Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 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 333-23451
REV HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3933701
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 527-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OR 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT IS NOT APPLICABLE, AS THERE IS NO PUBLIC MARKET THEREFOR. ALL
SHARES OF COMMON STOCK ARE HELD BY AN AFFILIATE OF MAFCO HOLDINGS INC. THE
NUMBER OF OUTSTANDING SHARES OF THE REGISTRANT'S COMMON STOCK, AS OF MARCH 8,
2001, WAS 1,000.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Effective August 5, 1997, Revlon Worldwide Corporation ("Revlon Worldwide")
was merged with and into Revlon Worldwide (Parent) Corporation ("Revlon
Worldwide (Parent)") (the "Merger"), with Revlon Worldwide (Parent) surviving
the Merger and subsequently changing its name to REV Holdings Inc. (together
with its subsidiaries, "REV Holdings" or the "Company").
REV Holdings is a holding company formed in Delaware in February 1997 that
conducts its business exclusively through its indirect 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.
REV Holdings is an indirect wholly-owned subsidiary of Revlon Holdings Inc.
("Holdings") and an indirect wholly-owned subsidiary of MacAndrews & Forbes
Holdings Inc. ("MacAndrews Holdings"), a corporation wholly-owned through Mafco
Holdings Inc. ("Mafco Holdings" and, together with MacAndrews Holdings,
"MacAndrews & Forbes") by Ronald O. Perelman. As a result of the initial public
equity offering by Revlon, Inc. (the "Revlon IPO"), a subsidiary of the Company
and the direct parent of Products Corporation, MacAndrews & Forbes through REV
Holdings beneficially owns 11,250,000 shares of Revlon, Inc. Class A Common
Stock and all 31,250,000 shares of Revlon, Inc. Class B Common Stock
(representing approximately 83% of the outstanding shares of Revlon, Inc. common
stock, which together have approximately 97.3% of the combined voting power of
the outstanding shares of Revlon, Inc. common stock).
2
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 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.
On February 12, 2001, REV Holdings issued $80.5 million principal amount of
its 12% Senior Secured Notes due 2004 (the "New REV Holding Notes"), which were
issued in exchange for a like principal amount of REV Holdings' outstanding
Senior Secured Discount Notes due March 15, 2001 (the "Old REV Holdings Notes").
The New REV Holdings Notes bear interest at 12% per year, payable semi-annually,
and mature on February 1, 2004. On March 15, 2001, an affiliate contributed
$667.5 million principal amount of Old REV Holdings Notes to REV Holdings, which
were delivered to the trustee for cancellation and contributed $22.0 million in
cash to REV Holdings to retire the remaining Old REV Holdings Notes at maturity.
Upon cancellation, the indenture governing the Old REV Holdings Notes was
discharged.
3
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 Frost & Glow,
Wet/Dry, EveryLash, Jean Nate, Revlon
Timeliner 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 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.
4
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.
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
5
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.
6
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
7
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.
8
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.
9
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
LOCATION USE SPACE 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
10
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
All of the equity securities of REV Holdings are beneficially owned by
MacAndrews & Forbes, which is indirectly wholly owned by Ronald O. Perelman, and
there is no public market therefor. 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. The terms of New REV
Holdings Notes currently restrict the ability of REV Holdings to pay dividends
or make distributions. See the Consolidated Financial Statements of the Company
and the Notes thereto.
11
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)
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....... (210.6) (442.5) (93.5) (30.1) 101.2(f)
DECEMBER 31,
--------------------------------------------------------------------------
2000 (a) 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN MILLIONS)
BALANCE SHEET DATA:
Total assets ................................. $ 1,102.4 $ 1,562.8 $ 1,838.1 $ 2,099.6 $ 1,622.3
Long-term debt, including current portion..... 2,316.7 2,450.8 2,271.2 2,305.0 2,330.6
Total stockholder's deficiency ............... (1,863.3) (1,691.0) (1,253.0) (994.7) (1,461.7)
(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.
(f) Includes the gain on the sale of subsidiary stock of $187.8 million that was
recognized in connection with the Revlon IPO.
12
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.
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
13
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.
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.
14
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 $219.4 for 2000 compared with $215.4 for 1999. The
increase in interest expense for 2000 as compared with 1999 is primarily due to
higher interest expense attributable to the Old REV Holdings Notes and higher
interest rates under the Credit Agreement, partially offset by 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.
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).
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.
15
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.
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.
