priced fragrances, including perfumes, eau de toilettes and colognes. The
Company's portfolio includes fragrances such as CHARLIE and CIARA and line
extensions such as CHARLIE RED and CHARLIE WHITE. The Company's CHARLIE
fragrance has been a market leader since the mid-1970's. In international
markets, the Company distributes under license certain brands, including
VERSACE and VAN GILS.
Personal Care Products. The Company sells a broad line of personal care
consumer products, which complements its core cosmetics lines and enables the
Company to meet the consumer's broader beauty care needs. In the self-select
distribution channel, the Company sells haircare, antiperspirant and other
personal care products, including the FLEX, OUTRAGEOUS and AQUAMARINE haircare
lines throughout the world and the COLORAMA, BOZZANO, PLUSBELLE and JUVENA
brands outside the United States; the breakthrough, patented COLORSTAY, as well
as COLORSILK, REVLON SHADINGS and FROST & GLOW hair coloring lines throughout
most of the world; and the MITCHUM, LADY MITCHUM and HI & DRI antiperspirant
brands throughout the world. The Company also markets hypo-allergenic personal
care products, including sunscreens, moisturizers and antiperspirants, under
the ALMAY brand.
MARKETING
Consumer Products. The Company markets extensive consumer product lines at
a range of retail prices primarily through the self-select distribution channel
and markets select premium lines through demonstrator-assisted channels,
principally outside the U.S. Each line is distinctively positioned and is
marketed globally with consistently recognizable logos, packaging and
advertising designed to differentiate it from other brands. The Company's
existing consumer product lines are carefully segmented, and new product lines
are developed, to target specific consumer needs as measured by focus groups
and other market research techniques.
The Company uses print and television advertising and point-of-sale
merchandising, including displays and samples. The Company's marketing
emphasizes a uniform global image and product for its portfolio of core brands,
including REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY, ULTIMA II, FLEX,
CHARLIE, OUTRAGEOUS and MITCHUM. The Company coordinates advertising campaigns
with in-store promotional and other marketing activities. The Company develops
jointly with retailers carefully tailored advertising, point-of-purchase and
other focused marketing programs. The Company uses network and spot television
advertising, national cable advertising and print advertising in major general
interest, women's fashion and women's service magazines, as well as coupons,
magazine inserts and point-of-sale testers. The Company also uses cooperative
advertising programs with some retailers, supported by Company-paid or
Company-subsidized demonstrators, and coordinated in-store promotions and
displays.
The Company also has developed unique marketing materials such as the
"Revlon Report," a glossy, color pamphlet distributed in magazines and on
merchandising units, available in approximately 80 countries and approximately
20 languages, which highlights seasonal and other fashion and color trends,
describes the Company's products that address those trends and contains
coupons, rebate offers and other promotional material to encourage consumers to
try the Company's products. Other marketing materials designed to introduce the
Company's newest products to consumers and encourage trial and purchase include
point-of-sale testers on the Company's display units that provide information
about, and permit consumers to test, the Company's products, thereby achieving
the benefits of an in-store demonstrator without the corresponding cost,
magazine inserts containing samples of the Company's newest products, trial
size products and "shade samplers," which are collections of trial size
products in different shades. Additionally, the Company has its own website,
which features current product and promotional information.
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development of
innovative and technologically-advanced consumer products. The Company's
marketing and research and development groups identify consumer needs and
shifts in consumer preferences in order to develop new products, tailor line
extensions and promotions and redesign or reformulate existing products to
satisfy such needs or preferences. The Company's research and development group
comprises departments specialized in the technologies critical to the Company's
various product categories as well as an advanced technology department that
promotes inter-departmental, cross-functional research on a wide range of
technologies to develop new and innovative products. The Company
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independently develops substantially all of its new products. The Company also
has entered into joint research projects with major universities and commercial
laboratories to develop advanced technologies.
The Company believes that its Edison, New Jersey facility is one of the
most extensive cosmetics research and development facilities in the United
States. The scientists at the Edison facility are responsible for all of the
Company's new product research worldwide, performing research for new products,
ideas, concepts and packaging. The Company also has satellite research
facilities in Brazil and France.
The research and development group at the Edison facility also performs
extensive safety and quality tests on the Company's products, including
toxicology, microbiology and package testing. Additionally, quality control
testing is performed at each manufacturing facility.
As of December 31, 1999, the Company employed approximately 200 people in
its research and development activities, including specialists in pharmacology,
toxicology, chemistry, microbiology, engineering, biology, dermatology and
quality control. In 1999, 1998 and 1997, the Company spent approximately $32.9
million, $31.9 million and $29.7 million, respectively, on research and
development activities.
MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
The Company manufactures REVLON brand color cosmetics, personal care
products and fragrances and ULTIMA II cosmetics and skin treatment products for
sale in the United States, Japan and most of the countries in Latin America and
Southeast Asia at its Phoenix, Arizona facility and its Canadian facility. The
Company manufactures ALMAY brand products for sale throughout the world at its
Oxford, North Carolina facility. Implements for sale throughout the world are
manufactured and/or assembled at the Company's Irvington, New Jersey facility.
The Phoenix and Oxford facilities have been ISO-9002 certified. ISO-9002
certification is an internationally recognized standard for manufacturing
facilities, which signifies that the manufacturing facility has achieved and
maintains certain performance and quality commitment standards.
The Company manufactures its entire line of consumer products (except
implements) for sale in most of Europe at its Maesteg, South Wales facility.
Production of cosmetics and personal care products also currently takes place
at the Company's facilities in Canada, Venezuela, Mexico, New Zealand, Brazil,
Argentina, France and South Africa. Production of color cosmetics for Japan and
Mexico has been shifted primarily to the United States. The Maesteg facility
has been certified by the British equivalent of ISO-9002.
The globalization of the Company's core brands allows the Company to
centralize production of some product categories for sale throughout the world
within designated facilities and shift production of certain other product
categories to more cost effective manufacturing sites to reduce production
costs. Shifts of production may result in the closing of certain of the
Company's manufacturing facilities, and the Company continually reviews its
needs in this regard. In addition, as part of its efforts to continuously
reduce costs, the Company attempts to ensure that a significant portion of its
capital expenditures is devoted to improving operating efficiencies.
The Company purchases raw materials and components throughout the world.
The Company continuously pursues reductions in cost of goods through the global
sourcing of raw materials and components from qualified vendors, utilizing its
large purchasing capacity to maximize cost savings. The global sourcing of raw
materials and components from accredited vendors also ensures the quality of
the raw materials and components. The Company believes that alternate sources
of raw materials and components exist and does not anticipate any significant
shortages of, or difficulty in obtaining, such materials.
The Company's improvements in manufacturing, sourcing and related
operations have contributed to improved customer service, including an
improvement in the percentage of timely order fulfillment from most of the
Company's principal manufacturing facilities, and the timeliness and accuracy
of new product and promotion deliveries. To promote the Company's understanding
of and responsiveness to the needs of its retail customers, the Company has
dedicated teams assigned to significant accounts, and has provided retail
accounts with a designated customer service representative. As a result of
these efforts, accompanied by stronger and more customer-focused management,
the Company has developed strong relationships with its retailers.
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INFORMATION SYSTEMS
As part of the Company's comprehensive business process enhancement
program the Company's management information systems have been substantially
upgraded to provide comprehensive order processing, production and accounting
support for the Company's business, as well as to upgrade certain information
technology to be Year 2000 compliant. In addition, the Company developed a
comprehensive plan to address Year 2000 issues. The Year 2000 plan addressed
three main areas: (a) information technology systems; (b) non-information
technology systems (including factory equipment, building systems and other
embedded systems); and (c) business partner readiness (including without
limitation customers, inventory and non-inventory suppliers, service suppliers,
banks, insurance companies and tax and other governmental agencies).
Since January 1, 2000, the Company has not experienced any adverse
consequences resulting from Year 2000 issues relative to its systems or
business partners. The Company believes that incremental out-of-pocket costs of
its Year 2000 program (which do not include costs incurred in connection with
the Company's comprehensive business process enhancement program) were not
material. These costs included the cost of third party consultants, remediation
of existing computer software and replacement and remediation of embedded
systems.
DISTRIBUTION
The Company's products are sold in approximately 175 countries and
territories. The Company's worldwide sales force had approximately 1,000 people
as of December 31, 1999 (which includes approximately 300 employees related to
the professional products line which was sold in March 2000), including
dedicated sales forces for cosmetics, skin care and fragrance products in the
self-select distribution channel, for the demonstrator-assisted distribution
channel, for personal care products distribution and, prior to the disposition
of the worldwide professional products line, for salon distribution. In
addition, the Company utilizes sales representatives and independent
distributors to serve specialized markets and related distribution channels.
United States. Net sales in the United States accounted for approximately
56.2% of the Company's 1999 net sales, a majority of which were made in the
self-select distribution channel. The Company also sells a broad range of
consumer products to United States Government military exchanges and
commissaries. The Company licenses its trademarks to select manufacturers for
products that the Company believes have the potential to extend the Company's
brand names and image. As of December 31, 1999, 10 licenses were in effect
relating to 15 product categories to be marketed in the self-select
distribution channel. Pursuant to the licenses, the Company retains strict
control over product design and development, product quality, advertising and
use of its trademarks. These licensing arrangements offer opportunities for the
Company to generate revenues and cash flow through earned royalties.
International. Net sales outside the United States accounted for
approximately 43.8% of the Company's 1999 net sales. The ten largest countries
in terms of these sales, which include, among others, Spain, Brazil, the United
Kingdom, Argentina, Australia, South Africa and Canada, accounted for
approximately 31.9% of the Company's net sales in 1999. The Company is
increasing distribution through the expanding self-select distribution channels
outside the United States, such as drug stores/chemists, hypermarkets/mass
volume retailers and variety stores, as these channels gain importance. The
Company also distributes outside the United States through department stores
and specialty stores such as perfumeries. At December 31, 1999, the Company
actively sold its products through wholly owned subsidiaries established in 28
countries outside of the United States and through a large number of
distributors and licensees elsewhere around the world. The Company continues to
pursue strategies to establish its presence in new markets where the Company
identifies opportunities for growth. In addition, the Company is building a
franchise through local distributorships in northern and central Africa, where
the Company intends to expand the distribution of its products by capitalizing
on its market strengths in South Africa.
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CUSTOMERS
The Company's principal customers include large mass volume retailers and
chain drug stores, including such well known retailers as Wal-Mart, Target,
Kmart, Walgreens, Rite Aid, CVS, Eckerds, Albertsons Drugs and Longs in the
United States, Boots in the United Kingdom, Carrefour in Western Europe and
Wal-Mart internationally. Wal-Mart and its affiliates worldwide accounted for
approximately 13.1% of the Company's 1999 consolidated net sales. Although the
loss of Wal-Mart as a customer could have an adverse effect on the Company, the
Company believes that its relationship with Wal-Mart is satisfactory and the
Company has no reason to believe that Wal-Mart will not continue as a customer.
COMPETITION
The consumer products business is characterized by vigorous competition
throughout the world. Brand recognition, together with product quality,
performance and price and the extent to which consumers are educated on product
benefits, have a marked influence on consumers' choices among competing
products and brands. Advertising, promotion, merchandising and packaging, and
the timing of new product introductions and line extensions, also have a
significant impact on buying decisions, and the structure and quality of the
sales force affect product reception, in-store position, permanent display
space and inventory levels in retail outlets. The Company competes in most of
its product categories against a number of companies, a number of which have
substantially greater resources than the Company. In addition to products sold
in the self-select and demonstrator-assisted distribution channels, the
Company's products also compete with similar products sold door-to-door or
through mail order or telemarketing by representatives of direct sales
companies. The Company's principal competitors include L'Oreal S.A., The
Procter & Gamble Company, Unilever N.V. and Estee Lauder, Inc.
SEASONALITY
The Company's business is subject to certain seasonal fluctuations, with
net sales in the second half of the year benefiting slightly from increased
retailer purchases in the United States for the back-to-school and Christmas
selling seasons.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company's major trademarks are registered in the United States and in
many other countries, and the Company considers trademark protection to be very
important to its business. Significant trademarks include REVLON, COLORSTAY,
REVLON AGE DEFYING, STREETWEAR, FLEX, PLUSBELLE, CUTEX (outside the U.S.),
MITCHUM, ETERNA 27, ULTIMA II, ALMAY, CHARLIE, JEAN NATE, REVLON RESULTS,
COLORAMA, FIRE & ICE, MOON DROPS, SUPER LUSTROUS, WONDERWEAR and COLORSILK.
The Company utilizes certain proprietary or patented technologies in the
formulation or manufacture of a number of the Company's products, including
COLORSTAY lipcolor and cosmetics, COLORSTAY hair color, classic REVLON nail
enamel, TOP SPEED nail enamel, REVLON AGE DEFYING foundation and cosmetics, NEW
COMPLEXION makeup, WONDERWEAR foundation, WONDERWEAR lipstick, ALMAY TIME-OFF
skin care and makeup, ALMAY AMAZING cosmetics, ALMAY ONE COAT eye makeup and
cosmetics, ULTIMA II VITAL RADIANCE skin care products and OUTRAGEOUS shampoo.
The Company also protects certain of its packaging and component concepts
through design patents. The Company considers its proprietary technology and
patent protection to be important to its business.
9
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Trade Commission and
the Food and Drug Administration (the "FDA") in the United States, as well as
various other federal, state, local and foreign regulatory authorities. The
Phoenix, Arizona and Oxford, North Carolina manufacturing facilities are
registered with the FDA as drug manufacturing establishments, permitting the
manufacture of cosmetics that contain over-the-counter drug ingredients such as
sunscreens. Compliance with federal, state, local and foreign laws and
regulations pertaining to discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had, and is
not anticipated to have, a material effect upon the capital expenditures,
earnings or competitive position of the Company. State and local regulations in
the United States that are designed to protect consumers or the environment
have an increasing influence on product claims, contents and packaging.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
The Company operates in a single segment. Certain geographic, financial
and other information of the Company is set forth in Note 19 of the Notes to
Consolidated Financial Statements of the Company.
EMPLOYEES
As of December 31, 1999, the Company employed the equivalent of
approximately 11,000 full-time persons (which includes approximately 1,900
employees related to the professional products line which was sold in March
2000). As of December 31, 1999, approximately 1,700 of such employees in the
United States were covered by collective bargaining agreements, (which includes
approximately 400 employees related to the professional products line). The
Company believes that its employee relations are satisfactory. Although the
Company has experienced minor work stoppages of limited duration in the past in
the ordinary course of business, such work stoppages have not had a material
effect on the Company's results of operations or financial condition.
10
ITEM 2. PROPERTIES
The following table sets forth as of December 31, 1999 the Company's major
manufacturing, research and warehouse/distribution facilities, all of which are
owned except where otherwise noted.
APPROXIMATE FLOOR
LOCATION USE SPACE SQ. FT.
- -------- ----------------- -------------
Oxford, North Carolina ........... Manufacturing, warehousing, distribution and office 1,012,000
Phoenix, Arizona ................. Manufacturing, warehousing, distribution and office 706,000
(partially leased)
Jacksonville, Florida (a) ........ Manufacturing, warehousing, distribution, research 526,000
and office
Edison, New Jersey ............... Research and office (leased) 175,000
Irvington, New Jersey ............ Manufacturing, warehousing and office 96,000
Sao Paulo, Brazil ................ Manufacturing, warehousing, distribution, office and 435,000
research
Maesteg, South Wales ............. Manufacturing, distribution and office 316,000
Mississauga, Canada .............. Manufacturing, warehousing, distribution and office 245,000
Santa Maria, Spain (a) ........... Manufacturing and warehousing 173,000
Caracas, Venezuela ............... Manufacturing, distribution and office 145,000
Kempton Park, South Africa ....... Warehousing, distribution and office (leased) 127,000
Canberra, Australia .............. Warehousing, distribution and office 125,000
Isando, South Africa ............. Manufacturing, warehousing, distribution and office 94,000
Buenos Aires, Argentina .......... Manufacturing, warehousing, distribution and office 75,000
Bologna, Italy (a) ............... Manufacturing, warehousing, distribution and office 60,000
Dublin, Ireland (a) .............. Manufacturing, warehousing, distribution and office 32,500
(a) Facility was transferred to the purchaser of the professional products
line in March 2000.
In addition to the facilities described above, additional facilities are
owned and leased in various areas throughout the world, including the lease for
the Company's executive offices in New York, New York (346,000 square feet, of
which approximately 19,000 square feet were sublet to affiliates of the Company
and approximately 78,000 square feet were sublet to unaffiliated third parties
as of December 31, 1999). Management considers the Company's facilities to be
well-maintained and satisfactory for the Company's operations, and believes
that the Company's facilities provide sufficient capacity for its current and
expected production requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incident to
the ordinary course of its business. The Company believes that the outcome of
all pending legal proceedings in the aggregate is unlikely to have a material
adverse effect on the business or consolidated financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Revlon, Inc. beneficially owns all of the outstanding shares of common
stock, par value $1.00 per share, of Products Corporation. MacAndrews & Forbes
Holdings Inc. ("MacAndrews Holdings"), which is indirectly wholly owned by
Ronald O. Perelman, through REV Holdings Inc. ("REV Holdings"), beneficially
owns 11,250,000 shares of Revlon, Inc.'s Class A Common Stock (representing
56.3% of the outstanding shares of Class A Common Stock) and all of the
outstanding 31,250,000 shares of Revlon, Inc.'s Class B Common Stock, which
together represent approximately 83% of the outstanding shares of Revlon,
Inc.'s common stock. The remaining 8,742,837 shares of Revlon, Inc.'s Class A
Common Stock outstanding at March 8, 2000 are owned by the public. No dividends
were declared or paid during 1999 or 1998. The terms of the Credit Agreement,
the 8 5/8% Notes (as hereinafter defined), the 8 1/8% Notes (as hereinafter
defined) and the 9% Notes (as hereinafter defined) currently restrict the
ability of Products Corporation to pay dividends or make distributions to
Revlon, Inc. See the Consolidated Financial Statements of the Company and the
Notes thereto.
ITEM 6. SELECTED FINANCIAL DATA
The Consolidated Statements of Operations Data for each of the years in
the five-year period ended December 31, 1999 and the Balance Sheet Data as of
December 31, 1999, 1998, 1997 and 1996 are derived from the Consolidated
Financial Statements of the Company, which have been audited by KPMG LLP,
independent certified public accountants. The Balance Sheet Data as of December
31, 1995 is derived from unaudited consolidated financial statements, which
have been restated to reflect the Company's former retail and outlet store
business as discontinued operations. The Selected Consolidated Financial Data
should be read in conjunction with the Consolidated Financial Statements of the
Company and the Notes to the Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
STATEMENTS OF OPERATIONS DATA:
Net sales........................$ 1,861.3 $2,252.2 $2,238.6 $2,092.1 $1,867.3
Operating (loss) income ......... (211.4)(a) 126.1(b) 216.1(c) 200.0 147.5
(Loss) income from continuing
operations...................... (370.3) (25.8) 59.0 25.2 (37.2)
DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Total assets.....................$ 1,560.1 $1,830.7 $1,757.8 $1,618.1 $1,532.6
Long-term debt, including
current portion................. 1,772.1 1,660.0 1,425.2 1,361.0 1,476.7
Total stockholder's deficiency... (1,013.1) (647.3) (456.7) (496.3) (702.3)
(a) Includes business consolidation costs and other, net and executive
separation costs of $40.2 million and $22.0 million, respectively. See
Note 4 to the Consolidated Financial Statements.
(b) Includes business consolidation costs and other, net aggregating $35.8
million. See Note 4 to the Consolidated Financial Statements.
12
(c) Includes business consolidation costs and other, net, of $3.6 million. See
Note 4 to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
OVERVIEW
The Company operates in a single segment and manufactures, markets and
sells an extensive array of cosmetics and skin care, fragrances and personal
care products, and, until the disposition of its professional products line in
March 2000, had included professional products, which consisted of hair and
nail care products principally for use in and resale by professional salons. In
addition, the Company has a licensing group.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales for each of the
last three years:
YEAR ENDED DECEMBER 31,
-------------------------------------------------
Net sales: 1999 1998 1997
------------- ------------ ------------
United States.... $ 1,046.2 $ 1,343.7 $ 1,304.9
International ... 815.1 908.5 933.7
--------- --------- ---------
$ 1,861.3 $ 2,252.2 $ 2,238.6
========= ========= =========
The following table sets forth certain statements of operations data as a
percentage of net sales for each of the last three years:
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- ------------
Cost of sales*........................ 36.9% 34.0% 33.2%
Gross profit.......................... 63.1 66.0 66.8
Selling, general and administrative
expenses ("SG&A")**................. 72.3 58.9 57.0
Business consolidation costs and
other, net ......................... 2.2 1.5 0.1
Operating (loss) income............... (11.4) 5.6 9.7
* 1998 includes $2.7 (0.1% of net sales) for charges related to business
consolidation costs.
** 1999 includes $22.0 (1.2% of net sales) for charges related to executive
separation costs.
13
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net sales were $1,861.3 and $2,252.2 for 1999 and 1998, respectively, a
decrease of $390.9, or 17.4% on a reported basis (a decrease of 14.9% on a
constant U.S. dollar basis).
United States. Net sales in the United States were $1,046.2 for 1999
compared with $1,343.7 for 1998, a decrease of $297.5, or 22.1%. Net sales for
1999 were adversely affected by lower than anticipated share growth,
competitive activities and a reduction in the level of Company shipments to
certain retailers to achieve such retailers' new lower inventory target levels.
The reduction of retailers' target inventory levels will continue and is
expected to adversely impact sales through the first half of 2000.
New products in 1999 included EVERYLASH mascara, MOISTURESTAY SHEER LIP
COLOR, REVLON AGE DEFYING compact makeup, WET/DRY EYE SHADOW, ALMAY STAY SMOOTH
lip makeup and mascara, ALMAY FOUNDATION with Skin Stays Clean attributes,
products in the ALMAY ONE COAT collection, MITCHUM COOL DRY antiperspirant and
COLORSTAY LIQUID LIP.
International. Net sales outside the United States were $815.1 for 1999
compared with $908.5 for 1998, a decrease of $93.4, or 10.3%, on a reported
basis (a decrease of 3.7% on a constant U.S. dollar basis). Net sales for 1999
on a constant U.S. dollar basis were affected by unfavorable economic
conditions in certain markets outside the U.S., principally Brazil, which
restrained consumer and trade demand, increased competitive activity and lower
sales in certain markets, principally the United Kingdom and Canada. The
decrease in net sales for 1999 on a reported basis also reflects the
unfavorable effect on sales of a stronger U.S. dollar against certain foreign
currencies, particularly the Brazilian real. Sales outside the United States
are divided into three geographic regions. In Europe, which comprises Europe,
the Middle East and Africa, net sales decreased by 9.2% on a reported basis to
$369.5 for 1999 as compared with 1998 (a decrease of 4.3% on a constant U.S.
dollar basis). In the Western Hemisphere, which comprises Canada, Mexico,
Central America, South America and Puerto Rico, net sales decreased by 15.4% on
a reported basis to $303.1 for 1999 as compared with 1998 (a decrease of 3.0%
on a constant U.S. dollar basis). The Company's operations in Brazil are
significant. In Brazil, net sales were $76.1 on a reported basis for 1999
compared with $122.5 for 1998, a decrease of $46.4, or 37.9% (a decrease of
3.1% on a constant U.S. dollar basis). On a reported basis, net sales in Brazil
were adversely affected by the stronger U.S. dollar against the Brazilian real,
unfavorable economic conditions and increased competitive activities. In the
Far East, net sales decreased by 0.7% on a reported basis to $142.5 for 1999 as
compared with 1998 (a decrease of 4.0% on a constant U.S. dollar basis). Net
sales outside the United States, including, without limitation, in Brazil, may
be adversely affected by generally weak economic conditions, political and
economic uncertainties, including, without limitation, currency fluctuations
and competitive activities in certain markets.
Cost of sales
As a percentage of net sales, cost of sales was 36.9% for 1999 compared
with 34.0% for 1998. The increase in cost of sales as a percentage of net sales
for 1999 compared with 1998 is due to changes in product mix, the effect of
weaker local currencies on the cost of imported purchases by subsidiaries
outside the U.S. and the effect of lower net sales.
SG&A expenses
As a percentage of net sales, SG&A expenses were 72.3% ($1,346.4) for 1999
compared with 58.9% ($1,327.3) for 1998. The increase in SG&A expenses as a
percentage of net sales is due in large measure to the reduced levels of sales
coupled with the Company's decision to maintain throughout the second half of
1999 brand support intended to drive consumer purchasing and facilitate the
inventory reduction process by U.S. retailers referred to earlier. In addition,
SG&A increased as a result of executive separation costs of $22.0, which were
partially offset by savings from the Company's restructuring plan from 1998.
14
Business consolidation costs and other, net
In the fourth quarter of 1998, the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate, realign
and consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines. During 1999, the Company continued
to implement such restructuring plan for which it recorded a charge of $20.5
for employee severance and other personnel benefits, costs associated with the
exit from leased facilities as well as other costs. Also in 1999, the Company
consummated an exit from a non-core business, resulting in an additional charge
of $1.6, which is included in business consolidation costs and other, net.
During the fourth quarter of 1999, the Company continued to re-evaluate
its organizational structure and implemented a new restructuring plan
principally at its New York headquarters and New Jersey locations resulting in
a charge of $18.1 principally for employee severance. As part of this new
restructuring plan, the Company reduced personnel and consolidated excess real
estate. As a result of the new restructuring plan, executive separation costs,
and the elimination of open positions, the Company anticipates annual savings
of between $45 and $50, beginning in 2000.
Operating (loss) income
As a result of the foregoing, operating (loss) for 1999 was $(211.4)
compared to operating income of $126.1 for 1998.
