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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, 2000
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 1-11178
REVLON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3662955
(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
====================================== ========================================
CLASS A COMMON STOCK NEW YORK STOCK EXCHANGE
====================================== ========================================
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]
AS OF MARCH 8, 2001, 20,115,935 SHARES OF CLASS A COMMON STOCK AND
31,250,000 SHARES OF CLASS B COMMON STOCK WERE OUTSTANDING. 11,250,000 SHARES
OF CLASS A COMMON STOCK AND ALL OF THE SHARES OF CLASS B COMMON STOCK WERE HELD
BY REV HOLDINGS INC., AN INDIRECTLY WHOLLY-OWNED SUBSIDIARY OF MAFCO HOLDINGS
INC. THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S CLASS A COMMON STOCK HELD
BY NON-AFFILIATES (USING THE NEW YORK STOCK EXCHANGE CLOSING PRICE AS OF MARCH
8, 2001) WAS APPROXIMATELY $50,092,533.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Revlon, Inc. (and together with its subsidiaries, the "Company") conducts
its business exclusively through its direct subsidiary, Revlon Consumer
Products Corporation and its subsidiaries ("Products Corporation"). The Company
manufactures, markets and sells an extensive array of cosmetics and skin care,
fragrances and personal care 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 worldwide. The Company's products
are marketed under such well-known brand names as REVLON, COLORSTAY, REVLON AGE
DEFYING, ALMAY and ULTIMA in cosmetics; MOON DROPS, ETERNA 27, ULTIMA and
JEANNE GATINEAU in skin care; CHARLIE and FIRE & ICE in fragrances; and FLEX,
OUTRAGEOUS, MITCHUM, COLORSTAY, COLORSILK, JEAN NATE, 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 24 years). The Company also has
leading market positions in several product categories in certain markets
outside of the United States, including in 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
ACNielsen data. ACNielsen measures retail sales volume of products sold in the
United States self-select distribution channel. Such data represent ACNielsen's
estimates based upon data gathered by ACNielsen from market samples and are
therefore subject to some degree of variance.
RECENT DEVELOPMENTS
During the fourth quarter of 2000, the Company shutdown its manufacturing
operations in Mississauga, Canada and began closing its facility in Phoenix,
Arizona, which is expected to be substantially completed by June 2001. The
Company will shift production from these facilities to its Oxford, North
Carolina facility. The Company also announced the shutdown of its facility in
New Zealand in the fourth quarter of 2000, and consolidated such operations
into the Company's facility in Australia. The Company estimates that the costs
of closing these facilities and relocating manufacturing will result in charges
of $55 million to $60 million. These costs principally include compensation and
related costs, relocation costs and write-downs of assets. Net cash
expenditures (after the proceeds from the sale of assets) are estimated to be
$30 million to $35 million. The Company expects that these planned actions,
when fully implemented, will result in annual savings of $25 million to $30
million.
In October 2000, the Company announced changes in the way it goes to
market with its U.S. retail partners designed to increase consumption of the
Company's products and drive market growth. The new terms of trade became
effective January 1, 2001, with a transition during the fourth quarter of 2000.
They include increased in-store coverage, incentives for retailers intended to
encourage more efficient ordering and shipping and to lower merchandise return
rates and rewards for increased consumer sell-through.
In January 2001 (effective December 31, 2000), Products Corporation and
its bank lenders entered into an amendment to the Credit Agreement (as
hereinafter defined), to (i) eliminate the interest coverage ratio and leverage
ratio covenants for 2001; (ii) add a minimum cumulative EBITDA covenant for
each quarter end during the year 2001; (iii) modify the definition of EBITDA
beginning with the quarterly period ended December 31, 2000; (iv) limit the
amount that Products Corporation may spend for capital expenditures; (v) permit
the sale of certain of Products Corporation's non-core assets; (vi) permit
Products Corporation to retain 100% of the Net Proceeds (as
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defined in the Credit Agreement) from such asset sales; (vii) increase the
"applicable margin" by 1/2 of 1%; and (viii) require Products Corporation to
provide a mortgage on its facility in Oxford, North Carolina as security for
its obligations under the Credit Agreement.
PRODUCTS
The Company manufactures and markets a variety of products worldwide.
The following table sets forth the Company's principal brands.
===============================================================================================================================
BRAND COSMETICS SKIN CARE FRAGRANCES PERSONAL
CARE
PRODUCTS
=======================================================================================================================
REVLON Revlon, ColorStay, Moon Drops, Charlie, Charlie Red, Flex, Outrageous,
Revlon Age Defying, Revlon Results, Charlie White, Aquamarine,
Super Lustrous, Eterna 27 Ciara, Fire & Ice Mitchum,
Revlon MoistureStay, Lady Mitchum,
Moon Drops, Hi & Dri,
Line & Shine, ColorStay,
New Complexion, Colorsilk,
Top Speed, Revlon Wet/Dry, Frost & Glow,
EveryLash, Timeliner Jean Nate, 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 Ultima, Beautiful Glowtion, Vital
Nutrient, Wonderwear, Radiance, CHR
The Nakeds, Full
Moisture
SIGNIFICANT Colorama, Juvena, Jeanne Gatineau Charlie Gold Bozzano, Colorama,
REGIONAL BRANDS Jeanne Gatineau, ZP11
Cutex, StreetWear
=======================================================================================================================
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 COLORSTAY lipcolor,
which uses patented transfer-resistant technology that provides long wear, is
produced in approximately 50 shades. COLORSTAY LIQUID LIP and COLORSTAY Lip
Shine, 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 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
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approximately 20 shades. REVLON MOISTURESTAY uses patented 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 64 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 48 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 patented
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 good, healthy for you, hypo-allergenic product."
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 LIPCOLOR to ALMAY 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 brand name, which is the Company's flagship premium-priced
brand sold throughout the world. ULTIMA'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.
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 AGE DEFYING, ALMAY
TIME-OFF Revitalizer, CLEAR COMPLEXION and ULTIMA 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.
4
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, and JUVENA brands in
Brazil; as well as COLORSTAY, 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.
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, CIARA and line
extensions such as CHARLIE RED and CHARLIE WHITE. In international markets, the
Company distributes certain licensed brands, including VAN GILS.
MARKETING
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. The Company's
existing 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 undertook a comprehensive review of its advertising strategy
in late 2000 and early 2001 resulting in its selection of Kirshenbaum Bond &
Partners and Deutsch Inc. to serve as its advertising agency for creative work
for its REVLON and ALMAY brands, respectively, worldwide. This is a major shift
in the Company's advertising strategy. The Company believes that this shift to
leading outside agencies will increase the effectiveness and relevance of its
worldwide advertising, as well as result in more efficient media placement.
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, FLEX, CHARLIE,
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 worldwide, 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, www.revlon.com , which features current product and
promotional information and which is updated regularly to stay current with the
Company's new product launches and other advertising and promotional campaigns.
5
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development of
innovative and techno-logically-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 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, 2000, 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 2000, 1999 and 1998, the Company spent approximately $27.3
million, $32.9 million and $31.9 million, respectively, on research and
development activities.
MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
The Company manufactured REVLON brand color cosmetics, personal care
products and fragrances and ULTIMA cosmetics and skin treatment products for
sale in the United States, Japan and during 2000 most of the countries in Latin
America and Southeast Asia at its Phoenix, Arizona facility and its Canadian
facility. As part of its new business strategy which includes the consolidation
of manufacturing capacity, the Company has shutdown its Canadian manufacturing
facility and is in the process of shutting down the Phoenix facility and
consolidating North America cosmetics manufacturing at its Oxford, North
Carolina facility. The Company also manufactures ALMAY brand products for sale
throughout the world and personal care products for REVLON and MITCHUM 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, that 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.
During 2000, cosmetics and personal care products also were produced at the
Company's facilities in Canada, Venezuela, Mexico, New Zealand, Brazil,
Argentina, France and South Africa. The New Zealand facility was shutdown in
late 2000, and the Company consolidated such operations into its facility in
Australia. The Company's 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
6
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.
DISTRIBUTION
The Company's products are sold worldwide. The Company's worldwide sales
force had approximately 600 people as of December 31, 2000, including dedicated
sales forces for cosmetics, skin care and fragrance products in the self-select
distribution channel, for the demonstrator-assisted distribution channel and
for personal care products 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
58.8% of the Company's 2000 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, 2000, 12 licenses were in effect
relating to 11 product categories to be marketed in the self-select
distribution channel. Pursuant to such 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.
As part of its new business strategy to increase consumption of the
Company's products at retail, the Company is increasing the number of retail
merchandisers who stock and maintain the Company's point of sale retail
displays to insure high selling SKUs are in stock and to insure the optimal
presentation of the Company's product in retail outlets. Additionally, the
Company has upgraded the technology available to its sales force to provide
real-time information regarding inventory levels and other relevant
information.
International. Net sales outside the United States accounted for
approximately 41.2% of the Company's 2000 net sales. The ten largest countries
in terms of these sales, which include, Brazil, Canada, Australia, the United
Kingdom, South Africa, Mexico, France, Argentina, Italy and Venezuela,
accounted for approximately 30.1% of the Company's net sales in 2000. The
Company distributes its products through drug stores/chemists,
hypermarkets/mass volume retailers and variety stores. The Company also
distributes outside the United States through department stores and specialty
stores such as perfumeries. At December 31, 2000, the Company actively sold its
products through wholly-owned subsidiaries established in 20 countries outside
of the United States and through a large number of distributors and licensees
elsewhere around the world.
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 16.5% of the Company's 2000 consolidated net sales. Although the
loss of Wal-Mart as a customer would 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.
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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
Company's 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, many 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 The Estee Lauder Companies Inc.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company's major trademarks are registered in the United States and in
well over 100 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, CUTEX (outside the U.S.),
MITCHUM, ETERNA 27, ULTIMA, 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 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.
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 the Company's 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 17 of the Notes to
Consolidated Financial Statements of the Company.
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EMPLOYEES
As of December 31, 2000, the Company employed the equivalent of
approximately 8,000 full-time persons. As of December 31, 2000, approximately
1,100 of such employees in the United States were covered by collective
bargaining agreements, the majority of whom are employed at the Phoenix
facility. 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.
ITEM 2. PROPERTIES
The following table sets forth as of December 31, 2000 the Company's
major manufacturing, research and warehouse/distribution facilities, all of
which are owned except where otherwise noted.
APPROXIMATE FLOOR SPACE
LOCATION USE SQ. FT.
- -------- --- ------
Oxford, North Carolina........... Manufacturing, warehousing, distribution and office 1,012,000
Phoenix, Arizona (a)............. Manufacturing, warehousing, distribution and office 706,000
(partially leased)
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 (a).......... Manufacturing, warehousing, distribution and office 245,000
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
(a) As of December 31, 2000, the Company was in the process of closing or
selling these facilities.
In addition to the facilities described above, the Company owns and leases
additional facilities 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 162,000 square feet were sublet to unaffiliated
third parties as of December 31, 2000). 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.
On April 17, 2000, the plaintiffs in the six purported class actions filed
in October and November 1999 by each of Thomas Comport, Boaz Spitz, Felix Ezeir
and Amy Hoffman, Ted Parris, Jerry Krim and Dan Gavish individually and
allegedly on behalf of others similarly situated to them against Revlon, Inc.,
certain of its present
9
and former officers and directors and the parent of Revlon, Inc., REV Holdings
Inc. ("REV Holdings"), alleging among other things, violations of Rule 10b-5
under the Securities Exchange Act of 1934, filed an Amended Complaint, which
consolidated all of the actions and limited the alleged class period to the
period from October 29, 1997 through October 1, 1998 ("In Re Revlon, Inc.
Securities Litigation"). In June 2000, the Company moved to dismiss the
Amended Complaint, which motion was denied in substantial part in March 2001.
The Company believes the allegations contained in the Amended Complaint are
without merit and intends to vigorously defend against them.
A purported class action lawsuit was filed on September 27, 2000, in the
United States District Court for the Southern District of New York on behalf of
Dan Gavish, Tricia Fontan and Walter Fontan individually and allegedly on
behalf of all others similarly situated who purchased the securities of Revlon,
Inc., and REV Holdings, between October 2, 1998 and September 30, 1999 (the
"Purported Class Period"). The complaint alleges that Revlon, Inc. and certain
of its present and former officers and directors and REV Holdings violated,
among other things, Rule 10b-5 under the Securities Exchange Act of 1934. On
October 17, 2000 the court ordered that this lawsuit be consolidated with the
pending In Re Revlon, Inc. Securities Litigation. On October 27, 2000 the
plaintiff moved for reconsideration of the October 17, 2000 consolidation
order. The Company believes the allegations contained in the complaint are
without merit and intends to vigorously defend against them.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), which is
indirectly wholly owned by Ronald O. Perelman, through REV Holdings,
beneficially owns 11,250,000 shares of the Company's Class A Common Stock
(representing approximately 56% of the outstanding shares of the Company's
Class A Common Stock) and all of the outstanding 31,250,000 shares of the
Company's Class B Common Stock, which together represent approximately 83% of
the outstanding shares of the Company's Common Stock and have approximately
97.3% of the combined voting power of the outstanding shares of the Company's
Common Stock. The remaining 8,865,935 shares of the Company's Class A Common
Stock outstanding at March 8, 2001 are owned by the public. As of March 8,
2001, there were 757 holders of record of the Company's Class A Common Stock.