16
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 $215.4 for 1999 compared with $206.6 for 1998. The
increase in interest expense for 1999 as compared with 1998 is due to higher
average outstanding debt, higher interest rates under the Credit Agreement and
higher interest expense attributable to the Old REV Holdings Notes, 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 $246.4 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 provided by investing activities for 1998 includes proceeds from the sale
of marketable securities that were used to repay the remaining Revlon Worldwide
Senior Secured Discount Notes due 1998 (the "Revlon Worldwide Notes") upon their
maturity, proceeds from the sale of the wigs and hairpieces portion of the
Company's business in the United States and proceeds from the sale of certain
assets, partially offset by cash paid in connection with acquisitions of
businesses and capital expenditures. 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 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 $(178.3) 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
17
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 used for financing
activities for 1998 included the repayment of the remaining portion of the
Revlon Worldwide Notes, payment of fees and expenses related to 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"), 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, partially offset by the proceeds from
the issuance of the 9% Notes, the 8 5/8% Notes and the 8 1/8% Notes and cash
drawn under the Credit Agreement. During 1998, net cash used by discontinued
operations was $17.3.
On February 12, 2001, REV Holdings issued $80.5 in principal amount of its
New REV Holding Notes, which were issued in exchange for a like principal amount
of REV Holdings' outstanding Old REV Holdings Notes. The New REV Holdings Notes
bear interest at 12% per year, payable semi-annually, and mature on February 1,
2004. On March 15, 2001, an affiliate contributed $667.5 principal amount of Old
REV Holdings Notes to REV Holdings, which were delivered to the trustee for
cancellation and contributed $22.0 in cash to REV Holdings to retire the
remaining Old REV Holdings Notes at maturity. Upon cancellation, the indenture
governing the Old REV Holdings Notes was discharged.
The New REV Holdings Notes are secured by a pledge of 52 shares of Class A
Common Stock of Revlon, Inc. per $1,000 principal amount of New REV Holdings
Notes and all dividends, cash instruments and property and proceeds from time to
time received in respect of the foregoing shares (collectively, the "New
Collateral"). In addition, the indenture governing the New REV Holdings Notes
(the "New Indenture") contains covenants that, among other things, limit (i) the
issuance of additional debt and redeemable stock by REV Holdings, (ii) the
creation of additional liens on the New Collateral (other than the lien created
by the New Indenture), (iii) the payment of dividends on capital stock of REV
Holdings and the redemption of capital stock of REV Holdings or any of its
direct or indirect parents, (iv) the sale of assets and subsidiary stock
(including by way of consolidations, mergers and similar transactions), and (v)
transactions with affiliates. All of these limitations and prohibitions,
however, are subject to a number of qualifications, which are set forth in the
New Indenture.
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.
18
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, borrowings under the Credit Agreement and advances
under the Keepwell Agreement (as hereinafter defined). 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 New REV Holdings Notes contain certain
provisions that by their terms limit REV Holdings' 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, debt
service payments and interest under the New REV Holdings Notes.
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 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 tax sharing agreements,
REV Holdings and Revlon, Inc. may be required to make tax sharing payments to
Mafco Holdings Inc. ("Mafco Holdings") as if REV Holdings or Revlon, Inc., as
the case may be, 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. REV Holdings currently anticipates that, with respect to Revlon,
Inc. as a result of net operating tax losses and prohibitions under the Credit
Agreement, and with respect to REV Holdings as a result of the absence of
business operations or a source of income of its own, no cash federal tax
payments or cash payments in lieu of federal taxes pursuant to the tax sharing
agreements 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), borrowings under the Credit
Agreement and advances under the Keepwell Agreement will be sufficient to enable
the Company to meet its anticipated cash requirements during 2001 including debt
service of its subsidiaries 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), borrowings under the Credit Agreement and
advances under the Keepwell 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 from these sources, 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 subsidiary indebtedness, selling
additional assets or operations, selling its equity securities, seeking capital
contributions or additional loans from affiliates of the Company or selling
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's
subsidiaries to continue to satisfy their capital requirements or that they
would be permitted under the terms of the Company's and its subsidiaries'
various debt instruments then in effect. The Company, as a holding company, will
be dependent on distributions with respect to its approximately 83% ownership
interest in Revlon, Inc. from the earnings generated by Products Corporation and
advances under the Keepwell Agreement to pay its expenses and to pay the
principal amount at maturity of the New REV Holdings Notes. 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
19
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.
The Company currently anticipates that cash flow generated from operations
will be insufficient to pay interest when due and the principal amount at
maturity of the New REV Holdings Notes. The Company currently anticipates that
it will be required to adopt one or more alternatives to pay the principal
amount at maturity of the New REV Holdings Notes, such as refinancing its
indebtedness, selling its equity securities or the equity securities or assets
of Revlon, Inc. or seeking capital contributions or loans from its affiliates.