Other expenses/(income)
Interest expense was $147.9 for 1999 compared with $137.9 for 1998. The
increase in interest expense for 1999 as compared with 1998 is due to higher
average outstanding debt and higher interest rates under the Credit Agreement,
partially offset by lower interest rates as a result of the refinancings in
1998.
Foreign currency (gains) losses, net, were $(0.5) for 1999 compared with
$4.6 in 1998. Foreign currency losses, net for 1998 consisted primarily of
losses in several markets in Latin America.
Provision for income taxes
The provision for income taxes was $9.1 for 1999 compared with $5.0 for
1998.
Discontinued operations
During 1998, the Company completed the disposition of its approximately
85% ownership interest in The Cosmetic Center, Inc. ("CCI") and, accordingly,
the results of operations of CCI had been reported as discontinued operations
along with the loss on disposal of such operations.
15
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
NET SALES
Net sales were $2,252.2 and $2,238.6 for 1998 and 1997, respectively, an
increase of $13.6, or 0.6% (or 2.7% on a constant U.S. dollar basis).
United States. Net sales in the United States were $1,343.7 for 1998
compared with $1,304.9 for 1997, an increase of $38.8, or 3.0%. The increase in
net sales in 1998 reflects improvements in net sales of products in the
Company's ALMAY and ULTIMA franchises and expansion of certain of the Company's
professional product lines including an acquisition. For the first half of
1998, net sales for the Company's REVLON franchise increased as compared to the
first half of 1997 as a result of continued consumer acceptance of new product
offerings and general improvement in consumer demand for the Company's color
cosmetics. Beginning in third quarter of 1998, such sales were adversely
affected by a slowdown in the rate of growth in the mass market color cosmetics
category and a leveling of market share. Additionally, net sales for 1998 were
impacted by reduced purchases by some retailers, particularly chain drug stores,
resulting from improved inventory management through systems upgrades and
inventory reductions following several recent business combinations.
REVLON brand color cosmetics continued as the number one brand in dollar
market share in the U.S. self-select distribution channel. New product
introductions (including, in 1998, certain products launched during 1997)
generated incremental net sales in 1998, principally as a result of launches of
TOP SPEED nail enamel, MOISTURESTAY lip makeup, products in the NEW COMPLEXION
line, COLORSTAY shampoo, ALMAY STAY SMOOTH lip makeup, products in the ALMAY
AMAZING collection, products in the ALMAY ONE COAT collection, products in the
ULTIMA II BEAUTIFUL NUTRIENT and ULTIMA II FULL MOISTURE lipcolor lines and
ULTIMA II GLOWTION skin brighteners.
International. Net sales outside the United States were $908.5 for 1998
compared with $933.7 for 1997, a decrease of $25.2, or 2.7%, on a reported
basis (an increase of 2.4% on a constant U.S. dollar basis). The increase in
net sales for 1998 on a constant dollar basis reflects the benefits of
increased distribution, including acquisitions, and successful new product
introductions in several markets including MOISTURESTAY lip makeup and TOP
SPEED nail enamel. The decrease in net sales for 1998 on a reported basis
reflects the unfavorable effect on sales of a stronger U.S. dollar against most
foreign currencies and unfavorable economic conditions in several international
markets. These unfavorable economic conditions restrained consumer and trade
demand outside the U.S., particularly in South America and the Far East, as
well as Russia and other developing economies. Sales outside the United States
are divided into three geographic regions. In Europe, which comprises Europe,
the Middle East and Africa, net sales decreased by 2.6% on a reported basis to
$406.9 for 1998 as compared with 1997 (an increase of 0.5% on a constant U.S.
dollar basis). In the Western Hemisphere, which comprises Canada, Mexico,
Central America, South America and Puerto Rico, net sales increased by 4.7% on
a reported basis to $358.1 for 1998 as compared with 1997 (an increase of 9.5%
on a constant U.S. dollar basis). The Company's operations in Brazil are
significant. In Brazil, net sales were $122.5 on a reported basis for 1998
compared with $130.9 for 1997, a decrease of $8.4, or 6.4% (an increase of 0.5%
on a constant U.S. dollar basis). On a reported basis, net sales in Brazil were
adversely affected by the stronger U.S. dollar against the Brazilian real. In
the Far East, net sales decreased by 17.5% on a reported basis to $143.5 for
1998 as compared with 1997 (a decrease of 7.4% on a constant U.S. dollar
basis). Net sales outside the United States, including without limitation in
Brazil, were adversely impacted by generally weak economic conditions,
political and economic uncertainties, including without limitation currency
fluctuations, and competitive activities in certain markets.
Cost of sales
As a percentage of net sales, cost of sales was 34.0% for 1998 compared
with 33.2% for 1997. The increase in cost of sales as a percentage of net sales
for 1998 compared with 1997 is due to changes in product mix, the effect of
weaker local currencies on the cost of imported purchases, the effect of lower
net sales in the second half of 1998 and the inclusion of $2.7 of other costs
incurred to exit certain product lines outside the United States in connection
with the restructuring charge in the fourth quarter of 1998. These factors were
partially offset by the benefits of more efficient global production and
purchasing.
16
SG&A expenses
As a percentage of net sales, SG&A expenses were 58.9% for 1998 compared
with 57.0% for 1997. SG&A expenses other than advertising and consumer-directed
promotion expenses, as a percentage of net sales, were 40.1% for 1998 compared
with 39.2% for 1997. The increase in SG&A expenses other than advertising and
consumer-directed promotion expenses as a percentage of net sales was due
primarily to the effects of lower than expected sales. The Company's
advertising and consumer-directed promotion expenditures were incurred to
support existing product lines, new product launches and increased
distribution. Advertising and consumer-directed promotion expenses as a
percentage of net sales were 18.8%, or $422.9, for 1998 compared to 17.8%, or
$397.4, for 1997.
Business consolidation costs and other, net
In the fourth quarter of 1998 the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate, realign
and consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines. As a result, the Company recognized
a net charge of $42.9 consisting of $26.6 of employee severance and termination
benefits for 720 sales, marketing, administrative, factory and distribution
employees worldwide, $14.9 of costs to exit excess leased real estate primarily
in the United States and $2.7 of other costs described above in cost of sales,
partially offset by a gain of $1.3 for the sale of a factory outside the United
States.
In the third quarter of 1998 the Company recognized a gain of
approximately $7.1 for the sale of the wigs and hairpieces portion of its
business in the United States.
In 1997 the Company incurred business consolidation costs of $20.6 in
connection with the implementation of its business strategy to rationalize
factory operations. These costs primarily included severance for 415 factory
and administrative employees and other costs related to the rationalization of
certain factory and warehouse operations worldwide. Such costs were partially
offset by an approximately $12.7 settlement of a claim and related gains of
approximately $4.3 for the sales of certain factory operations outside the
United States.
Operating income
As a result of the foregoing, operating income decreased by $90.0, or
41.6%, to $126.1 for 1998 from $216.1 for 1997.
Other expenses/income
Interest expense was $137.9 for 1998 compared with $133.7 for 1997. The
increase in interest expense for 1998 as compared with 1997 is due to higher
average outstanding borrowings partially offset by lower interest rates.
Foreign currency losses, net, were $4.6 for 1998 compared to $6.4 for
1997. The foreign currency losses for 1998 consisted primarily of losses in
several markets in Latin America. The losses in 1997 consisted primarily of
losses in several markets in Europe and the Far East.
17
Provision for income taxes
The provision for income taxes was $5.0 and $9.3 for 1998 and 1997,
respectively. The decrease was primarily attributable to lower taxable income
outside the United States in 1998.
Discontinued operations
During 1998, the Company completed the disposition of its approximately
85% equity interest in CCI. In connection with such transaction, the Company
recorded a loss on disposal of $47.7 during 1998. (Loss) income from
discontinued operations was $(16.5) (excluding the $47.7 loss on disposal) and
$0.7 for 1998 and 1997, respectively. The 1997 period includes a $6.0
non-recurring gain resulting from the merger of Prestige Fragrance & Cosmetics,
Inc., then a wholly owned subsidiary of the Company, with and into CCI on April
25, 1997, partially offset by related business consolidation costs of $4.0. The
1998 period includes the Company's share of a non-recurring charge of $10.5
taken by CCI primarily related to inventory and severance.
Extraordinary items
The extraordinary loss of $51.7 in 1998 resulted primarily from the
write-off of deferred financing costs and payment of call premiums associated
with the redemption of Products Corporation's 9 3/8% Senior Notes due 2001 (the
"Senior Notes") and Products Corporation's 10 1/2% Senior Subordinated Notes
due 2003 (the "Senior Subordinated Notes"). The extraordinary loss in 1997
resulted from the write-off of deferred financing costs associated with the
extinguishment of borrowings under the credit agreement in effect at that time
prior to maturity with proceeds from the Credit Agreement, and costs of
approximately $6.3 in connection with the redemption of Products Corporation's
10 7/8% Sinking Fund Debentures due 2010 (the "Sinking Fund Debentures").
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash (used for)/provided by operating activities was $(82.7), $(50.4)
and $8.9 for 1999, 1998 and 1997, respectively. The increase in net cash used
for operating activities for 1999 compared with 1998 was the result of
operating losses and increased use of cash for business consolidation costs
during 1999, partially offset by changes in working capital. The increase in
net cash used for operating activities for 1998 compared with cash provided in
1997 resulted primarily from lower operating income and increased cash used for
business consolidation costs in 1998.
Net cash used for investing activities was $40.7, $91.0 and $84.3 for
1999, 1998 and 1997, respectively. Net cash used for investing activities in
1999 related principally to capital expenditures. Net cash used for investing
activities for 1998 and 1997 includes cash paid in connection with acquisitions
of businesses and capital expenditures, partially offset by the proceeds from
the sale of the wigs and hairpieces portion of the Company's business in the
United States in 1998 and from the sale of certain assets in 1998 and 1997. Net
cash used for investing activities for 1999, 1998 and 1997 included capital
expenditures of $42.3, $60.8 and $52.3, respectively, and in 1998 and 1997
$57.6 and $40.5, respectively, used for acquisitions.
Net cash provided by financing activities was $118.4, $158.0 and $84.7
for 1999, 1998 and 1997, respectively. Net cash provided by financing activities
for 1999 included cash drawn under the Credit Agreement, partially offset by
repayments of borrowings under the Credit Agreement, redemption of the 9 1/2%
Senior Notes due 1999 (the "1999 Notes") and repayments under Products
Corporation's Japanese yen-denominated credit agreement (the "Yen Credit
Agreement"). Net cash provided by financing activities for 1998 included
proceeds from the issuance of Products Corporation's 9% Senior Notes due 2006
(the "9% Notes"), Products Corporation's 8 5/8% Senior Subordinated Notes due
2008 (the "8 5/8% Notes") and Products Corporation's 8 1/8% Senior Notes due
2006 (the "8 1/8% Notes") and cash drawn under the Credit Agreement, partially
offset by the payment of fees and expenses related to the issuance of the 9%
Notes, the 8 5/8% Notes and the 8 1/8% Notes, the redemption of the Senior
Subordinated Notes and the Senior Notes, and the repayment of borrowings under
the Yen Credit Agreement. Net cash provided by financing activities for 1997
included cash drawn under the credit agreement in effect at that time and the
Credit Agreement, partially offset by the repayment of borrowings under the
credit agreement in effect at that time, the payment of fees and expenses
related to entering into the Credit Agreement, the repayment of borrowings under
the
18
Yen Credit Agreement and the redemption of Products Corporation's Sinking Fund
Debentures. During 1998 and 1997, net cash used by discontinued operations was
$17.3 and $3.4, respectively.
In May 1997, Products Corporation entered into a credit agreement (as
subsequently amended, the "Credit Agreement") with a syndicate of lenders,
whose individual members change from time to time. Prior to the commitment
reduction resulting from the sale of the professional products line (See
"Subsequent Event" below) the Credit Agreement provided up to $723.0 and
comprises five senior secured facilities: $198.0 in two term loan facilities
(the "Term Loan Facilities"), a $300.0 multi-currency facility (the
"Multi-Currency Facility"), a $175.0 revolving acquisition facility, which may
also be used for general corporate purposes and which may be increased to
$375.0 under certain circumstances with the consent of a majority of the
lenders (the "Acquisition Facility"), and a $50.0 special standby letter of
credit facility (the "Special LC Facility"). At December 31, 1999, the Company
had approximately $198.0 outstanding under the Term Loan Facilities, $235.2
outstanding under the Multi-Currency Facility, $155.0 outstanding under the
Acquisition Facility and $29.8 of issued but undrawn letters of credit under
the Special LC Facility.
The Credit Agreement contained financial covenants requiring Products
Corporation to maintain minimum interest coverage and to limit its leverage
ratio, among other things. As a result of the loss from continuing operations
before taxes incurred by Products Corporation in the third quarter of 1999, the
interest coverage and leverage ratios specified in the Credit Agreement were
not achieved at September 30, 1999. The Credit Agreement was amended on
November 10, 1999 to (i) eliminate the interest coverage ratio and leverage
ratio covenants from the quarter ended September 30, 1999 through the year 2000
and to modify those covenants for the years 2001 and 2002; (ii) add a minimum
EBITDA covenant for each quarter end during the year 2000; (iii) limit the
amount that Products Corporation may spend for capital expenditures and
investments including acquisitions; (iv) permit the sale of Products
Corporation's worldwide professional products line and its non-core Latin
American brands Colorama, Juvena, Bozzano and Plusbelle (the "Asset Sales");
(v) change the reduction of the aggregate commitment that is required upon
consummation of any Asset Sale to an amount equal to 60% of the "Net Proceeds"
(as defined in the Credit Agreement) from such Asset Sale as opposed to 100% of
such Net Proceeds as provided under the Credit Agreement prior to the
amendment; (vi) increase the "applicable margin" by 3/4 of 1% and (vii) permit
the amendment of the Yen Credit Agreement described below. In March 2000, 60%
of the Net Proceeds from the sale of its worldwide professional products line
was applied to reduce the aggregate commitment under the Credit Agreement to
$572.7 (See "Subsequent Event" below). In March 2000, the Credit Agreement was
amended to eliminate the default upon the acceleration of or certain payment
defaults under indebtedness of REV Holdings in excess of $0.5.
A subsidiary of Products Corporation was the borrower under the Yen Credit
Agreement, which had a principal balance of approximately (Yen) 1.0 billion as
of December 31, 1999 (approximately $9.9 U.S. dollar equivalent as of December
31, 1999) after giving effect to the payment of approximately (Yen) 539 million
(approximately $4.6 U.S. dollar equivalent) in March 1999. In November 1999,
the borrower under the Yen Credit Agreement executed an amendment to the Yen
Credit Agreement to eliminate the amortization payment due in March 2000 and to
provide that the final maturity date of the Yen Credit Agreement will be the
earlier of (i) the closing date of the sale of Products Corporation's
professional products line and (ii) December 31, 2000. In March 2000, the
outstanding balance under the Yen Credit Agreement was repaid in full in
accordance with its terms.
In November 1998, Products Corporation issued and sold $250.0 principal
amount of 9% Notes, of which $200.0 was used to temporarily reduce borrowings
under the Credit Agreement in anticipation of the redemption referred to below.
On June 1, 1999, Products Corporation redeemed the $200.0 principal amount of
1999 Notes with borrowings from the Credit Agreement.
Products Corporation borrows funds from its affiliates from time to time
to supplement its working capital borrowings at interest rates more favorable
to Products Corporation than interest rates under the Credit Agreement. No such
borrowings were outstanding as of December 31, 1999.
The Company's principal sources of funds are expected to be cash flow
generated from operations (before interest) and borrowings under the Credit
Agreement, other existing working capital lines and renewals thereof, as well
as proceeds from the sale of one or more of the Company's non-core Latin
American brands. The Credit Agreement, the 8 5/8% Notes, the 8 1/8% Notes and
the 9% Notes contain certain provisions that by their terms limit Products
Corporation's and/or its subsidiaries' ability to, among other things, incur
additional debt. The Company's
19
principal uses of funds are expected to be the payment of operating expenses,
working capital and capital expenditure requirements, expenses in connection
with the Company's restructuring referred to above and debt service payments.
As required under the Credit Agreement, the Company used 60% of the Net
Proceeds (as defined in the Credit Agreement) from the sale of its worldwide
professional products line to reduce the aggregate commitment under the Credit
Agreement. Additionally, the Company expects that it will receive cash proceeds
from the sale of one or more of its non-core Latin American brands and that it
will use 60% of the Net Proceeds, to reduce the aggregate commitment under the
Credit Agreement.
The Company estimates that capital expenditures for 2000 will be
approximately $25, including upgrades to the Company's management information
systems. The Company estimates that cash payments related to the restructuring
plans referred to in Note 4 and executive separation costs will be
approximately $35 in 2000. Pursuant to a tax sharing agreement, Products
Corporation may be required to make tax sharing payments to Revlon, Inc. (which
in turn may be required to make tax sharing payments to Mafco Holdings Inc.) as
if Products Corporation were filing separate income tax returns, except that no
payments are required by Products Corporation (or Revlon, Inc.) if and to the
extent that Products Corporation is prohibited under the Credit Agreement from
making tax sharing payments to Revlon, Inc. The Credit Agreement prohibits
Products Corporation from making any tax sharing payments other than in respect
of state and local income taxes. Products Corporation currently anticipates
that, as a result of net operating tax losses and prohibitions under the Credit
Agreement, no cash federal tax payments or cash payments in lieu of federal
taxes pursuant to the tax sharing agreement will be required for 2000.
Products Corporation enters into forward foreign exchange contracts and
option contracts from time to time to hedge certain cash flows denominated in
foreign currencies. There were no forward foreign exchange or option contracts
outstanding at December 31, 1999. Products Corporation had forward foreign
exchange contracts denominated in various currencies of approximately $197.5
(U.S. dollar equivalent) outstanding at December 31, 1998 and option contracts
of approximately $51.0 at December 31, 1998. Such contracts are entered into to
hedge transactions predominantly occurring within twelve months. If Products
Corporation had terminated these contracts on December 31, 1998 no material
gain or loss would have been realized.
The Company expects that cash flows from operations and funds from
currently available credit facilities and renewals of short-term borrowings
will be sufficient to enable the Company to meet its anticipated cash
requirements during 2000 on a consolidated basis, including for debt service.
However, there can be no assurance that the combination of cash flow from
operations, funds from existing credit facilities and renewals of short-term
borrowings will be sufficient to meet the Company's cash requirements on a
consolidated basis. If the Company is unable to satisfy such cash requirements,
the Company could be required to adopt one or more alternatives, such as
reducing or delaying capital expenditures, restructuring indebtedness, selling
other assets or operations, or seeking capital contributions or loans from
Revlon, Inc. or other affiliates of the Company. There can be no assurance that
any of such actions could be effected, that they would enable the Company to
continue to satisfy its capital requirements or that they would be permitted
under the terms of the Company's various debt instruments then in effect.
Products Corporation has had discussions with an affiliate that is prepared to
provide financial support to Products Corporation of up to $40 on appropriate
terms through December 31, 2000. The terms of the Credit Agreement, the 8 5/8%
Notes, the 8 1/8% Notes and the 9% Notes generally restrict Products
Corporation from paying dividends or making distributions, except that Products
Corporation is permitted to pay dividends and make distributions to Revlon,
Inc., among other things, to enable Revlon, Inc. to pay expenses incidental to
being a public holding company, including, among other things, professional
fees such as legal and accounting, regulatory fees such as Securities and
Exchange Commission (the "Commission") filing fees and other miscellaneous
expenses related to being a public holding company and to pay dividends or make
distributions in certain circumstances to finance the purchase by Revlon, Inc.
of its Class A Common Stock in connection with the delivery of such Class A
Common Stock to grantees under the Revlon, Inc. Second Amended and Restated
1996 Stock Plan, provided that the aggregate amount of such dividends and
distributions taken together with any purchases of Revlon, Inc. common stock on
the open market to satisfy matching obligations under the excess savings plan
may not exceed $6.0 per annum.
20
EURO CONVERSION
As part of the European Economic and Monetary Union, a single currency
(the "Euro") will replace the national currencies of the principal European
countries (other than the United Kingdom) in which the Company conducts
business and manufacturing. The conversion rates between the Euro and the
participating nations' currencies were fixed as of January 1, 1999, with the
participating national currencies to be removed from circulation between
January 1, 2002 and June 30, 2002 and replaced by Euro notes and coinage.
During the transition period from January 1, 1999 through December 31, 2001,
public and private entities as well as individuals may pay for goods and
services using checks, drafts, or wire transfers denominated either in the Euro
or the participating country's national currency. Under the regulations
governing the transition to a single currency, there is a "no compulsion, no
prohibition" rule which states that no one can be prevented from using the Euro
after January 1, 2002 and no one is obliged to use the Euro before July 2002.
In keeping with this rule, the Company expects to either continue using the
national currencies or the Euro for invoicing or payments. Based upon the
information currently available, the Company does not expect that the
transition to the Euro will have a material adverse effect on the business or
consolidated financial condition of the Company.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K for the year ended December 31, 1999 as
well as other public documents of the Company contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward-looking statements.
Such statements include, without limitation, the Company's expectations and
estimates as to being the most trusted supplier, the most innovative and the
first to market with innovations, attracting and retaining the best people in
the industry, building consistent global equities, addressing consumer needs,
exceeding trade partners' expectations, operating at benchmark levels of
efficiency, becoming the most dynamic leader in global beauty and skin care,
the introduction of new products and expansion into markets, future financial
performance, the effect on sales of lower retailer inventory targets, the
effect on sales of political and/or economic conditions and competitive
activities in certain markets, the Company's estimate of restructuring
activities, costs and benefits, cash flow from operations, capital
expenditures, the Company's qualitative and quantitative estimates as to market
risk sensitive instruments, the Company's expectations about the effects of the
transition to the Euro, the availability of funds from currently available
credit facilities, renewals of short-term borrowings, and capital contributions
or loans from Revlon, Inc. or other affiliates of the Company or the sale of
assets or operations and the Company's intent to pursue the sale of one or more
of its non-core regional Latin American brands, that it will consummate such
sales during the second quarter of 2000 and its expectation regarding the
proceeds of such sales. Statements that are not historical facts, including
statements about the Company's beliefs and expectations, are forward-looking
statements. Forward-looking statements can be identified by, among other
things, the use of forward-looking language, such as "believe," "expects,"
"may," "will," "should," "seeks," "plans," "scheduled to," "anticipates" or
"intends" or the negative of those terms, or other variations of those terms or
comparable language, or by discussions of strategy or intentions.
Forward-looking statements speak only as of the date they are made, and the
Company undertakes no obligation to update them. A number of important factors
could cause actual results to differ materially from those contained in any
forward-looking statement. In addition to factors that may be described in the
Company's filings with the Commission, including this filing, the following
factors, among others, could cause the Company's actual results to differ
materially from those expressed in any forward-looking statements made by the
Company: (i) difficulties or delays in becoming the most trusted supplier, the
most innovative and the first to market with innovations, attracting and
retaining the best people in the industry, building consistent global equities,
addressing consumer needs, exceeding trade partners' expectations, operating at
benchmark levels of efficiency, becoming the most dynamic leader in global
beauty and skin care, and in developing and introducing new products or failure
of customers to accept new product offerings; (ii) changes in consumer
preferences, including reduced consumer demand for the Company's color
cosmetics and other current products; (iii) difficulties or delays in the
Company's continued expansion into the self-select distribution channel and
into certain markets and development of new markets; (iv) unanticipated costs
or difficulties or delays in completing projects associated with the Company's
strategy to improve operating efficiencies ; (v) the inability to secure
capital contributions or loans from Revlon, Inc. or other affiliates of the
Company or sell assets or operations; (vi) effects of and changes in political
and/or economic conditions, including inflation and monetary conditions, and in
trade, monetary, fiscal and tax policies in international markets, including
but not limited to Brazil; (vii) actions by competitors, including business
combinations, technological breakthroughs, new products
21
offerings and marketing and promotional successes; (viii) combinations among
significant customers or the loss, insolvency or failure to pay debts by a
significant customer or customers; (ix) lower than expected sales as a result
of difficulties or delays in achieving retailers' inventory target levels; (x)
difficulties, delays or unanticipated costs or less than expected benefits
resulting from the Company's restructuring activities; (xi) interest rate or
foreign exchange rate changes affecting the Company and its market sensitive
financial instruments; (xii) difficulties, delays or unanticipated costs
associated with the transition to the Euro; and (xiii) difficulties or delays
in pursuing the sale of one or more of its non-core Latin American brands, the
inability to consummate such sales during the second quarter of 2000 or to
secure the expected level of proceeds from such sales.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133, an Amendment of SFAS No. 133," which has delayed the required
implementation of SFAS No. 133 such that the Company must adopt this new
standard no later than January 1, 2001. The effect of adopting the new standard
by the Company has not yet been determined. The Company plans to adopt the new
standard on January 1, 2001.
INFLATION
In general, costs are affected by inflation and the effects of inflation
may be experienced by the Company in future periods. Management believes,
however, that such effects have not been material to the Company during the
past three years in the United States or foreign non-hyperinflationary
countries. The Company operates in certain countries around the world, such as
Brazil, Venezuela and Mexico, that have experienced hyperinflation in the past
three years. The Company's operations in Brazil were accounted for as operating
in a hyperinflationary economy until June 30, 1997. Effective July 1, 1997,
Brazil was considered a non-hyperinflationary economy. The impact of accounting
for Brazil as a non-hyperinflationary economy was not material to the Company's
operating results. Effective January 1997, Mexico was considered a
hyperinflationary economy for accounting purposes. Effective January 1, 1999,
Mexico was considered a non-hyperinflationary economy. In hyperinflationary
foreign countries, the Company attempts to mitigate the effects of inflation by
increasing prices in line with inflation, where possible, and efficiently
managing its working capital levels.