No dividends were declared or paid during 2000 or 1999. 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.
The table below shows the Company's high and low quarterly stock prices
for the years ended December 31, 2000 and 1999.
2000 QUARTERLY STOCK PRICES (1)
-------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
High .................... $ 11.00 $ 9.75 $ 8.125 $7.375
Low ..................... 6.8125 6.00 5.875 3.72
1999 QUARTERLY STOCK PRICES (1)
-------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
High .................... $ 22.25 $ 32.00 $ 29.125 $ 12.00
Low ..................... 13.50 19.125 18.00 7.50
10
(1) Represents the closing price per share on the New York Stock Exchange
(NYSE), the exchange on which shares of the Company's Class A Common Stock
are listed. The Company's symbol is REV.
ITEM 6. SELECTED FINANCIAL DATA
The Consolidated Statements of Operations Data for each of the years in
the five-year period ended December 31, 2000 and the Balance Sheet Data as of
December 31, 2000, 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 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,
--------------------------------------------------------------------------------------
2000 (a) 1999 1998 1997 1996
-------- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENTS OF OPERATIONS DATA:
Net sales................................ $ 1,491.6 $ 1,861.3 $ 2,252.2 $ 2,238.6 $ 2,092.1
Operating income (loss)................. 15.0 (b) (212.6)(c) 124.6(d) 214.9 (e) 199.2
(Loss) income from continuing operations (130.6) (371.5) (27.3) 57.8 24.4
Basic (loss) income from continuing
operations per common share....... $ (2.54) $ (7.25) $ (0.53) $ 1.13 $ 0.49
========== =========== ============ ========= ========
Diluted (loss) income from continuing
operations per common share....... $ (2.54) $ (7.25) $ (0.53) $ 1.13 $ 0.49
========== =========== ============ ========= ========
Weighted average number of
common shares outstanding: (f)
Basic........................ 51.3 51.2 51.2 51.1 49.7
========== =========== ============ ========= ========
Diluted........................ 51.3 51.2 51.2 51.5 49.8
========== =========== ============ ========= ========
DECEMBER 31,
--------------------------------------------------------------------------------------
2000 (a) 1999 1998 1997 1996
-------- ---- ---- ---- ----
(IN MILLIONS)
BALANCE SHEET DATA:
Total assets............................ $ 1,101.5 $ 1,558.3 $ 1,830.0 $ 1,756.0 $ 1,617.3
Long-term debt, including current portion 1,563.1 1,772.1 1,660.0 1,425.2 1,361.0
Total stockholders' deficiency.......... (1,106.1) (1,014.9) (648.0) (458.5) (497.1)
(a) On March 30, 2000 and May 8, 2000, the Company completed the dispositions
of its worldwide professional products line and the Plusbelle brand in
Argentina, respectively. Accordingly, the selected financial data include
the results of operations of the professional products line and the
Plusbelle brand through the dates of their respective dispositions.
(b) Includes restructuring costs and other, net, of $54.1 million. See Note 2
to the Consolidated Financial Statements.
(c) Includes restructuring costs and other, net, and executive separation costs
of $40.2 million and $22.0 million, respectively. See Note 2 to the
Consolidated Financial Statements.
(d) Includes restructuring costs and other, net, aggregating $35.8 million. See
Note 2 to the Consolidated Financial Statements.
(e) Includes restructuring costs and other, net, of $3.6 million.
11
(f) Represents the weighted average number of common shares outstanding for the
period. See Note 1 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 on
March 30, 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: 2000 1999 1998
------------- --------- ----------------
United States ........................ $ 877.1 $ 1,046.2 $ 1,343.7
International ........................ 614.5 815.1 908.5
---------- ---------- --------------
$ 1,491.6 $ 1,861.3 $ 2,252.2
========== ========== ==============
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,
--------------------------------------------------------
2000 1999 1998
------------- --------- ----------------
Cost of sales ............................ 37.1% 36.9% 34.0%
Gross profit ............................. 62.9 63.1 66.0
Selling, general and administrative
expenses ("SG&A")*...................... 58.3 72.4 59.0
Operating income (loss) before
restructuring costs and other, net ..... 4.6 (9.3) 7.0
* 1999 includes $22.0 (1.2% of net sales) for charges related to executive
separation costs.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
Net sales
Net sales were $1,491.6 and $1,861.3 for 2000 and 1999, respectively, a
decrease of $369.7, or 19.9% on a reported basis (a decrease of 18.6% on a
constant U.S. dollar basis). The decline in consolidated net sales for the year
2000 as compared with 1999 is primarily due to the sale of the worldwide
professional products line and the Plusbelle brand in Argentina, the effect on
sales of the reduction of overall U.S. customer inventories, reduced consumer
demand for the Company's cosmetics, and increased competitive activity in
certain markets.
12
Net sales, excluding the worldwide professional products line and the
Plusbelle brand in Argentina, were $1,395.3 and $1,470.9 for 2000 and 1999,
respectively, a decrease of $75.6, or 5.1% on a reported basis (a decrease of
3.5% on a constant U.S. dollar basis).
United States. Net sales in the United States were $877.1 for 2000
compared with $1,046.2 for 1999, a decrease of $169.1, or 16.2%. Net sales,
excluding the domestic portion of the worldwide professional products line,
were $841.9 for 2000 compared with $889.5 for 1999, a decrease of $47.6, or
5.4%. The decline in sales for 2000 is primarily due to a reduction of overall
U.S. customer inventories, which the Company anticipates will continue to
affect sales, and reduced consumer demand for the Company's cosmetics due in
part to fewer new product introductions.
International. Net sales outside the United States were $614.5 for 2000
compared with $815.1 for 1999, a decrease of $200.6, or 24.6% on a reported
basis (a decrease of 21.7% on a constant U.S. dollar basis). The decrease was
primarily due to the sale of the worldwide professional products line and the
Plusbelle brand in Argentina.
Net sales, excluding the worldwide professional products line outside the
United States and the Plusbelle brand in Argentina, were $553.4 for 2000
compared with $581.4 for 1999, a decrease of $28.0, or 4.8%, on a reported
basis (a decrease of 0.5% on a constant U.S. dollar basis). The decrease in net
sales for 2000 on a constant U.S. dollar basis is primarily due to increased
competitive activity in certain markets outside the U.S. The decrease in net
sales for 2000 on a reported basis also reflects the unfavorable effect on
sales of a stronger U.S. dollar against certain foreign currencies. Sales
outside the United States are divided by the Company 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 $174.9 for 2000 as compared with
1999 (an increase of 0.1% 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 2.8% on a reported basis to $253.3 for 2000
as compared with 1999 (an increase of 3.1% on a constant U.S. dollar basis).
The Company's operations in Brazil are significant. In Brazil, net sales were
$76.0 on a reported basis for 2000 compared with $76.1 for 1999. In the Far
East, net sales decreased by 12.0% on a reported basis to $125.2 for 2000 as
compared with 1999 (a decrease of 7.3% on a constant U.S. dollar basis). Net
sales outside the United States, including the Company's operations in Brazil,
may be adversely affected by weak economic conditions, political and economic
uncertainties, adverse currency fluctuations, and competitive activities.
Cost of sales
As a percentage of net sales, cost of sales was 37.1% for 2000 compared
with 36.9% for 1999. Excluding the worldwide professional products line and the
Plusbelle brand in Argentina, cost of sales as a percentage of net sales was
36.8% for 2000 compared with 36.4% for 1999. The increase in cost of sales as a
percentage of net sales for 2000 compared with 1999 is due to the mix of new
products with higher product packaging and material costs and the effect of
fixed costs on lower net sales.
SG&A expenses
As a percentage of net sales, SG&A expenses were 58.3% for 2000 compared
with 72.4% for 1999. Excluding the worldwide professional products line and the
Plusbelle brand in Argentina, SG&A expenses as a percentage of net sales were
58.5% for 2000 compared with 77.3% for 1999. The decrease in SG&A expenses as a
percentage of sales during 2000 primarily reflects reduced brand support
and the favorable impact of the Company's restructuring efforts partially
offset by the effect of fixed costs on lower net sales.
13
Restructuring costs and other, net
Since 1998, the Company has been continuously evaluating its
organizational structure and has implemented a number of restructuring plans.
In the fourth quarter of 1998, the Company executed a 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 (the "1998 Restructuring Plan"). The cost of the 1998
Restructuring Plan resulted in a charge of $44.2 in 1998 and an additional net
charge of $20.5 through the nine-month period ended September 30, 1999,
principally for employee severance and other personnel benefits and obligations
for excess leased real estate primarily in the United States. In 1999, the
Company exited a non-core business for which it recorded a charge of $1.6,
which was included in restructuring costs and other, net. In 1998, the Company
recognized $8.4 of gains on sales of certain non-core assets.
In the fourth quarter of 1999, the Company began a new restructuring
program principally for additional employee severance and other personnel
benefits and to restructure certain operations outside the United States,
including certain operations in Japan (the "1999 Restructuring Plan"). The cost
of the 1999 Restructuring Plan resulted in a charge of $18.1 in the fourth
quarter of 1999. In the first half of 2000, the Company recorded a charge of
$14.6 relating to the 1999 Restructuring Plan.
During the third quarter of 2000, the Company continued to re-evaluate its
organizational structure. As part of this re-evaluation, the Company developed
a new restructuring plan designed to improve profitability by reducing
personnel and consolidating manufacturing facilities (the "2000 Restructuring
Plan"). The 2000 Restructuring Plan focused on the Company's plans to close its
manufacturing operations in Phoenix, Arizona and Mississauga, Canada and to
consolidate its production into its plant in Oxford, North Carolina. The 2000
Restructuring Plan also includes the remaining obligation for excess leased
real estate in the Company's headquarters, consolidation costs associated with
the Company closing its facility in New Zealand, and the elimination of several
domestic and international executive and operational positions, both of which
were effected to reduce and streamline corporate overhead costs. In the third
and fourth quarters of 2000, the Company recorded charges of $13.7 and $25.8,
respectively, related to the 2000 Restructuring Plan, principally for
additional employee severance and other personnel benefits and to consolidate
worldwide operations. The Company anticipates that it will recognize
approximately $35 to $40 of additional costs to implement this plan.
The Company anticipates annual savings of approximately $40 to $45
relating to the restructuring charges recorded during 2000 in connection with
the 2000 and 1999 Restructuring Plans.
Other expenses (income)
Interest expense was $144.5 for 2000 compared with $147.9 for 1999. The
decrease in interest expense for 2000 as compared with 1999 is primarily due to
the repayment of borrowings under the Credit Agreement with the net proceeds
from the disposition of the worldwide professional product line and the
Plusbelle brand in Argentina, partially offset by higher interest rates under
the Credit Agreement.
Foreign currency losses (gains), net, were $1.6 for 2000 compared with
$(0.5) for 1999. Foreign currency losses, net for 2000, consisted primarily of
losses in certain markets in Latin America.
Sale of product line and brand
On May 8, 2000, Products Corporation completed the disposition of the
Plusbelle brand in Argentina. In connection with the disposition, the Company
recognized a pre-tax and after-tax loss of $4.8 (See Note 3 to the Consolidated
Financial Statements).
On March 30, 2000, Products Corporation 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. In connection
with the disposition, the Company recognized a pre-tax and after-tax gain of
$14.8 (See Note 3 to the Consolidated Financial Statements).
14
Provision for income taxes
The provision for income taxes was $8.6 for 2000 compared with $9.1 for
1999. The decrease for 2000 compared with 1999 was primarily attributable to
lower taxable income in 2000 in certain markets outside the United States.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net sales
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 intended to achieve such retailers' lower inventory target
levels. The reduction of retailers' target inventory levels will continue and
is expected to adversely impact sales in 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.
15
SG&A expenses
As a percentage of net sales, SG&A expenses were 72.4% ($1,347.6) for 1999
compared with 59.0% ($1,328.8) 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.
Restructuring costs and other, net
In the fourth quarter of 1998, the Company executed the 1998 Restructuring
Plan recognizing a charge of $44.2. During 1999, the Company continued to
implement the 1998 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 restructuring costs and other, net. In 1998, the
Company recognized $8.4 of gains on sales of certain non-core assets.
During the fourth quarter of 1999, the Company began its 1999
Restructuring Plan resulting in a charge of $18.1 principally for employee
severance.
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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $85.4, $82.8 and $51.5 for
2000, 1999 and 1998, respectively. The slight increase in net cash used for
operating activities for 2000 compared with 1999 resulted primarily from
changes in working capital, partially offset by a lower net loss and lower
purchases of permanent displays. 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 restructuring costs during 1999, partially offset by
changes in working capital.