There can be no assurance that any of the foregoing actions could be effected on
satisfactory terms, that any of the foregoing actions would enable the Company
to pay the principal amount at maturity of the New REV Holdings Notes or that
any of such actions would be permitted by the terms of the New Indenture or any
other debt instruments of the Company and the Company's subsidiaries then in
effect. REV Holdings has entered into a Keepwell Agreement with GSB Investments
Corp., one of its affiliates, (the "Keepwell Agreement") pursuant to which GSB
Investments Corp. has agreed to provide REV Holdings with funds in an amount
equal to any interest payments due on the New REV Holdings Notes, to the extent
that REV Holdings does not have sufficient funds on hand to make such payments
on the applicable due dates. However, the Keepwell Agreement is not a guarantee
of the payment of interest on the New REV Holdings Notes. The obligations of GSB
Investments Corp. under the Keepwell Agreement are only enforceable by REV
Holdings, and may not be enforced by the holders of the New REV Holdings Notes
or the trustee under the New Indenture for the New REV Holdings Notes. The
failure of GSB Investments Corp. to make a payment to REV Holdings under the
Keepwell Agreement will not be an event of default under the New Indenture.
Further, the New Indenture has no requirement that REV Holdings maintain the
Keepwell Agreement. In addition, although REV Holdings has the right to enforce
the Keepwell Agreement, there can be no assurance that GSB Investments Corp.
will have sufficient funds to make any payments to REV Holdings under the
Keepwell Agreement or that it will comply with its obligations under the
Keepwell Agreement.
As of December 31, 2000, GSB Investments Corp. owned an aggregate of
42,949,525 shares, or approximately 32% of the common stock of Golden State
Bancorp. Inc. ("GSB"). At March 23, 2001, the last reported sale price of GSB
common stock on the New York Stock Exchange ("NYSE") was $26.85 per share. All
of these shares are currently pledged to secure obligations of GSB Investments
Corp. or affiliates of GSB Investments Corp. GSB Investments Corp. has received
three quarterly dividends of $0.10 per share, or an aggregate of $13.1, since
GSB commenced paying quarterly dividends in July 2000. If GSB were to continue
to pay quarterly dividends at this rate and GSB Investments Corp. were to
continue to own the same number of shares, GSB Investments Corp. would have
sufficient income from dividends paid on its GSB stock to make any payments to
REV Holdings that it might be required to make under the Keepwell Agreement.
However, GSB has only paid dividends at this rate since July 2000 and there can
be no assurance that GSB will continue to pay dividends at this rate, if at all,
or that GSB Investments Corp. will continue to own its shares of the common
stock of GSB. If either GSB Investments Corp. or affiliates of GSB Investments
Corp. were to fail to comply with their respective obligations that are secured
by the pledge of the GSB common stock, the beneficiary of such pledge could
enforce its rights with respect to such collateral and could deprive GSB
Investments Corp. of its rights to receive dividends on such pledged shares. If
GSB Investments Corp. does not receive sufficient dividend income from its GSB
stock, it will be required to seek alternative sources of funds in order to
satisfy its potential obligations under the Keepwell Agreement.
EURO CONVERSION
As part of the European Economic and Monetary Union, a single currency (the
"Euro") will replace the national currencies of the principal European countries
(other than the United Kingdom) in which the Company conducts business and
manufacturing. The conversion rates between the Euro and the participating
nations' currencies were fixed as of January 1, 1999, with the participating
national currencies to be removed from circulation between January 1, 2002 and
June 30, 2002 and replaced by Euro notes and coinage. During the transition
period from January 1, 1999 through December 31, 2001, public and private
entities as well as individuals may pay for goods and services using checks,
drafts, or wire transfers denominated either in the Euro or the participating
country's national currency. Under the regulations governing the transition to a
single currency, there is a "no compulsion, no prohibition" rule, which states
that no one can be prevented from using the Euro after January 1, 2002 and no
one is obliged to use the Euro before July 2002. In keeping with this rule, the
Company expects to either continue using the national currencies or the Euro for
invoicing or payments. Based upon the information currently available, the
Company does not expect that the transition to the Euro will have a material
adverse effect on the business or consolidated financial condition of the
Company.
20
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 or
advances under the Keepwell Agreement and the sale of additional assets or
operations of the Company or additional shares of Revlon, Inc. or the sale of
equity securities of REV Holdings. Statements that are not historical facts,
including statements about the Company's beliefs and expectations, are
forward-looking statements. Forward-looking statements can be identified by,
among other things, the use of forward-looking language, such as "believes,"
21
"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
advances under the Keepwell Agreement or sell additional assets or operations of
the Company or additional shares of Revlon, Inc. or equity securities of REV
Holdings; (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. 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.
On February 12, 2001, REV Holdings issued $80.5 in principal amount of the
New REV Holdings Notes, which were issued in exchange for a like principal
amount of the Old REV Holdings Notes. (See Note 9 to the Consolidated Financial
Statements).