SUBSEQUENT EVENT
On March 30, 2000, the Company completed the disposition of its worldwide
professional products line, including professional hair care for use in and
resale by professional salons, ethnic hair and personal care products, Natural
Honey skin care and certain regional toiletries brands, for $315 in cash,
before adjustments, plus $10 in purchase price payable in the future,
contingent upon the purchasers' achievement of certain rates of return on their
investment. The disposition involved the sale of certain of the Company's
subsidiaries throughout the world devoted to the professional products line, as
well as assets dedicated exclusively or primarily to the lines being disposed.
The worldwide professional products line was purchased by a company formed by
CVC Capital Partners, the Colomer family and other investors, led by Carlos
Colomer, a former manager of the line that was sold, following arms'-length
negotiation of the terms of the purchase agreement therefor, including the
determination of the amount of the consideration.
The following unaudited summary pro forma financial information gives
effect to the sale of the worldwide professional products line as of January 1,
1999 in the case of the pro forma statement of operations data and as of
December 31, 1999 in the case of the pro forma balance sheet data. The pro
forma information includes certain adjustments, such as reduced interest expense
and a reduction in long-term debt as a result of the repayment of debt with
$296.3 of the net proceeds from the disposition. The unaudited pro forma
statement of operations data exclude the gain on the sale of the professional
products line and eliminate costs incurred to date in connection with the sale
since the gain and associated costs are non-recurring. The unaudited summary pro
forma financial information is not necessarily indicative of the results of
operations of the Company had the sale occurred at January 1, 1999, or financial
position at December 31, 1999 had the sale occurred at that date, nor is it
necessarily indicative of future results.
22
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
HISTORICAL RESULTS OF
YEAR ENDED PROFESSIONAL YEAR ENDED
DECEMBER 31, PRODUCTS DECEMBER 31,
1999 LINE ADJUSTMENTS 1999
---- ---- ----------- ----
Net sales............................................ $ 1,861.3 $ (320.1) $ $ 1,541.2
Cost of sales........................................ 686.1 (118.7) 567.4
--------- ----------- -------- -----------
Gross profit................................. 1,175.2 (201.4) 973.8
Selling, general and administrative expenses......... 1,346.4 (168.9) 1,177.5
Business consolidation costs and other, net.......... 40.2 (0.9) 39.3
--------- ----------- -------- -----------
Operating loss .............................. (211.4) (31.6) (243.0)
--------- ----------- -------- -----------
Other expenses (income):
Interest expense............................. 147.9 (0.7) (26.9) 120.3
Other, net................................... 1.9 1.3 (2.0) 1.2
--------- ----------- -------- -----------
Other expenses, net.................. 149.8 0.6 (28.9) 121.5
--------- ----------- -------- -----------
(Loss) income from operations before income taxes.... (361.2) (32.2) 28.9 (364.5)
Provision for income taxes........................... 9.1 (2.6) 6.5
--------- ----------- -------- -----------
(Loss) income from operations........................ $ (370.3) $ (29.6) $ 28.9 $ (371.0)
========= =========== ======== ===========
23
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
PROFESSIONAL DECEMBER 31,
DECEMBER 31, PRODUCTS 1999
ASSETS 1999 LINE ADJUSTMENTS PRO FORMA
---- ---- ----------- ---------
Current assets:
Cash and cash equivalents................... $ 25.4 $ (3.0) $ 22.4
Trade receivables, net...................... 332.6 (78.4) 254.2
Inventories................................. 278.3 (49.6) 228.7
Prepaid expenses and other.................. 53.1 6.7 59.8
--------- --------- -------- ---------
Total current assets.................... 689.4 (124.3) 565.1
Property, plant and equipment, net............. 336.4 (41.5) 294.9
Other assets................................... 177.5 (3.3) 174.2
Intangible assets, net......................... 356.8 (111.4) 245.4
--------- --------- -------- ---------
Total assets............................ 1,560.1 $ (280.5) $1,279.6
========= ========= ======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Total current liabilities...................... $ 597.3 $ (49.6) $ 547.7
Long-term debt - third parties................. 1,737.8 (0.3) $ (296.3) 1,441.2
Long-term debt - affiliates.................... 24.1 24.1
Other long-term liabilities.................... 214.0 214.0
Total stockholders' deficiency................. (1,013.1) (230.6) 296.3 (947.4)
--------- --------- -------- ---------
Total liabilities and stockholders'
deficiency............................. $ 1,560.1 $ (280.5) $ -- $ 1,279.6
========= ========= ======== =========
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
The Company has exposure to changing interest rates, primarily in the
United States. The Company's policy is to manage interest rate risk through the
use of a combination of fixed and floating rate debt. The Company from time to
time makes use of derivative financial instruments to adjust its fixed and
floating rate ratio. The table below provides information about the Company's
indebtedness that is sensitive to changes in interest rates. The table presents
cash flows with respect to principal on indebtedness and related weighted
average interest rates by expected maturity dates. Weighted average variable
rates are based on implied forward rates in the yield curve at December 31,
1999. The information is presented in U.S. dollar equivalents, which is the
Company's reporting currency.
Exchange Rate Sensitivity
The Company manufactures and sells its products in a number of countries
throughout the world and, as a result, is exposed to movements in foreign
currency exchange rates. In addition, a portion of the Company's borrowings are
denominated in foreign currencies, which are also subject to market risk
associated with exchange rate movement. The Company from time to time hedges
major net foreign currency cash exposures generally through foreign exchange
forward and option contracts. The contracts are entered into with major
financial institutions to minimize counterparty risk. These contracts generally
have a duration of less than twelve months and are primarily against the U.S.
dollar. In addition, the Company enters into foreign currency swaps to hedge
intercompany financing transactions. The forward foreign exchange and option
contracts entered into during 1999 expired by December 31, 1999.
24
The Company does not hold or issue financial instruments for trading
purposes.
EXPECTED MATURITY DATE FOR YEAR ENDED DECEMBER 31,
------------------------------------------------------------------- FAIR VALUE
DEC. 31,
2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
------- ------- --------- ------ --------- ------------ --------- -----------
DEBT (US dollar equivalent in millions)
Short-term variable rate (various currencies). $37.6 $ 37.6 $ 37.6
Average interest rate................... 8.3%
Long-term fixed rate ($US) $ 1,149.2 1,149.2 705.0
Average interest rate.................. 8.6%
Long-term variable rate ($US) $67.2 $405.8 473.0 473.0
Average interest rate................... 9.5% 9.7%
Long-term variable rate (various currencies).. 10.2 0.3 115.2 $0.1 125.8 125.8
Average interest rate...................... 3.1% 7.3% 8.0% 7.3%
--------- ---------
Total debt $ 1,785.6 $ 1,341.4
========= =========
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index on page F-1 of the Consolidated Financial
Statements of the Company and the Notes thereto contained herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
Directors and executive officers of the Company. Each Director holds office
until his successor is duly elected and qualified or until his resignation or
removal, if earlier.
NAME POSITION
- ---- --------
Ronald O. Perelman Chairman of the Board, Chairman of the Executive
Committee of the Board and Director
Jeffrey M. Nugent President, Chief Executive Officer and Director
Frank J. Gehrmann Executive Vice President and Chief Financial Officer
Wade H. Nichols III Executive Vice President and Chief Administrative Officer
Donald Drapkin Director
Howard Gittis Director
Edward J. Landau Director
The name, age (as of March 8, 2000), principal occupation for the last
five years and selected biographical information for each of the Directors and
executive officers of the Company are set forth below.
Mr. Perelman (57) has been Chairman of the Board of Directors of Products
Corporation and of Revlon, Inc. since June 1998, Chairman of the Executive
Committee of the Board of Products Corporation and of Revlon, Inc. since
November 1995, and a Director of Products Corporation and of Revlon, Inc. since
their respective formations in 1992. Mr. Perelman was Chairman of the Board of
Products Corporation and of Revlon, Inc. from their respective formations in
1992 until November 1995. Mr. Perelman has been Chairman of the Board and Chief
Executive Officer of Mafco Holdings Inc. ("Mafco Holdings" and, collectively
with MacAndrews Holdings, "MacAndrews & Forbes") and MacAndrews Holdings and
various of its affiliates since 1980. Mr. Perelman is also Chairman of the
Executive Committee of the Board of Directors of M&F Worldwide Corp. ("M&F
Worldwide") and is Chairman of the Board of Directors of Panavision Inc.
("Panavision"). Mr. Perelman is also a Director of the following corporations
which file reports pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"): Golden State Bancorp Inc. ("Golden State"), Golden State
Holdings Inc. ("Golden State Holdings"), M&F Worldwide, Panavision and REV
Holdings. (On December 27, 1996, Marvel Entertainment Group, Inc. ("Marvel"),
Marvel Holdings Inc. ("Marvel Holdings"), Marvel (Parent) Holdings Inc.
("Marvel Parent") and Marvel III Holdings Inc. ("Marvel III"), of which Mr.
Perelman was a Director on such date, filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code.)
Mr. Nugent (53) has been President and Chief Executive Officer of Products
Corporation and of Revlon, Inc. since December 5, 1999. He has been a Director
of Products Corporation and of Revlon, Inc. since February 14, 2000. He had
been Worldwide President and Chief Executive Officer of Neutrogena Corporation
from January 1995 until December 5, 1999. Prior to that, Mr. Nugent held
various senior executive positions at Johnson & Johnson.
Mr. Gehrmann (45) was elected as Executive Vice President and Chief
Financial Officer of Products Corporation and of Revlon, Inc. in January 1998.
From January 1997 until January 1998 he had been Vice President of Products
Corporation and of Revlon, Inc. Prior to January 1997 he served in various
appointed senior executive positions for Products Corporation and for Revlon,
Inc., including Executive Vice President and Chief Financial Officer of
Products Corporation's Operating Groups from August 1996 to January 1998,
Executive Vice President and Chief Financial Officer of Products Corporation's
Worldwide Consumer Products business from January 1995
26
to August 1996, and Executive Vice President and Chief Financial Officer of
Products Corporation's Revlon North America unit from September 1993 to January
1994. From 1983 through September 1993, Mr. Gehrmann held positions of
increasing responsibility in the financial organizations of Mennen Corporation
and the Colgate-Palmolive Company, which acquired Mennen Corporation in 1992.
Prior to 1983, Mr. Gehrmann served as a certified public accountant at the
international auditing firm of Ernst & Young.
Mr. Nichols (57) has been Executive Vice President and Chief
Administrative Officer of Products Corporation and of Revlon, Inc. since
January 1, 2000. He was Executive Vice President and General Counsel of
Products Corporation and of Revlon, Inc. from January 1998 until December 31,
1999 and served as Senior Vice President and General Counsel of Products
Corporation and of Revlon, Inc. from their respective formations in 1992 until
January 1998.
Mr. Drapkin (52) has been a Director of Products Corporation and of
Revlon, Inc. since their respective formations in 1992. He has been Vice
Chairman of the Board of MacAndrews & Forbes and various of its affiliates
since 1987. Mr. Drapkin was a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom for more than five years prior to 1987. Mr. Drapkin is also a
Director of the following corporations which file reports pursuant to the
Exchange Act: Algos Pharmaceutical Corporation, Anthracite Capital, Inc.,
BlackRock Asset Investors, The Molson Companies Limited, Nexell Therapeutics
Inc., Playboy Enterprises, Inc., Warnaco Group, Inc. and Weider Nutrition
International, Inc. (On December 27, 1996, Marvel, Marvel Holdings, Marvel
Parent and Marvel III, of which Mr. Drapkin was a Director on such date, filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code.)
Mr. Gittis (66) has been a Director of Products Corporation and of Revlon,
Inc. since their respective formations in 1992. He has been Vice Chairman of
the Board of MacAndrews & Forbes and various of its affiliates since 1985. Mr.
Gittis is also a Director of the following corporations which file reports
pursuant to the Exchange Act: Golden State, Golden State Holdings, Jones
Apparel Group, Inc., Loral Space & Communications Ltd., M&F Worldwide,
Panavision, REV Holdings and Sunbeam Corporation.
Mr. Landau (70) has been a Director of Products Corporation since June
1992 and a Director of Revlon, Inc. since June 1996. Mr. Landau has been Of
Counsel at the law firm of Wolf, Block, Schorr and Solis-Cohen LLP since
February 1998, and was a Senior Partner of Lowenthal, Landau, Fischer & Bring,
P.C., the predecessor to such firm, for more than five years prior to that
date. Mr. Landau is also a Director of Offitbank Investment Fund, Inc., which
files reports pursuant to the Exchange Act.
COMPENSATION OF DIRECTORS
Directors who currently are not receiving compensation as officers or
employees of the Company or any of its affiliates are paid an annual retainer
fee of $25,000, payable in quarterly installments, and a fee of $1,000 for each
meeting of the Board of Directors or any committee thereof they attend.
27
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the years indicated concerning
the compensation awarded to, earned by or paid to the persons who served as
Chief Executive Officer during 1999 and the four most highly paid executive
officers, other than the Chief Executive Officers, who served as executive
officers of the Company during 1999 (collectively, the "Named Executive
Officers"), for services rendered in all capacities to the Company and its
subsidiaries during such periods.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (a) AWARDS
- -------------------------- ---------- ------------ ------------ --------------------- ------------------ ----------------------
NAME AND OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
POSITION YEAR ($) ($) ($) OPTIONS ($)
- -------- ---- ---------- --------- ------------- ----------- -------------
Jeffrey M. Nugent 1999 160,256 0 36,382 300,000 38,743
President and Chief
Executive Officer (b)
- -------------------------------------------------------------------------------------------------------------------------------
George Fellows 1999 1,806,923 1,685,000 107,848 170,000 1,849,051
Former President 1998 1,800,000 115,000 88,549 170,000 33,181
and Chief 1997 1,250,000 1,250,000 22,191 170,000 30,917
Executive Officer (c)
- -------------------------------------------------------------------------------------------------------------------------------
M. Katherine Dwyer 1999 953,653 755,000 13,940 75,000 496,304
Former Senior Vice 1998 875,000 420,000 9,651 75,000 21,585
President (d) 1997 500,000 800,000 5,948 125,000 18,377
- -------------------------------------------------------------------------------------------------------------------------------
Irwin Engelman 1999 700,000 0 0 75,000 540,000
Former Vice
Chairman and
Chief
Administrative
Officer (e)
- -------------------------------------------------------------------------------------------------------------------------------
Frank J. Gehrmann 1999 494,038 370,500 3,089 65,000 14,244
Executive Vice 1998 427,500 80,200 3,343 30,000 17,297
President and Chief
Financial Officer (f)
- -------------------------------------------------------------------------------------------------------------------------------
Wade H. Nichols III 1999 593,558 216,450 17,964 40,000 37,802
Executive Vice 1998 555,000 83,600 19,457 40,000 33,195
President and Chief 1997 525,000 274,000 24,215 30,000 23,089
Administrative
Officer (g)
- -------------------------------------------------------------------------------------------------------------------------------
28
(a) The amounts shown in Annual Compensation for 1999, 1998 and 1997 reflect
salary, bonus and other annual compensation (including perquisites and other
personal benefits valued in excess of $50,000) and amounts reimbursed for
payment of taxes awarded to, earned by or paid to the persons listed for
services rendered to the Company and its subsidiaries. Products Corporation has
a bonus plan (the "Executive Bonus Plan") in which executives participate
(including Mr. Nugent and Mr. Nichols (see "--Employment Agreements and
Termination of Employment Arrangements")). The Executive Bonus Plan provides
for payment of cash compensation upon the achievement of predetermined
corporate and/or business unit and individual performance goals during the
calendar year established pursuant to the Executive Bonus Plan or by Revlon,
Inc.'s Compensation and Stock Plan Committee (the "Compensation Committee").
Mr. Gehrmann's compensation is reported for 1999 and 1998 only because he did
not serve as an executive officer of the Company prior to 1998. Each of Messrs.
Engelman's and Nugent's compensation is reported for 1999 only because neither
served as a paid executive officer of the Company prior to 1999.
(b) Mr. Nugent served as President and Chief Executive Officer of the Company
effective December 5, 1999. The amount shown for Mr. Nugent under Salary for
1999 is comprised of $76,923 in salary and $83,333 earned by Mr. Nugent for
consulting services provided by Mr. Nugent to the Company. Mr. Nugent did not
receive a Bonus for 1999. The amount shown for Mr. Nugent under Other Annual
Compensation for 1999 includes a payment of $36,382 in respect of gross ups for
taxes on imputed income arising out of relocation expenses paid or reimbursed
by the Company in 1999. The amount shown under All Other Compensation for 1999
reflects $38,743 in Company-paid relocation expenses.
(c) Mr. Fellows served as President and Chief Executive Officer of the Company
during 1999 until his resignation effective November 1999. The amount shown for
Mr. Fellows under Bonus for 1999 is comprised of a special restructuring bonus
of $1,685,000 paid to Mr. Fellows for 1999 upon achievement of business
objectives set by the Compensation Committee. The amount shown for Mr. Fellows
under Other Annual Compensation for 1999 includes $18,020 in respect of
personal use of a Company-provided automobile and $17,145 in respect of
Company-paid tax preparation expenses and payments in respect of gross ups for
taxes on imputed income arising out of personal use of a Company-provided
automobile and Company-provided air travel and for taxes on imputed income
arising out of premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown under All Other Compensation for 1999 reflects
$29,251 in respect of life insurance premiums, $4,800 in respect of matching
contributions under the Revlon Employees' Savings, Profit Sharing and
Investment Plan (the "401(k) Plan"), $15,000 in respect of matching
contributions under the Revlon Excess Savings Plan for Key Employees (the
"Excess Plan") and $1,800,000 payable pursuant to Mr. Fellows' separation
agreement. The amount shown for Mr. Fellows under Other Annual Compensation for
1998 includes $18,020 in respect of personal use of a Company-provided
automobile and $15,445 in respect of membership fees and related expenses for
personal use of a health and country club and payments in respect of gross ups
for taxes on imputed income arising out of personal use of a Company-provided
automobile and Company-provided air travel and for taxes on imputed income
arising out of premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown under All Other Compensation for 1998 reflects
$13,381 in respect of life insurance premiums, $4,800 in respect of matching
contributions under the 401(k) Plan and $15,000 in respect of matching
contributions under the Excess Plan. The amounts shown under Other Annual
Compensation for 1997 reflect payments in respect of gross ups for taxes on
imputed income arising out of personal use of a Company-provided automobile and
for taxes on imputed income arising out of premiums paid or reimbursed by the
Company in respect of life insurance. The amount shown under All Other
Compensation for 1997 reflects $11,117 in respect of life insurance premiums,
$4,800 in respect of matching contributions under the 401(k) Plan and $15,000
in respect of matching contributions under the Excess Plan.
(d) Ms. Dwyer served as Senior Vice President of the Company during 1999 and
resigned effective January 3, 2000. The amount shown for Ms. Dwyer under Bonus
for 1999 is comprised of a special restructuring bonus of $755,000 paid to Ms.
Dwyer for 1999 upon achievement of business objectives set by the Compensation
Committee. The amounts shown under Bonus for 1998 and 1997 include an
additional payment of $300,000 in each year pursuant to her employment
agreement in effect at the time. The amounts shown for Ms. Dwyer under Other
Annual
29
Compensation for 1999, 1998 and 1997 reflect payments in respect of gross ups
for taxes on imputed income arising out of personal use of a Company-provided
automobile and payments in respect of gross ups for taxes on imputed income
arising out of premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown under All Other Compensation for 1999 reflects
$1,810 in respect of life insurance premiums, $4,800 in respect of matching
contributions under the 401(k) Plan, $14,694 in respect of matching
contributions under the Excess Plan and $475,000 payable pursuant to Ms.
Dwyer's separation agreement. The amount shown under All Other Compensation for
1998 reflects $1,785 in respect of life insurance premiums, $4,800 in respect
of matching contributions under the 401(k) Plan and $15,000 in respect of
matching contributions under the Excess Plan. The amount shown under All Other
Compensation for 1997 reflects $2,720 in respect of life insurance premiums,
$4,800 in respect of matching contributions under the 401(k) Plan and $10,857
in respect of matching contributions under the Excess Plan.
(e) Mr. Engelman became an executive officer of the Company in November 1998
and served as Vice Chairman and Chief Administrative Officer of the Company
during 1999 until his resignation effective December 31, 1999. The amount shown
for Mr. Engelman under All Other Compensation for 1999 reflects $15,000 in
respect of matching contributions under the Excess Plan and $525,000 payable
pursuant to Mr. Engelman's separation agreement.
(f) Mr. Gehrmann became an executive officer of the Company in January 1998.
The amount shown for Mr. Gehrmann under Bonus for 1999 reflects the bonus
amount payable to Mr. Gehrmann pursuant to his employment agreement. The
amounts shown for Mr. Gehrmann under Other Annual Compensation for 1999 and
1998 reflects payments in respect of gross ups for taxes on imputed income
arising out of personal use of a Company-provided automobile. The amount shown
under All Other Compensation for 1999 reflects $4,800 in respect of matching
contributions under the 401(k) Plan and $9,444 in respect of matching
contributions under the Excess Plan. The amount shown under All Other
Compensation for 1998 reflects $4,800 in respect of matching contributions
under the 401(k) Plan and $12,497 in respect of matching contributions under
the Excess Plan.
(g) The amount shown for Mr. Nichols under Bonus for 1999 reflects the amount
payable to Mr. Nichols under the Executive Bonus Plan, taking into account the
guarantee by the Company of a minimum of 50% of targeted awards for 1999 (see
"--Employment Agreements and Termination of Employment Arrangements"). The
amount shown for Mr. Nichols under Bonus for 1997 were deferred pursuant to the
Revlon Executive Deferred Compensation Plan (the "Deferred Compensation Plan")
pursuant to which eligible executive employees who participate in the Executive
Bonus Plan may elect to defer all or a portion of the bonus otherwise payable
in respect of a calendar year. The amounts shown under Other Annual
Compensation for 1999, 1998 and 1997 reflect payments in respect of gross ups
for taxes on imputed income arising out of personal use of a Company-provided
automobile and payments for taxes on imputed income arising out of premiums
paid or reimbursed by the Company in respect of life insurance. The amount
shown for Mr. Nichols under All Other Compensation for 1999 reflects $9,377 in
respect of life insurance premiums, $4,800 in respect of matching contributions
under the 401(k) Plan, $11,781 in respect of matching contributions under the
Excess Plan and $11,844 in respect of above-market earnings on compensation
deferred under the Deferred Compensation Plan for each year in which
compensation was deferred that were earned but not paid or payable during 1999.
The amount shown under All Other Compensation for 1998 reflects $9,990 in
respect of life insurance premiums, $4,800 in respect of matching contributions
under the 401(k) Plan, $10,463 in respect of matching contributions under the
Excess Plan and $7,942 in respect of above-market earnings on compensation
deferred under the Deferred Compensation Plan for each year in which
compensation was deferred that were earned but not paid or payable during 1998.
The amount shown under All Other Compensation for 1997 reflects $4,252 in
respect of life insurance premiums, $4,800 in respect of matching contributions
under the 401(k) Plan, $11,606 in respect of matching contributions under the
Excess Plan and $2,431 in respect of above-market earnings on compensation
deferred under the Deferred Compensation Plan for each year in which
compensation was deferred that were earned but not paid or payable during 1997.
30
OPTION GRANTS IN THE LAST FISCAL YEAR
During 1999, the following grants of stock options were made pursuant to
the Revlon, Inc. Second Amended and Restated 1996 Stock Plan (the "Stock Plan")
to the executive officers named in the Summary Compensation Table:
INDIVIDUAL GRANTS GRANT
DATE
VALUE(a)
- ------------------------------------------------------------------------------------------------------------
NAME NUMBER OF PERCENT OF EXERCISE EXPIRATION GRANT
SECURITIES TOTAL OR BASE DATE DATE
UNDERLYING OPTIONS PRICE PRESENT
OPTIONS GRANTED TO ($/SH) VALUE ($)
GRANTED (#) EMPLOYEES
IN
FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------
Jeffrey M. Nugent 300,000 12% 9.31 12/5/09 1,968,360
George Fellows 170,000 7% 15.00 12/31/02 1,547,340
M. Katherine Dwyer 75,000 3% 15.00 1/3/00 682,650
Irwin Engelman 75,000 3% 15.00 2/12/01 682,650
Frank J. Gehrmann 40,000 15.00 2/12/09 364,080
25,000 3% 24.13 5/17/09 407,784
Wade H. Nichols III 40,000 2% 15.00 2/12/09 364,080
The grants made during 1999 under the Stock Plan to Messrs. Fellows,
Engelman and Nichols and Ms. Dwyer were made on February 12, 1999, vested fully
on the first anniversary of the grant date and have an exercise price equal to
the New York Stock Exchange ("NYSE") closing price per share of Revlon, Inc.