Net cash provided by (used for) investing activities was $322.1,
$(40.7) and $(91.0) for 2000, 1999 and 1998, respectively. Net cash provided by
investing activities for 2000 consisted of proceeds from the sale of the
Company's worldwide professional products line and the Plusbelle brand in
Argentina, partially offset by cash used for capital expenditures. Net cash used
for investing activities in 1999 related principally to capital expenditures.
Net cash used for investing activities for 1998 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 and from the sale of certain assets. Net cash used
for investing activities for 2000, 1999 and 1998 included capital expenditures
of $19.0, $42.3 and $60.8, respectively, and in 1998 $57.6 was used for
16
acquisitions. Investing activities in 1999 included substantial upgrades to the
Company's management information systems.
Net cash (used for) provided by financing activities was $(202.3), $118.5
and $159.1 for 2000, 1999 and 1998, respectively. Net cash used for financing
activities for 2000 included repayments of borrowings under the Credit
Agreement with the net proceeds from the disposition of the worldwide
professional products line and the Plusbelle brand in Argentina and the
repayment of Products Corporation's Japanese yen-denominated credit agreement
(the "Yen Credit Agreement") partially offset by cash drawn under the Credit
Agreement. 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 Products Corporation's 9 1/2
Senior Notes due 1999 and repayments under 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 Products Corporation's 10 1/2% Senior
Subordinated Notes due 2003 and Products Corporation's 9 3/8% Senior Notes due
2001, and the repayment of borrowings under the Yen Credit Agreement. During
1998, net cash used by discontinued operations was $17.3.
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. In March 2000 and May 2000,
60% of the Net Proceeds from the disposition of the worldwide professional
products line and the Plusbelle brand in Argentina, respectively, was applied
to reduce the aggregate commitment under the Credit Agreement. As of December
31, 2000, after giving effect to the foregoing reductions, the Credit Agreement
provided up to $518.5 and is comprised of five senior secured facilities:
$106.2 in two term loan facilities (the "Term Loan Facilities"), a $300.0
multi-currency facility (the "Multi-Currency Facility"), a $62.3 revolving
acquisition facility, which may also be used for general corporate purposes
(the "Acquisition Facility"), and a $50.0 special standby letter of credit
facility (the "Special LC Facility"). The Company under certain circumstances
and with the consent of a majority of the lenders may increase the Acquisition
Facility to $262.3. At December 31, 2000, the Company had $106.2 outstanding
under the Term Loan Facilities, $221.2 outstanding under the Multi-Currency
Facility, $62.3 outstanding under the Acquisition Facility and $22.6 of issued
but undrawn letters of credit under the Special LC Facility. The scheduled
reductions of the Acquisition Facility are $48.8 during 2001. The balance of
the Acquisition Facility, along with the Term Loan Facilities, the
Multi-Currency Facility and the Special LC Facility mature in May 2002. In
January 2001 (effective December 31, 2000), Products Corporation and its bank
lenders entered into an amendment to the Credit Agreement, to (i) eliminate the
interest coverage ratio and leverage ratio covenants for 2001; (ii) add a
minimum cumulative EBITDA covenant for each quarter end during the year 2001;
(iii) modify the definition of EBITDA beginning with the quarterly period
ended December 31, 2000; (iv) limit the amount that Products Corporation may
spend for capital expenditures; (v) permit the sale of certain of Products
Corporation's non-core assets; (vi) permit Products Corporation to retain 100%
of the Net Proceeds from such asset sales; (vii) increase the "applicable
margin" by 1/2 of 1%; and (viii) require Products Corporation to provide a
mortgage on its facility in Oxford, North Carolina as security for its
obligations under the Credit Agreement.
A subsidiary of Products Corporation was the borrower under the Yen Credit
Agreement. In March 2000, the outstanding balance under the Yen Credit
Agreement was repaid in full in accordance with its terms.
The Company's principal sources of funds are expected to be cash flow
generated from operations (before interest), net proceeds from the sale of
certain non-core assets and borrowings under the Credit Agreement. The Credit
Agreement, Products Corporation's 8 5/8% Notes, Products Corporation's 8 1/8%
Notes and Products Corporation's 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 principal uses of
funds are expected to be the payment of operating expenses, working capital,
purchases of permanent displays and capital expenditure requirements, expenses
in connection with the Company's 2000 and 1999 Restructuring Plans referred to
above and debt service payments.
The Company estimates that purchases of permanent displays for 2001
will be $40 to $50 and capital expenditures for 2001 will be $13 to $17. The
Company estimates that cash payments related to the restructuring
17
plans referred to in Note 2 to the Consolidated Financial Statements and plans
for 2001 and executive separation costs will be $60 to $80 in 2001. Pursuant to
a tax sharing agreement, Revlon, Inc. may be required to make tax sharing
payments to Mafco Holdings Inc. ("Mafco Holdings") as if Revlon, Inc. were
filing separate income tax returns, except that no payments are required by
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. Revlon, Inc.
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 2001.
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, 2000.
The Company expects that cash flows from operations, net proceeds from the
sale of certain non-core assets (or financial support from an affiliate, if
such asset sales are not completed on a timely basis) and borrowings under the
Credit Agreement will be sufficient to enable the Company to meet its
anticipated cash requirements during 2001 on a consolidated basis, including
for debt service and expenses in connection with the Company's restructuring
plans. However, there can be no assurance that the combination of cash flow
from operations, net proceeds from the sale of certain non-core assets (or from
such financial support) and borrowings under the Credit Agreement 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
purchases of permanent displays, reducing or delaying capital expenditures,
delaying or revising restructuring plans, restructuring indebtedness, selling
additional assets or operations or seeking capital contributions or additional
loans from affiliates of the Company or issuing additional shares of capital
stock of Revlon, Inc. Products Corporation has received a commitment from an
affiliate that is prepared to provide, if necessary, additional financial
support to Products Corporation of up to $40 on appropriate terms through
December 31, 2001. 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. Revlon, Inc., as a holding company,
will be dependent on the earnings and cash flow of, and dividends and
distributions from, Products Corporation to pay its expenses and to pay any
cash dividend or distribution on Revlon, Inc.'s Class A Common Stock that may
be authorized by the Board of Directors of Revlon, Inc. 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.
Amended and Restated 1996 Stock Plan, provided that the aggregate amount of
such dividends and distributions taken together with any purchases of Revlon,
Inc. Class A Common Stock on the open market to satisfy matching obligations
under the excess savings plan may not exceed $6.0 per annum.
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
18
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.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998 and June 2000, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities." These
statements establish accounting and reporting standards requiring that every
derivative instrument be recorded on the balance sheet as either an asset or
liability measured at its fair value. SFAS Nos. 133 and 138 also require that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS Nos. 133 and 138 are
effective for fiscal years beginning after June 15, 2000. The adoption of SFAS
Nos. 133 and 138 did not have an effect on the Company's consolidated financial
statements.
In May 2000, the FASB Emerging Issues Task Force (the "EITF") issued new
guidelines entitled, "Accounting for Certain Sales Incentives" (the
"Guidelines"), which addresses when sales incentives and discounts should be
recognized, as well as where the related revenues and expenses should be
classified in the financial statements. The Guidelines, as amended in November
2000, are effective for the second quarter ending June 30, 2001, and would be
applied retroactively for purposes of comparability. Therefore, beginning April
1, 2001, the Company is required to reclassify certain revenues and expenses
related to its promotional programs out of operating expenses and into sales
and cost of sales. Such reclassification will not affect the Company's
operating income (loss) or net loss.
In March 2000, the FASB issued SFAS Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25" (the "Interpretation"). The Interpretation provides guidance
for issues that have arisen in the application of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion No. 25"). The
Interpretation, which became effective July 1, 2000, applies prospectively to
new awards, exchanges of awards, modifications to outstanding awards and
changes in grantee status that occur on or after July 1, 2000, except for the
provisions related to repricings and the definition of an employee, which apply
to awards issued after December 15, 1998. The implementation of the
Interpretation by the Company on July 1, 2000 had no impact on the Company's
consolidated financial statements.
In December 1999, the staff of the United States Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," as amended by SAB 101A and SAB 101B ("SAB 101"). SAB 101
outlines basic criteria that must be met to recognize revenue and provides
guidelines for disclosure related to revenue recognition policies. SAB 101 was
required to be implemented in the fourth quarter of 2000. The adoption of SAB
101 did not have an effect on the Company's consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K for the year ended December 31, 2000 as
well as other public documents and statements 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: the introduction of new products;
future financial performance; the effect on sales of the reduction of overall
U.S. customer inventories including the timing thereof; the effect on sales of
political and/or economic conditions and competitive activities; the Company's
estimate of restructuring activities, restructuring costs and benefits; the
Company's plans with respect to and estimate of the timing of the shutdown of
its Phoenix manufacturing operation, the charges, the cash cost and the annual
savings resulting from plant shutdowns; the Company's expectation that its new
trade terms for its U.S. customers will increase consumption of its products,
drive market growth, result in more efficient ordering and shipping and reduce
returns; cash flow from operations; purchases of permanent displays, capital
expenditures; the availability of raw materials and components; 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
Company's intent to pursue the sale of certain non-core assets; the
availability of funds from currently available credit facilities, net proceeds
from the sale of certain non-core assets, capital contributions or loans from
affiliates and the sale of additional assets or operations or additional shares
of Revlon, Inc. Statements that are not historical facts, including
19
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 "believes," "expects,"
"estimates," "projects," "forecast," "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 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)
unanticipated costs or difficulties or delays in completing projects associated
with the Company's strategy to improve operating efficiencies; (iv) the
inability to secure capital contributions or loans from affiliates or sell
additional assets or operations or additional shares of Revlon, Inc.; (v)
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; (vi)
actions by competitors, including business combinations, technological
breakthroughs, new products offerings and marketing and promotional successes;
(vii) combinations among significant customers or the loss, insolvency or
failure to pay debts by a significant customer or customers; (viii) lower than
expected sales as a result of the reduction of overall U.S. customer
inventories; (ix) difficulties, delays or unanticipated costs or less than
expected savings and other benefits resulting from the Company's restructuring
activities; (x) difficulties or delays in implementing, higher than expected
charges and cash costs or lower than expected savings from the shutdown of
manufacturing operations in Phoenix; (xi) difficulties or delays in
implementing or achieving the intended results of the new trade terms including
increased consumption, market growth and lower returns or unexpected
consequences from the implementation of the new trade terms including the
possible effect on sales; (xii) interest rate or foreign exchange rate changes
affecting the Company and its market sensitive financial instruments; (xiii)
difficulties, delays or unanticipated costs associated with the transition to
the Euro; (xiv) difficulties or delays in sourcing raw materials or components;
and (xv) difficulties or delays in pursuing the sale of one or more non-core
assets, the inability to consummate such sales or to secure the expected level
of proceeds from such sales.
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. The
Company's operations in Brazil are accounted for as a non-hyperinflationary
economy. 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 EVENTS
On March 29, 2001, a subsidiary of Products Corporation entered into an
agreement to sell land located in Minami Aoyama near Tokyo, Japan and related
rights for the construction of a building on such land for (Y)3.3 billion
(approximately $28 as of March 29, 2001), after fees and expenses. This was less
than the Company expected it would receive and resulted in an additional charge
of $3.4 (reported in SG&A to reduce the book value to its estimated net
realizable value) in excess of that reported in the Company's earnings release
on February 26, 2001. The agreement is subject to a number of conditions.
Subject to satisfaction of such conditions, Products Corporation expects the
sale to be consummated during the second quarter of 2001.
On March 16, 2001, Products Corporation entered into an agreement to sell
its Phoenix facility for $8.0 and lease it back for a certain period of time.
The agreement is subject to a number of conditions, including completion of due
diligence. Subject to satisfaction of such conditions, Products Corporation
expects the sale to be consummated during the second quarter of 2001.
If consummated, proceeds available to the Company from the aforementioned
transactions will be used for general corporate purposes, including payments to
fund the Company's restructuring plans.
20
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,
2000. 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 Company does not hold or issue financial instruments for trading
purposes.
As referred to above, in March 2000 and May 2000, Products Corporation
reduced the aggregate commitment under its Credit Agreement and repaid its Yen
Credit Agreement.
EXPECTED MATURITY DATE FOR YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------FAIR VALUE
DEC. 31,
Debt 2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000
---- ---- ---- ---- ---- ---- ---------- ----- ----
(US dollar equivalent in millions)
Short-term variable rate (various currencies). $30.7 $ 30.7 $ 30.7
Average interest rate (a) .............. 7.4%
Long-term fixed rate ($US) ................... $1,149.3 1,149.3 755.7
Average interest rate .................. 8.6%
Long-term variable rate ($US)................. $331.1 331.1 331.1
Average interest rate (a)............... 8.5%
Long-term variable rate (various currencies).. 58.6 58.6 58.6
Average interest rate (a) .............. 8.2%
---------- ---------
Total debt.................................... $ 1,569.7 $ 1,176.1
========= =========
(a) Weighted average variable rates are based upon implied forward rates from
the yield curves at December 31, 2000.