22
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.
FAIR
EXPECTED MATURITY DATE FOR YEAR ENDED DECEMBER 31, VALUE
------------------------------------------------------------------------- DEC. 31,
2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000
---- ---- ---- ---- ---- ---------- ----- ----
DEBT (US dollar equivalent in millions)
Short-term variable rate (various currencies) .. $30.7 $30.7 $30.7
Average interest rate (a) .................... 7.4%
Short-term fixed rate ($US) .................... 753.6 753.6 382.5
Average interest rate ........................ 10.8%
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 ..................................... $ 2,323.3 $ 1,558.6
========= =========
(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.
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the Directors
and executive officers of the Company. Each Director holds office until his
successor is duly elected and qualified or until his resignation or removal, if
earlier.
NAME POSITION
- ---- --------
Ronald O. Perelman Chairman of the Board, Chief Executive Officer and
Director
Howard Gittis Vice Chairman of the Board and Director
Todd J. Slotkin Executive Vice President, Chief Financial Officer
and Chief Accounting Officer
Barry F. Schwartz Executive Vice President and General Counsel
The name, age (as of March 30, 2001), principal occupation for the last
five years, selected biographical information and period of service as a
director of the Company of each of the nominees for election as a director are
set forth below.
Mr. Perelman (58) has been Chairman of the Board of Directors and a
Director of the Company since its formation in February 1997 and Chief Executive
Officer of the Company since March 1997. Mr. Perelman was Chairman of the Board
and a Director of Revlon Worldwide from its formation in 1993 and Chief
Executive Officer of Revlon Worldwide from March 1997 until August 1997 when
Revlon Worldwide was merged into the Company. Mr. Perelman has been Chairman of
the Board of Directors of Revlon, Inc. and of Products Corporation since June
1998, Chairman of the Executive Committees of the Boards of Revlon, Inc. and of
Products Corporation since November 1995, and a Director of Revlon, Inc. and of
Products Corporation since their respective formations in 1992. Mr. Perelman was
Chairman of the Board of Revlon, Inc. and of Products Corporation from their
respective formations in 1992 until November 1995. Mr. Perelman has been
Chairman of the Board and Chief Executive Officer of MacAndrews & Forbes and
various of its affiliates since 1980. Mr. Perelman is also Chairman of the
Executive Committee of the Board of Directors of M&F Worldwide Corp. ("M&F
Worldwide") and Chairman of the Board of Directors of Panavision Inc.
("Panavision"). Mr. Perelman is also a Director of the following corporations
which file reports pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"): Golden State Bancorp Inc. ("Golden State"), Golden State
Holdings Inc. ("Golden State Holdings"), M&F Worldwide, and Panavision.
Mr. Gittis (67) has been a Director of the Company since its formation in
February 1997 and Vice Chairman of the Board of the Company since March 1997.
Mr. Gittis was a Director of Revlon Worldwide from its formation in 1993 and
Vice Chairman of the Board of Revlon Worldwide from March 1997 until August 1997
when Revlon Worldwide was merged into the Company. Mr. Gittis has been a
Director of Revlon, Inc. and of Products Corporation since their respective
formations in 1992. He has been Vice Chairman of the Board of MacAndrews &
Forbes and various of its affiliates since 1985. Mr. Gittis is also a Director
of the following corporations which file reports pursuant to the Exchange Act:
Golden State, Golden State Holdings, Jones Apparel Group, Inc., Loral Space &
Communications Ltd., M&F Worldwide, Panavision, and Sunbeam Corporation.
Mr. Slotkin (48) has been Executive Vice President and Chief Financial
Officer of the Company since March 1999 and has been Chief Accounting Officer
since March 2000. He has been Executive Vice President and Chief Financial
Officer of MacAndrews & Forbes and various of its affiliates since 1999 and was
Senior Vice President from 1992 to 1999. Mr. Slotkin served as an officer of
Citicorp for approximately 17 years prior to joining MacAndrews & Forbes, most
recently as a Senior Managing Director. He is a Director of California Federal
Bank, A Federal Savings Bank, which files reports pursuant to the Exchange Act.
24
Mr. Schwartz (51) has been Executive Vice President and General Counsel of
the Company since March 1997. He was Executive Vice President and General
Counsel of Revlon Worldwide from March 1997 until August 1997 when Revlon
Worldwide was merged into the Company. He has been Executive Vice President and
General Counsel of MacAndrews & Forbes and various of its affiliates since 1993.
Mr. Schwartz was Senior Vice President of MacAndrews & Forbes and various of its
affiliates from 1989 to 1993.