Class A Common Stock on the grant date, as indicated in the table above. The
options granted to Mr. Nichols in 1999 consist of non-qualified options having
a term of 10 years. The options granted to Messrs. Fellows and Engelman in 1999
consist of non-qualified options that expire on December 31, 2002 and February
12, 2001, respectively, and the options granted to Ms. Dwyer in 1999 consist of
non-qualified options that expired on January 3, 2000, pursuant to her
termination agreement. (See "--Employment Agreements and Termination of
Employment Arrangements".) The grants made during 1999 under the Stock Plan to
Mr. Gehrmann were made on February 12, 1999 (with respect to an option to
purchase 40,000 shares of Revlon, Inc.'s Class A Common Stock that vested in
full on the first anniversary of the grant date) and May 17, 1999 (with respect
to an option to purchase 25,000 shares of Revlon, Inc.'s Class A Common Stock
that vests 25% each year beginning on the first anniversary of the grant date
and will become 100% vested on the fourth anniversary of the grant date) and
consist of non-qualified options having a term of 10 years with an exercise
price equal to the NYSE closing price per share of Revlon, Inc. Class A Common
Stock on the applicable grant date, as indicated in the table above. The grant
made during 1999 under the Stock Plan to Mr. Nugent was made on December 5,
1999, has an exercise price equal to the NYSE closing price per share of Revlon,
Inc. Class A Common Stock on the first business day after the grant date, as
indicated in the table above, and will not vest as to any portion until the
third anniversary of the date of grant and will thereupon become 100% vested,
except that upon termination of employment by Mr. Nugent for "good reason" or by
the Company other than for "cause" under his employment agreement, such options
will vest with respect to 33 1/3% of the shares subject thereto if such
termination is on or after the first and before the second anniversaries of such
grant and with respect to 66 2/3% if such termination is on or after the second
and before the third anniversaries of such grant. During 1999, Revlon, Inc. also
granted an option to purchase 300,000 shares of its Class A Common Stock
pursuant to the Stock Plan to Mr. Perelman, the Chairman of the Board of
Directors of the Company. The option vested in full on the grant date and has an
exercise price of $15.00, the NYSE closing price per share of Revlon, Inc. Class
A Common Stock on February 12, 1999, the date of the grant.
(a) Grant Date Present Values were calculated using the Black-Scholes
option pricing model. The model as applied used the grant dates of February 12,
1999 and May 17, 1999 with respect to the options granted on such dates and
used the grant date of December 6, 1999 (the first business day after the date
of grant) with respect to the option granted to Mr. Nugent on December 5, 1999.
Stock option models require a prediction about the future movement of stock
price. The following assumptions were made for purposes of calculating Grant
Date Present Values: (i) a risk-free rate of return of 5.18% with respect to
the options granted on February 12, 1999, 6.24% with respect to the options
granted on May 17, 1999, and 5.75% with respect to the option granted to Mr.
Nugent on
31
December 5, 1999, which were the rates as of the applicable grant dates for the
U.S. Treasury Zero Coupon Bond issues with a remaining term similar to the
expected term of the options; (ii) stock price volatility of 68% based upon the
volatility of the stock price of Revlon, Inc. Class A Common Stock; (iii) a
constant dividend rate of zero percent and (iv) that the options normally would
be exercised on the final day of their seventh year after grant. No adjustments
to the theoretical value were made to reflect the waiting period, if any, prior
to vesting of the stock options or the transferability (or restrictions related
thereto) of the stock options. The real value of the options in the table
depends upon the actual performance of Revlon, Inc. Class A Common Stock during
the applicable period and upon when they are exercised.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following chart shows the number of stock options exercised during
1999 and the 1999 year-end value of the stock options held by the executive
officers named in the Summary Compensation Table:
NAME SHARES VALUE NUMBER OF SECURITIES VALUE OF
ACQUIRED REALIZED UNDERLYING UNEXERCISED
ON EXERCISE ($) UNEXERCISED IN-THE-
(#) OPTIONS AT FISCAL MONEY OPTIONS
YEAR-END (#) AT FISCAL YEAR-END
EXERCISABLE/UNEXERCISABLE EXERCISABLE/
UNEXERCISABLE
(a)($)
- ------------------------------------------------------------------------------------------------------------
Jeffrey M. Nugent 0 0 0/300,000 0/0
George Fellows 0 0 205,000/255,000(b) 0/0
M. Katherine Dwyer 0 0 126,250/193,750(c) 0/0
Irwin Engelman 0 0 18,750/131,250 0/0
Frank J. Gehrmann 0 0 21,000/118,000 0/0
Wade H. Nichols 0 0 55,000/85,000 0/0
(a) The market value of the underlying shares of Revlon, Inc. Class A Common
Stock at year end, calculated using $7 15/16, the December 31, 1999 NYSE
closing price per share of Revlon, Inc. Class A Common Stock, was less than the
exercise price of all stock options listed in the table. The actual value, if
any, an executive may realize upon exercise of a stock option depends upon the
amount by which the market price of shares of Revlon, Inc. Class A Common Stock
exceeds the exercise price per share when the stock options are exercised.
(b) Pursuant to Mr. Fellows' separation agreement effective November 1999, Mr.
Fellows' 1998 option grant was cancelled; accordingly, the 1998 grant is not
included in the option information in the above table for Mr. Fellows at fiscal
year end.
(c) The option information for Ms. Dwyer in the table above is correct as of
December 31, 1999. Pursuant to Ms. Dwyer's separation agreement, effective
January 3, 2000 unvested options were cancelled; accordingly, as of January 3,
2000 the number of securities underlying Ms. Dwyer's total outstanding options,
all of which are exercisable, was 126,250.
32
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Each of Messrs. Nugent, Gehrmann and Nichols has a current executive
employment agreement with Products Corporation. Mr. Nugent's employment
agreement, effective December 5, 1999, provides that he will serve as President
and Chief Executive Officer at a base salary of not less than $1,000,000 for
1999 and 2000, not less than $1,150,000 for 2001 and not less than $1,300,000
for 2002, and that management recommend to the Compensation Committee that he
be granted options to purchase 300,000 shares of Revlon, Inc. Class A Common
Stock on December 5, 1999 (which grant was made) and 100,000 shares of Revlon,
Inc. Class A Common Stock on each of December 5, 2000 and 2001. At any time on
or after December 31, 2002, Products Corporation may terminate the term of Mr.
Nugent's agreement by 24 months' prior notice of non-renewal. During any such
period after notice of non-renewal Mr. Nugent would be deemed an employee at
will and would be eligible for severance under the Executive Severance Policy.
Mr. Gehrmann entered into an employment agreement with Products Corporation
dated as of May 10, 1999, which provides that he will serve as Chief Financial
Officer at a base salary of not less than $500,000 and that management will
recommend to the Compensation Committee that he be granted options to purchase
40,000 shares of Revlon, Inc. Class A Common Stock each year during the term of
the agreement (unless and until a "triggering event" (as defined in the
employment agreement) were to occur). At any time, Products Corporation may
give written notice of non-extension of the term of Mr. Gehrmann's agreement
such that the term would expire on the third anniversary of such notice. Mr.
Nichols' employment agreement with Products Corporation was amended and
restated as of May 10, 1999 and amended as of January 1, 2000 and provides that
he will serve as chief administrative officer or another equivalent executive
position through February 28, 2003 at a base salary of not less than $650,000
and that management will recommend to the Compensation Committee that he be
granted options to purchase 40,000 shares of Revlon, Inc. Class A Common Stock
each year during the term of the agreement (unless and until a "triggering
event" (as defined in the employment agreement) were to occur). Mr. Fellows
resigned from his employment with the Company effective November 1, 1999 and
entered into a termination agreement with Products Corporation dated as of
February 16, 2000 (the "Fellows Agreement"), which provides that he receive a
separation allowance of $5,400,000 payable over a period to expire December 31,
2002, which allowance would be reduced in each calendar year on account of any
compensation earned from employment or consulting services during such calendar
year by an amount equal to fifty percent of the gross amount of such
compensation earned up to $1,000,000. Pursuant to the Fellows Agreement, the
Company made a payment to Mr. Fellows for 1999 in the amount of $1,800,000 and
will make a payment for 2000 in the amount of $900,000. Ms. Dwyer resigned from
her employment with the Company effective January 3, 2000 and entered into a
termination agreement with Products Corporation dated as of November 23, 1999
(the "Dwyer Agreement"), which provides that she receive a separation allowance
of $1,900,000 payable over a period of twenty-four months, the unpaid portion
of which allowance would be reduced on account of any compensation earned for
employment or consulting services after the date of acceptance of subsequent
employment, provided that Ms. Dwyer could, upon commencing subsequent
employment, elect instead of such reduction to be paid a cash lump sum amount
equal to 50% of the remaining allowance. Pursuant to the Dwyer Agreement, the
Company made a payment to Ms. Dwyer for 1999 of $475,000. Mr. Engelman resigned
from his employment with the Company effective December 31, 1999 and entered
into a termination agreement with Products Corporation dated as of November 17,
1999 (the "Engelman Agreement"), which provides that he receive severance pay
for twelve months at a base salary rate of $700,000, which pay would not be
reduced by compensation earned for employment of consulting services during the
severance period. Pursuant to the Engelman Agreement, the Company made a
payment to Mr. Engelman for 1999 in the amount of $525,000.
During 1999, in connection with the Company's review of strategic
alternatives and in order to retain its executives during such process, the
Company guaranteed a minimum of 50% of targeted awards payable under the
Executive Bonus Plan for 1999, regardless of achievement of corporate and/or
business unit objectives. Messrs. Nugent's and Nichols' employment agreements
provide for participation in the Executive Bonus Plan. Mr. Nugent's agreement
also provides that he will receive not less than $500,000 as a bonus for 2000
regardless of whether Executive Bonus Plan objectives are attained for such
year. Mr. Gehrmann's agreement provides for a bonus for 1999 equal to 75% of
base salary and for 2000 and thereafter a bonus of 75% of Mr. Gehrmann's 1999
base salary payable in bi-weekly installments in lieu of annual bonus payments.
All of the employment agreements currently in effect provide for continuation
of life insurance and executive medical insurance coverage in the event of
permanent disability and participation in other executive benefit plans on a
basis equivalent to senior executives of the Company generally. The agreements
with Messrs. Nugent and Nichols provide for Company-paid supplemental term
33
life insurance during employment in the amount of three times base salary, and
all of the employment agreements currently in effect provide for Company-paid
supplemental disability insurance. All of the employment agreements currently
in effect provide for protection of Company confidential information and
include a non-compete obligation.
Mr. Gehrmann's agreement provides that in the event of termination of the
term of the employment agreement by Mr. Gehrmann on 30 days' notice effective
June 30, 2000 or for breach by the Company of a material provision of the
employment agreement, failure of the Compensation Committee to adopt and
implement the recommendations of management with respect to stock option
grants, or following a "triggering event" (as defined in the employment
agreement), Mr. Gehrmann would be entitled to continued base salary and bonus
payments until the third anniversary of the date of termination (without
reduction for compensation received by Mr. Gehrmann from other employment or
consultancy) as well as continued participation in the Company's life insurance
plan subject to a limit of two years and medical plans subject to the terms of
such plans until the third anniversary of the date of termination or until Mr.
Gehrmann were to become covered by like plans of another company. Mr. Nichols'
agreement provides that in the event of termination of the term of the
employment agreement by Mr. Nichols for breach by the Company of a material
provision of the employment agreement, failure of the Compensation Committee to
adopt and implement the recommendations of management with respect to stock
option grants, or following a "triggering event" for "good reason" (as defined
in the employment agreement), which event is not agreed to by Mr. Nichols, or
by the Company (otherwise than for "cause", as defined in the employment
agreement, or disability), Mr. Nichols would be entitled, at his election, to
severance pursuant to the Executive Severance Policy (see "- Executive
Severance Policy") (other than the six-month limit on lump sum payment provided
for in the Executive Severance Policy, which provision would not apply to Mr.
Nichols) or continued payments of base salary and bonus throughout the term and
continued participation in the Company's life insurance plan subject to a limit
of two years and medical plans subject to the terms of such plans throughout
the term or until Mr. Nichols were covered by like plans of another company.
Such payments to Mr. Nichols would only be reduced by compensation earned by
Mr. Nichols from other employment or consultancy during such period if
termination of employment were prior to a "triggering event" (as defined in the
employment agreement). Mr. Nugent's agreement provides that in the event of
termination of the term of the employment agreement by Mr. Nugent for breach by
the Company of a material provision of the employment agreement or failure of
the Compensation Committee to adopt and implement the recommendations of
management with respect to stock option grants, or by the Company prior to
December 31, 2002 (otherwise than for "cause" as defined in the employment
agreement or disability), Mr. Nugent would be entitled, at his election, to
severance pursuant to the Executive Severance Policy (see "-Executive Severance
Policy") (other than the six-month limit on lump sum payment provided for in
the Executive Severance Policy, which provision would not apply to Mr. Nugent)
or continued payments of base salary through December 31, 2004 and continued
participation in the Company's life insurance plan subject to a limit of two
years and medical plans subject to the terms of such plans through December 31,
2004 or until Mr. Nugent were covered by like plans of another company,
continued Company-paid supplemental term life insurance and continued
Company-paid supplemental disability insurance. Such payments to Mr. Nugent
would be reduced by any compensation earned by Mr. Nugent from other employment
or consultancy during such period. In addition, the employment agreement with
Mr. Nugent provides that if he remains employed by Products Corporation or its
affiliates until age 62, then upon any subsequent retirement he will be
entitled to a supplemental pension benefit in a sufficient amount so that his
annual pension benefit from all qualified and non-qualified pension plans of
Products Corporation and its affiliates (expressed as a straight life annuity)
equals $500,000. If Mr. Nugent's employment were to terminate prior to
September 30, 2000 then he would receive no supplemental pension benefit. If
his employment were to terminate on or after September 30, 2000 and prior to
September 30, 2001 then he would receive 11.1% of the amount otherwise payable
pursuant to his agreement and thereafter an additional 11.1% would accrue as of
each September 30th on which Mr. Nugent is still employed (but in no event more
than would have been payable to Mr. Nugent under the foregoing provision had he
retired at age 62). Mr. Nugent would not receive any supplemental pension
benefit and would be required to reimburse the Company for any supplemental
pension benefits received if he were to terminate his employment prior to
January 1, 2003 other than for "good reason" (as defined in the employment
agreement), or if he were to breach the agreement or be terminated by the
Company for "cause" (as defined in the employment agreement).
Mr. Nugent's employment agreement provides that he is entitled to a loan
from Products Corporation of up to $500,000 for relocation expenses, which will
be due and payable with interest at the applicable federal rate upon the
earlier of the termination of his employment or five years from the initial
loan. In addition, during the term of his employment agreement, Mr. Nugent will
be entitled to additional compensation payable on a monthly basis equal to the
amount actually paid by him in respect of interest and principal on a bank loan
(the "Mortgage") of up to
34
$1,500,000 obtained by Mr. Nugent to purchase a principal residence in the New
York metropolitan area (the "Home Loan Payments"), plus a gross up for any
taxes payable by Mr. Nugent as a result of such additional compensation. If Mr.
Nugent terminates his employment for other than "good reason" or is terminated
for "cause" (as such terms are defined in his employment agreement), then he
shall be obligated to pay to Products Corporation an amount equal to the total
amount of interest that would have been payable on the Home Loan Payments if
the rate of interest on the Mortgage were the applicable federal rate in effect
from time to time, plus the applicable tax gross up for such amounts. In
addition, Mr. Nugent's employment agreement provides that he shall be entitled
to a special bonus, payable on January 15 of the year next following the year
in which his employment terminates, equal to the product of (A) $1,500,000 less
the amount of Home Loan Payments made prior to the termination multiplied by
(B) the following percentages: for termination in 2000, 0%; for termination in
2001, 20%; for termination in 2002, 40%; for termination in 2003, 60%; for
termination in 2004, 80%; and for termination in 2005 or thereafter, 100%.
Notwithstanding the above, if Mr. Nugent terminates his employment for other
than "good reason" or is terminated for "cause" (as such terms are defined in
his employment agreement), or if he breaches certain post-employment covenants,
any bonus described above shall be forfeited or repaid by Mr. Nugent, as the
case may be.
EXECUTIVE SEVERANCE POLICY
Products Corporation's Executive Severance Policy provides that upon
termination of employment of eligible executive employees, including Mr. Nugent
and the other Named Executive Officers (other than Ms. Dwyer and Messrs.
Fellows and Engelman), other than voluntary resignation or termination by
Products Corporation for good reason, in consideration for the execution of a
release and confidentiality agreement and Products Corporation's standard
employee non-competition agreement, the eligible executive will be entitled to
receive, in lieu of severance under any employment agreement then in effect or
under Products Corporation's basic severance plan, a number of months of
severance pay in semi-monthly installments based upon such executive's grade
level and years of service reduced by the amount of any compensation from
subsequent employment, unemployment compensation or statutory termination
payments received by such executive during the severance period, and, in
certain circumstances, by the actuarial value of enhanced pension benefits
received by the executive, as well as continued participation in medical and
certain other benefit plans for the severance period (or in lieu thereof, upon
commencement of subsequent employment, a lump sum payment equal to the then
present value of 50% of the amount of base salary then remaining payable
through the balance of the severance period). Pursuant to the Executive
Severance Policy, upon meeting the conditions set forth therein, Messrs.
Gehrmann, Nugent and Nichols would be entitled to severance pay equal to two
years of base salary at the rate in effect on the date of employment
termination plus continued participation in the medical and dental plans for
two years on the same terms as active employees.
35
DEFINED BENEFIT PLANS
The following table shows the estimated annual retirement benefits
payable (as of December 31, 1999) at normal retirement age (65) to a person
retiring with the indicated average compensation and years of credited service,
on a straight life annuity basis, after Social Security offset, under the Revlon
Employees' Retirement Plan (the "Retirement Plan"), including amounts
attributable to the Pension Equalization Plan, each as described below.
HIGHEST CONSECUTIVE ESTIMATED ANNUAL STRAIGHT LIFE ANNUITY BENEFITS AT
FIVE-YEAR RETIREMENT WITH
AVERAGE COMPENSATION INDICATED YEARS OF CREDITED SERVICE (a)
DURING FINAL
TEN YEARS
- ------------------------ ---------------------------------------------------------------------------------
15 20 25 30 35
- -------- -------- -------- -------- -------- --------
$600,000 $151,701 $202,268 $252,835 $303,402 $303,402
700,000 177,701 236,935 296,168 355,402 355,402
800,000 203,701 271,601 339,502 407,402 407,402
900,000 229,701 306,268 382,835 459,402 459,402
1,000,000 255,701 340,935 426,168 500,000 500,000
1,100,000 281,701 375,601 469,502 500,000 500,000
1,200,000 307,701 410,268 500,000 500,000 500,000
1,300,000 333,701 444,935 500,000 500,000 500,000
1,400,000 359,701 479,601 500,000 500,000 500,000
1,500,000 385,701 500,000 500,000 500,000 500,000
2,000,000 500,000 500,000 500,000 500,000 500,000
2,500,000 500,000 500,000 500,000 500,000 500,000
(a) The normal form of benefit for the Retirement Plan and the Pension
Equalization Plan is a straight life annuity.
The Retirement Plan is intended to be a tax qualified defined benefit
plan. Retirement Plan benefits are a function of service and final average
compensation. The Retirement Plan is designed to provide an employee having 30
years of credited service with an annuity generally equal to 52% of final
average compensation, less 50% of estimated individual Social Security
benefits. Final average compensation is defined as average annual base salary
and bonus (but not any part of bonuses in excess of 50% of base salary) during
the five consecutive calendar years in which base salary and bonus (but not any
part of bonuses in excess of 50% of base salary) were highest out of the last
10 years prior to retirement or earlier termination. Except as otherwise
indicated, credited service includes all periods of employment with the Company
or a subsidiary prior to retirement. The base salaries and bonuses of each of
the Chief Executive Officer and the other Named Executive Officers are set
forth in the Summary Compensation Table under columns entitled "Salary" and
"Bonus," respectively.
The Employee Retirement Income Security Act of 1974, as amended, places
certain maximum limitations upon the annual benefit payable under all qualified
plans of an employer to any one individual. In addition, the Omnibus Budget
Reconciliation Act of 1993 limits the annual amount of compensation that can be
considered in determining the level of benefits under qualified plans. The
Pension Equalization Plan, as amended effective December 14, 1998, is a
non-qualified benefit arrangement designed to provide for the payment by
Products Corporation of the difference, if any, between the amount of such
maximum limitations and the annual benefit that would be payable under the
Retirement Plan but for such limitations, up to a combined maximum annual
straight life annuity benefit at age 65 under the Retirement Plan and the
Pension Equalization Plan of $500,000. Benefits provided under the Pension
Equalization Plan are conditioned on the participant's compliance with his or
her non-competition agreement and on the participant not competing with
Products Corporation for one year after termination of employment.
The number of years of credited service under the Retirement Plan and the
Pension Equalization Plan as of January 1, 2000 (rounded to full years) for Mr.
Fellows is eleven years (which includes credit for prior service with
36
Revlon Holdings Inc. ("Holdings")), for Ms. Dwyer is six years, for Mr.
Engelman is one year, for Mr. Gehrmann is six years and for Mr. Nichols is 21
years (which includes credit for prior service with Holdings). Mr. Nugent had
no years of credited service as of January 1, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Revlon, Inc. beneficially owns all the outstanding shares of common stock
of Products Corporation. Through REV Holdings, the parent of Revlon, Inc.,
Ronald O. Perelman, 35 East 62nd Street, New York, New York, 10021, through
MacAndrews Holdings, a corporation wholly owned indirectly through Mafco
Holdings, beneficially owns 11,250,000 shares of Class A Common Stock of
Revlon, Inc. (representing 56.3% of the outstanding shares of Class A Common
Stock of Revlon, Inc.) and all of the outstanding 31,250,000 shares of Class B
Common Stock of Revlon, Inc., which together represent 83.0% of the outstanding
shares of Revlon, Inc. common stock and have approximately 97.4% of the
combined voting power of the outstanding shares of Revlon, Inc. common stock.
No other director, executive officer or other person beneficially owns any
shares of Products Corporation's common stock. All of the shares of Revlon,
Inc. common stock owned by REV Holdings are pledged by REV Holdings to secure
obligations, and shares of intermediate holding companies are or may from time
to time be pledged to secure obligations of Mafco Holdings or its affiliates.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Revlon, Inc. beneficially owns all of the outstanding shares of common
stock of Products Corporation. MacAndrews & Forbes beneficially owns shares of
Revlon, Inc. common stock having approximately 97.4% of the combined voting
power of the outstanding shares of Revlon, Inc. common stock. As a result,
MacAndrews & Forbes is able to elect the entire Board of Directors of Products
Corporation and control the vote on all matters submitted to a vote of Products
Corporation's stockholder, including extraordinary transactions such as mergers
or sales of all or substantially all of Products Corporation's assets.
MacAndrews & Forbes is wholly owned by Ronald O. Perelman, who is Chairman of
the Board of Directors of Products Corporation.
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an asset
transfer agreement with Holdings and certain of its wholly owned subsidiaries
(the "Asset Transfer Agreement"), and Revlon, Inc. and Products Corporation
entered into a real property asset transfer agreement with Holdings (the "Real
Property Transfer Agreement" and, together with the Asset Transfer Agreement,
the "Transfer Agreements"), and pursuant to such agreements, on June 24, 1992
Holdings transferred assets to Products Corporation and Products Corporation
assumed all the liabilities of Holdings, other than certain specifically
excluded assets and liabilities (the liabilities excluded are referred to as
the "Excluded Liabilities"). Certain consumer products lines sold in
demonstrator assisted distribution channels considered not integral to the
Company's business and which historically had not been profitable (the
"Retained Brands") and certain of the assets and liabilities were retained by
Holdings. Holdings agreed to indemnify Revlon, Inc. and Products Corporation
against losses arising from the Excluded Liabilities, and Revlon, Inc. and
Products Corporation agreed to indemnify Holdings against losses arising from
the liabilities assumed by Products Corporation. The amount reimbursed by
Holdings to Products Corporation for the Excluded Liabilities for 1999 was $0.5
million.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered into
an operating services agreement (as amended and restated, and as subsequently
amended, the "Operating Services Agreement") pursuant to which Products
Corporation has manufactured, marketed, distributed, warehoused and
administered, including the collection of accounts receivable, the Retained
Brands for Holdings. Pursuant to the Operating Services Agreement, Products
Corporation was reimbursed an amount equal to all of its and Revlon, Inc.'s
direct and indirect costs incurred in connection with furnishing such services,
net of the amounts collected by Products Corporation with respect to the
Retained Brands, payable quarterly. There were no amounts reimbursed by
Holdings to Products Corporation for such direct and indirect costs for 1999.
37
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have entered
into reimbursement agreements (the "Reimbursement Agreements") pursuant to
which (i) MacAndrews Holdings is obligated to provide (directly or through
affiliates) certain professional and administrative services, including
employees, to Revlon, Inc. and its subsidiaries, including Products
Corporation, and purchase services from third party providers, such as
insurance and legal and accounting services, on behalf of Revlon, Inc. and its
subsidiaries, including Products Corporation, to the extent requested by
Products Corporation, and (ii) Products Corporation is obligated to provide
certain professional and administrative services, including employees, to
MacAndrews Holdings (and its affiliates) and purchase services from third party
providers, such as insurance and legal and accounting services, on behalf of
MacAndrews Holdings (and its affiliates) to the extent requested by MacAndrews
Holdings, provided that in each case the performance of such services does not
cause an unreasonable burden to MacAndrews Holdings or Products Corporation, as
the case may be. The Company reimburses MacAndrews Holdings for the allocable
costs of the services purchased for or provided to the Company and its
subsidiaries and for reasonable out-of-pocket expenses incurred in connection
with the provision of such services. MacAndrews Holdings (or such affiliates)
reimburses the Company for the allocable costs of the services purchased for or
provided to MacAndrews Holdings (or such affiliates) and for the reasonable
out-of-pocket expenses incurred in connection with the purchase or provision of
such services. The net amount reimbursed by MacAndrews Holdings to the Company
for the services provided under the Reimbursement Agreements for 1999 was $0.5
million. Each of Revlon, Inc. and Products Corporation, on the one hand, and
MacAndrews Holdings, on the other, has agreed to indemnify the other party for
losses arising out of the provision of services by it under the Reimbursement
Agreements other than losses resulting from its willful misconduct or gross
negligence. The Reimbursement Agreements may be terminated by either party on
90 days' notice. The Company does not intend to request services under the
Reimbursement Agreements unless their costs would be at least as favorable to
the Company as could be obtained from unaffiliated third parties.