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.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors and Executive Officers of the Registrant
is contained in Revlon, Inc.'s Proxy Statement for the 2000 Annual Meeting of
Stockholders, which will be mailed to stockholders on or before April 30, 2001
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is contained in Revlon,
Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders, which will
be mailed to stockholders on or before April 30, 2001 and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial
Owners and Management is contained in Revlon, Inc.'s Proxy Statement for the
2000 Annual Meeting of Stockholders, which will be mailed to stockholders on or
before April 30, 2001 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions
is contained in Revlon, Inc.'s Proxy Statement for the 2000 Annual Meeting of
Stockholders, which will be mailed to stockholders on or before April 30, 2001
and is incorporated herein by reference.
22
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 Amended and Restated Certificate of Incorporation of Revlon, Inc.
dated March 4, 1996 (incorporated by reference to Exhibit 3.4 to the
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1996 of Revlon, Inc.).
3.2 Amended and Restated By-Laws of Revlon, Inc. dated January 30, 1997
(incorporated by reference to Exhibit 3.2 to the Annual Report on
Form 10-K for the year ended December 31, 1996 of Revlon, Inc. (the
"Revlon 1996 10-K")).
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 Corporation's 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 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
23
Worldwide (Parent) Corporation, filed with the Commission on June 26,
1997, File No. 33-23451).
4.7 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. ).
4.8 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).
4.9 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 filed with the Commission
on January 22, 1999, File No. 33-69213).
4.10 Fourth Amendment, dated as of November 10, 1999, to the Credit
Agreement (incorporated by reference to Exhibit 4.12 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")).
4.11 Fifth Amendment, dated as of March 6, 2000, to the Credit Agreement
(incorporated by reference to Exhibit 10.20 to the Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2000 of Revlon,
Inc. the "Revlon 2000 First Quarter Form 10-Q")).
4.12 Sixth Amendment, dated as of September 8, 2000, to the Credit
Agreement (incorporated by reference to Exhibit 10.24 to the
Quarterly Report on form 10-Q for the quarterly period ended
September 30, 2000 (the "Revlon 2000 Third Quarter Form 10-Q")).
*4.13 Seventh Amendment, dated as of January 29, 2001, to the Credit
Agreement.
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 Revlon
1996 10-K).
*10.5 Third Amendment, dated as of January 1, 2001, to the Tax Sharing
Agreement.
10.6 Employment Agreement dated as of November 2, 1999 between Products
Corporation and Jeffrey M. Nugent (incorporated by reference to
Exhibit 10.10 to the Annual Report on Form 10-K for the year ended
December 31, 1999 of Revlon, Inc. (the "Revlon 1999 Form 10-K")).
10.7 Employment Agreement amended and restated as of May 9, 2000 between
Revlon Consumer Products Corporation and Douglas H. Greeff
(incorporated by reference to Exhibit 10.22 to the Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2000 of Revlon,
Inc.
24
(the "Revlon 2000 Second Quarter 10-Q")).
10.8 Revlon Executive Bonus Plan (Amended and Restated as of March 1,
2000) (incorporated by reference to Exhibit 10.23 to the Revlon 2000
Second Quarter 10-Q).
10.9 Senior Executive Supplemental Long-Term Incentive Program
(incorporated by reference to Exhibit 10.21 to the Revlon 2000 First
Quarter Form 10-Q).
10.10 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.).
10.11 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")).
10.12 Description of Post Retirement Life Insurance Program for Key
Executives (incorporated by reference to Exhibit 10.19 to the Revlon
1992 Form S-1).
10.13 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 Annual Report on Form 10-K for
the year ended December 31, 1992 of Products Corporation).
10.14 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).
10.15 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. 33-9958).
10.16 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).
10.17 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.
23. CONSENTS OF EXPERTS AND COUNSEL.
*23.1 Consent of KPMG LLP.
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 Meyer Feldberg.
*24.4 Power of Attorney of Howard Gittis.
*24.5 Power of Attorney of Vernon E. Jordan, Jr., Esq.
25
*24.6 Power of Attorney of Edward J. Landau, Esq.
*24.7 Power of Attorney of Jerry W. Levin.
*24.8 Power of Attorney of Linda Gosden Robinson.
*24.9 Power of Attorney of Terry Semel.
*24.10 Power of Attorney of Martha Stewart.
27. Financial Data Schedule.
- --------------------
* Filed herewith.
(b) Reports on Form 8-K.
Form 8-K filed on January 30, 2001 to report the Seventh Amendment, dated
January 29, 2001, to the Credit Agreement, among Products Corporation, The
Chase Manhattan Bank, Citibank N.A., Lehman Commercial Paper Inc., Chase
Securities Inc. and the lenders party thereto.
26
REVLON, INC. 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, 2000 and 1999........................................F-3
Consolidated Statements of Operations
for each of the years in the three-year
period ended December 31, 2000....................................F-4
Consolidated Statements of
Stockholders' Deficiency and
Comprehensive Loss for each of the
years in the three-year period ended
December 31, 2000.................................................F-5
Consolidated Statements of Cash Flows
for each of the years in the three-year
period ended December 31, 2000....................................F-6
Notes to Consolidated Financial Statements............................F-7
FINANCIAL STATEMENT SCHEDULE:
Schedule II--Valuation and Qualifying Accounts.........................F-32
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Revlon, Inc.:
We have audited the accompanying consolidated balance sheets of Revlon, Inc.
and its subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' deficiency and
comprehensive loss and cash flows for each of the years in the three-year
period ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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, Inc. and
its subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. 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 28, 2001
F-2
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share data)
DECEMBER 31, DECEMBER 31,
ASSETS 2000 1999
----------------- --------------
Current assets:
Cash and cash equivalents...................... $ 56.3 $ 25.4
Trade receivables, less allowances of $16.1
and $27.2, respectively.............. 220.3 332.6
Inventories.................................... 184.7 278.3
Prepaid expenses and other.................... 66.1 51.3
--------- ---------
Total current assets.................. 527.4 687.6
Property, plant and equipment, net........................ 221.7 336.4
Other assets.............................................. 146.3 177.5
Intangible assets, net................................... 206.1 356.8
--------- ---------
Total assets......................... $ 1,101.5 $ 1,558.3
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term borrowings - third parties........... $ 30.7 $ 37.6
Current portion of long-term debt - third parties - 10.2
Accounts payable................................. 86.3 139.8
Accrued expenses and other....................... 309.9 409.7
--------- ---------
Total current liabilities............. 426.9 597.3
Long-term debt - third parties ........................... 1,539.0 1,737.8
Long-term debt - affiliates............................... 24.1 24.1
Other long-term liabilities............................... 217.6 214.0
Stockholders' deficiency:
Preferred stock, par value $.01 per share; 20,000,000 shares
authorized, 546 shares of Series A Preferred Stock
issued and outstanding................ 54.6 54.6
Class B Common Stock, par value $.01 per share; 200,000,000
shares authorized, 31,250,000 issued and outstanding 0.3 0.3
Class A Common Stock, par value $.01 per share; 350,000,000
shares authorized, 20,115,935 and 19,992,837 issued and
outstanding, respectively............. 0.2 0.2
Capital deficiency.............................. (227.3) (228.4)
Accumulated deficit since June 24, 1992........ (904.1) (773.5)
Accumulated other comprehensive loss............ (29.8) (68.1)
--------- ---------
Total stockholders' deficiency........ (1,106.1) (1,014.9)
--------- ---------
Total liabilities and stockholders' deficiency... $ 1,101.5 $ 1,558.3
========= =========
See Accompanying Notes to Consolidated Financial Statements.
F-3
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share data)
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2000 1999 1998
----------- ------------ ----------
Net sales............................................. $ 1,491.6 $ 1,861.3 $ 2,252.2
Cost of sales......................................... 553.0 686.1 765.7
----------- ------------ ----------
Gross profit................................. 938.6 1,175.2 1,486.5
Selling, general and administrative expenses.......... 869.5 1,347.6 1,328.8
Restructuring costs and other, net.................... 54.1 40.2 33.1
----------- ------------ ----------
Operating income (loss)...................... 15.0 (212.6) 124.6
----------- ------------ ----------
Other expenses (income):
Interest expense............................. 144.5 147.9 137.9
Interest income.............................. (2.1) (2.8) (5.2)
Amortization of debt issuance costs.......... 5.6 4.3 5.1
Foreign currency losses (gains), net......... 1.6 (0.5) 4.6
Gain on sale of product line and brand, net.. (10.8) -- --
Miscellaneous, net........................... (1.8) 0.9 4.5
----------- ------------ ----------
Other expenses, net................. 137.0 149.8 146.9
----------- ------------ ----------
Loss from continuing operations before income taxes... (122.0) (362.4) (22.3)
Provision for income taxes............................ 8.6 9.1 5.0
----------- ------------ ----------
Loss from continuing operations....................... (130.6) (371.5) (27.3)
Loss from discontinued operations..................... -- -- (16.5)
Loss from disposal of discontinued operations......... -- -- (47.7)
Extraordinary items - early extinguishments of debt... -- -- (51.7)
----------- ------------ ----------
Net loss.............................................. $ (130.6) $ (371.5) $ (143.2)
=========== ============ ==========
Basic and diluted loss per common share:
Loss from continuing operations............. $ (2.54) $ (7.25) $ (0.53)
Loss from discontinued operations........... -- -- (1.26)
Extraordinary items......................... -- -- (1.01)
---------- ------------- --------
Net loss per common share................... $ (2.54) $ (7.25) $ (2.80)
========== ============= ========
Weighted average number of common shares outstanding:
Basic and diluted........................... 51,333,647 51,240,225 51,217,997
=========== ============== ===========
See Accompanying Notes to Consolidated Financial Statements.
F-4
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY AND COMPREHENSIVE LOSS
(dollars in millions)
ACCUMULATED
OTHER TOTAL
PREFERRED COMMON CAPITAL ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK DEFICIENCY DEFICIT LOSS (a) DEFICIENCY
----------- ----------- ----------- ------------- ------------- --------------
Balance, January 1, 1998................... $54.6 $0.5 $(231.1) $(258.8) $(23.7) $(458.5)
Issuance of common stock................... 2.6 2.6
Comprehensive loss:
Net loss............................. (143.2) (143.2)
Adjustment for minimum
pension liability ............... (28.0) (28.0)
Revaluation of marketable securities. (3.0) (3.0)
Currency translation adjustment...... (17.9)(b) (17.9)
---------
Total comprehensive loss................... (192.1)
------ ------- ----------- ---------- -------- ---------
Balance, December 31, 1998................. 54.6 0.5 (228.5) (402.0) (72.6) (648.0)
Issuance of common stock................... 0.1 0.1
Comprehensive loss:
Net loss............................. (371.5) (371.5)
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................... (367.0)
------ ------- ----------- ---------- -------- ---------
Balance, December 31, 1999................. 54.6 0.5 (228.4) (773.5) (68.1) (1,014.9)
Issuance of common stock................... 1.1 1.1
Comprehensive loss:
Net loss............................. (130.6) (130.6)
Adjustment for minimum
pension liability. .............. 1.3 1.3
Loss on marketable securities........ 3.8 (c) 3.8
Currency translation adjustment...... 33.2 (c) 33.2
---------
Total comprehensive loss................... (92.3)
------ ------- ----------- ---------- -------- ---------
Balance, December 31, 2000................. $54.6 $0.5 $(227.3) $(904.1) $(29.8) $(1,106.1)
====== ======= =========== ========== ======== =========
- --------------------
(a) Accumulated other comprehensive loss includes unrealized losses on
marketable securities of $3.8 and $3.0 for 1999 and 1998,
respectively, cumulative net translation losses of $26.2, $59.4 and
$37.1 for 2000, 1999 and 1998, respectively, and adjustments for the
minimum pension liability of $3.6, $4.9 and $32.5 for 2000, 1999 and
1998, respectively.
(b) 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.
(c) Accumulated other comprehensive loss as of December 31, 2000 and
comprehensive loss for the year ended December 31, 2000 each include
reclassification adjustments of $48.3 and $3.8 for realized losses on
foreign currency adjustments associated with the sale of the
Company's worldwide professional products line and for marketable
securities, respectively.
See Accompanying Notes to Consolidated Financial Statements.