EXECUTIVE OFFICERS OF REVLON, INC. AND PRODUCTS CORPORATION
The Company engages in its business through Revlon, Inc., Products
Corporation and Products Corporation's subsidiaries. The following table sets
forth certain information (ages as of March 30, 2001) concerning the executive
officers of Revlon, Inc. and Products Corporation who do not also serve as
executive officers of the Company.
NAME POSITION
- ---- --------
Jeffrey M. Nugent President, Chief Executive Officer and Director
Douglas H. Greeff Executive Vice President and Chief Financial Officer
Mr. Nugent (54) has been President and Chief Executive Officer of Revlon,
Inc. and of Products Corporation since December 5, 1999. He has been a Director
of Revlon, Inc. and of Products Corporation since February 14, 2000. He had been
Worldwide President and Chief Executive Officer of Neutrogena Corporation from
January 1995 until December 5, 1999. Prior to that, Mr. Nugent held various
senior executive positions at Johnson & Johnson.
Mr. Greeff (45) was elected Executive Vice President and Chief Financial
Officer of Revlon, Inc. and of Products Corporation in May 2000. From September
1998 to May 2000 he was Managing Director, Fixed Income Global Loans, and
Co-head of Leverage Finance at Salomon Smith Barney Inc. From January 1994 until
August 1998 Mr. Greeff was Managing Director, Global Loans and Head of Leverage
and Acquisition Finance at Citibank N.A.
25
ITEM 11. EXECUTIVE COMPENSATION
The Company conducts its business through Revlon, Inc., Products
Corporation and Products Corporation's subsidiaries. For 2000, the Company's
executive officers did not receive compensation from the Company. The following
table sets forth information for the years indicated concerning the compensation
awarded to, earned by or paid to the persons who served as Chief Executive
Officer of Revlon, Inc. during 2000 and the four most highly paid executive
officers (see footnote (a) below), other than the Chief Executive Officer, who
served as executive officers of Revlon, Inc. during 2000 (collectively, the
"Named Executive Officers"), for services rendered in all capacities to Revlon,
Inc. and Products Corporation and its subsidiaries during such periods.
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (a) AWARDS
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
POSTION YEAR ($) ($) ($) OPTIONS ($)
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Jeffrey M. Nugent 2000 1,000,000 500,000 430,948 100,000 489,454
President and Chief Executive 1999 160,256 0 36,382 300,000 38,743
Officer (b)
- ------------------------------------------------------------------------------------------------------------------------
Douglas H. Greeff 2000 422,500 450,000 7,868 100,000 0
Executive Vice President and
Chief Financial Officer (c)
- ------------------------------------------------------------------------------------------------------------------------
Frank J. Gehrmann 2000 250,000 187,500 0 50,000 464,231
Former Executive Vice 1999 494,038 370,500 3,089 65,000 14,244
President and Chief Financial 1998 427,500 370,500 3,343 30,000 17,297
Officer (d)
- ------------------------------------------------------------------------------------------------------------------------
Wade H. Nichols III 2000 487,500 0 6,612 50,000 275,467
Former Executive Vice 1999 593,558 207,450 17,964 40,000 37,802
President and Chief 1998 555,000 216,450 19,457 40,000 33,195
Administrative Officer (e)
- ------------------------------------------------------------------------------------------------------------------------
(a) The amounts shown in Annual Compensation for 2000, 1999 and 1998 reflect
salary, bonus and other annual compensation (including perquisites and other
personal benefits valued in excess of $50,000) and amounts reimbursed for
payment of taxes awarded to, earned by or paid to the persons listed for
services rendered to Revlon, Inc. and Products Corporation and its subsidiaries.
For the periods reported, Products Corporation had a bonus plan (the "Executive
Bonus Plan") in which executives participate (including Mr. Nugent and Mr.
Greeff (see "Employment Agreements and Termination of Employment Arrangements").
The Executive Bonus Plan provided for payment of cash compensation upon the
achievement of predetermined business and personal performance objectives during
the calendar year which are established by the Revlon, Inc.'s Compensation and
Stock Plan Committee (the "Compensation Committee"). Excluding Messrs. Gehrmann
and Nichols, each of whose employment ceased during 2000 and prior to December
31, 2000, Revlon, Inc. or Products Corporation did not have any "executive
officers" during 2000 other than Messrs. Nugent and Greeff. Accordingly, for
2000 Revlon, Inc. and Products Corporation are reporting the compensation of
Messrs. Nugent and Greeff. Mr. Nugent's compensation is reported for 2000 and
1999 only because he did not serve as an executive officer of Revlon, Inc. or
Products Corporation prior to 1999. Mr. Greeff's compensation is reported for
2000 only because he did not serve as an executive officer of Revlon, Inc. or
Products Corporation prior to 2000.