TAX SHARING AGREEMENT
Revlon, Inc. and Products Corporation, for federal income tax purposes,
are included in the affiliated group of which Mafco Holdings is the common
parent, and Revlon, Inc.'s and Products Corporation's federal taxable income
and loss are included in such group's consolidated tax return filed by Mafco
Holdings. Revlon, Inc. and Products Corporation also may be included in certain
state and local tax returns of Mafco Holdings or its subsidiaries. In June
1992, Holdings, Revlon, Inc., Products Corporation and certain of its
subsidiaries, and Mafco Holdings entered into a tax sharing agreement (as
subsequently amended, the "Tax Sharing Agreement"), pursuant to which Mafco
Holdings has agreed to indemnify Revlon, Inc. and Products Corporation against
federal, state or local income tax liabilities of the consolidated or combined
group of which Mafco Holdings (or a subsidiary of Mafco Holdings other than
Revlon, Inc. and Products Corporation or its subsidiaries) is the common parent
for taxable periods beginning on or after January 1, 1992 during which Revlon,
Inc. and Products Corporation or a subsidiary of Products Corporation is a
member of such group. Pursuant to the Tax Sharing Agreement, for all taxable
periods beginning on or after January 1, 1992, Products Corporation will pay to
Revlon, Inc., which in turn will pay to Holdings amounts equal to the taxes
that Products Corporation would otherwise have to pay if it were to file
separate federal, state or local income tax returns (including any amounts
determined to be due as a result of a redetermination arising from an audit or
otherwise of the consolidated or combined tax liability relating to any such
period which is attributable to Products Corporation), except that Products
Corporation will not be entitled to carry back any losses to taxable periods
ending prior to January 1, 1992. No payments are required by Products
Corporation or Revlon, Inc. if and to the extent Products Corporation is
prohibited under the Credit Agreement from making tax sharing payments to
Revlon, Inc. The Credit Agreement prohibits Products Corporation from making
such tax sharing payments other than in respect of state and local income
taxes. Since the payments to be made under the Tax Sharing Agreement will be
determined by the amount of taxes that Products Corporation would otherwise
have to pay if it were to file separate federal, state or local income tax
returns, the Tax Sharing Agreement will benefit Mafco Holdings to the extent
Mafco Holdings can offset the taxable income generated by Products Corporation
against losses and tax credits generated by Mafco Holdings and its other
subsidiaries. There were no cash payments in respect of federal taxes made by
Products Corporation pursuant to the Tax Sharing Agreement for 1999.
38
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leased to Products Corporation the Edison research and development facility for
a term of up to 10 years with an annual rent of $1.4 million and certain shared
operating expenses payable by Products Corporation which, together with the
annual rent, were not to exceed $2.0 million per year. In August 1998, Holdings
sold the Edison facility to an unrelated third party, which assumed
substantially all liability for environmental claims and compliance costs
relating to the Edison facility, and in connection with the sale Products
Corporation terminated the Edison Lease and entered into a new lease with the
new owner. Holdings agreed to indemnify Products Corporation to the extent rent
under the new lease exceeds rent that would have been payable under the
terminated Edison Lease had it not been terminated. The net amount reimbursed
by Holdings to Products Corporation with respect to the Edison facility for
1999 was $0.2 million.
During 1999, Products Corporation leased certain facilities to MacAndrews
& Forbes or its affiliates pursuant to occupancy agreements and leases. These
included space at Products Corporation's New York headquarters and at Products
Corporation's offices in London. The rent paid to Products Corporation for 1999
was $1.1 million.
Products Corporation's Credit Agreement is supported by, among other
things, guarantees from Holdings and certain of its subsidiaries. The
obligations under such guarantees are secured by, among other things, the
capital stock and certain assets of certain subsidiaries of Holdings.
Products Corporation borrows funds from its affiliates from time to time
to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1999. The interest rates for such borrowings are
more favorable to Products Corporation than interest rates under the Credit
Agreement and, for borrowings occurring prior to the execution of the Credit
Agreement, the credit facilities in effect at the time of such borrowing. The
amount of interest paid by Products Corporation for such borrowings for 1999
was $0.5 million.
During 1998, Products Corporation made advances of $0.25 million, $0.3
million and $0.4 million to Mr. Fellows, Ms. Dwyer, and Mr. Levin,
respectively, which advances were repaid in 1999.
During 1999, Products Corporation made an advance of $0.4 million to Mr.
Nugent.
During 1999, a company that was an affiliate of Products Corporation
during part of 1999 assembled lipstick cases for Products Corporation. Products
Corporation paid approximately $0.1 million for such services in 1999.
During 1999, Products Corporation made payments of $0.1 million to a
fitness center, an interest in which is owned by members of Mr. Drapkin's
immediate family, for discounted health club dues for an executive health
program of Products Corporation.
39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Auditors' Report
included herein: See Index on page F-1
(2) Financial Statement Schedule: See Index on page F-1
All other schedules are omitted as they are inapplicable or the
required information is furnished in the Consolidated Financial
Statements of the Company or the Notes thereto.
(3) List of Exhibits:
- -------------------------------------------------------------------------------
EXHIBIT
NO. DESCRIPTION
- ------ -----------
3. CERTIFICATE OF INCORPORATION AND BY-LAWS.
3.1 Certificate of Incorporation of Products Corporation. (Incorporated by
reference to Exhibit 3.3 to the Form 10 of Products Corporation filed
with the Commission on August 7, 1992, File No. 1-11334).
3.2 Certificate of Amendment of Certificate of Incorporation as filed on
February 18, 1993. (Incorporated by reference to Exhibit 3.4 to the
Annual Report on Form 10-K for the year ended December 31, 1992 of
Products Corporation (the "Products Corporation 1992 10-K")).
3.3 Amended and Restated By-Laws of Products Corporation dated January 30,
1997. (Incorporated by reference to Exhibit 3.3 to the Annual Report
on Form 10-K for the year ended December 31, 1996 of Products
Corporation).
4. INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS, INCLUDING
INDENTURES.
4.1 Indenture, dated as of February 1, 1998, between Revlon Escrow and
U.S. Bank Trust National Association (formerly known as First Trust
National Association), as Trustee, relating to the 8 1/8% Senior Notes
due 2006 (the "8 1/8% Senior Notes Indenture"). (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form S-1 of
Products Corporation filed with the Commission on March 12, 1998, File
No. 333-47875) (the "Products Corporation 1998 Form S-1")).
4.2 Indenture, dated as of February 1, 1998, between Revlon Escrow and
U.S. Bank Trust National Association (formerly known as First Trust
National Association), as Trustee, relating to the 8 5/8% Senior Notes
Due 2006 (the "8 5/8% Senior Subordinated Notes Indenture").
(Incorporated by reference to Exhibit 4.3 to the Products Corporation
1998 Form S-1).
4.3 First Supplemental Indenture, dated April 1, 1998, among Products
Corporation, Revlon Escrow, and the Trustee, amending the 8 1/8%
Senior Notes Indenture. (Incorporated by reference to Exhibit 4.2 to
the Products Corporation 1998 Form S-1).
4.4 First Supplemental Indenture, dated March 4, 1998, among Products
Corporation, Revlon Escrow, and the Trustee, amending the 8 5/8%
Senior Subordinated Notes Indenture. (Incorporated by reference to
Exhibit 4.4 to the Products Corporation 1998 Form S-1).
4.5 Indenture, dated as of November 6, 1998, between Products Corporation
and U.S. Bank Trust National Association, as Trustee, relating to
Products Corporations 9% Senior Notes due 2006. (Incorporated by
reference to Exhibit 4.13 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998 of Revlon, Inc. (the "Revlon
1998 Third Quarter Form 10-Q")).
4.6 Third Amended and Restated Credit Agreement dated as of June 30, 1997,
between Pacific Finance & Development Corp. and the Long-Term Credit
Bank of Japan, Ltd. (the "Yen Credit
40
Agreement"). (Incorporated by reference to Exhibit 4.11 to the
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1997 of Revlon, Inc.).
4.7 First Amendment to the Yen Credit Agreement dated as of December 10,
1998. (Incorporated by reference to Exhibit 4.8 to the Registration
Statement on Form S-4 of Products Corporation filed with the
Commission on December 18, 1998, File No. 33-69213 (the "Products
Corporation 1998 S-4")).
4.8 Second Amendment to the Yen Credit Agreement dated as of November 12,
1999 by and among Pacific Finance & Development Corp. and General
Electric Capital Corporation, assignee of the Long Term Credit Bank of
Japan. (Incorporated by reference to Exhibit 4.13 to the Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1999
of Revlon, Inc. (the "Revlon 1999 Third Quarter Form 10-Q")).
4.9 Amended and Restated Credit Agreement, dated as of May 30, 1997, among
Products Corporation, The Chase Manhattan Bank, Citibank N.A., Lehman
Commercial Paper Inc., Chase Securities Inc. and the lenders party
thereto (the Credit Agreement). (Incorporated by reference to Exhibit
4.23 to Amendment No. 2 to the Registration Statement on Form S-1 of
Revlon Worldwide (Parent) Corporation, filed with the Commission on
June 26, 1997, File No. 33-23451).
4.10 First Amendment, dated as of January 29, 1998, to the Credit Agreement.
(Incorporated by reference to Exhibit 4.8 to the Annual Report on Form
10-K for the year ended December 31, 1997 of Revlon, Inc. (the "Revlon
1997 10-K")).
4.11 Second Amendment, dated as of November 6, 1998, to the Credit
Agreement. (Incorporated by reference to Exhibit 4.12 to the Revlon
1998 Third Quarter Form 10-Q).
4.12 Third Amendment, dated as of December 23, 1998, to the Credit
Agreement. (Incorporated by reference to Exhibit 4.12 to Amendment No.
1 to the Products Corporation 1998 Form S-4 as filed with the
Commission on January 22, 1999, File No. 33-69213).
4.13 Fourth Amendment, dated as of November 10, 1999, to the Credit
Agreement. (Incorporated by reference to Exhibit 4.12 to the Revlon
1999 Third Quarter Form 10-Q).
10. MATERIAL CONTRACTS.
10.1 Asset Transfer Agreement, dated as of June 24, 1992, among Holdings,
National Health Care Group, Inc., Charles of the Ritz Group Ltd.,
Products Corporation and Revlon, Inc. (Incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to the Revlon, Inc. Registration
Statement on Form S-1 filed with the Commission on June 29, 1992, File
No. 33-47100 (the "Revlon 1992 Amendment No. 1")).
10.2 Tax Sharing Agreement, dated as of June 24, 1992, among Mafco
Holdings, Revlon, Inc., Products Corporation and certain subsidiaries
of Products Corporation (the "Tax Sharing Agreement"). (Incorporated by
reference to Exhibit 10.5 to the Revlon 1992 Amendment No. 1).
10.3 First Amendment, dated as of February 28, 1995, to the Tax Sharing
Agreement. (Incorporated by reference to Exhibit 10.5 to the Annual
Report on Form 10-K for the year ended December 31, 1994 of Products
Corporation).
10.4 Second Amendment, dated as of January 1, 1997, to the Tax Sharing
Agreement. (Incorporated by reference to Exhibit 10.7 to the Annual
Report on Form 10-K for the year ended December 31, 1996 of Revlon,
Inc. (the "Revlon 1996 10-K")).
10.5 Second Amended and Restated Operating Services Agreement by and among
Holdings, Revlon, Inc. and Products Corporation, as of January 1, 1996
(the "Operating Services Agreement"). (Incorporated by reference to
Exhibit 10.8 to the Revlon 1996 10-K).
41
10.6 Amendment to the Operating Services Agreement, dated as of July 1,
1997. (Incorporated by reference to Exhibit 10.10 to the Revlon 1997
10-K).
10.7 Employment Agreement amended and restated as of the 10th day of May,
1999, effective as of January 1, 1998, between Products Corporation
and Wade H. Nichols (the "Nichols Employment Agreement").
(Incorporated by reference to Exhibit 10.25 to the Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1999 of Revlon,
Inc.).
10.8 Amendment, as of January 1, 2000 to the Nichols Employment Agreement.
(Incorporated by reference to Exhibit 10.8 to the Annual Report on
Form 10-K for the year ended December 31, 1999 of Revlon, Inc. (the
"Revlon 1999 10-K")).
10.9 Employment Agreement dated as of May 10, 1999 between Products
Corporation and Frank Gehrmann. (Incorporated by reference to Exhibit
10.9 to the Revlon 1999 10-K).
10.10 Employment Agreement dated as of November 2, 1999 between Products
Corporation and Jeffrey M. Nugent. (Incorporated by reference to
Exhibit 10.10 to the Revlon 1999 10-K).
10.11 Amended and Restated Revlon Pension Equalization Plan, amended and
restated as of December 14, 1998. (Incorporated by reference to
Exhibit 10.15 to the Annual Report on Form 10-K for year ended
December 31, 1998 of Revlon, Inc.).
10.12 Executive Supplemental Medical Expense Plan Summary dated July 1991.
(Incorporated by reference to Exhibit 10.18 to the Registration
Statement on Form S-1 of Revlon, Inc. filed with the Commission on May
22, 1992, File No. 33-47100 (the "Revlon 1992 Form S-1")).
10.13 Description of Post Retirement Life Insurance Program for Key
Executives. (Incorporated by reference to Exhibit 10.19 to the Revlon
1992 Form S-1).
10.14 Benefit Plans Assumption Agreement dated as of July 1, 1992, by and
among Holdings, Revlon, Inc. and Products Corporation. (Incorporated
by reference to Exhibit 10.25 to the Products Corporation 1992 10-K).
10.15 Revlon Executive Bonus Plan effective January 1, 1997. (Incorporated
by reference to Exhibit 10.20 to the Revlon 1996 10-K).
10.16 Revlon Amended and Restated Executive Deferred Compensation Plan dated
as of August 6, 1999. (Incorporated by reference to Exhibit 10.27 to
the Revlon 1999 Third Quarter Form 10-Q).
10.17 Revlon Executive Severance Policy effective January 1, 1996.
(Incorporated by reference to Exhibit 10.23 to the Amendment No. 3 to
the Registration Statement on Form S-1 of Revlon, Inc. filed with the
Commission on February 5, 1996, file No. 33-99558).
10.18 Revlon, Inc. Second Amended and Restated 1996 Stock Plan (Amended and
Restated as of February 12, 1999). (Incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-8 of Revlon, Inc.
filed with the Commission on April 14, 1999. File No. 333-76267).
10.19 Purchase Agreement dated as of February 18, 2000 by and among Revlon,
Inc., Revlon Consumer Products Corporation, REMEA 2 B.V., Revlon
Europe, Middle East and Africa, Ltd., Revlon International
Corporation, Europeenne de Produits de Beaute S.A., Deutsche Revlon
GmbH & Co. K.G., Revlon Canada, Inc., Revlon de Argentina, S.A.I.C.,
Revlon South Africa (Proprietary) Limited, Revlon (Suisse) S.A.,
Revlon Overseas Corporation C.A., CEIL - Comercial, Exportadora,
Industrial Ltda., Revlon Manufacturing Ltd., Revlon Belgium N.V.,
Revlon (Chile) S.A., Revlon (Hong Kong) Limited, Revlon, S.A., Revlon
Nederland B.V., Revlon New Zealand Limited, European Beauty Products
S.p.A. and Beauty Care Professional Products Luxembourg, S.a.r.l.
(Incorporated by reference to Exhibit 10.19 to the Revlon 1999 10-K).
21. SUBSIDIARIES.
*21.1 Subsidiaries of the Registrant.
42
24. POWERS OF ATTORNEY.
*24.1 Power of Attorney of Ronald O. Perelman.
*24.2 Power of Attorney of Donald G. Drapkin.
*24.3 Power of Attorney of Howard Gittis.
*24.4 Power of Attorney of Edward J. Landau, Esq.
27. Financial Data Schedule.
- --------------------
* Filed herewith.
(b) Reports on Form 8-K None.
43
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
----
Independent Auditors' Report ..................................... F-2
AUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
December 31, 1999 and 1998 ............................. F-3
Consolidated Statements of Operations
for each of the years in the three-year
period ended December 31, 1999 ........................ F-4
Consolidated Statements of Stockholder's
Deficiency and Comprehensive Loss
for each of the years in
the three-year period ended December 31, 1999 ......... F-5
Consolidated Statements of Cash Flows
for each of the years in the three year
period ended December 31, 1999 ......................... F-6
Notes to Consolidated Financial Statements ................... F-7
FINANCIAL STATEMENT SCHEDULE:
Schedule II--Valuation and Qualifying Accounts .............. F-31
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Revlon Consumer Products Corporation:
We have audited the accompanying consolidated balance sheets of Revlon Consumer
Products Corporation and its subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholder's deficiency and
comprehensive loss and cash flows for each of the years in the three-year
period ended December 31, 1999. In connection with our audits of the
consolidated financial statements we have also audited the financial statement
schedule as listed on the index on page F-1. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Revlon Consumer
Products Corporation and its subsidiaries as of December 31, 1999 and 1998 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
New York, New York
March 30, 2000
F-2
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
December 31, December 31,
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................... $ 25.4 $ 34.7
Trade receivables, less allowances of $27.2
and $28.5, respectively................................... 332.6 536.0
Inventories................................................. 278.3 264.1
Prepaid expenses and other.................................. 53.1 70.6
--------- --------
Total current assets...................................... 689.4 905.4
Property, plant and equipment, net............................ 336.4 378.9
Other assets.................................................. 177.5 173.5
Intangible assets, net........................................ 356.8 372.9
--------- --------
Total assets.............................................. $ 1,560.1 $1,830.7
========= ========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties....................... $ 37.6 $ 27.9
Current portion of long-term debt - third parties........... 10.2 6.0
Accounts payable............................................ 139.8 134.8
Accrued expenses and other.................................. 409.7 389.7
--------- --------
Total current liabilities................................. 597.3 558.4
Long-term debt - third parties................................ 1,737.8 1,629.9
Long-term debt - affiliates................................... 24.1 24.1
Other long-term liabilities................................... 214.0 265.6
Stockholder's deficiency:
Preferred stock, par value $1.00 per share; 1,000 shares
authorized, 546 issued and outstanding.................... 54.6 54.6
Common stock, par value $1.00 per share; 1,000 shares
authorized, issued and outstanding ....................... -- --
Capital deficiency ......................................... (230.8) (230.8)
Accumulated deficit since June 24, 1992..................... (768.8) (398.5)
Accumulated other comprehensive loss ....................... (68.1) (72.6)
--------- --------
Total stockholder's deficiency ........................... (1,013.1) (647.3)
--------- --------
Total liabilities and stockholder's deficiency ........... $ 1,560.1 $1,830.7
========= ========
See Accompanying Notes to Consolidated Financial Statements.
F-3
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997
------------ ------------ -----------
Net sales ..................................................... $ 1,861.3 $ 2,252.2 $ 2,238.6
Cost of sales ................................................. 686.1 765.7 743.1
--------- --------- ---------
Gross profit ................................................ 1,175.2 1,486.5 1,495.5
Selling, general and administrative expenses .................. 1,346.4 1,327.3 1,275.8
Business consolidation costs and other, net ................... 40.2 33.1 3.6
--------- --------- ---------
Operating (loss) income ..................................... (211.4) 126.1 216.1
--------- --------- ---------
Other expenses (income):
Interest expense ............................................ 147.9 137.9 133.7
Interest income ............................................. (2.8) (5.2) (4.2)
Amortization of debt issuance costs ......................... 4.3 5.1 6.6
Foreign currency (gains) losses, net ........................ (0.5) 4.6 6.4
Miscellaneous, net .......................................... 0.9 4.5 5.3
--------- --------- ---------
Other expenses, net ....................................... 149.8 146.9 147.8
--------- --------- ---------
(Loss) income from continuing operations before income taxes .. (361.2) (20.8) 68.3
Provision for income taxes .................................... 9.1 5.0 9.3
--------- --------- ---------
(Loss) income from continuing operations ...................... (370.3) (25.8) 59.0
(Loss) income from discontinued operations .................... - (16.5) 0.7
Loss from disposal of discontinued operations ................. - (47.7) -
Extraordinary items - early extinguishments of debt ........... - (51.7) (14.9)
--------- --------- ---------
Net (loss) income ............................................. $ (370.3) $ (141.7) $ 44.8
========= ========= =========
See Accompanying Notes to Consolidated Financial Statements.
F-4
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY AND COMPREHENSIVE LOSS
(DOLLARS IN MILLIONS)
ACCUMULATED
OTHER TOTAL
PREFERRED CAPITAL ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
STOCK DEFICIENCY DEFICIT (a) LOSS (b) DEFICIENCY
---------- ---------- ----------- -------------- -------------
Balance, January 1, 1997 ................................ $ 54.6 $ (231.1) $ (301.6) $ (18.2) $ (496.3)
Net capital contribution .............................. 0.3 (c) 0.3
Comprehensive income:
Net income .......................................... 44.8 44.8
Adjustment for minimum
pension liability ................................. 7.9 7.9
Currency translation adjustment ..................... (13.4) (13.4)
---------
Total comprehensive income ............................ 39.3
------ -------- -------- -------- ---------
Balance, December 31, 1997 .............................. 54.6 (230.8) (256.8) (23.7) (456.7)
Comprehensive loss:
Net loss ............................................ (141.7) (141.7)
Adjustment for minimum
pension liability ................................. (28.0) (28.0)
Revaluation of marketable securities ................ (3.0) (3.0)
Currency translation adjustment ..................... (17.9) (d) (17.9)
--------
Total comprehensive loss .............................. (190.6)
------ -------- -------- -------- ---------
Balance, December 31, 1998 .............................. 54.6 (230.8) (398.5) (72.6) (647.3)
Comprehensive loss:
Net loss ............................................ (370.3) (370.3)
Adjustment for minimum
pension liability ................................. 27.6 27.6
Revaluation of marketable securities ................ (0.8) (0.8)
Currency translation adjustment ................... (22.3) (22.3)
---------
Total comprehensive loss .............................. (365.8)
------ -------- -------- -------- ---------
Balance, December 31, 1999 .............................. $ 54.6 $ (230.8) $ (768.8) $ (68.1) $(1,013.1)
====== ======== ======== ======= =========
____________________
(a) Represents net loss since June 24, 1992, the effective date of the
transfer agreements referred to in Note 16.
(b) Accumulated other comprehensive loss includes a revaluation of marketable
securities of $3.8 and $3.0 for 1999 and 1998, respectively, currency
translation adjustments of $59.4, $37.1 and $19.2 for 1999, 1998 and 1997,
respectively, and adjustments for the minimum pension liability of $4.9,
$32.5 and $4.5 for 1999, 1998 and 1997, respectively.
(c) Represents changes in capital from the acquisition of Bill Blass business
(Note 16).
(d) Accumulated other comprehensive loss and comprehensive loss each include a
reclassification adjustment of $2.2 for realized gains associated with the
sale of certain assets outside the United States.
See Accompanying Notes to Consolidated Financial Statements.
F-5
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31,
---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998 1997
--------- ----------- -----------
Net (loss) income.................................................... $ (370.3) $ (141.7) $ 44.8
Adjustments to reconcile net (loss) income to net cash
(used for) provided by operating activities:
Depreciation and amortization................................ 126.1 111.3 99.7
Loss (income) from discontinued operations................... - 64.2 (0.7)
Extraordinary items.......................................... - 51.7 14.9
Loss (gain) on sale of certain assets, net................... 1.6 (8.4) (4.4)
Change in assets and liabilities:
Decrease (increase) in trade receivables............. 187.1 (43.0) (70.0)
Increase in inventories.............................. (22.5) (4.6) (16.9)
Decrease (increase) in prepaid expenses and
other current assets......................... 11.5 (11.8) (0.6)
Increase (decrease) in accounts payable.............. 10.8 (49.2) 17.9
Increase (decrease) in accrued expenses and other
current liabilities.......................... 20.5 52.5 (2.8)
Other, net........................................... (47.5) (71.4) (73.0)
--------- ----------- --------
Net cash (used for) provided by operating activities ................ (82.7) (50.4) 8.9
--------- ----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................. (42.3) (60.8) (52.3)
Acquisition of businesses, net of cash acquired...................... - (57.6) (40.5)
Proceeds from the sale of certain assets............................. 1.6 27.4 8.5
--------- ----------- --------
Net cash used for investing activities............................... (40.7) (91.0) (84.3)
--------- ----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings - third parties..... 12.3 (16.3) 18.0
Proceeds from the issuance of long-term debt - third parties......... 574.5 1,469.1 760.2
Repayment of long-term debt - third parties.......................... (464.9) (1,270.9) (690.2)
Net contribution from parent......................................... - - 0.3
Proceeds from the issuance of debt - affiliates...................... 67.1 105.9 120.7
Repayment of debt - affiliates....................................... (67.1) (105.9) (120.2)
Payment of debt issuance costs....................................... (3.5) (23.9) (4.1)
--------- ----------- --------
Net cash provided by financing activities............................ 118.4 158.0 84.7
--------- ----------- --------
Effect of exchange rate changes on cash and cash equivalents......... (4.3) (2.0) (3.6)
--------- ----------- --------
Net cash used by discontinued operations............................. - (17.3) (3.4)
--------- ----------- --------
Net (decrease) increase in cash and cash equivalents......... (9.3) (2.7) 2.3
Cash and cash equivalents at beginning of period............. 34.7 37.4 35.1
--------- ----------- --------
Cash and cash equivalents at end of period................... $ 25.4 $ 34.7 $ 37.4
========= =========== ========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest............................................. $ 146.1 $ 133.4 $ 139.6
Income taxes, net of refunds......................... 8.2 10.9 10.5
Supplemental schedule of noncash investing activities:
In connection with business acquisitions, liabilities
were assumed (including minority interest and
discontinued operations) as follows:
Fair value of assets acquired............................. $ - $ 74.5 $ 132.7
Cash paid................................................. - (57.6) (64.5)
--------- ----------- --------
Liabilities assumed....................................... $ - $ 16.9 $ 68.2
========= =========== ========
See Accompanying Notes to Consolidated Financial Statements.