F-5
REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
YEAR ENDED DECEMBER 31,
---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999 1998
------------ ------------ ------------
Net loss .................................................................... $ (130.6) $ (371.5) $ (143.2)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization........................................... 126.9 126.1 111.3
Loss from discontinued operations....................................... - - 64.2
Extraordinary items..................................................... - - 51.7
(Gain) loss on sale of certain assets, net.............................. (13.2) 1.6 (8.4)
Change in assets and liabilities, net of acquisitions and dispositions:
Decrease (increase) in trade receivables............................ 29.0 187.1 (43.0)
Decrease (increase) in inventories.................................. 32.7 (22.5) (4.6)
Decrease (increase) in prepaid expenses and
other current assets.................................... 18.8 12.6 (11.4)
(Decrease) increase in accounts payable............................. (21.0) 10.8 (49.2)
(Decrease) increase in accrued expenses and other
current liabilities..................................... (81.0) 20.5 52.5
Purchase of permanent displays...................................... (51.4) (66.5) (76.6)
Other, net.......................................................... 4.4 19.0 5.2
------------ ------------ ------------
Net cash used for operating activities....................................... (85.4) (82.8) (51.5)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................................... (19.0) (42.3) (60.8)
Acquisition of businesses, net of cash acquired.............................. - - (57.6)
Proceeds from the sale of certain assets..................................... 344.1 1.6 27.4
Acquisition of technology rights............................................. (3.0) - -
------------ ------------ ------------
Net cash provided by (used for) investing activities......................... 322.1 (40.7) (91.0)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings - third parties............. (2.7) 12.3 (16.3)
Proceeds from the issuance of long-term debt - third parties................. 339.1 574.5 1,469.1
Repayment of long-term debt - third parties.................................. (538.7) (464.9) (1,270.9)
Net proceeds from issuance of common stock................................... - 0.1 1.1
Proceeds from the issuance of debt - affiliates.............................. - 67.1 105.9
Repayment of debt - affiliates............................................... - (67.1) (105.9)
Payment of debt issuance costs............................................... - (3.5) (23.9)
------------ ------------ ------------
Net cash (used for) provided by financing activities......................... (202.3) 118.5 159.1
------------ ------------ ------------
Effect of exchange rate changes on cash and cash equivalents................. (3.5) (4.3) (2.0)
------------ ------------ ------------
Net cash used by discontinued operations..................................... - - (17.3)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents.................... 30.9 (9.3) (2.7)
Cash and cash equivalents at beginning of period........................ 25.4 34.7 37.4
------------ ------------ ------------
Cash and cash equivalents at end of period.............................. $ 56.3 $ 25.4 $ 34.7
============ ============ ============
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ........................................................... $ 141.3 $ 146.1 $ 133.4
Income taxes, net of refunds........................................ 4.7 8.2 10.9
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
Cash paid........................................................... - - (57.6)
------------ ------------ ------------
Liabilities assumed................................................. $ - $ - $ 16.9
============ ============ ============
Supplemental schedule of noncash financing activities:
Issuance of common stock ........................................... $ 1.1 $ - $ -
See Accompanying Notes to Consolidated Financial Statements.
F-6
REVLON, INC. 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, Inc. (and together with its subsidiaries, the "Company") conducts
its business exclusively through its direct subsidiary, Revlon Consumer
Products Corporation and its subsidiaries ("Products Corporation"). The Company
manufactures and sells an extensive array of cosmetics and skin care,
fragrances and personal care products. Prior to March 30, 2000, the Company
sold professional products for use in and resale by professional salons. (See
Note 3). On March 30, 2000, the Company sold its professional products line and
on May 8, 2000, sold the Plusbelle brand in Argentina. (See Note 3). 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 products to United States
military exchanges and commissaries and has a licensing group.
Unless the context otherwise requires, all references to the Company mean
Revlon, Inc. and its subsidiaries. Revlon, Inc., as a public holding company,
has no business operations of its own and its only material asset has been all
of the outstanding capital stock of Products Corporation. As such, its net
(loss) income has historically consisted predominantly of its equity in the net
(loss) income of Products Corporation and in 2000, 1999 and 1998 included
approximately $1.7, $1.2 and $1.5, respectively, in expenses incidental to
being a public holding company.
The Consolidated Financial Statements include the accounts of the Company
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.
The Company 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 to 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. Approximately $22.2 and $15.3 was restricted and
supported short-term borrowings at December 31, 2000 and 1999, respectively.
(See Note 8).
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. At the beginning of the fourth
quarter in 2000, the Company decided to consolidate its manufacturing facility
in Phoenix, Arizona into its manufacturing facility in Oxford, North Carolina.
The Phoenix manufacturing facility is expected
F-7
to remain operational until June 30, 2001 and certain other operations may
remain thereafter under a leaseback agreement. As a result, the Company is
depreciating the net book value of the facility in excess of its estimated
salvage value, over its remaining nine-month useful life.
Included in other assets are permanent displays amounting to approximately
$111.6 and $131.2 (net of amortization) as of December 31, 2000 and 1999,
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 $19.0 and $21.0 (net of amortization) as
of December 31, 2000 and 1999, respectively, which are amortized over the terms
of the related debt instruments.
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 estimated amount of undiscounted cash flows.
Accumulated amortization aggregated $110.0 and $128.0 at December 31, 2000 and
1999, 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. The Company records sales returns as a reduction to sales, cost of
sales and accounts receivable and an increase to inventory. Cost of sales
includes the cost of refurbishment of returned products.
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."
Revlon, Inc., for federal income tax purposes, is included in the
affiliated group of which Mafco Holdings is the common parent, and Revlon,
Inc.'s federal taxable income and loss is included in such group's consolidated
tax return filed by Mafco Holdings. Revlon, Inc. 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), the Company and certain of its subsidiaries and Mafco
Holdings entered into a tax sharing agreement, which is described in Notes 11
and 14.
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 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 2000, 1999 and 1998 were $27.3, $32.9 and
$31.9, respectively.
F-8
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
until either sale or upon complete or substantially complete liquidation by the
Company of its investment in a foreign entity. 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.
In 1998, the Company's operations in Mexico were accounted for as
operating in a hyperinflationary economy. Effective January 1, 1999, the
Company's operations in Mexico have been accounted for as operating in a
non-hyperinflationary economy. The impact of the change in accounting for
Mexico was not material to the Company's operating results in 1999.
SALE OF SUBSIDIARY STOCK:
The Company recognizes gains and losses on sales of subsidiary stock in
its Consolidated Statements of Operations.
BASIC AND DILUTED (LOSS) INCOME PER COMMON SHARE AND CLASSES OF STOCK:
The basic (loss) income per common share has been computed based upon the
weighted average number of shares of common stock outstanding during each of
the periods presented. Diluted (loss) income per common share has been computed
based upon the weighted average number of shares of common stock outstanding.
The Company's outstanding stock options represent the only potential dilutive
common stock outstanding. The number of shares used in the calculation of basic
and diluted loss per common share was the same in each period presented, as it
does not include any incremental shares that would have been outstanding
assuming the exercise of stock options because the effect of those incremental
shares would have been antidilutive. For each period presented, the amount of
loss used in the calculation of diluted loss per common share was the same as
the amount of loss used in the calculation of basic loss per common share.
The Revlon, Inc. Class A Common Stock, par value $.01 per share (the
"Class A Common Stock") and the Revlon, Inc. Class B Common Stock, par value
$.01 per share (the "Class B Common Stock") (collectively with the Class A
Common Stock, the "Common Stock") vote as a single class on all matters, except
as otherwise required by law, with each share of Class A Common Stock entitling
its holder to one vote and each share of the Class B Common Stock entitling its
holder to ten votes. All of the shares of Class B Common Stock are owned by REV
Holdings Inc. ("REV Holdings"), an indirect wholly-owned subsidiary of Mafco
Holdings. Mafco Holdings beneficially owns shares of Common Stock having
approximately 97.3% of the combined voting power of the outstanding shares of
Common Stock. The holders of the Company's two classes of common stock are
entitled to share equally in the earnings of the Company from dividends, when
and if declared by the Board. Each outstanding share of Class B Common Stock is
convertible into one share of Class A Common Stock.
The Company designated 1,000 shares of Preferred Stock as the Series A
Preferred Stock, of which 546 shares are outstanding and held by REV Holdings.
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 holders of 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 the Company, at its option, for $100,000 per share. However, the
terms of Products Corporation's various debt agreements currently restrict
Revlon, Inc.'s ability to effect such redemption by generally restricting the
amount of dividends or distributions Products Corporation can pay to Revlon,
Inc.
F-9
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 interpretations including FASB Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB No. 25" issued in March 2000. Accordingly, compensation
cost for stock options issued to employees is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the grant over
the amount an employee must pay to acquire the stock. (See Note 13).
DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments, such as forward exchange and option
contracts, 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 and June 2000, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities (an amendment
of FASB Statement No. 133)." These statements establish accounting and
reporting standards requiring that every derivative instrument be recorded on
the balance sheet as either an asset or liability measured at its fair value.
SFAS Nos. 133 and 138 also require that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. SFAS Nos. 133 and 138 are effective for fiscal years beginning after
June 15, 2000. The adoption of SFAS Nos. 133 and 138 on January 1, 2001 did not
have an effect on the Company's consolidated financial statements.
ADVERTISING AND PROMOTION:
Costs associated with advertising and promotion are expensed in the year
incurred. Advertising and promotion expenses were $290.9, $411.8 and $422.9 for
2000, 1999 and 1998, respectively.
F-10
DISTRIBUTION COSTS:
Costs, such as freight and handling costs, associated with distribution
are expensed within selling, general and administrative expenses when incurred.
Distribution costs were $78.3, $102.7 and $112.8 for 2000, 1999 and 1998,
respectively.
2. RESTRUCTURING COSTS AND OTHER, NET
Since 1998, the Company has been continuously evaluating its
organizational structure and has implemented a number of restructuring plans.
In the fourth quarter of 1998, the Company executed a 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 (the "1998 Restructuring Plan"). The cost of the 1998
Restructuring Plan resulted in a charge of $44.2 in 1998 and an additional net
charge of $20.5 through the nine-month period ended September 30, 1999,
principally for employee severance and other personnel benefits and obligations
for excess leased real estate primarily in the United States. In 1999, the
Company exited a non-core business for which it recorded a charge of $1.6,
which was included in restructuring costs and other, net. In 1998, the Company
recognized $8.4 of gains on sales of certain non-core assets.
In the fourth quarter of 1999, the Company began a new restructuring
program principally for additional employee severance and other personnel
benefits and to restructure certain operations outside the United States,
including certain operations in Japan (the "1999 Restructuring Plan"). The cost
of the 1999 Restructuring Plan resulted in a charge of $18.1 in the fourth
quarter of 1999. In the first half of 2000, the Company recorded a charge of
$14.6 relating to the 1999 Restructuring Plan.
During the third quarter of 2000, the Company continued to re-evaluate its
organizational structure. As part of this re-evaluation, the Company developed
a new restructuring plan designed to improve profitability by reducing
personnel and consolidating manufacturing facilities (the "2000 Restructuring
Plan"). The 2000 Restructuring Plan focused on the Company's plans to close its
manufacturing operations in Phoenix, Arizona and Mississauga, Canada and to
consolidate its production into its plant in Oxford, North Carolina. The 2000
Restructuring Plan also includes the remaining obligation for excess leased
real estate in the Company's headquarters, consolidation costs associated with
the Company closing its facility in New Zealand, and the elimination of several
domestic and international executive and operational positions, both of which
were effected to reduce and streamline corporate overhead costs. In the third
and fourth quarters of 2000, the Company recorded charges of $13.7 and $25.8,
respectively, related to the 2000 Restructuring Plan, principally for
additional employee severance and other personnel benefits and to consolidate
worldwide operations.
In connection with the 1998 Restructuring Plan, the 1999 Restructuring
Plan and the 2000 Restructuring Plan, 1,213 employees, 403 employees and 1,697
employees, respectively, were included in the Company's restructuring charges.
Of the 1,697 employees for whom severance and other personnel benefits were
included in the restructuring charges in 2000, the Company had terminated 380
employees by December 31, 2000. All employees from the 1998 Restructuring Plan
and substantially all the employees from the 1999 Restructuring Plan have been
terminated as of December 31, 2000.
The cash and noncash elements of the restructuring charges recorded in
2000 approximate $53.2 and $0.9, respectively, and in 1999 approximated $38.8
and $1.4, respectively.
F-11
Details of the charges are as follows:
BALANCE
BEGINNING (UTILIZED) RECEIVED BALANCE
OF EXPENSE ---------------------------------------- END
YEAR (INCOME) CASH NONCASH OF YEAR
--------------------------- ------------- ---------- ------------
2000
- ------------------------------------------
Employee severance and other
personnel benefits............$ 24.6 $ 44.6 $ (39.5) $ (1.1) $ 28.6
Factory, warehouse, office and
other costs..................... 9.4 9.5 (6.3) (5.2) 7.4
-------- ------ ------- ----- ------
$ 34.0 $ 54.1 $ (45.8) $ (6.3) $ 36.0
======== ====== ======= ===== ======
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
======== ====== ======= ===== ======
As of December 31, 2000 and 1999, the unpaid balance of the restructuring
costs are included in accrued expenses and other and other long-term liabilities
in the Company's Consolidated Balance Sheets.
3. ACQUISITIONS OF BUSINESSES AND DISPOSITIONS OF PRODUCT LINE AND BRAND
In 1998, the Company consummated acquisitions for a combined purchase
price of $62.6, with resulting goodwill of $63.7. These acquisitions were not
significant to the Company's results of operations. There were no acquisitions
made by the Company in 2000 and 1999.
On March 30, 2000, Products Corporation 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 Products
Corporation'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. In
connection with the disposition, the Company recognized a pre-tax and after-tax
gain of $14.8. Approximately $150.3 of the Net Proceeds (as defined in the
Credit Agreement) were used to reduce the aggregate commitment under the Credit
Agreement (as hereinafter defined).