26
(b) Mr. Nugent served as President and Chief Executive Officer of Revlon, Inc.
and Products Corporation during 1999 and 2000. Mr. Nugent received a bonus of
$500,000 in respect of 2000 pursuant to the terms of his employment agreement.
The amount shown for Mr. Nugent under Other Annual Compensation for 2000
includes $430,948 in respect of gross ups for taxes on imputed income arising
out of (i) personal use of a company-provided automobile, (ii) premiums paid or
reimbursed in respect of life insurance, (iii) reimbursements for mortgage
principal and interest payments pursuant to Mr. Nugent's employment agreement
and (iv) relocation expenses paid or reimbursed in 2000. The amount shown under
All Other Compensation for 2000 reflects (i) $17,369 in life insurance premiums,
(ii) $365,880 in company-paid relocation expenses and (iii) $106,205 of
additional compensation in respect of interest and principal payments on a bank
loan obtained by Mr. Nugent to purchase a principal residence in the New York
metropolitan area pursuant to his employment agreement (See "Employment
Agreements and Termination of Employment Arrangements"). The amount shown for
Mr. Nugent under Salary for 1999 is comprised of $76,923 in salary and $83,333
earned by Mr. Nugent for consulting services provided by Mr. Nugent to Revlon,
Inc. and Products Corporation. Mr. Nugent did not receive a bonus for 1999. The
amount shown for Mr. Nugent under Other Annual Compensation for 1999 includes a
payment of $36,382 in respect of gross ups for taxes on imputed income arising
out of relocation expenses paid or reimbursed in 1999. The amount shown under
All Other Compensation for 1999 reflects $38,743 in company-paid relocation
expenses.
(c) Mr. Greeff became Executive Vice President and Chief Financial Officer of
Revlon, Inc. and Products Corporation in May 2000. Mr. Greeff received a bonus
of $450,000 in respect of 2000 pursuant to the terms of his employment
agreement. The amount shown for Mr. Greeff under Other Annual Compensation for
2000 includes $7,868 in respect of gross ups for taxes on imputed income arising
out of personal use of a company-provided automobile.
(d) Mr. Gehrmann served as Executive Vice President and Chief Financial Officer
during 2000 and resigned effective June 30, 2000. The amount shown for Mr.
Gehrmann under Bonus for 2000 is comprised of bonus payments of $187,500, which,
pursuant to his employment agreement (See "Employment Agreements and Termination
of Employment Agreements"), is the pro rated portion of his 2000 bonus through
his separation date of June 30, 2000. The amount shown under All Other
Compensation for 2000 reflects (i) $5,100 in respect of matching contributions
under the Revlon Employees' Savings, Profit Sharing and Investment Plan (the
"401(k) Plan"), (ii) $2,400 in respect of matching contributions under the
Revlon Excess Savings Plan for Key Employees (the "Excess Plan"), and (iii)
$456,731 payable pursuant to his employment agreement. The amount shown for Mr.
Gehrmann under Bonus for 1999 reflects the bonus amount payable to Mr. Gehrmann
pursuant to his employment agreement. The amount shown for Mr. Gehrmann under
Other Annual Compensation for 1999 includes $3,089 in respect of gross ups for
taxes on imputed income arising out of personal use of a company-provided
automobile. The amount shown under All Other Compensation for 1999 reflects (i)
$4,800 in respect of matching contributions under the 401(k) Plan and (ii)
$9,444 in respect of matching contributions under the Excess Plan. The amounts
shown for Mr. Gehrmann under Other Annual Compensation for 1998 includes $3,343
in respect of gross ups for taxes on imputed income arising out of personal use
of a company-provided automobile. The amount shown under All Other Compensation
for 1998 reflects (i) $4,800 in respect of matching contributions under the
401(k) Plan and (ii) $12,497 in respect of matching contributions under the
Excess Plan.
(e) Mr. Nichols served as Executive Vice President and Chief Administrative
Officer of Revlon, Inc. and Products Corporation during 2000 and retired
effective September 30, 2000. The amounts shown under Other Annual Compensation
for 2000 includes $6,612 in respect of payments in respect of gross ups for
taxes on imputed income
27
arising out of premiums paid or reimbursed in respect of life insurance. The
amount shown for Mr. Nichols under All Other Compensation for 2000 reflects (i)
$9,562 in respect of life insurance premiums, (ii) $5,100 in respect of matching
contributions under the 401(k) Plan, (iii) $8,158 in respect of matching
contributions under the Excess Plan, (iv) $6,495 in respect of above market
earnings on compensation deferred under the Revlon Executive Deferred
Compensation Plan (the "Deferred Compensation Plan") for each year in which
compensation was deferred that were earned but not paid or payable during 2000,
and (v) $246,152 payable pursuant to his retirement agreement (See "Employment
Agreements and Termination of Employment Agreements"). The amount shown for Mr.