F-6
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
Revlon Consumer Products Corporation ("Products Corporation" and
together with its subsidiaries, the "Company") was formed in April 1992. The
Company manufactures and sells an extensive array of cosmetics and skin care,
fragrances and personal care products, and professional products (products for
use in and resale by professional salons). On March 30, 2000, the Company sold
its worldwide professional products line (See Note 20 for further information).
The Company's principal customers include large mass volume retailers and chain
drug stores, as well as certain department stores and other specialty stores,
such as perfumeries. The Company also sells consumer and professional products
to United States military exchanges and commissaries and has a licensing group.
The Consolidated Financial Statements include the accounts of Products
Corporation and its subsidiaries after elimination of all material intercompany
balances and transactions. Further, the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities, the
disclosure of liabilities and the reporting of revenues and expenses to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Products Corporation is a direct wholly owned subsidiary of Revlon,
Inc., which is an indirect majority owned subsidiary of MacAndrews & Forbes
Holdings Inc. ("MacAndrews Holdings"), a corporation wholly owned indirectly
through Mafco Holdings Inc. ("Mafco Holdings" and, together with MacAndrews
Holdings, "MacAndrews & Forbes") by Ronald O. Perelman.
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year's presentation.
CASH AND CASH EQUIVALENTS:
Cash equivalents (primarily investments in time deposits which have
original maturities of three months or less) are carried at cost, which
approximates fair value.
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
principally determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT AND OTHER ASSETS:
Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets as follows:
land improvements, 20 to 40 years; buildings and improvements, 5 to 50 years;
machinery and equipment, 3 to 17 years; and office furniture and fixtures and
capitalized software, 2 to 12 years. Leasehold improvements are amortized over
their estimated useful lives or the terms of the leases, whichever is shorter.
Repairs and maintenance are charged to operations as incurred, and expenditures
for additions and improvements are capitalized.
Included in other assets are permanent displays amounting to approximately
$131.2 and $129.0 (net of amortization) as of December 31, 1999 and 1998,
respectively, which are amortized over 3 to 5 years. In addition, the Company
has included in other assets charges related to the issuance of its debt
instruments amounting to approximately $21.0 and $23.6 (net of amortization) as
of December 31, 1999 and 1998, respectively, which are amortized over the terms
of the related debt instruments.
F-7
INTANGIBLE ASSETS RELATED TO BUSINESSES ACQUIRED:
Intangible assets related to businesses acquired principally represent
goodwill, the majority of which is being amortized on a straight-line basis over
40 years. The Company evaluates, when circumstances warrant, the recoverability
of its intangible assets on the basis of undiscounted cash flow projections.
When impairment is indicated, the Company writes down recorded amounts of
goodwill to the amount of estimated undiscounted cash flows. Accumulated
amortization aggregated $128.0 and $115.6 at December 31, 1999 and 1998,
respectively.
REVENUE RECOGNITION:
The Company recognizes net sales upon shipment of merchandise. Net sales
comprise gross revenues less expected returns, trade discounts and customer
allowances. Cost of sales is reduced for the estimated net realizable value of
expected returns.
INCOME TAXES:
Income taxes are calculated using the liability method in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
The Company is included in the affiliated group of which Mafco Holdings is
the common parent, and the Company's federal taxable income and loss will be
included in such group's consolidated tax return filed by Mafco Holdings. The
Company also may be included in certain state and local tax returns of Mafco
Holdings or its subsidiaries. For all periods presented, federal, state and
local income taxes are provided as if the Company filed its own income tax
returns. On June 24, 1992 Holdings (as hereinafter defined), Revlon, Inc.,
Products Corporation and certain of its subsidiaries and Mafco Holdings entered
into a tax sharing agreement, which is described in Notes 13 and 16.
PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS:
The Company sponsors pension and other retirement plans in various forms
covering substantially all employees who meet eligibility requirements. For
plans in the United States, the minimum amount required pursuant to the
Employee Retirement Income Security Act, as amended, is contributed annually.
Various subsidiaries outside the United States have retirement plans under
which funds are deposited with trustees or reserves are provided.
The Company accounts for benefits such as severance, disability and health
insurance provided to former employees prior to their retirement, if estimable,
on a terminal basis in accordance with the provisions of SFAS No. 5,
"Accounting for Contingencies," as amended by SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," which requires companies to accrue for
postemployment benefits when it is probable that a liability has been incurred
and the amount of such liability can be reasonably estimated.
RESEARCH AND DEVELOPMENT:
Research and development expenditures are expensed as incurred. The
amounts charged against earnings in 1999, 1998 and 1997 were $32.9, $31.9 and
$29.7, respectively.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations are generally translated into
United States dollars at the rates of exchange in effect at the balance sheet
date. Income and expense items are generally translated at the weighted average
exchange rates prevailing during each period presented. Gains and losses
resulting from foreign currency transactions are included in the results of
operations. Gains and losses resulting from translation of financial statements
of foreign subsidiaries and branches operating in non-hyperinflationary
economies are recorded as a component of accumulated other comprehensive loss.
Foreign subsidiaries and branches operating in hyperinflationary economies
translate nonmonetary assets and liabilities at historical rates and include
translation adjustments in the results of operations.
F-8
Effective January 1997 and for all of 1997 and 1998, the Company's
operations in Mexico have been accounted for as operating in a
hyperinflationary economy. Effective January 1, 1999, the Company's operations
in Mexico have been accounted for as is required for a non-hyperinflationary
economy. Effective July 1997, the Company's operations in Brazil have been
accounted for as is required for a non-hyperinflationary economy. The impact of
the changes in accounting for Brazil and Mexico was not material to the
Company's operating results in 1997 and in 1999 for Mexico.
SALE OF SUBSIDIARY STOCK:
The Company recognizes gains and losses on sales of subsidiary stock in
its Consolidated Statements of Operations.
CLASSES OF STOCK:
Products Corporation designated 1,000 shares of Preferred Stock as the
Series A Preferred Stock, of which 546 shares are outstanding and held by
Revlon, Inc. The holder of Series A Preferred Stock is not entitled to receive
any dividends. The Series A Preferred Stock is entitled to a liquidation
preference of $100,000 per share before any distribution is made to the holder
of Products Corporation's common stock. The holder of the Series A Preferred
Stock does not have any voting rights, except as required by law. The Series A
Preferred Stock may be redeemed at any time by Products Corporation, at its
option, for $100,000 per share. However, the terms of Products Corporation's
various debt agreements currently restrict Products Corporation's ability to
effect such redemption.
STOCK-BASED COMPENSATION:
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation plans using the intrinsic value method prescribed in
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretation. Accordingly, compensation
cost for stock options issued to employees is measured as the excess, if any,
of the quoted market price of Revlon, Inc.'s stock at the date of the grant
over the amount an employee must pay to acquire the stock (See Note 15).
DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments are utilized from time to time by the
Company to reduce interest rate and foreign exchange risks. The Company
maintains a control environment, which includes policies and procedures for
risk assessment and the approval, reporting and monitoring of derivative
financial instrument activities. The Company does not hold or issue derivative
financial instruments for trading purposes.
The differentials to be received or paid under interest rate contracts
designated as hedges are recognized in income over the life of the contracts as
adjustments to interest expense. Gains and losses on terminations of interest
rate contracts designated as hedges are deferred and amortized into interest
expense over the remaining life of the original contracts or until repayment of
the hedged indebtedness. Unrealized gains and losses on outstanding contracts
designated as hedges are not recognized.
To qualify for hedge accounting, a contract must meet defined correlation
and effectiveness criteria, be designated as a hedge and result in cash flows
and financial statement effects that substantially offset those of the position
being hedged. Derivative financial instruments that the Company temporarily
continues to hold after the early termination of a hedged position, or that
otherwise no longer qualify for hedge accounting, are marked-to-market, with
gains and losses recognized in the Company's Statements of Operations after the
termination or disqualification. Gains and losses on contracts designated to
hedge identifiable foreign currency commitments are deferred and accounted for
as part of the related foreign currency transaction. Transaction gains and
losses have not been material.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging
F-9
activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS No. 133, an Amendment of SFAS No. 133," which has delayed the required
implementation of SFAS No. 133 such that the Company must adopt this new
standard no later than January 1, 2001. The effect of adopting the new standard
by the Company has not yet been determined. The Company plans to adopt the new
standard on January 1, 2001.
ADVERTISING AND PROMOTION
Costs associated with advertising and promotion are expensed in the year
incurred. Advertising and promotion expenses were $411.8, $422.9 and $397.4 for
1999, 1998 and 1997, respectively.
2. DISCONTINUED OPERATIONS
During 1998, the Company completed the disposition of its approximately
85% equity interest in The Cosmetic Center, Inc. (the "Cosmetic Center"), along
with certain amounts due from Cosmetic Center to the Company for working
capital and inventory, to a newly formed limited partnership controlled by an
unrelated third party. The Company received a minority limited partnership
interest in the limited partnership as consideration for the disposition. Based
upon the Company's expectation that it would receive no future cash flows from
the limited partnership, as well as other factors, the Company assigned no
value to such interest. As a result, the Company recorded a loss on disposal of
$47.7 during 1998. All prior periods were restated to reflect the results of
operations of Cosmetic Center as discontinued operations.
3. EXTRAORDINARY ITEMS
The extraordinary loss of $51.7 in 1998 resulted primarily from the
write-off of deferred financing costs and payment of call premiums associated
with the redemption of the Senior Notes (as hereinafter defined) and the Senior
Subordinated Notes (as hereinafter defined). The extraordinary loss in 1997
resulted from the write-off in the second quarter of 1997 of deferred financing
costs associated with the early extinguishment of borrowings under a prior
credit agreement and costs of approximately $6.3 in connection with the
redemption of Products Corporation's 10 7/8% Sinking Fund Debentures due 2010
(the "Sinking Fund Debentures"). The early extinguishment of borrowings under a
prior credit agreement and the redemption of the Sinking Fund Debentures were
financed by the proceeds from a new credit agreement, which became effective in
May 1997 (the "Credit Agreement").
4. BUSINESS CONSOLIDATION COSTS AND OTHER, NET
In the fourth quarter of 1998, the Company committed to a restructuring
plan to realign and reduce personnel, exit excess leased real estate, realign
and consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines. During 1999, the Company continued
to implement such restructuring for which it recorded a charge of $20.5 for
employee severance and other personnel benefits, costs associated with the exit
from leased facilities as well as other costs. Also in 1999, the Company
consummated an exit from a non-core business, resulting in a charge of $1.6,
which is included in the table below. Of the 720 and the 493 sales, marketing,
administrative, factory and distribution employees worldwide for whom severance
and other personnel benefits were included in the charges for the fourth
quarter 1998 and during 1999, respectively, the Company had terminated 1,146
employees by December 31, 1999.
During the fourth quarter of 1999, the Company continued to re-evaluate
its organizational structure and implemented a new restructuring plan
principally at its New York headquarters and New Jersey locations resulting in
a charge of $18.1 principally for employee severance. As a part of this
restructuring plan, the Company reduced personnel and consolidated excess
leased real estate. Of the 208 sales, marketing and administrative employees
for whom severance and other personnel benefits were included in the charge for
the fourth quarter 1999, the Company had terminated 159 of these employees by
December 31, 1999.
In 1998 the Company recognized a gain of approximately $7.1 for the sale
of the wigs and hairpieces portion of its business in the United States and
included the amount in business consolidation costs and other, net.
The cash and noncash elements of the restructuring charges recorded in
1999 approximate $38.8 and $1.4,
F-10
respectively and in 1998 approximated $37.2 and $5.7, respectively.
In 1997 the Company incurred business consolidation costs of $20.6 in
connection with the implementation of its business strategy to rationalize
factory operations. These costs primarily included severance for 415 factory
and administrative employees and other costs related to the rationalization of
certain factory and warehouse operations worldwide. Such costs were partially
offset by an approximately $12.7 settlement of a claim and related gains of
approximately $4.3 on the sales of certain factory operations outside the
United States. As of December 31, 1998 and 1997 the Company had terminated 415
and 200 employees, respectively, relating to the 1997 charge.
Details of the charges are as follows:
BALANCE (UTILIZED) RECEIVED BALANCE
BEGINNING EXPENSE -------------------------- END
OF YEAR (INCOME) CASH NONCASH OF YEAR
------- -------- ---- ------- -------
1999
- ------------------------------------------------
Employee severance and other
personnel benefits ...................................... $ 24.9 $ 35.3 $ (35.6) $ - $ 24.6
Factory, warehouse, office and
Other costs ............................................. 12.1 4.9 (6.2) (1.4) 9.4
------ ------ -------- ------- -------
$ 37.0 $ 40.2 $ (41.8) $ (1.4) $ 34.0
====== ====== ======== ======= =======
1998
- ------------------------------------------------
Employee severance and other
personnel benefits ...................................... $ 7.8 $ 26.6 $ (9.5) $ - $ 24.9
Factory, warehouse, office and
other costs ............................................. 3.2 14.9 (2.4) (3.6) 12.1
Sale of assets ........................................... - (8.4) 8.4 - -
Other (expense included in cost of sales).................. - 2.7 - (2.7) -
------ ------ -------- ------- -------
$ 11.0 $ 35.8 $ (3.5) $ (6.3) $ 37.0
====== ====== ======== ======= =======
1997
- ------------------------------------------------
Employee severance and other
personnel benefits ..................................... $ - $ 14.2 $ (6.4) $ - $ 7.8
Factory, warehouse, office and
other costs.............................................. - 6.4 (1.2) (2.0) 3.2
Sale of assets ............................................ - (4.3) 4.3 - -
Settlement of claim ....................................... - (12.7) 12.7 - -
------ ------ -------- ------- -------
$ - $ 3.6 $ 9.4 $ (2.0) $ 11.0
====== ====== ======== ======= =======
As of December 31, 1999 and 1998, the unpaid balance of the business
consolidation costs are included in accrued expenses and other in the Company's
Consolidated Balance Sheets.
F-11
5. ACQUISITIONS
In 1998 and 1997 the Company consummated acquisitions for a combined
purchase price of $62.6 and $51.6 (excluding the acquisition of Cosmetic
Center), respectively, with resulting goodwill of $63.7 and $35.8, respectively.
These acquisitions were not significant to the Company's results of operations.
There were no acquisitions made by the Company in 1999.
6. INVENTORIES
DECEMBER 31,
---------------------------------
1999 1998
------------ -----------
Raw materials and supplies ............ $ 74.1 $ 78.2
Work-in-process ....................... 19.7 14.4
Finished goods ........................ 184.5 171.5
------ ------
$278.3 $264.1
====== ======
7. PREPAID EXPENSES AND OTHER
DECEMBER 31,
---------------------------------
1999 1998
------------ -----------
Prepaid expenses ........................ $ 36.7 $ 42.4
Other ................................... 16.4 28.2
------- --------
$ 53.1 $ 70.6
======= ========
8. PROPERTY, PLANT AND EQUIPMENT, NET
DECEMBER 31,
---------------------------------
1999 1998
------------ -----------
Land and improvements ................. $ 41.3 $ 33.8
Buildings and improvements ............ 174.1 197.3
Machinery and equipment ............... 222.9 216.8
Office furniture and fixtures
and capitalized software ............ 112.5 88.5
Leasehold improvements ................ 28.1 37.2
Construction-in-progress .............. 16.0 36.9
------- -------
594.9 610.5
Accumulated depreciation .............. (258.5) (231.6)
------- -------
$ 336.4 $ 378.9
======= =======
Depreciation expense for the years ended December 31, 1999, 1998 and 1997
was $45.9, $40.5 and $38.4, respectively.
F-12
9. ACCRUED EXPENSES AND OTHER
DECEMBER 31,
---------------------------
1999 1998
------------ -----------
Advertising and promotional costs
and accrual for sales returns ................ $ 183.5 $ 158.3
Compensation and related benefits ............... 83.9 68.6
Interest ........................................ 38.1 39.4
Taxes, other than federal income taxes .......... 16.6 27.5
Restructuring and business consolidation costs .. 31.4 27.1
Other ........................................... 56.2 68.8
------- -------
$ 409.7 $ 389.7
======= =======
10. SHORT-TERM BORROWINGS
Products Corporation maintained uncommitted short-term bank lines of
credit, that may be borrowed against at any time at December 31, 1999 and 1998
aggregating approximately $65.6 and $88.3, respectively, of which approximately
$37.6 and $27.9 were outstanding at December 31, 1999 and 1998, respectively.
Interest rates on amounts borrowed under such short-term lines at December 31,
1999 and 1998 ranged from 3.1% to 6.8% and from 2.9% to 8.6%, respectively,
excluding Latin American countries in which the Company had outstanding
borrowings of approximately $8.3 and $3.5 at December 31, 1999 and 1998,
respectively. Compensating balances at December 31, 1999 and 1998 were
approximately $14.2 and $10.3, respectively. Interest rates on compensating
balances at December 31, 1999 and 1998 ranged from 4.0% to 4.7% and 1.9% to
5.8%, respectively.
11. LONG-TERM DEBT
DECEMBER 31,
----------------------------
1999 1998
------------ ----------
Working capital lines (a) ...................... $ 588.2 $ 272.2
Bank mortgage loan agreement due 2000 (b) ...... 9.9 13.6
9 1/2% Senior Notes due 1999 (c) ............... - 200.0
8 1/8% Senior Notes due 2006 (d) ............... 249.4 249.3
9% Senior Notes due 2006 (e) ................... 250.0 250.0
8 5/8% Senior Subordinated Notes due 2008 (f) .. 649.8 649.8
Advances from Holdings (g) ..................... 24.1 24.1
Notes payable due through 2004 ................. 0.7 1.0
--------- --------
1,772.1 1,660.0
Less current portion ......................... (10.2) (6.0)
--------- --------
$ 1,761.9 $1,654.0
========= ========
(a) In May 1997, Products Corporation entered into the Credit Agreement
with a syndicate of lenders, whose individual members change from time to time.
The proceeds of loans made under the Credit Agreement were used to repay the
loans outstanding under the credit agreement in effect at that time and to
redeem the Sinking Fund Debentures. On November 10, 1999, the Credit Agreement
was amended as described below.
The Credit Agreement provides up to $723.0 at December 31, 1999 and
consists of five senior secured facilities: $198.0 in two term loan facilities
(the "Term Loan Facilities"), a $300.0 multi-currency facility (the
"Multi-Currency Facility"), a $175.0 revolving acquisition facility, which may
be increased to $375.0 under certain circumstances with the consent of a
majority of the lenders (the "Acquisition Facility"), and a $50.0 special
standby letter of credit facility (the "Special LC Facility" and together with
the Term Loan Facilities, the Multi-Currency Facility and the Acquisition
Facility, the "Credit Facilities"). The Multi-Currency Facility is available
(i) to Products Corporation in revolving credit loans denominated in U.S.
dollars (the "Revolving Credit Loans"), (ii) to Products Corporation in standby
and commercial letters of credit denominated in U.S. dollars (the "Operating
Letters of Credit") and (iii) to Products Corporation and certain of its
international subsidiaries designated from time to time in
F-13
revolving credit loans and bankers' acceptances denominated in U.S. dollars and
other currencies (the "Local Loans"). At December 31, 1999 and 1998, Products
Corporation had approximately $198.0 and $199.0, respectively, outstanding
under the Term Loan Facilities, $235.2 and $9.7, respectively, outstanding
under the Multi-Currency Facility, $155.0 and $63.5, respectively, outstanding
under the Acquisition Facility and $29.8 and $29.0, respectively, of issued but
undrawn letters of credit under the Special LC Facility.
The Credit Facilities (other than loans in foreign currencies) bear
interest as of December 31, 1999 at a rate equal to, at Products Corporation's
option, either (A) the Alternate Base Rate plus 2.50% (or 3.50% for Local
Loans); or (B) the Eurodollar Rate plus 3.50%. Loans in foreign currencies bear
interest as of December 31, 1999 at a rate equal to the Eurocurrency Rate or,
in the case of Local Loans, the local lender rate, in each case plus 3.50%. The
applicable margin is reduced in the event Products Corporation attains certain
leverage ratios. Products Corporation pays the lender a commitment fee as of
December 31, 1999 of 1/2 of 1% of the unused portion of the Credit Facilities.
Under the Multi-Currency Facility, the Company pays the lenders an
administrative fee of 1/4% per annum on the aggregate principal amount of
specified Local Loans. Products Corporation also paid certain facility and
other fees to the lenders and agents upon closing of the Credit Agreement.
Prior to its termination date, the commitments under the Credit Facilities will
be reduced by: (i) the net proceeds in excess of $10.0 each year received during
such year from sales of assets by Holdings (or certain of its subsidiaries),
Products Corporation or any of its subsidiaries (and $25.0 in the aggregate
during the term with respect to certain specified dispositions), subject to
certain limited exceptions, (ii) certain proceeds from the sales of collateral
security granted to the lenders, (iii) the net proceeds from the issuance by
Products Corporation or any of its subsidiaries of certain additional debt, (iv)
50% of the excess cash flow of Products Corporation and its subsidiaries (unless
certain leverage ratios are attained) and (v) certain scheduled reductions in
the case of the Term Loan Facilities, which commenced on May 31, 1998 in the
aggregate amount of $1.0 annually over the remaining life of the Credit
Agreement, and in the case of the Acquisition Facility, which commenced on
December 31, 1999 in the amount of $25.0 and, as of December 31, 1999, in the
amounts of $60.0 during 2000, $90.0 during 2001 and $25.0 during 2002 (which
reductions will be proportionately increased if the Acquisition Facility is
increased). As described below, as a result of the reduction in commitment
resulting from the sale of the Company's worldwide professional products line,
the originally scheduled reductions in 2000 and 2001 have decreased. The Credit
Agreement will terminate on May 30, 2002. The weighted average interest rates on
the Term Loan Facilities, the Multi-Currency Facility and the Acquisition
Facility were 9.9%, 8.1% and 9.8% at December 31, 1999, respectively, and 8.1%,
9.2% and 8.7% at December 31, 1998, respectively.
The Credit Facilities, subject to certain exceptions and limitations, are
supported by guarantees from Holdings and certain of its subsidiaries, Revlon,
Inc., Products Corporation and the domestic subsidiaries of Products
Corporation. The obligations of Products Corporation under the Credit
Facilities and the obligations under the aforementioned guarantees are secured,
subject to certain limitations, by (i) a mortgage on Products Corporation's
Phoenix, Arizona facility; (ii) the capital stock of Products Corporation and
its domestic subsidiaries, 66% of the capital stock of its first tier foreign
subsidiaries and the capital stock of certain subsidiaries of Holdings; (iii)
domestic intellectual property and certain other domestic intangibles of (x)
Products Corporation and its domestic subsidiaries and (y) certain subsidiaries
of Holdings; (iv) domestic inventory and accounts receivable of (x) Products
Corporation and its domestic subsidiaries and (y) certain subsidiaries of
Holdings; and (v) the assets of certain foreign subsidiary borrowers under the
Multi-Currency Facility (to support their borrowings only). The Credit
Agreement provides that the liens on the stock and personal property referred
to above may be shared from time to time with specified types of other
obligations incurred or guaranteed by Products Corporation, such as interest
rate hedging obligations, working capital lines and a subsidiary of Products
Corporation's yen-denominated credit agreement.
The Credit Agreement contains various material restrictive covenants
prohibiting Products Corporation from (i) incurring additional indebtedness or
guarantees, with certain exceptions, (ii) making dividend, tax sharing and
other payments or loans to Revlon, Inc. or other affiliates, with certain
exceptions, including among others, permitting Products Corporation to pay
dividends and make distributions to Revlon, Inc., among other things, to enable
Revlon, Inc. to pay expenses incidental to being a public holding company,
including, among other things, professional fees such as legal and accounting,
regulatory fees such as Securities and Exchange Commission ("Commission")
filing fees and other miscellaneous expenses related to being a public holding
company, and to pay dividends or make distributions in certain circumstances to
finance the purchase by Revlon, Inc. of its common stock in connection with the
delivery of such common stock to grantees under any stock option plan, provided
that the aggregate amount of such dividends and distributions taken together
with any purchases of Revlon, Inc. common stock on the market to satisfy
matching obligations under an excess savings plan may not exceed $6.0 per
annum,
F-14
(iii) creating liens or other encumbrances on their assets or revenues,
granting negative pledges or selling or transferring any of their assets except
in the ordinary course of business, all subject to certain limited exceptions,
(iv) with certain exceptions, engaging in merger or acquisition transactions,
(v) prepaying indebtedness, subject to certain limited exceptions, (vi) making
investments, subject to certain limited exceptions, and as described below and
(vii) entering into transactions with affiliates of Products Corporation other
than upon terms no less favorable to Products Corporation or its subsidiaries
than it would obtain in an arms'-length transaction. In addition to the
foregoing, the Credit Agreement contains financial covenants requiring Products
Corporation to maintain minimum interest coverage in 2001 and 2002, covenants
that limit the leverage ratio of Products Corporation in 2001 and 2002, and
covenants that limit the amount of capital expenditures.
The events of default under the Credit Agreement include a Change of
Control (as defined in the Credit Agreement) of Products Corporation, the
acceleration of, or certain payment defaults under, indebtedness of REV
Holdings in excess of $0.5 (which was eliminated by amendment in March 2000),
and other customary events of default for such types of agreements.