F-12
On May 8, 2000, Products Corporation completed the disposition of the
Plusbelle brand in Argentina for $46.2 in cash. Approximately $20.7 of the Net
Proceeds were used to reduce the aggregate commitment under the Credit
Agreement. In connection with the disposition, the Company recognized a pre-tax
and after-tax loss of $4.8.
The following represents summary unaudited pro forma information of the
Company's results of operations, which excludes the results of operations of
the worldwide professional products line and the Plusbelle brand in Argentina.
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 1999
--------------------- ----------------
Net sales................. $ 1,395.3 $ 1,470.9
Operating income (loss) .. 10.4 (237.9)
4. INVENTORIES
DECEMBER 31,
-----------------------------
2000 1999
--------- --------------
Raw materials and supplies.......... $ 56.2 $ 74.1
Work-in-process..................... 9.4 19.7
Finished goods...................... 119.1 184.5
------- ------------
$ 184.7 $ 278.3
======= ============
5. PREPAID EXPENSES AND OTHER
DECEMBER 31,
-----------------------------
2000 1999
------------- ---------
Prepaid expenses....................... $ 22.8 $ 36.7
Asset held for sale.................... 29.0 --
Other.................................. 14.3 14.6
------------- ---------
$ 66.1 $ 51.3
============= =========
In the fourth quarter of 2000, the Company listed for sale land in Minami
Aoyama near Tokyo, Japan and related rights for the construction of a building
on such land (the "Aoyama Property"). The Company recorded a charge, included
in selling, general and administrative expenses, of approximately $9.4 to
reduce the net book value of the asset held for sale to its estimated net
realizable value of (Y)3.3 billion (See Note 21).
6. PROPERTY, PLANT AND EQUIPMENT, NET
DECEMBER 31,
----------------------------
2000 1999
------------- ----------
Land and improvements.................. $ 13.5 $ 41.3
Buildings and improvements............. 129.3 174.1
Machinery and equipment................ 179.2 222.9
Office furniture and fixtures
and capitalized software............. 107.0 112.5
Leasehold improvements................. 22.7 28.1
Construction-in-progress............... 11.2 16.0
------------- ----------
462.9 594.9
Accumulated depreciation............... (241.2) (258.5)
------------- ----------
$ 221.7 $ 336.4
============= ==========
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was $42.4, $45.9 and $40.5, respectively.
F-13
7. ACCRUED EXPENSES AND OTHER
DECEMBER 31,
--------------------------
2000 1999
--------- ------
Advertising and promotional costs
and accrual for sales returns....... $ 120.9 $ 183.5
Compensation and related benefits...... 70.5 83.9
Interest.............................. 39.9 38.1
Taxes, other than federal income taxes. 5.6 18.8
Restructuring costs.................... 32.2 31.4
Other.................................. 40.8 54.0
--------- ------
$ 309.9 $ 409.7
========= ======
8. SHORT-TERM BORROWINGS
Products Corporation had outstanding short-term bank borrowings (excluding
borrowings under the Credit Agreement) aggregating $30.7 and $37.6 at December
31, 2000 and 1999, respectively. Interest rates on amounts borrowed under such
short-term lines at December 31, 2000 and 1999 ranged from 5.5% to 10.3% and
from 3.1% to 6.8%, respectively, excluding Latin American countries in which
the Company had outstanding borrowings of approximately $4.9 and $8.3 at
December 31, 2000 and 1999, respectively. Compensating balances at December 31,
2000 and 1999 were approximately $22.2 and $15.3, respectively. Interest rates
on compensating balances at December 31, 2000 and 1999 ranged from 1.5% to 6.5%
and 1.5% to 4.7%, respectively.
9. LONG-TERM DEBT
DECEMBER 31,
-------------------------------
2000 1999
--------- -----------
Working capital lines (a)............... $ 389.7 $ 588.2
Bank mortgage loan agreement due 2000 (b) - 9.9
8 1/8 % Senior Notes due 2006 (c)....... 249.5 249.4
9% Senior Notes due 2006 (d)............ 250.0 250.0
8 5/8% Senior Subordinated Notes due
2008 (e) ............................. 649.8 649.8
Advances from Holdings (f).............. 24.1 24.1
Notes payable due through 2004 ......... - 0.7
--------- -----------
1,563.1 1,772.1
Less current portion.................... - (10.2)
--------- -----------
$1,563.1 $ 1,761.9
========= ===========
(a) 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.
The Credit Agreement provides up to $518.5 at December 31, 2000 and
consists of five senior secured facilities: $106.2 in two term loan facilities
(the "Term Loan Facilities"), a $300.0 multi-currency facility (the
"Multi-Currency Facility"), and a $62.3 revolving acquisition facility, (the
"Acquisition Facility"), and a $50.0 special standby letter of credit facility
(the "Special LC Facility") (the "Special LC Facility" and together with the
Term Loan Facilities, the Multi-Currency Facility and the Acquisition Facility,
the "Credit Facilities"). The Company under certain circumstances and with the
consent of a majority of the lenders may increase the Acquisition Facility to
$262.3. 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 revolving credit loans and bankers' acceptances
denominated in U.S. dollars and other currencies (the "Local Loans"). At
December 31, 2000 and 1999, Products Corporation had approximately $106.2 and
$198.0, respectively, outstanding under the Term Loan Facilities, $221.2 and
$235.2, respectively, outstanding under the Multi-Currency Facility, $62.3 and
$155.0, respectively, outstanding under the Acquisition Facility and $22.6 and
$29.8, respectively, of issued but undrawn letters of credit under the Special
LC Facility. The scheduled reductions of the Acquisition Facility are $48.8
during
F-14
2001. The balance of the Acquisition Facility, along with the Term Loan
Facilities, the Multi-Currency Facility and the Special LC Facility mature in
May 2002.
The Credit Facilities (other than loans in foreign currencies) bear
interest as of December 31, 2000 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, 2000 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%.
Products Corporation pays the lender a commitment fee as of December 31, 2000
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, 2000, in the
amounts of $32.4 during 2000, $48.8 during 2001 and the balance at maturity in
May 2002 after giving effect to commitment reductions resulting from the sale
of the worldwide professional products line and the Plusbelle brand in
Argentina. 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 10.2%, 9.7% and 10.3% at December 31, 2000,
respectively, 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 Revlon Holdings Inc., the Company's indirect
parent, ("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 and a mortgage on Products Corporation's facility in Oxford, North
Carolina (which has been put in place pursuant to the Seventh Amendment); (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 (A) Products Corporation and its domestic
subsidiaries and (B) certain subsidiaries of Holdings; (iv) domestic inventory
and accounts receivable of (A) Products Corporation and its domestic
subsidiaries and (B) 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 and working
capital lines.
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 Class A 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, (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
F-15
(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 cumulative EBITDA for each quarter end during
2001, minimum interest coverage in 2002, covenants that limit the leverage
ratio of Products Corporation in 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 and other
customary events of default for such types of agreements.
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. On May 8, 2000,
approximately 60% of the $34.5 in Net Proceeds from the sale of the Plusbelle
brand in Argentina were used to permanently reduce the aggregate commitment
under the Credit Agreement.
In January 2001 (effective December 31, 2000), Products Corporation and
its bank lenders entered into an amendment to the Credit Agreement, effective
December 31, 2000 to (i) eliminate the interest coverage ratio and leverage
ratio covenants for 2001; (ii) add a minimum cumulative EBITDA covenant for
each quarter end during 2001; (iii) modify the definition of EBITDA beginning
with the quarterly period ended December 31, 2000; (iv) limit the amount that
Products Corporation may spend for capital expenditures; (v) permit the sale of
certain of Products Corporation's non-core assets; (vi) permit Products
Corporation to retain 100% of the Net Proceeds (as defined in the Credit
Agreement) from such asset sales; (vii) increase the "applicable margin" by 1/2
of 1%; and (viii) require Products Corporation to provide a mortgage on its
facility in Oxford, North Carolina as security for its obligations under the
Credit Agreement.
(b) The Pacific Finance & Development Corp., a wholly-owned subsidiary of
Products Corporation, was the borrower under the Yen Credit Agreement. In March
2000, the outstanding balance under the Yen Credit Agreement was repaid in
accordance with its terms.
(c) 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 9% 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 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.
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.
F-16
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.
(d) The 9% Senior Notes due 2006 (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 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.
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.
(e) 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 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.
F-17
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 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.
(f) During 1992, 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 1998, approximately $6.8 due to Products
Corporation from Holdings was offset against the notes payable to Holdings. At
December 31, 2000, 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.
(g) 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, 2000 or 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 2000, 1999 and 1998 was nil, $0.5 and $0.8, respectively.
The aggregate amounts of long-term debt maturities (at December 31, 2000),
in the years 2001 through 2005 are nil, $413.8, nil, nil and nil, respectively,
and $1,149.3 thereafter.
The Company expects that cash flows from operations, net proceeds from the
sale of certain non-core assets (or financial support from an affiliate, if
such asset sales are not completed on a timely basis) and borrowings under the
Credit Agreement will be sufficient to enable the Company to meet its
anticipated cash requirements during 2001 on a consolidated basis, including
for debt service and expenses in connection with the Company's restructuring
plans. However, there can be no assurance that the combination of cash flow
from operations, net proceeds from the sale of certain non-core assets (or from
such financial support) and borrowings under the Credit Agreement 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
purchases of permanent displays, reducing or delaying capital expenditures,
delaying or revising restructuring plans, restructuring indebtedness, selling
additional assets or operations, or seeking capital contributions or additional
loans from affiliates of the Company or issuing additional shares of capital
stock of Revlon, Inc. Products Corporation has received a commitment from an
affiliate that is prepared to provide, if necessary, additional financial
support to Products Corporation of up to $40 on appropriate terms through
December 31, 2001.
F-18
10. FINANCIAL INSTRUMENTS
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, 2000 and 1999 was approximately $393.6 and
$444.2 less than the carrying values of $1,563.1 and $1,772.1, 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 $23.1 and $30.5 (including
amounts available under credit agreements in effect at that time) were
maintained at December 31, 2000 and 1999, respectively. Included in these
amounts are $14.2 and $25.7, respectively, in standby letters of credit, which
support Products 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, notes receivable, accounts payable and short-term borrowings
approximate their fair values.
11. INCOME TAXES
In June 1992, Holdings, Revlon, Inc. 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. 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. or its subsidiaries) is the common parent
for taxable periods beginning on or after January 1, 1992 during which Revlon,
Inc. or a subsidiary of Revlon, Inc. is a member of such group. Pursuant to the
Tax Sharing Agreement, for all taxable periods beginning on or after January 1,
1992, Revlon, Inc. will pay to Holdings amounts equal to the taxes that Revlon,
Inc. 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
Revlon, Inc.), except that Revlon, Inc. will not be entitled to carry back any
losses to taxable periods ending prior to January 1, 1992. No payments are
required by 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 Revlon, Inc. 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 Revlon, Inc. against losses and tax credits generated by
Mafco Holdings and its other subsidiaries. The Tax Sharing Agreement was amended
to eliminate a contingent payment to Revlon, Inc. under certain circumstances in
return for a $10 note with interest at 12% and interest and principal payable by
Mafco Holdings on December 31, 2005. 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 2000, 1999
or 1998. The Company has a liability of $0.9 to Holdings in respect of federal
taxes for 1997 under the Tax Sharing Agreement.
Pursuant to the asset transfer agreement referred to in Note 14, 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: 2000 1999 1998
------------- ------------ -------------
Domestic............................................... $ (48.3) $ (289.7) $ 15.3
Foreign................................................ (73.7) (72.7) (37.6)
------------- ------------ -------------
$ (122.0) $ (362.4) $ (22.3)
============= ============ =============
Provision (benefit) for income taxes:
Federal................................................ $ - $ - $ -
State and local........................................ 0.4 0.4 0.6
Foreign................................................ 8.2 8.7 4.4
------------- ------------ -------------
$ 8.6 $ 9.1 $ 5.0
============= ============ =============
Current................................................ $ 8.5 $ 14.7 $ 12.1
Deferred............................................... 0.8 3.3 (0.3)
Benefits of operating loss carryforwards............... (1.9) (8.8) (7.7)
Carryforward utilization applied to goodwill........... 0.7 - 0.5
Effect of enacted change of tax rates.................. 0.5 (0.1) 0.4
------------- ------------ -------------
$ 8.6 $ 9.1 $ 5.0
============= ============ =============
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,
------------------------------------------------
2000 1999 1998
------------- ------------ -------------
Statutory federal income tax rate............................ (35.0)% (35.0)% (35.0)%
State and local taxes, net of federal income tax benefit..... 0.2 0.1 1.7
Foreign and U.S. tax effects attributable to operations
outside the U.S.......................................... 1.9 1.9 5.5
Nondeductible amortization expense........................... 1.9 1.0 14.2
Tax write-off of U.S. investment in foreign subsidiary....... - - (31.9)
Change in valuation allowance................................ 10.8 34.6 75.7
Sale of businesses........................................... 26.8 - (5.3)
Other........................................................ 0.5 (0.1) (2.5)
------------- ------------ -------------
Effective rate............................................... 7.1 % 2.5 % 22.4 %
============= ============ =============
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, 2000 and 1999 are presented below:
DECEMBER 31,
-----------------------------
Deferred tax assets: 2000 1999
------------ -------------
Accounts receivable, principally due to doubtful accounts....... $ 2.6 $ 5.0
Inventories..................................................... 10.8 16.8
Net operating loss carryforwards - domestic..................... 225.7 221.9
Net operating loss carryforwards - foreign...................... 119.6 122.2
Accruals and related reserves................................... 14.4 16.1
Employee benefits............................................... 41.2 43.0
State and local taxes........................................... 13.1 12.7
Self-insurance.................................................. 1.2 1.8
Advertising, sales discounts and returns and coupon redemptions. 28.3 36.4
Other........................................................... 29.6 29.3
------------ -------------
Total gross deferred tax assets............................. 486.5 505.2
Less valuation allowance.................................... (437.5) (443.8)
------------ -------------
Net deferred tax assets..................................... 49.0 61.4
Deferred tax liabilities:
Plant, equipment and other assets............................... (42.7) (51.8)
Other........................................................... (3.0) (4.5)
------------ -------------
Total gross deferred tax liabilities........................ (45.7) (56.3)
------------ -------------
Net deferred tax asset...................................... $ 3.3 $ 5.1
============ =============
In assessing the recoverability of its 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, 2000.