Nichols under Bonus for 1999 reflects the amount payable to Mr. Nichols under
the Executive Bonus Plan, taking into account the guarantee by the Company of a
minimum of 50% of targeted awards for 1999. The amount shown under Other Annual
Compensation for 1999 includes $17,964 in respect of gross ups for taxes on
imputed income arising out of personal use of a company-provided automobile and
for taxes on imputed income arising out of premiums paid or reimbursed in
respect of life insurance. The amount shown for Mr. Nichols under All Other
Compensation for 1999 reflects (i) $9,377 in respect of life insurance premiums,
(ii) $4,800 in respect of matching contributions under the 401(k) Plan, (iii)
$11,781 in respect of matching contributions under the Excess Plan, and (iv)
$11,844 in respect of above market earnings on compensation deferred under the
Deferred Compensation Plan for each year in which compensation was deferred that
was earned but not paid or payable during 1999. The amounts shown under Other
Annual Compensation for 1998 includes $19,457 in respect of company-paid tax
preparation expenses and payments in respect of gross ups for taxes on imputed
income arising out of personal use of a company-provided automobile and for
taxes on imputed income arising out of premiums paid or reimbursed in respect of
life insurance. The amount shown for Mr. Nichols under All Other Compensation
for 1998 reflects (i) $9,990 in respect of life insurance premiums, (ii) $4,800
in respect of matching contributions under the 401(k) Plan, (iii) $10,463 in
respect of matching contributions under the Excess Plan, and (iv) $7,942 in
respect of above market earnings on compensation deferred under the Deferred
Compensation Plan for each year in which compensation was deferred that was
earned but not paid or payable during 1998.
OPTION GRANTS IN THE LAST FISCAL YEAR
During 2000, the following grants of stock options were made pursuant to
the Revlon, Inc. Third Amended and Restated 1996 Stock Plan (the "Amended Stock
Plan") to the executive officers named in the Summary Compensation Table:
- ----------------------------------------------------------------------------------------------------------------
GRANT
DATE
INDIVIDUAL GRANTS VALUE (a)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS EXERCISE GRANT
SECURITIES UNDERLYING GRANTED TO OR BASE DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE VALUE ($)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Jeffrey M. Nugent 100,000 6% 4.00 12/5/10 249,540
- ----------------------------------------------------------------------------------------------------------------
Douglas H. Greeff 100,000 6% 7.0625 5/22/10 441,288
- ----------------------------------------------------------------------------------------------------------------
Frank J. Gehrmann 50,000 3% 7.0625 5/22/05 220,644
- ----------------------------------------------------------------------------------------------------------------
Wade H. Nichols III 50,000 3% 7.0625 5/22/05 220,644
- ----------------------------------------------------------------------------------------------------------------
The grants made during 2000 under the Amended Stock Plan to Mr. Nugent were
awarded on December 5, 2000 pursuant to his employment agreement, consist of
non-qualified options having a term of 10 years, vest 25% on each anniversary of
the grant date and will become 100% vested on the fourth anniversary of the
grant date, and have an exercise price equal to the closing price per share on
the NYSE of Revlon, Inc.'s Class A Common Stock on the grant date, as indicated
in the table above. The options granted to Mr. Greeff in 2000 under the Amended
Stock Plan were made on May 22, 2000, consist of non-qualified options having a
term of 10 years, vest 25% on each anniversary of the grant date and will become
100% vested on the fourth anniversary of the grant date (provided, however, an
additional 25% of such options would vest on each subsequent anniversary date of
the grant if Revlon, Inc. achieved certain performance objectives relating to
Revlon, Inc.'s operating income for the fiscal year preceding such anniversary
date, which objectives were not achieved in 2000, so the 25% accelerated vesting
will not occur on May 22, 2001 anniversary of the 2000 option grant (the
"Performance-Based Accelerated Vesting") and have an exercise price equal to the
closing price per share on the NYSE of Revlon, Inc.'s Class A Common Stock on
the grant date, as indicated in the table above. The options granted to Mr.
Gehrmann in 2000 consist of non-qualified options that, pursuant to the terms of
his employment agreement will continue to vest and remain exercisable until one
year after they are fully vested and such options were granted under the
Performance-Based Accelerated Vesting. (See "Employment Agreements and
Termination of Employment Agreements"). The options granted to Mr. Nichols in
2000 consist of non-qualified options that, pursuant to the terms of his
retirement agreement will continue to vest and remain exercisable until one year
after they are fully vested and such options were granted under the
Performance-Based Accelerated Vesting. (See "Employment Agreements and
Termination of Employment Agreements"). During 2000, Revlon, Inc. also granted
an
28
option to purchase 300,000 shares of Revlon, Inc.'s Class A Common Stock
pursuant to the Amended Stock Plan to Mr. Perelman, the Chairman of the Board of
Directors, Chief Executive Officer and a Director of the Company. The option
will vest in full on the fifth anniversary of the grant date and has an exercise
price of $8.8125, the closing price per share on the NYSE of Revlon, Inc.'s
Class A Common Stock on March 30, 2000, the date of the grant.