The Credit Agreement contained financial covenants requiring Products
Corporation to maintain minimum interest coverage and to limit its leverage
ratio, among other things. As a result of the loss from continuing operations
before taxes incurred by Products Corporation in the third quarter of 1999, the
interest coverage and leverage ratios specified in the Credit Agreement were
not achieved at September 30, 1999. On November 10, 1999 the Credit Agreement
was amended to (i) eliminate the interest coverage ratio and leverage ratio
covenants from the quarter ended September 30, 1999 through the year 2000 and
to modify those covenants for the years 2001 and 2002; (ii) add a minimum
EBITDA covenant for each quarter end during the year 2000; (iii) limit the
amount that Products Corporation may spend for capital expenditures and
investments including acquisitions; (iv) permit the sale of Products
Corporation's worldwide professional products line and its non-core Latin
American brands Colorama, Juvena, Bozzano and Plusbelle (such sales, the "Asset
Sales"); (v) change the reduction of the aggregate commitment that is required
upon consummation of any Asset Sale to an amount equal to 60% of the Net
Proceeds (as defined in the Credit Agreement) from such Asset Sale as opposed
to 100% of such Net Proceeds as provided under the Credit Agreement prior to
the amendment; (vi) increase the "applicable margin" by 3/4 of 1% and (vii)
permit the amendment of a yen-denominated credit agreement (the "Yen Credit
Agreement"). On March 30, 2000, approximately 60% of the $250.5 in Net Proceeds
(as that term is defined in the Credit Agreement) from the sale of its
worldwide professional products line was used to permanently reduce the
aggregate commitment under the Credit Agreement to $572.7. As a result of such
commitment reduction, as of March 30, 2000, the aggregate amount outstanding
under the Term Loan Facilities was reduced by $79.8 to $118.2, and the aggregate
commitments under the Acquisition Facility was reduced by $70.5 to $104.5. The
scheduled reductions of the Acquisition Facility will also be reduced such that
the total amount of such reductions is equal to the reduced aggregate
Acquisition Facility commitment. The scheduled reductions of the Acquisition
Facility changed from $60.0 to $35.0 during 2000, from $90.0 to $53.8 during
2001 and from $25.0 to $14.9 during 2002.
(b) The Pacific Finance & Development Corp., a wholly owned subsidiary of
Products Corporation, is the borrower under the Yen Credit Agreement, which had
a principal balance of approximately (Yen) 1.0 billion as of December 31, 1999
(approximately $9.9 U.S. dollar equivalent as of December 31, 1999) after
giving effect to the payment of approximately (Yen) 539 million (approximately
$4.6 U.S. dollar equivalent) in March 1999. On November 12, 1999, the borrower
under the Yen Credit Agreement executed an amendment to the Yen Credit
Agreement to eliminate the amortization payment due in March 2000 and to
provide that the final maturity date of the Yen Credit Agreement will be the
earlier of (i) the closing date of the sale of Products Corporation's
professional products line and (ii) December 31, 2000. The applicable interest
rate at December 31, 1999 under the Yen Credit Agreement was the Euro-Yen rate
plus 2.75%, which approximated 3.6%. The interest rate at December 31, 1998 was
the Euro-Yen rate plus 2.75%, which approximated 3.5%. In March 2000, the
outstanding balance under the Yen Credit Agreement was repaid in accordance
with its terms.
(c) During 1999 Products Corporation redeemed the 9 1/2% Senior Notes due
1999 (the "1999 Notes") with proceeds from the sale of the 9% Senior Notes due
2006 (the "9% Notes").
(d) The 8 1/8 % Notes due 2006 (the "8 1/8% Notes") are senior unsecured
obligations of Products Corporation and rank pari passu in right of payment
with all existing and future Senior Debt (as defined in the indenture relating
to the 8 1/8% Notes (the "8 1/8% Notes Indenture")) of Products Corporation,
including the 1999 Notes until the maturity or earlier retirement thereof, the
9% Notes and the indebtedness under the Credit
F-15
Agreement, and are senior to the 8 5/8% Notes and to all future subordinated
indebtedness of Products Corporation. The 8 1/8% Notes are effectively
subordinated to the outstanding indebtedness and other liabilities of Products
Corporation's subsidiaries. Interest is payable on February 1 and August 1.
The 8 1/8% Notes may be redeemed at the option of Products Corporation in
whole or from time to time in part at any time on or after February 1, 2002 at
the redemption prices set forth in the 8 1/8% Notes Indenture plus accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time
prior to February 1, 2001, Products Corporation may redeem up to 35% of the
aggregate principal amount of the 8 1/8% Notes originally issued at a
redemption price of 108 1/8% of the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date fixed for redemption, with, and to
the extent Products Corporation receives, the net cash proceeds of one or more
Public Equity Offerings (as defined in the 8 1/8% Notes Indenture), provided
that at least $162.5 aggregate principal amount of the 8 1/8% Notes remains
outstanding immediately after the occurrence of each such redemption.
Upon a Change of Control (as defined in the 8 1/8% Notes Indenture),
Products Corporation will have the option to redeem the 8 1/8% Notes in whole
at a redemption price equal to the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of redemption plus the Applicable
Premium (as defined in the 8 1/8% Notes Indenture) and, subject to certain
conditions, each holder of the 8 1/8% Notes will have the right to require
Products Corporation to repurchase all or a portion of such holder's 8 1/8%
Notes at a price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the date of repurchase.
The 8 1/8% Notes Indenture contains covenants that, among other things,
limit (i) the issuance of additional debt and redeemable stock by Products
Corporation, (ii) the incurrence of liens, (iii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the
redemption of capital stock of Products Corporation and certain subordinated
obligations, (v) the sale of assets and subsidiary stock, (vi) transactions
with affiliates and (vii) consolidations, mergers and transfers of all or
substantially all Products Corporation's assets. The 8 1/8% Notes Indenture
also prohibits certain restrictions on distributions from subsidiaries. All of
these limitations and prohibitions, however, are subject to a number of
important qualifications.
(e) The 9% Notes are senior unsecured obligations of Products Corporation
and rank pari passu in right of payment with all existing and future Senior
Debt (as defined in the indenture relating to the 9% Notes (the "9% Notes
Indenture")) of Products Corporation, including the 1999 Notes until the
maturity or earlier retirement thereof, the 8 1/8% Notes and the indebtedness
under the Credit Agreement, and are senior to the 8 5/8% Notes and to all
future subordinated indebtedness of Products Corporation. The 9% Notes are
effectively subordinated to outstanding indebtedness and other liabilities of
Products Corporation's subsidiaries. Interest is payable on May 1 and November
1.
The 9% Notes may be redeemed at the option of Products Corporation in
whole or from time to time in part at any time on or after November 1, 2002 at
the redemption prices set forth in the 9% Notes Indenture plus accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time
prior to November 1, 2001, Products Corporation may redeem up to 35% of the
aggregate principal amount of the 9% Notes originally issued at a redemption
price of 109% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date fixed for redemption, with, and to the
extent Products Corporation receives, the net cash proceeds of one or more
Public Equity Offerings (as defined in the 9% Notes Indenture), provided that
at least $162.5 aggregate principal amount of the 9% Notes remains outstanding
immediately after the occurrence of each such redemption.
Upon a Change in Control (as defined in the 9% Notes Indenture), Products
Corporation will have the option to redeem the 9% Notes in whole at a
redemption price equal to the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of redemption plus the Applicable Premium
(as defined in the 9% Notes Indenture) and, subject to certain conditions, each
holder of the 9% Notes will have the right to require Products Corporation to
repurchase all or a portion of such holder's 9% Notes at a price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of repurchase.
F-16
The 9% Notes Indenture contains covenants that, among other things, limit
(i) the issuance of additional debt and redeemable stock by Products
Corporation, (ii) the incurrence of liens, (iii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the
redemption of capital stock of Products Corporation and certain subordinated
obligations, (v) the sale of assets and subsidiary stock, (vi) transactions
with affiliates and (vii) consolidations, mergers and transfers of all or
substantially all Products Corporation's assets. The 9% Notes Indenture also
prohibits certain restrictions on distributions from subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
(f) The 8 5/8% Notes due 2008 (the "8 5/8% Notes") are general unsecured
obligations of Products Corporation and are (i) subordinate in right of payment
to all existing and future Senior Debt (as defined in the indenture relating to
the 8 5/8% Notes (the "8 5/8% Notes Indenture")) of Products Corporation,
including the 1999 Notes until the maturity or earlier retirement thereof, the
9% Notes, the 8 1/8% Notes and the indebtedness under the Credit Agreement,
(ii) pari passu in right of payment with all future senior subordinated debt,
if any, of Products Corporation and (iii) senior in right of payment to all
future subordinated debt, if any, of Products Corporation. The 8 5/8% Notes are
effectively subordinated to the outstanding indebtedness and other liabilities
of Products Corporation's subsidiaries. Interest is payable on February 1 and
August 1.
The 8 5/8% Notes may be redeemed at the option of Products Corporation in
whole or from time to time in part at any time on or after February 1, 2003 at
the redemption prices set forth in the 8 5/8% Notes Indenture plus accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time
prior to February 1, 2001, Products Corporation may redeem up to 35% of the
aggregate principal amount of the 8 5/8% Notes originally issued at a
redemption price of 108 5/8% of the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date fixed for redemption, with, and to
the extent Products Corporation receives, the net cash proceeds of one or more
Public Equity Offerings (as defined in the 8 5/8% Notes Indenture), provided
that at least $422.5 aggregate principal amount of the 8 5/8% Notes remains
outstanding immediately after the occurrence of each such redemption.
Upon a Change of Control (as defined in the 8 5/8% Notes Indenture),
Products Corporation will have the option to redeem the 8 5/8% Notes in whole
at a redemption price equal to the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of redemption plus the Applicable
Premium (as defined in the 8 5/8% Notes Indenture) and, subject to certain
conditions, each holder of the 8 5/8% Notes will have the right to require
Products Corporation to repurchase all or a portion of such holder's 8 5/8%
Notes at a price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the date of repurchase.
The 8 5/8% Notes Indenture contains covenants that, among other things,
limit (i) the issuance of additional debt and redeemable stock by Products
Corporation, (ii) the incurrence of liens, (iii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the
redemption of capital stock of Products Corporation, (v) the sale of assets and
subsidiary stock, (vi) transactions with affiliates, (vii) consolidations,
mergers and transfers of all or substantially all of Products Corporation's
assets and (viii) the issuance of additional subordinated debt that is senior
in right of payment to the 8 5/8% Notes. The 8 5/8% Notes Indenture also
prohibits certain restrictions on distributions from subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
The 1999 Notes Indenture, the 8 1/8% Notes Indenture, the 8 5/8% Notes
Indenture and the 9% Notes Indenture contain customary events of default for
debt instruments of such type.
(g) During 1992, Revlon Holdings Inc., the indirect parent of the Company
("Holdings"), made an advance of $25.0 to Products Corporation, evidenced by
subordinated noninterest-bearing demand notes. The notes were subsequently
adjusted by offsets and additional amounts loaned by Holdings to Products
Corporation. In June 1997, Products Corporation borrowed from Holdings
approximately $0.5, representing certain amounts received by Holdings from the
sale of a brand and the inventory relating thereto. In 1998, approximately $6.8
due to Products Corporation from Holdings was offset against the notes payable
to Holdings. At December 31, 1999 the balance of $24.1 is evidenced by
noninterest-bearing promissory notes payable to Holdings that are subordinated
to Products Corporation's obligations under the Credit Agreement.
F-17
(h) Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1999 or 1998. The interest rates for such
borrowings are more favorable to Products Corporation than interest rates under
the Credit Agreement and, for borrowings occurring prior to the execution of
the Credit Agreement, the credit facilities in effect at the time of such
borrowing. The amount of interest paid by Products Corporation for such
borrowings for 1999, 1998 and 1997 was $0.5, $0.8 and $0.6, respectively.
The aggregate amounts of long-term debt maturities (at December 31, 1999),
in the years 2000 through 2004 are $10.2, $67.5, $545.1, $0 and $0.1,
respectively, and $1,149.2 thereafter.
The Company expects that cash flows from operations and funds from
currently available credit facilities and renewals of short-term borrowings
will be sufficient to enable the Company to meet its anticipated cash
requirements during 2000 on a consolidated basis, including for debt service.
However, there can be no assurance that the combination of cash flow from
operations, funds from existing credit facilities and renewals of short-term
borrowings will be sufficient to meet the Company's cash requirements on a
consolidated basis. If the Company is unable to satisfy such cash requirements,
the Company could be required to adopt one or more alternatives, such as
reducing or delaying capital expenditures, restructuring indebtedness, selling
other assets or operations, or seeking capital contributions or loans from
affiliates of the Company or issuing additional shares of capital stock of
Revlon, Inc. Products Corporation has had discussions with an affiliate that is
prepared to provide financial support to Products Corporation of up to $40 on
appropriate terms through December 31, 2000.
12. FINANCIAL INSTRUMENTS
As of December 31, 1997, Products Corporation was party to a series of
interest rate swap agreements totaling a notional amount of $225.0 in which
Products Corporation agreed to pay on such notional amount a variable interest
rate equal to the six month LIBOR to its counterparties and the counterparties
agreed to pay on such notional amounts fixed interest rates averaging
approximately 6.03% per annum. Products Corporation entered into these
agreements in 1993 and 1994 (and in the first quarter of 1996 extended a
portion equal to a notional amount of $125.0 through December 2001) to convert
the interest rate on $225.0 of fixed-rate indebtedness to a variable rate.
Products Corporation terminated these agreements in January 1998 and realized a
gain of approximately $1.6, which was recognized upon repayment of the hedged
indebtedness and is included in the extraordinary item for the early
extinguishment of debt. Certain other swap agreements were terminated in 1993
for a gain of $14.0 that was amortized over the original lives of the
agreements through 1997. The amortization of the 1993 realized gain in 1997 was
approximately $3.1.
Products Corporation enters into forward foreign exchange contracts and
option contracts from time to time to hedge certain cash flows denominated in
foreign currencies. At December 31, 1998, Products Corporation had outstanding
forward foreign exchange contracts denominated in various currencies of
approximately $197.5 and outstanding option contracts of approximately $51.0.
Such contracts are entered into to hedge transactions predominantly occurring
within twelve months. If Products Corporation had terminated these contracts on
December 31, 1998 or the contracts then outstanding on December 31, 1997, no
material gain or loss would have been realized. There were no forward foreign
exchange or option contracts outstanding on December 31, 1999.
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same issues or on the current rates offered to the
Company for debt of the same remaining maturities. The estimated fair value of
long-term debt at December 31, 1999 and 1998 was approximately $444.2 and $63.1
less than the carrying values of $1,772.1 and $1,660.0, respectively. Because
considerable judgment is required in interpreting market data to develop
estimates of fair value, the estimates are not necessarily indicative of the
amounts that could be realized or would be paid in a current market exchange.
The effect of using different market assumptions or estimation methodologies
may be material to the estimated fair value amounts.
Products Corporation also maintains standby and trade letters of credit
with certain banks for various corporate purposes under which Products
Corporation is obligated, of which approximately $30.5 and $30.7 (including
amounts available under credit agreements in effect at that time) were
maintained at December 31, 1999 and 1998, respectively. Included in these
amounts are $25.7 and $26.9, respectively, in standby letters of credit, which
support Products
F-18
Corporation's self-insurance programs. The estimated liability under such
programs is accrued by Products Corporation.
The carrying amounts of cash and cash equivalents, marketable securities,
trade receivables, accounts payable and short-term borrowings approximate their
fair values.
13. INCOME TAXES
In June 1992, Holdings, Revlon, Inc., Products Corporation and certain of
its subsidiaries, and Mafco Holdings entered into a tax sharing agreement (as
subsequently amended, the "Tax Sharing Agreement"), pursuant to which Mafco
Holdings has agreed to indemnify Revlon, Inc. and Products Corporation against
federal, state or local income tax liabilities of the consolidated or combined
group of which Mafco Holdings (or a subsidiary of Mafco Holdings other than
Revlon, Inc. and Products Corporation or its subsidiaries) is the common parent
for taxable periods beginning on or after January 1, 1992 during which Revlon,
Inc. and Products Corporation or a subsidiary of Products Corporation is a
member of such group. Pursuant to the Tax Sharing Agreement, for all taxable
periods beginning on or after January 1, 1992, Products Corporation will pay to
Revlon, Inc., which in turn will pay Holdings, amounts equal to the taxes that
such corporation would otherwise have to pay if they were to file separate
federal, state or local income tax returns (including any amounts determined to
be due as a result of a redetermination arising from an audit or otherwise of
the consolidated or combined tax liability relating to any such period which is
attributable to Products Corporation), except that Products Corporation will not
be entitled to carry back any losses to taxable periods ended prior to January
1, 1992. No payments are required by Products Corporation or Revlon, Inc. if and
to the extent that Products Corporation is prohibited under the Credit Agreement
from making tax sharing payments to Revlon, Inc. The Credit Agreement prohibits
Products Corporation from making any tax sharing payments other than in respect
of state and local income taxes. Since the payments to be made by Products
Corporation under the Tax Sharing Agreement will be determined by the amount of
taxes that Products Corporation would otherwise have to pay if it were to file
separate federal, state or local income tax returns, the Tax Sharing Agreement
will benefit Mafco Holdings to the extent Mafco Holdings can offset the taxable
income generated by Products Corporation against losses and tax credits
generated by Mafco Holdings and its other subsidiaries. As a result of net
operating tax losses and prohibitions under the Credit Agreement there were no
federal tax payments or payments in lieu of taxes pursuant to the Tax Sharing
Agreement for 1999, 1998 or 1997. Products Corporation has a liability of $0.9
to Revlon, Inc. in respect of federal taxes for 1997 under the Tax Sharing
Agreement.
Pursuant to the asset transfer agreement referred to in Note 16, Products
Corporation assumed all tax liabilities of Holdings other than (i) certain
income tax liabilities arising prior to January 1, 1992 to the extent such
liabilities exceeded reserves on Holdings' books as of January 1, 1992 or were
not of the nature reserved for and (ii) other tax liabilities to the extent
such liabilities are related to the business and assets retained by Holdings.
F-19
The Company's (loss) income from continuing operations before income taxes
and the applicable provision (benefit) for income taxes are as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
(Loss) income from continuing operations before income taxes: 1999 1998 1997
------------ ------------ ------------
Domestic.............................................. $ (288.5) $ 16.8 $ 83.8
Foreign............................................... (72.7) (37.6) (15.5)
------------ ------------ ------------
$ (361.2) $ (20.8) $ 68.3
============ ============ ============
Provision (benefit) for income taxes:
Federal............................................... $ - $ - $ 0.9
State and local....................................... 0.4 0.6 1.1
Foreign............................................... 8.7 4.4 7.3
------------ ------------ ------------
$ 9.1 $ 5.0 $ 9.3
============ ============ ============
Current............................................... $ 14.7 $ 12.1 $ 32.3
Deferred.............................................. 3.3 0.2 10.4
Benefits of operating loss carryforwards.............. (8.8) (8.2) (34.5)
Carryforward utilization applied to goodwill.......... - 0.5 1.1
Effect of enacted change of tax rates................. (0.1) 0.4 -
------------ ------------ ------------
$ 9.1 $ 5.0 $ 9.3
============ ============ ============
The effective tax rate on (loss) income from continuing operations before
income taxes is reconciled to the applicable statutory federal income tax rate
as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997
--------------- ------------- -------------
Statutory federal income tax rate............................. (35.0)% (35.0)% 35.0 %
State and local taxes, net of federal income tax benefit...... 0.1 1.9 1.1
Foreign and U.S. tax effects attributable to
operations outside the U.S................................ 10.6 80.6 13.1
Tax write-off of U.S. investment in foreign subsidiary........ - (249.7) -
Nondeductible amortization expense............................ 0.8 14.5 4.5
Change in domestic valuation allowance........................ 27.2 212.2 (43.3)
Other......................................................... (1.2) (0.4) 3.2
------- -------- ------
Effective rate................................................ 2.5 % 24.1 % 13.6 %
======= ======== ======
F-20
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below:
DECEMBER 31,
----------------------
Deferred tax assets: 1999 1998
-------- ---------
Accounts receivable, principally due to doubtful accounts ..... $ 5.0 $ 4.2
Inventories ................................................... 16.8 12.1
Net operating loss carryforwards - domestic ................... 220.0 188.9
Net operating loss carryforwards - foreign .................... 122.2 111.0
Accruals and related reserves ................................. 16.1 22.6
Employee benefits ............................................. 43.0 32.5
State and local taxes ......................................... 12.7 13.1
Self-insurance ................................................ 1.8 2.2
Advertising, sales discounts and returns and coupon redemptions 36.4 30.5
Other ......................................................... 29.3 27.5
-------- --------
Total gross deferred tax assets ....................... 503.3 444.6
Less valuation allowance .............................. (441.9) (381.6)
-------- --------
Net deferred tax assets ............................... 61.4 63.0
Deferred tax liabilities:
Plant, equipment and other assets .............................. (51.8) (58.4)
Other ......................................................... (4.5) (8.2)
-------- --------
Total gross deferred tax liabilities .................. (56.3) (66.6)
-------- --------
Net deferred tax asset (liability) .................... $ 5.1 $ (3.6)
======== ========
In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
level of historical taxable income for certain international markets and
projections for future taxable income over the periods in which the deferred
tax assets are deductible, management believes it is more likely than not that
the Company will realize the benefits of certain deductible differences
existing at December 31, 1999.
The valuation allowance increased by $60.3 and $102.3 during 1999 and
1998, respectively and decreased by $54.5 during 1997.
F-21
During 1999, 1998, and 1997, certain of the Company's foreign subsidiaries
used operating loss carryforwards to credit the current provision for income
taxes by $8.8, $2.4, and $4.0, respectively. Certain other foreign operations
generated losses during 1999, 1998 and 1997 for which the potential tax benefit
was reduced by a valuation allowance. During 1998 and 1997, the Company used
domestic operating loss carryforwards to credit the deferred provision for
income taxes by $5.8 and $12.0, respectively. During 1997, the Company applied
domestic operating loss carryforwards to credit the current provision for
income taxes by $18.5. At December 31, 1999, the Company had tax loss
carryforwards of approximately $969.7 that expire in future years as follows:
2000-$9.2; 2001-$19.9; 2002-$40.0; 2003-$22.1; 2004 and beyond-$694.1;
unlimited-$184.4. The Company could receive the benefit of such tax loss
carryforwards only to the extent it has taxable income during the carryforward
periods in the applicable jurisdictions. In addition, based upon certain
factors, including the amount and nature of gains or losses recognized by Mafco
Holdings and its other subsidiaries included in the consolidated federal income
tax return, the amount of net operating loss carryforwards attributable to
Mafco Holdings and such other subsidiaries and the amounts of alternative
minimum tax liability of Mafco Holdings and such other subsidiaries, pursuant
to the terms of the Tax Sharing Agreement, all or a portion of the domestic
operating loss carryforwards may not be available to the Company should the
Company cease being a member of the Mafco Holdings consolidated federal income
tax return.
Appropriate United States and foreign income taxes have been accrued on
foreign earnings that have been or are expected to be remitted in the near
future. Unremitted earnings of foreign subsidiaries which have been, or are
currently intended to be, permanently reinvested in the future growth of the
business aggregated approximately $13.3 at December 31, 1999, excluding those
amounts which, if remitted in the near future, would not result in significant
additional taxes under tax statutes currently in effect.
14. POSTRETIREMENT BENEFITS
Pension:
A substantial portion of the Company's employees in the United States are
covered by defined benefit pension plans. The Company uses September 30 as its
measurement date for plan obligations and assets.
Other Postretirement Benefits:
The Company also has sponsored an unfunded retiree benefit plan, which
provides death benefits payable to beneficiaries of certain key employees and
former employees. Participation in this plan is limited to participants
enrolled as of December 31, 1993. The Company also administers a medical
insurance plan on behalf of Holdings, the cost of which has been apportioned to
Holdings. The Company uses September 30 as its measurement date for plan
obligations.
F-22
Information regarding the Company's significant pension and other
postretirement plans at the dates indicated is as follows:
OTHER POSTRETIREMENT
PENSION PLANS BENEFITS
------------------ --------------------
DECEMBER 31,
----------------------------------------
1999 1998 1999 1998
------- ------- ------ -------
Change in Benefit Obligation:
Benefit obligation - September 30 of prior year........... $(438.6) $(364.8) $ (9.3) $ (8.7)
Service cost.............................................. (16.0) (12.8) (0.1) (0.1)
Interest cost............................................. (28.7) (27.0) (0.7) (0.7)
Plan amendments........................................... - 0.2 - -
Actuarial (loss) gain..................................... 46.8 (51.6) 0.3 (0.3)
Curtailments.............................................. - 0.6 - -
Benefits paid............................................. 19.1 17.6 0.6 0.5
Foreign exchange.......................................... - (0.1) - -
Plan participant contributions............................ (0.8) (0.7) - -
------- ------- ------ ------
Benefit obligation - September 30 of current year......... (418.2) (438.6) (9.2) (9.3)
------- ------- ------ ------
Change in Plan Assets:
Fair value of plan assets - September 30 of prior year.... 286.0 306.9 - -
Actual return (loss) on plan assets....................... 52.1 (6.5) - -
Employer contributions.................................... 4.5 3.5 0.6 0.5
Plan participant contributions............................ 0.8 0.7 - -
Benefits paid............................................. (19.1) (17.6) (0.6) (0.5)
Foreign exchange.......................................... (0.6) (1.0) - -
------- ------- ------ ------
Fair value of plan assets - September 30 of current year.. 323.7 286.0 - -
------- ------- ------ ------
Funded status of plans...................................... (94.5) (152.6) (9.2) (9.3)
Amounts contributed to plans during fourth quarter.......... 1.2 1.0 0.1 0.1
Unrecognized net loss (gain)................................ 19.0 96.6 (1.6) (1.4)
Unrecognized prior service cost............................. 5.5 7.3 - -
Unrecognized net (asset) obligation......................... (0.7) (0.9) - -
------- ------- ------ ------
Accrued benefit cost...................................... $ (69.5) $ (48.6) $(10.7) $(10.6)
======= ======= ====== ======
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid expenses.......................................... $ 6.3 $ 8.7 $ - $ -
Other long-term liabilities............................... (81.4) (98.6) (10.7) (10.6)
Intangible asset.......................................... - 7.8 - -
Accumulated other comprehensive loss...................... 4.9 32.5 - -
Due from affiliate........................................ 0.7 1.0 1.6 1.7
------- ------- ------ ------
$ (69.5) $ (48.6) $ (9.1) $ (8.9)
======= ======= ====== ======
The following weighted-average assumptions were used in accounting for the
plans.