The valuation allowance decreased by $6.3 during 2000 and increased by
$60.8 and $102.9 during 1999 and 1998, respectively.
During 2000, 1999, and 1998, certain of the Company's foreign subsidiaries
used operating loss carryforwards to credit the current provision for income
taxes by $1.9, $8.8, and $2.4, respectively. Certain other foreign operations
generated losses during 2000, 1999 and 1998 for which the potential tax benefit
was reduced by a valuation allowance. During 1998, the Company used domestic
operating loss carryforwards to credit the deferred provision for income taxes
by $5.3. At December 31, 2000, the Company had tax loss carryforwards of
approximately $999.8 that expire in future years as follows: 2001-$17.8;
2002-$33.9; 2003-$20.7; 2004-$27.4; 2005 and beyond-$749.5; unlimited-$150.5.
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 $6.3 at December 31, 2000, excluding those
amounts which, if remitted in the near future, would not result in significant
additional taxes under tax statutes currently in effect.
F-21
12. 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.
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,
-----------------------------------------------------
Change in Benefit Obligation: 2000 1999 2000 1999
----------- ----------- ----------- -----------
Benefit obligation - September 30 of prior year............... $ (418.2) $ (438.6) $ (9.2) $ (9.3)
Service cost.................................................. (12.0) (16.0) - (0.1)
Interest cost................................................. (29.2) (28.7) (0.7) (0.7)
Plan amendments............................................... (1.5) - - -
Actuarial (loss) gain......................................... 9.4 46.8 (0.4) 0.3
Curtailments.................................................. 0.7 - - -
Benefits paid................................................. 21.2 19.1 0.6 0.6
Foreign exchange.............................................. 3.5 - - -
Plan participant contributions................................ (0.7) (0.8) - -
Settlements................................................... 6.2 - - -
----------- ----------- ----------- -----------
Benefit obligation - September 30 of current year............. (420.6) (418.2) (9.7) (9.2)
----------- ----------- ----------- -----------
Change in Plan Assets:
Fair value of plan assets - September 30 of prior year........ 323.7 286.0 - -
Actual return on plan assets.................................. 39.9 52.1 - -
Employer contributions........................................ 9.6 4.5 0.6 0.6
Assets sold................................................... (2.8) - -
Plan participant contributions................................ 0.7 0.8 - -
Benefits paid................................................. (21.2) (19.1) (0.6) (0.6)
Settlements................................................... (3.4) - - -
Foreign exchange.............................................. (3.1) (0.6) - -
----------- ----------- ----------- -----------
Fair value of plan assets - September 30 of current year...... 343.4 323.7 - -
----------- ----------- ----------- -----------
Funded status of plans............................................. (77.2) (94.5) (9.7) (9.2)
Amounts contributed to plans during fourth quarter................. 1.1 1.2 0.1 0.1
Unrecognized net (gain) loss ...................................... (1.6) 19.0 (1.1) (1.6)
Unrecognized prior service cost.................................... 5.0 5.5 - -
Unrecognized net (asset) obligation................................ (0.5) (0.7) - -
----------- ----------- ----------- -----------
Accrued benefit cost.......................................... $ (73.2) $ (69.5) $ (10.7) $ (10.7)
=========== =========== =========== ===========
Amounts recognized in the Consolidated Balance Sheets consist of:
Prepaid expenses.............................................. $ 7.7 $ 6.3 $ - $ -
Other long-term liabilities................................... (85.5) (81.4) (10.7) (10.7)
Intangible asset.............................................. 0.5 - - -
Accumulated other comprehensive loss.......................... 3.6 4.9 - -
Due from affiliate............................................ 1.5 1.6 1.4 1.6
----------- ----------- ----------- -----------
$ (72.2) $ (68.6) $ (9.3) $ (9.1)
=========== =========== =========== ===========
F-22
The following weighted-average assumptions were used in accounting for the
plans:
U.S. PLANS INTERNATIONAL PLANS
------------------------------ -------------------------------
2000 1999 1998 2000 1999 1998
-------- --------- --------- --------- --------- ---------
Discount rate........................... 7.5% 7.5% 6.8% 6.5% 6.5% 6.2%
Expected return on plan assets.......... 9.5 9.5 9.0 9.0 9.2 9.6
Rate of future compensation increases... 5.3 5.3 5.3 4.5 4.5 4.9
The components of net periodic benefit cost for the plans are as
follows:
PENSION PLANS OTHER POSTRETIREMENT BENEFITS
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- --------- --------- ---------
Service cost............................ $ 12.0 $ 16.0 $ 12.8 $ - $ 0.1 $ 0.1
Interest cost........................... 29.2 28.7 27.0 0.7 0.7 0.7
Expected return on plan assets.......... (30.1) (26.6) (27.4) - - -
Amortization of prior service cost...... 1.7 1.7 1.8 - - -
Amortization of net transition asset.... (0.2) (0.2) (0.2) - - -
Amortization of actuarial loss (gain)... 1.0 5.0 1.0 (0.1) (0.3) (0.3)
Settlement gain......................... (0.1) - - - - -
Curtailment (gain) loss................. (0.4) - 0.3 - - -
-------- -------- -------- --------- --------- ---------
13.1 24.6 15.3 0.6 0.5 0.5
Portion allocated to Holdings........... (0.3) (0.3) (0.3) - 0.1 0.1
-------- -------- -------- --------- --------- ---------
$ 12.8 $ 24.3 $ 15.0 $ 0.6 $ 0.6 $ 0.6
======== ======== ======== ========= ========= =========
Where the accumulated benefit obligation exceeded the related fair
value of plan assets, the projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for the Company's pension plans are as
follows:
DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Projected benefit obligation............. $ 60.5 $ 61.2 $ 428.2
Accumulated benefit obligation........... 53.9 53.0 370.5
Fair value of plan assets................ 5.0 0.7 276.3
13. STOCK COMPENSATION PLAN
Since March 5, 1996, Revlon, Inc. has had a stock-based compensation
plan as subsequently amended and restated (the "Plan"), which is described
below. Revlon, Inc. applies APB Opinion No. 25 and its related interpretations
in accounting for the Plan. Under APB Opinion No. 25, because the exercise price
of Revlon, Inc.'s employee stock options 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,
Revlon, Inc.'s net loss and net loss per diluted share of $130.6 and $2.54,
respectively, for 2000, $371.5 and $7.25, respectively, for 1999, and $143.2 and
$2.80, respectively, for 1998 would have been changed to the pro forma amounts
of $141.6 and $2.76 for 2000, respectively, $397.2 and $7.75 for 1999,
respectively, and $166.8 and $3.25, respectively, for 1998. 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 69% in 2000, 68% in 1999, and 56% in 1998; weighted average
risk-free interest rate of 6.53% in 2000, 5.48% in 1999, and 5.37% in 1998; and
a seven year expected average life for the Plan's options issued in 2000, 1999
and 1998. The effects of applying SFAS No. 123 in this pro forma disclosure are
not necessarily indicative of future amounts.
F-23
Under the Plan, awards may be granted to employees and directors of
Revlon, Inc. 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.
Options granted in May 2000 under the Plan vest 25% on each anniversary of the
grant date and will become 100% vested on the fourth anniversary of the grant
date; provided that an additional 25% of such options would vest on each
subsequent anniversary date of the grant if the Company achieved certain
performance objectives relating to the Company's operating income for the fiscal
year preceding such anniversary date, which objectives were not achieved in
2000. During each of 2000, 1999 and 1998, the Company granted to Mr. Perelman,
Chairman of the Executive Committee, 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 2000 and 1998 grants and which vested
100% on the date of grant as to the 1999 grant. At December 31, 2000, 1999 and
1998 there were 3,009,908, 1,850,050 and 403,950 options exercisable under the
Plan, respectively.
A summary of the status of the Plan as of December 31, 2000, 1999 and
1998 and changes during the years then ended is presented below:
SHARES WEIGHTED AVERAGE
(000) EXERCISE PRICE
---------- ----------------
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
Granted............................... 1,769.1 7.15
Exercised............................. - -
Forfeited............................. (936.8) 24.06
----------
Outstanding at December 31, 2000...... 6,603.5 21.59
==========
The weighted average fair value of options granted during 2000, 1999
and 1998 approximated $4.58, $10.65, and $22.26, respectively.
F-24
The following table summarizes information about the Plan's options
outstanding at December 31, 2000:
OUTSTANDING EXERCISABLE
------------------------------------------------------- ---------------------------------
WEIGHTED
RANGE AVERAGE WEIGHTED WEIGHTED
OF NUMBER YEARS AVERAGE NUMBER AVERAGE
EXERCISE PRICES OF OPTIONS REMAINING EXERCISE PRICE OF OPTIONS EXERCISE PRICE
- ----------------- -------------- ------------- -------------- ------------ ----------------
$4.00 to $10.44 1,908.0 9.32 $ 7.49 1.9 $ 9.02
15.00 to 24.00 1,865.9 7.06 18.01 1,787.6 18.09
24.13 to 33.88 1,383.0 6.67 28.42 772.4 30.02
34.00 to 53.56 1,446.6 6.49 38.29 448.0 35.42
--------- ---------
4.00 to 53.56 6,603.5 3,009.9
========= =========
14. RELATED PARTY TRANSACTIONS
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 amounts reimbursed by Holdings
to Products Corporation for the Excluded Liabilities for 2000, 1999 and 1998
were $0.4, $0.5 and $0.6, 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, 2000 and
1999, the amounts reflected in the Company's Consolidated Balance Sheets
aggregated a net liability of $23.2 and $23.6, respectively, of which $4.8 and
$5.2, respectively, are included in accrued expenses and other and $18.4 is
included in other long-term liabilities as of both dates.
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. Products Corporation
reimburses MacAndrews Holdings for the allocable costs of the services purchased
for or provided to Products Corporation and its subsidiaries and for reasonable
out-of-pocket expenses incurred in connection with the
F-25
provision of such services. MacAndrews Holdings (or such affiliates) reimburses
Products Corporation 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 Products
Corporation for the services provided under the Reimbursement Agreements for
2000, 1999 and 1998, were $0.9, $0.5 and $3.1, 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. Products
Corporation does not intend to request services under the Reimbursement
Agreements unless their costs would be at least as favorable to Products
Corporation as could be obtained from unaffiliated third parties.
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 11. Since payments to be made under the Tax Sharing
Agreement will be determined by the amount of taxes that Revlon, Inc. 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 Revlon, Inc. 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 Revlon, Inc.
pursuant to the Tax Sharing Agreement for 2000, 1999 and 1998.
REGISTRATION RIGHTS AGREEMENT
Prior to the consummation of Revlon, Inc.'s initial public equity
offering, Revlon, Inc. and Revlon Worldwide Corporation (subsequently merged
into REV Holdings), the then direct parent of Revlon, Inc., entered into the
Registration Rights Agreement pursuant to which REV Holdings and certain
transferees of Revlon, Inc.'s Common Stock held by REV Holdings (the "Holders")
have the right to require Revlon, Inc. to register all or part of the Company's
Class A Common Stock owned by such Holders and the Company's Class A Common
Stock issuable upon conversion of the Company's Class B Common Stock owned by
such Holders under the Securities Act of 1933, as amended (the "Securities Act")
(a "Demand Registration"); provided that Revlon, Inc. may postpone giving effect
to a Demand Registration up to a period of 30 days if Revlon, Inc. believes such
registration might have a material adverse effect on any plan or proposal by
Revlon, Inc. with respect to any financing, acquisition, recapitalization,
reorganization or other material transaction, or if Revlon, Inc. is in
possession of material non-public information that, if publicly disclosed, could
result in a material disruption of a major corporate development or transaction
then pending or in progress or in other material adverse consequences to Revlon,
Inc. In addition, the Holders have the right to participate in registrations by
Revlon, Inc. of its Class A Common Stock (a "Piggyback Registration"). The
Holders will pay all out-of-pocket expenses incurred in connection with any
Demand Registration. Revlon, Inc. will pay any expenses incurred in connection
with a Piggyback Registration, except for underwriting discounts, commissions
and expenses attributable to the shares of the Company's Class A Common Stock
sold by such Holders.
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. 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 amounts reimbursed by Holdings to Products Corporation
with respect to the Edison facility for 2000, 1999 and 1998 were $0.2, $0.2 and
$0.5, respectively.
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
F-26
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 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% Notes are fair from a financial standpoint
to Products Corporation under the then existing 9 1/2% Senior Notes due 1999
Indenture.
During 2000, 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 2000, 1999 and 1998 was $0.9, $1.1 and $2.9, respectively.
Products Corporation's Credit Agreement is supported by, among other
things, guarantees from Revlon, Inc., Holdings and certain of Holdings'
subsidiaries. The obligations under such guarantees are secured by, among other
things, the capital stock of Products Corporation and the capital stock and
certain assets of certain subsidiaries of Holdings.
During 1998, the Company made advances of $0.25, $0.3 and $0.4 to Mr.
George Fellows, then President and CEO, Ms. Kathleen Dwyer, then Senior Vice
President and Mr. Jerry Levin, a director, respectively, which advances were
repaid in 1999.
During 2000 and 1999, the Company made advances of $0.1 and $0.4,
respectively, to Mr. Jeffrey Nugent, President and CEO, pursuant to his
employment agreement for relocation expenses, which advances bear interest at
the applicable federal rate.
During 2000, the Company made an advance of $0.8 to Mr. Douglas Greeff,
Executive Vice President and CFO, pursuant to his employment agreement, which
bears interest at the applicable federal rate.
During 1998, Products Corporation purchased products from a company
that was its affiliate during part of 1998, for which it paid approximately
$0.4.
During 1997, Products Corporation provided licensing services to a
company that was its affiliate during 1997 and part of 1998. 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 the Company during part of 1999, and
during 1998 assembled lipstick cases for Products Corporation. Products
Corporation paid approximately $0.1 and $1.1, for such services for 1999 and
1998, respectively.
During 2000 and 1999, Products Corporation made payments of $0.1, and $0.1,
respectively, to a fitness center, an interest in which is owned by members of
Mr. Donald Drapkin's immediate family, for discounted health club dues for an
executive health program of Products Corporation. Mr. Drapkin is a director of
the Company.
During 2000, Products Corporation made payments of $0.2 to Ms. Ellen Barkin
(spouse of Mr. Perelman) under an agreement pursuant to which she provided
voiceover services for certain of the Company's advertisements.
The law firm of which Mr. Vernon Jordan (a director) became Of Counsel
in January 2000 after serving as a Senior Partner for more than 5 years, Akin,
Gump, Strauss, Hauer & Feld, LLP, provided legal services to Revlon, Inc.
F-27
and its subsidiaries during 1999. An investment bank, of which Mr. Jordan became
a Managing Director in January 2000, Lazard Freres & Co. LLC, provided
investment banking services to the Company during 2000.
The law firm, of which Mr. Edward Landau (a director) is Of Counsel,
Wolf, Block, Schorr and Solis-Cohen LLP, provided legal services to the Company
during 2000, but did not provide any such services in 1998 or 1999.
15. 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 $33.0, $42.8 and $43.7 for
the years ended December 31, 2000, 1999 and 1998, 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,
2000 aggregated $85.8; such commitments for each of the five years subsequent to
December 31, 2000 are $25.2, $23.8, $11.7, $4.3 and $3.0, respectively. Such
amounts exclude the minimum rentals to be received by the Company in the future
under noncancelable subleases of $17.6.
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.
On April 17, 2000, the plaintiffs in the six purported class actions
filed in October and November 1999 by each of Thomas Comport, Boaz Spitz, Felix
Ezeir and Amy Hoffman, Ted Parris, Jerry Krim and Dan Gavish individually and
allegedly on behalf of others similarly situated to them against Revlon, Inc.,
certain of its present and former officers and directors and REV Holdings
alleging among other things, violations of Rule 10b-5 under the Securities
Exchange Act of 1934, filed an Amended Complaint, which consolidated all of the
actions and limited the alleged class period to the period from October 29, 1997
through October 1, 1998 ("In Re Revlon, Inc. Securities Litigation"). In June
2000, the Company moved to dismiss the Amended Complaint, which motion was
denied in substantial part in March 2001. The Company believes
the allegations contained in the Amended Complaint are without merit and intends
to vigorously defend against them.
A purported class action lawsuit was filed on September 27, 2000, in
the United States District Court for the Southern District of New York on behalf
of Dan Gavish, Tricia Fontan and Walter Fontan individually and allegedly on
behalf of all others similarly situated who purchased the securities of Revlon,
Inc., and REV Holdings between October 2, 1998, and September 30, 1999 (the
"Purported Class Period"). The complaint alleges that Revlon, Inc. and certain
of its present and former officers and directors and REV Holdings violated,
among other things, Rule 10b-5 under the Securities Exchange Act of 1934. On
October 17, 2000 the court ordered that this lawsuit be consolidated with the
pending In Re Revlon, Inc. Securities Litigation. On October 27, 2000 the
plaintiff moved for reconsideration of the October 17, 2000 consolidation order.
The Company believes the allegations contained in the complaint are without
merit and intends to vigorously defend against them.
F-28
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------------ ------------- ------------ -------------
Net sales................................... $ 468.0 $ 350.6 $ 351.9 $ 321.1
Gross profit................................ 299.5 226.3 227.2 185.6
Net loss.................................... (27.9)(a) (24.6)(a) (26.3)(a) (51.8)(a)
Basic loss per common share:
Net loss per common share............ $ (0.54) $ (0.48) $ (0.51) $ (1.01)
============ ============= ============ =============
Diluted loss per common share:
Net loss per common share............ $ (0.54) $ (0.48) $ (0.51) $ (1.01)
============ ============= ============ =============
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
Net loss.................................... (34.2)(b) (3.9)(b) (164.7)(b) (168.7)(b)
Basic loss per common share:
Net loss per common share............ $ (0.67) $ (0.08) $ (3.21) $ (3.29)
============ ============= ============ =============
Diluted loss per common share:
Net loss per common share............ $ (0.67) $ (0.08) $ (3.21) $ (3.29)
============ ============= ============ =============
(a) Includes restructuring costs of $9.5, $5.1, $13.7 and $25.8 in the
first, second, third and fourth quarters, respectively. (See Note 2).
(b) Includes restructuring costs of $8.2, $9.5, $4.4 and $18.1 in the
first, second, third and fourth quarters, respectively. (See Note 2).
Additionally the fourth quarter includes $22.0 of executive separation costs.
17. 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, 2000, the Company had operations established in 20 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 5.1%, 4.1% and 5.4% of the Company's net sales for
2000, 1999 and 1998, respectively. Net sales by geographic area are presented by
attributing revenues from external customers on the basis of where the products
are sold. During 2000, 1999 and 1998, Wal-Mart and its affiliates accounted for
approximately 16.5%, 13.1% and 10.1%, respectively, of the Company's
consolidated net sales. Although the loss of Wal-Mart as a customer would 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.
F-29
GEOGRAPHIC AREAS: YEAR ENDED DECEMBER 31,
--------------------------------------------------------
Net sales: 2000 1999 1998
--------------- --------------- --------------
United States............................. $ 877.1 $ 1,046.2 $ 1,343.7
International............................. 614.5 815.1 908.5
--------------- --------------- --------------
$ 1,491.6 $ 1,861.3 $ 2,252.2
=============== =============== ==============
DECEMBER 31,
------------------------------------
Long-lived assets: 2000 1999
--------------- ---------------
United States............................. $ 398.8 $ 611.3
International............................. 175.3 259.4
--------------- ---------------
$ 574.1 $ 870.7
=============== ===============
CLASSES OF SIMILAR PRODUCTS: YEAR ENDED DECEMBER 31,
--------------------------------------------------------
Net sales: 2000 1999 1998
--------------- --------------- --------------
Cosmetics, skin care and fragrances....... $ 935.3 $ 988.3 $ 1,293.7
Personal care and professional............ 556.3 873.0 958.5
--------------- --------------- --------------
$ 1,491.6 $ 1,861.3 $ 2,252.2
=============== =============== ==============
18. EFFECT OF NEW ACCOUNTING STANDARD
In May 2000, the FASB Emerging Issues Task Force (the "EITF") issued
new guidelines entitled, "Accounting for Certain Sales Incentives" (the
"Guidelines"), which address when sales incentives and discounts should be
recognized, as well as where the related revenues and expenses should be
classified in the financial statements. The Guidelines, as amended in November
2000, are effective for the second quarter ending June 30, 2001, and would be
applied retroactively for purposes of comparability. Therefore, beginning April
1, 2001, the Company is required to reclassify certain revenues and expenses
related to its promotional programs out of operating expenses and into sales and
cost of sales. The Company has quantified the reclassification for 2000, 1999
and 1998 as summarized below:
FOR THE YEAR ENDED
------------------------------------------------------------------------------------------
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- ---------------------------- ----------------------------
AS AS AS AS AS AS
REPORTED ADJUSTED REPORTED ADJUSTED REPORTED ADJUSTED
------------- ------------ ------------- ------------- ------------- -------------
Net sales...................... $ 1,491.6 $ 1,445.1 $ 1,861.3 $ 1,707.1 $ 2,252.2 $ 2,145.7
Cost of sales.................. 553.0 573.2 686.1 724.6 765.7 800.3
SG&A expenses.................. 869.5 802.8 1,347.6 1,155.0 1,328.8 1,187.6
Operating income (loss)........ 15.0 15.0 (212.6) (212.6) 124.6 124.6
19. 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.
F-30
20. 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 and
Products Corporation's 10 1/2% Senior Subordinated Notes due 2003. In connection
with the redemption, Products Corporation terminated certain interest rate swap
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.
21. SUBSEQUENT EVENTS
On March 29, 2001, a subsidiary of Products Corporation entered into an
agreement to sell the Aoyama Property for (Y)3.3 billion (approximately $28 as
of March 29, 2001), after fees and expenses. The agreement is subject to a
number of conditions. Subject to satisfaction of such conditions, Products
Corporation expects the sale to be consummated during the second quarter of
2001.
On March 16, 2001, Products Corporation entered into an agreement to
sell its Phoenix facility for $8.0 and lease it back for a certain period of
time. The agreement is subject to a number of conditions, including completion
of due diligence. Subject to satisfaction of such conditions, Products
Corporation expects the sale to be consummated during the second quarter of
2001.
If consummated, proceeds available to the Company from the
aforementioned transactions will be used for general corporate purposes,
including payments to fund the Company's restructuring plans.
F-31
SCHEDULE II
REVLON, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN MILLIONS)
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND OTHER AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
------------ ------------- ------------ -----------
YEAR ENDED DECEMBER 31, 2000:
Applied against asset accounts:
Allowance for doubtful accounts............. $ 14.6 $ (0.9) $ (6.1)(1) $ 7.6
Allowance for volume and early payment
discounts............................... $ 12.6 $ 34.2 $ (38.3)(2) $ 8.5
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
- -----------------------
Notes:
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign currency translation adjustments, including $3.9 related to
businesses sold.
(2) Discounts taken, reclassifications and foreign currency translation
adjustments, including $1.3 related to businesses sold.
F-32
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, Inc.
(Registrant)
By: /s/ Jeffrey M. Nugent By: /s/ Douglas H. Greeff By: /s/ Laurence Winoker
---------------------------------------- ---------------------------------------- ----------------------------------------
Jeffrey M. Nugent Douglas H. Greeff Laurence Winoker
President, Executive Vice Senior Vice President,
Chief Executive Officer President and Corporate Controller and
and Director Chief Financial Officer Treasurer
Dated: April 2, 2001
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 April 2,
2001 and in the capacities indicated.
Signature Title
* Chairman of the Board and Director
- -----------------------------------
(Ronald O. Perelman)
* Director
- -----------------------------------
(Howard Gittis)
/s/ Jeffrey M. Nugent President, Chief Executive Officer and Director
- -----------------------------------
(Jeffrey M. Nugent)
* Director
- -----------------------------------
(Donald G. Drapkin)
* Director
- -----------------------------------
(Meyer Feldberg)
* Director
- -----------------------------------
(Vernon E. Jordan)
* Director
- -----------------------------------
(Edward J. Landau)
* Director
- -----------------------------------
(Jerry W. Levin)
* Director
- -----------------------------------
(Linda Gosden Robinson)
* Director
- -----------------------------------
(Terry Semel)
* Director
- -----------------------------------
(Martha Stewart)
* 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