U.S. PLANS INTERNATIONAL PLANS
-------------------- -------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Discount rate............................. 7.50% 6.75% 7.75% 6.5% 6.2% 7.1%
Expected return on plan assets............ 9.5 9.0 9.0 9.2 9.6 10.1
Rate of future compensation increases..... 5.3 5.3 5.3 4.5 4.9 5.3
F-23
The components of net periodic benefit cost for the plans are as follows:
PENSION PLANS OTHER POSTRETIREMENT BENEFITS
----------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
------ -------- -------- -------- -------- --------
Service cost........................... $ 16.0 $ 12.8 $ 11.7 $ 0.1 $ 0.1 $ 0.1
Interest cost.......................... 28.7 27.0 26.0 0.7 0.7 0.7
Expected return on plan assets......... (26.6) (27.4) (23.0) - - -
Amortization of prior service cost..... 1.7 1.8 1.8 - - -
Amortization of net transition asset... (0.2) (0.2) (0.2) - - -
Amortization of actuarial loss (gain).. 5.0 1.0 1.2 (0.3) (0.3) (0.2)
Settlement loss........................ - - 0.2 - - -
Curtailment loss....................... - 0.3 0.1 - - -
------- ------- -------- ------ ------ ------
24.6 15.3 17.8 0.5 0.5 0.6
Portion allocated to Holdings.......... (0.3) (0.3) (0.3) 0.1 0.1 0.1
------- ------- -------- ------ ------ ------
$ 24.3 $ 15.0 $ 17.5 $ 0.6 $ 0.6 $ 0.7
======= ======= ======== ====== ====== ======
Where the accumulated benefit obligation exceeded the related fair value
of plan assets, the projected benefit obligations, accumulated benefit
obligation, and fair value of plan assets for the Company's pension plans are
as follows:
DECEMBER 31,
-------------------------------------
1999 1998 1997
--------- ----------- ----------
Projected benefit obligation........... $ 61.2 $ 428.2 $ 55.5
Accumulated benefit obligation......... 53.0 370.5 45.2
Fair value of plan assets.............. 0.7 276.3 1.9
15. STOCK COMPENSATION PLAN
Since March 5, 1996, Revlon, Inc. has had a stock-based compensation plan
as amended and restated as of February 12, 1999 (the "Plan"), which is
described below. Products Corporation applies APB Opinion No. 25 and its
related interpretations in accounting for the Plan. Under APB Opinion No. 25,
because the exercise price of employee stock options under the Plan equals the
market price of the underlying stock on the date of grant, no compensation cost
has been recognized. Had compensation cost for the Plan been determined
consistent with SFAS No. 123, Products Corporation's net (loss) income of
$(370.3) for 1999, $(141.7) for 1998, and $44.8 for 1997 would have been
changed to the pro forma amounts of $(396.0) for 1999, $(165.3) 1998 and $32.5
for 1997. The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model assuming no dividend yield,
expected volatility of approximately 68% in 1999, 56% in 1998, and 39% in 1997;
weighted average risk-free interest rate of 5.48% in 1999, 5.37% in 1998, and
6.54% in 1997; and a seven year expected average life for the Plan's options
issued in 1999, 1998 and 1997. The effects of applying SFAS No. 123 in this pro
forma disclosure are not necessarily indicative of future amounts.
Under the Plan, options may be granted to its employees for up to an
aggregate of 7.0 million shares of Revlon, Inc. Class A Common Stock.
Non-qualified options granted under the Plan have a term of 10 years during
which the holder can purchase shares of Revlon, Inc. Class A Common Stock at an
exercise price which must be not less than the market price on the date of the
grant. Option grants vest over service periods that range from one to five
years, except as disclosed below. Options granted in February 1999 with an
original four year vesting term were modified in May 1999 to allow the options
to become fully vested on the first anniversary date of the grant. During each
of 1999, 1998 and 1997, Revlon, Inc. granted to Mr. Perelman, Chairman of the
Board, options to purchase 300,000 shares of Revlon, Inc. Class A Common Stock,
which grants will vest in full on the fifth anniversary of the grant dates as
to the 1998 and 1997 grants and which vested 100% on the date of grant as to
the 1999 grant. At
F-24
December 31, 1999, 1998 and 1997 there were 1,850,050, 403,950 and 98,450
options exercisable under the Plan, respectively.
A summary of the status of the Plan as of December 31, 1999, 1998 and 1997
and changes during the years then ended is presented below:
SHARES WEIGHTED AVERAGE
(000) EXERCISE PRICE
---------- ----------------------
Outstanding at December 31, 1996... 891.1 $24.37
Granted............................ 1,485.5 32.64
Exercised.......................... (12.1) 24.00
Forfeited.......................... (85.1) 29.33
--------
Outstanding at December 31, 1997... 2,279.4 29.57
Granted............................ 1,707.8 36.65
Exercised.......................... (55.9) 26.83
Forfeited.......................... (166.8) 32.14
--------
Outstanding at December 31, 1998... 3,764.5 32.71
Granted............................ 2,456.7 16.89
Exercised.......................... (5.8) 27.94
Forfeited.......................... (444.2) 27.03
--------
Outstanding at December 31, 1999... 5,771.2 26.42
========
The weighted average fair value of options granted during 1999, 1998 and
1997 approximated $10.65, $22.26, and $16.42, respectively.
The following table summarizes information about the Plan's options
outstanding at December 31, 1999:
OUTSTANDING EXERCISABLE
-------------------------------------------- ------------------------------
WEIGHTED
RANGE AVERAGE WEIGHTED WEIGHTED
OF NUMBER YEARS AVERAGE NUMBER AVERAGE
EXERCISE PRICES OF OPTIONS REMAINING EXERCISE PRICE OF OPTIONS EXERCISE PRICE
- ----------------- ------------- ------------- ---------------- ------------ -------------------
$9.31 to $17.13 1,698.7 9.21 $14.07 371.8 $15.11
18.50 to 29.88 1,374.3 7.25 24.03 667.9 24.04
31.38 to 33.88 946.8 6.56 31.40 482.1 31.41
34.00 to 53.56 1,751.4 7.53 37.59 328.3 35.19
------- -------
9.31 to 53.56 5,771.2 1,850.1
======= =======
16. RELATED PARTY TRANSACTIONS
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an asset
transfer agreement with Holdings, which is an indirect parent of the Company
and certain of its wholly owned subsidiaries (the "Asset Transfer Agreement"),
and Revlon, Inc. and Products Corporation entered into a real property asset
transfer agreement with Holdings (the "Real Property Transfer Agreement" and,
together with the Asset Transfer Agreement, the "Transfer Agreements"), and
pursuant to such agreements, on June 24, 1992 Holdings transferred assets to
Products Corporation and Products Corporation assumed all the liabilities of
Holdings, other than certain specifically excluded assets and liabilities (the
liabilities excluded are referred to as the "Excluded Liabilities"). Certain
consumer products lines sold in demonstrator-assisted distribution channels
considered not integral to the Company's business and which historically
F-25
had not been profitable (the "Retained Brands") and certain of the assets and
liabilities were retained by Holdings. Holdings agreed to indemnify Revlon,
Inc. and Products Corporation against losses arising from the Excluded
Liabilities, and Revlon, Inc. and Products Corporation agreed to indemnify
Holdings against losses arising from the liabilities assumed by Products
Corporation. The amounts reimbursed by Holdings to Products Corporation for the
Excluded Liabilities for 1999, 1998 and 1997 were $0.5, $0.6 and $0.4,
respectively.
Certain assets and liabilities relating to divested businesses were
transferred to Products Corporation on the transfer date and any remaining
balances as of December 31 of the applicable year have been reflected in the
Company's Consolidated Balance Sheets as of such dates. At December 31, 1999
and 1998, the amounts reflected in the Company's Consolidated Balance Sheets
aggregated a net liability of $23.6, of which $5.2 is included in accrued
expenses and other and $18.4 is included in other long-term liabilities as of
both dates.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered into
an operating services agreement (as amended and restated, and as subsequently
amended, the "Operating Services Agreement") pursuant to which Products
Corporation has manufactured, marketed, distributed, warehoused and
administered, including the collection of accounts receivable, the Retained
Brands for Holdings. Pursuant to the Operating Services Agreement, Products
Corporation was reimbursed an amount equal to all of its and Revlon, Inc.'s
direct and indirect costs incurred in connection with furnishing such services,
net of the amounts collected by Products Corporation with respect to the
Retained Brands, payable quarterly. The net amounts due from Holdings to
Products Corporation for such direct and indirect costs plus a fee equal to 5%
of the net sales of the Retained Brands for 1998 and 1997 were $0.9 (which
amount was offset against certain notes payable to Holdings) and $1.7,
respectively.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have entered
into reimbursement agreements (the "Reimbursement Agreements") pursuant to
which (i) MacAndrews Holdings is obligated to provide (directly or through
affiliates) certain professional and administrative services, including
employees, to Revlon, Inc. and its subsidiaries, including Products
Corporation, and purchase services from third party providers, such as
insurance and legal and accounting services, on behalf of Revlon, Inc. and its
subsidiaries, including Products Corporation, to the extent requested by
Products Corporation, and (ii) Products Corporation is obligated to provide
certain professional and administrative services, including employees, to
MacAndrews Holdings (and its affiliates) and purchase services from third party
providers, such as insurance and legal and accounting services, on behalf of
MacAndrews Holdings (and its affiliates) to the extent requested by MacAndrews
Holdings, provided that in each case the performance of such services does not
cause an unreasonable burden to MacAndrews Holdings or Products Corporation, as
the case may be. The Company reimburses MacAndrews Holdings for the allocable
costs of the services purchased for or provided to the Company and its
subsidiaries and for reasonable out-of-pocket expenses incurred in connection
with the provision of such services. MacAndrews Holdings (or such affiliates)
reimburses the Company for the allocable costs of the services purchased for or
provided to MacAndrews Holdings (or such affiliates) and for the reasonable
out-of-pocket expenses incurred in connection with the purchase or provision of
such services. The net amounts reimbursed by MacAndrews Holdings to the Company
for the services provided under the Reimbursement Agreements for 1999, 1998 and
1997 were $0.5, $3.1 ($0.2 of which was offset against certain notes payable to
Holdings), and $4.0, respectively. Each of Revlon, Inc. and Products
Corporation, on the one hand, and MacAndrews Holdings, on the other, has agreed
to indemnify the other party for losses arising out of the provision of
services by it under the Reimbursement Agreements other than losses resulting
from its willful misconduct or gross negligence. The Reimbursement Agreements
may be terminated by either party on 90 days' notice. The Company does not
intend to request services under the Reimbursement Agreements unless their
costs would be at least as favorable to the Company as could be obtained from
unaffiliated third parties.
F-26
TAX SHARING AGREEMENT
Holdings, Revlon, Inc., Products Corporation and certain of its
subsidiaries and Mafco Holdings are parties to the Tax Sharing Agreement, which
is described in Note 13. Since payments to be made under the Tax Sharing
Agreement will be determined by the amount of taxes that Products Corporation
would otherwise have to pay if it were to file separate federal, state or local
income tax returns, the Tax Sharing Agreement will benefit Mafco Holdings to
the extent Mafco Holdings can offset the taxable income generated by Products
Corporation against losses and tax credits generated by Mafco Holdings and its
other subsidiaries.
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leased to Products Corporation the Edison research and development facility for
a term of up to 10 years with an annual rent of $1.4 and certain shared
operating expenses payable by Products Corporation, which, together with the
annual rent, were not to exceed $2.0 per year. Pursuant to an assumption
agreement dated February 18, 1993, Holdings agreed to assume all costs and
expenses of the ownership and operation of the Edison facility as of January 1,
1993, other than (i) the operating expenses for which Products Corporation was
responsible under the Edison Lease and (ii) environmental claims and compliance
costs relating to matters that occurred prior to January 1, 1993 up to an
amount not to exceed $8.0 (the amount of such claims and costs for which
Products Corporation is responsible, the "Environmental Limit"). In addition,
pursuant to such assumption agreement, Products Corporation agreed to indemnify
Holdings for environmental claims and compliance costs relating to matters that
occurred prior to January 1, 1993 up to an amount not to exceed the
Environmental Limit and Holdings agreed to indemnify Products Corporation for
environmental claims and compliance costs relating to matters that occurred
prior to January 1, 1993 in excess of the Environmental Limit and all such
claims and costs relating to matters occurring on or after January 1, 1993.
Pursuant to an occupancy agreement, during 1998 and 1997 Products Corporation
rented from Holdings a portion of the administration building located at the
Edison facility and space for a retail store of Products Corporation's now
discontinued retail operation. Products Corporation provided certain
administrative services, including accounting, for Holdings with respect to the
Edison facility pursuant to which Products Corporation paid on behalf of
Holdings costs associated with the Edison facility and was reimbursed by
Holdings for such costs, less the amount owed by Products Corporation to
Holdings pursuant to the Edison Lease and the occupancy agreement. In August
1998, Holdings sold the Edison facility to an unrelated third party, which
assumed substantially all liability for environmental claims and compliance
costs relating to the Edison facility, and in connection with the sale,
Products Corporation terminated the Edison Lease and entered into a new lease
with the new owner. Holdings agreed to indemnify Products Corporation to the
extent rent under the new lease exceeds rent that would have been payable under
the terminated Edison Lease had it not been terminated. The net amount
reimbursed by Holdings to Products Corporation with respect to the Edison
facility for 1999, 1998 and 1997 was $0.2, $0.5, and $0.7, respectively.
During 1997, a subsidiary of Products Corporation sold an inactive
subsidiary to a company that was its affiliate during 1997 and part of 1998 for
approximately $1.0.
Effective July 1, 1997, Holdings contributed to Products Corporation
substantially all of the assets and liabilities of the Bill Blass business not
already owned by Products Corporation. The contributed assets approximated the
contributed liabilities and were accounted for at historical cost in a manner
similar to that of a pooling of interests and, accordingly, prior period
financial statements were restated as if the contribution took place prior to
the beginning of the earliest period presented.
On February 2, 1998, Revlon Escrow Corp., an affiliate of Products
Corporation, issued and sold in a private placement $650.0 aggregate principal
amount of 8 5/8% Notes and $250.0 aggregate principal amount of 8 1/8% Notes,
with the net proceeds deposited into escrow. The proceeds from the sale of the
8 5/8% and 8 1/8% Notes were used to finance the redemption of Products
Corporation's $555.0 aggregate principal amount of 10 1/2% Senior Subordinated
Notes due 2003 (the "Senior Subordinated Notes") and $260.0 aggregate principal
amount of 9 3/8% Senior Notes due 2001 (the "Senior Notes" and, together with
the Senior Subordinated Notes, the "Old Notes"). Products Corporation delivered
a redemption notice to the holders of the Senior Subordinated Notes for the
redemption of the Senior Subordinated Notes on March 4, 1998, at which time
Products Corporation assumed the obligations under the 8 5/8% Notes and the
related indenture (the "8 5/8% Notes Assumption"), and to the holders of the
Senior Notes for the redemption of the Senior Notes on April 1, 1998, at which
time Products Corporation
F-27
assumed the obligations under the 8 1/8% Notes and the related indenture (the
"8 1/8% Notes Assumption" and, together with the 8 5/8% Notes Assumption, the
"Assumption"). A nationally recognized investment banking firm rendered its
written opinion that the Assumption, upon consummation of the redemptions of
the Old Notes, and the subsequent release from escrow to Products Corporation
of any remaining net proceeds from the sale of the 8 5/8% and 8 1/8% Notes are
fair from a financial standpoint to Products Corporation under the 1999 Notes
Indenture.
Products Corporation leases certain facilities to MacAndrews & Forbes or
its affiliates pursuant to occupancy agreements and leases. These included
space at Products Corporation's New York headquarters and at Products
Corporation's offices in London during 1999, 1998 and 1997 and in Hong Kong
during 1997 and the first half of 1998. The rent paid to Products Corporation
for 1999, 1998 and 1997 was $1.1, $2.9 and $3.8, respectively.
Products Corporation's Credit Agreement is supported by, among other
things, guarantees from Holdings and certain of its subsidiaries. The
obligations under such guarantees are secured by, among other things, the
capital stock and certain assets of certain subsidiaries of Holdings.
During 1998, Products Corporation made advances of $0.25, $0.3 and $0.4 to
Mr. Fellows, Ms. Dwyer and Mr. Levin, respectively, which advances were repaid
in 1999.
During 1999, Products Corporation made an advance of $0.4 to Mr. Nugent.
During 1997, Products Corporation used an airplane owned by a corporation
of which Messrs. Gittis and Drapkin were the sole stockholders, for which
Products Corporation paid approximately $0.2 in 1997.
During 1998 and 1997, Products Corporation purchased products from a
company that was its affiliate during part of 1998 and all of 1997, for which
it paid approximately $0.4 and $0.9, respectively.
During 1997, Products Corporation provided licensing services to a company
that was its affiliate during 1997 and part of 1998, for which Products
Corporation was paid approximately $0.7 in 1997. In connection with the
termination of the licensing arrangement and its agreement to provide
consulting services during 1998, Products Corporation received payments of $2.0
in 1998 and an additional $1.0 in 1999.
A company that was an affiliate of Products Corporation during part of
1999, and during 1998 and 1997 assembled lipstick cases for Products
Corporation. Products Corporation paid approximately $0.1, $1.1, and $0.9 for
such services for 1999, 1998 and 1997, respectively.
During 1999, Products Corporation made payments of $0.1 to a fitness
center, an interest in which is owned by members of Mr. Drapkin's immediate
family, for discounted health club dues for an executive health program of
Products Corporation.
17. COMMITMENTS AND CONTINGENCIES
The Company currently leases manufacturing, executive, including research
and development, and sales facilities and various types of equipment under
operating lease agreements. Rental expense was $42.8, $43.7 and $46.1 for the
years ended December 31, 1999, 1998 and 1997, respectively. Minimum rental
commitments under all noncancelable leases, including those pertaining to idled
facilities, with remaining lease terms in excess of one year from December 31,
1999 aggregated $126.9; such commitments for each of the five years subsequent
to December 31, 1999 are $31.2, $28.2, $25.1, $12.5 and $5.4, respectively.
Such amounts exclude the minimum rentals to be received by the Company in the
future under noncancelable subleases of $17.4.
The Company and its subsidiaries are defendants in litigation and
proceedings involving various matters. In the opinion of the Company's
management, based upon advice of its counsel handling such litigation and
proceedings, adverse outcomes, if any, will not result in a material effect on
the Company's consolidated financial condition or results of operations.
F-28
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------------ ----------- ---------- -----------
Net sales ............................................. $ 441.1 $ 553.4 $ 452.4 $ 414.4
Gross profit .......................................... 285.4 368.5 282.4 238.9
Loss from continuing operations ....................... (33.9)(a) (3.6)(a) (164.4)(a) (168.4)(a)
Net loss............................................... (33.9) (3.6) (164.4) (168.4)
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------------ ----------- ---------- -----------
Net sales ............................................. $ 497.8 $ 575.3 $ 548.6 $ 630.5
Gross profit .......................................... 334.5 381.3 362.5 408.2
(Loss) income from continuing operations .............. (15.0) 12.3 13.0 (b) (36.1) (b)
Loss from discontinued operations ..................... (4.6) (26.9) - (32.7)
Extraordinary items-early extinguishments of debt ..... (38.2) (13.5) - -
Net (loss) income ..................................... (57.8) (28.1) 13.0 (68.8)
(a) Includes business consolidation costs of $8.2, $9.5, $4.4 and $18.1 in the
first, second, third and fourth quarters, respectively. (See Note 4).
Additionally the fourth quarter includes $22.0 of executive separation
costs.
(b) Includes a non-recurring gain of $7.1 in the third quarter and business
consolidation costs of $42.9 in the fourth quarter (See Note 4).
F-29
19. GEOGRAPHIC INFORMATION
The Company manages its business on the basis of one reportable operating
segment. See Note 1 for a brief description of the Company's business. As of
December 31, 1999, the Company had operations established in 28 countries
outside of the United States and its products are sold throughout the world.
The Company is exposed to the risk of changes in social, political and economic
conditions inherent in foreign operations and the Company's results of
operations and the value of its foreign assets are affected by fluctuations in
foreign currency exchange rates. The Company's operations in Brazil have
accounted for approximately 4.1%, 5.4% and 5.8% of the Company's net sales for
1999, 1998 and 1997, respectively. Net sales by geographic area are presented
by attributing revenues from external customers on the basis of where the
products are sold. During 1999, 1998 and 1997, Wal-Mart and its affiliates
accounted for approximately 13.1%, 10.1% and 10.3% of the Company's
consolidated net sales, respectively. Although the loss of Wal-Mart as a
customer could have an adverse effect on the Company, the Company believes that
its relationship with Wal-Mart is satisfactory and the Company has no reason to
believe that Wal-Mart will not continue as a customer.
GEOGRAPHIC AREAS: YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
Net sales: 1999 1998 1997
----------- ------------ -----------
United States ........................... $ 1,046.2 $ 1,343.7 $ 1,304.9
International ........................... 815.1 908.5 933.7
----------- ------------ ------------
$ 1,861.3 $ 2,252.2 $ 2,238.6
=========== ============ ============
DECEMBER 31,
-----------------------------------
Long-lived assets: 1999 1998
----------- ------------
United States ........................... $ 611.3 $ 637.9
International ........................... 259.4 287.4
----------- ------------
$ 870.7 $ 925.3
=========== ============
CLASSES OF SIMILAR PRODUCTS: YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
Net sales: 1999 1998 1997
----------- ------------ -----------
Cosmetics, skin care and fragrances ..... $ 1,001.8 $ 1,309.7 $ 1,319.6
Personal care and professional .......... 859.5 942.5 919.0
----------- ------------ -----------
$ 1,861.3 $ 2,252.2 $ 2,238.6
=========== ============ ===========
20. Subsequent Event
On March 30, 2000, the Company completed the disposition of its worldwide
professional products line, including professional hair care for use in and
resale by professional salons, ethnic hair and personal care products, Natural
Honey skin care and certain regional toiletries brands, for $315 in cash,
before adjustments, plus $10 in purchase price payable in the future,
contingent upon the purchasers' achievement of certain rates of return on their
investment. The disposition involved the sale of certain of the Company's
subsidiaries throughout the world devoted to the professional products line, as
well as assets dedicated exclusively or primarily to the lines being disposed.
The worldwide professional products line was purchased by a company formed by
CVC Capital Partners, the Colomer family and other investors, led by Carlos
Colomer, a former manager of the line that was sold, following arms'-length
negotiation of the terms of the purchase agreement therefor, including the
determination of the amount of the consideration.
F-30
SCHEDULE II
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND OTHER AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
---------- ----------- ----------- ---------
YEAR ENDED DECEMBER 31, 1999:
Applied against asset accounts:
Allowance for doubtful accounts...................... $ 14.0 $ 7.7 $ (7.1)(1) $ 14.6
Allowance for volume and early payment
discounts.......................................... $ 14.5 $ 42.5 $ (44.4)(2) $ 12.6
YEAR ENDED DECEMBER 31, 1998:
Applied against asset accounts:
Allowance for doubtful accounts...................... $ 12.0 $ 4.5 $ (2.5)(1) $ 14.0
Allowance for volume and early payment
discounts.......................................... $ 13.9 $ 44.8 $ (44.2)(2) $ 14.5
YEAR ENDED DECEMBER 31, 1997:
Applied against asset accounts:
Allowance for doubtful accounts...................... $ 12.9 $ 3.6 $ (4.5)(1) $ 12.0
Allowance for volume and early payment
discounts.......................................... $ 12.0 $ 46.8 $ (44.9)(2) $ 13.9
- ---------------
Notes:
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign currency translation adjustments.
(2) Discounts taken, reclassifications and foreign currency translation
adjustments.
F-31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Revlon Consumer Products Corporation
(Registrant)
By: /s/ Jeffrey M. Nugent
- -------------------------
Jeffrey M. Nugent
President,
Chief Executive Officer
and Director
By: /s/ Frank J. Gehrmann
- ----------------------------------------
Frank J. Gehrmann
Executive Vice
President and
Chief Financial Officer
By: /s/ Laurence Winoker
- ----------------------------------------
Laurence Winoker
Senior Vice President,
Corporate Controller
and Treasurer
Dated: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant on
March 30, 2000 and in the capacities indicated.
Signature Title
*
- -----------------------------------
(Ronald O. Perelman) Chairman of the Board and Director
*
- -----------------------------------
(Howard Gittis) Director
/s/ Jeffrey M. Nugent
- -----------------------------------
(Jeffrey M. Nugent) President, Chief Executive Officer
and Director
*
- -----------------------------------
(Donald G. Drapkin) Director
*
- -----------------------------------
(Edward J. Landau) Director
* Robert K. Kretzman, by signing his name hereto, does hereby sign this report
on behalf of the directors of the registrant after whose typed names asterisks
appear, pursuant to powers of attorney duly executed by such directors and
filed with the Securities and Exchange Commission.
By: /s/ Robert K. Kretzman
- --------------------------------
Robert K. Kretzman
Attorney-in-fact