(a) Grant Date Present Values were calculated using the Black-Scholes option
pricing model. The model as applied used the grant dates of May, 22, 2000 with
respect to the options granted on such date and used the grant date of December
5, 2000 with respect to the option granted to Mr. Nugent on such date. Stock
option models require a prediction about the future movement of stock price. The
following assumptions were made for purposes of calculating Grant Date Present
Values: (i) a risk-free rate of return of 6.69% with respect to the options
granted on May 22, 2000, and 5.45% with respect to the option granted to Mr.
Nugent on December 5, 2000, which were the rates as of the applicable grant
dates for the U.S. Treasury Zero Coupon Bond issues with a remaining term
similar to the expected term of the options; (ii) stock price volatility of 69%
based upon the volatility of Revlon, Inc.'s Class A Common Stock price; (iii) a
constant dividend rate of zero percent and (iv) that the options normally would
be exercised on the final day of their seventh year after grant. No adjustments
to the theoretical value were made to reflect the waiting period, if any, prior
to vesting of the stock options or the transferability (or restrictions related
thereto) of the stock options. The real value of the options in the table
depends upon the actual performance of Revlon, Inc. Class A Common Stock during
the applicable period and upon when they are exercised.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following chart shows the number of stock options exercised during 2000
and the 2000 year-end value of the stock options held by the executive officers
named in the Summary Compensation Table:
- ---------------------------------------------------------------------------------------------------------------
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS
SHARES OPTIONS AT FISCAL AT FISCAL YEAR-END
ACQUIRED VALUE YEAR-END (#) EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE (a)($)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Jeffrey M. 0 0 0/400,000 0/0
Nugent
- ---------------------------------------------------------------------------------------------------------------
Douglas H. 0 0 0/100,000 0/0
Greeff
- ---------------------------------------------------------------------------------------------------------------
Frank J. 0 0 50,250/116,750 0/0
Gehrmann
- ---------------------------------------------------------------------------------------------------------------
Wade H. 0 0 112,500/77,500 0/0
Nichols III
- ---------------------------------------------------------------------------------------------------------------
(a) The market value of the underlying shares of Revlon, Inc.'s Class A Common
Stock at year end, calculated using $4.96, the December 29, 2000 closing price
per share on the NYSE of Revlon, Inc.'s Class A Common Stock, was less than the
exercise price of all stock options listed in the table. The actual value, if
any, an executive may realize upon exercise of a stock option depends upon the
amount by which the market price of shares of Revlon, Inc.'s Class A Common
Stock exceeds the exercise price per share when the stock options are exercised.
29
LONG-TERM INCENTIVE PLANS - AWARDS
IN LAST FISCAL YEAR
The following table sets forth the award made in 2000 under Revlon, Inc.'s
Senior Executive Long-Term Incentive Plan ("SELTIP") which was established in
2000. The SELTIP provides for a cash payment at the end of a three-year period,
based on Revlon, Inc.'s achievement of pre-established performance targets. For
the three-year period ending December 31, 2002 the actual dollar amount of the
payout will be based on Revlon, Inc.'s cumulative consolidated net sales and
cumulative operating income. Target payouts will be made if both objectives are
achieved.
- --------------------------------------------------------------------------------------------------------------
NAME(a) PERFORMANCE OR OTHER PERIOD UNTIL ESTIMATED FUTURE PAYOUTS UNDER
MATURATION OR PAYOUT NON-STOCK PRICE-BASED PLANS
- --------------------------------------------------------------------------------------------------------------
Douglas H. Greeff Three-Year Fiscal Period (2000-2002) $0(b)
Ending 12/31/02
- --------------------------------------------------------------------------------------------------------------
(a) Jeffrey Nugent did not participate in the SELTIP for 2000, and Mr.
Gehrmann's and Mr. Nichols' eligibility to participate in the SELTIP ceased when
they ceased employment.
(b) Revlon, Inc. currently estimates that there will not be any payouts under
the SELTIP for the three-year period ending December 31, 2002.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Each of Messrs. Nugent and Greeff has a current executive employment
agreement with Products Corporation. Mr. Nugent's employment agreement provides
that he will serve as President and Chief Executive Officer of Products
Corporation at a base salary of not less than $1,000,000 for 2000, not less than
$1,150,000 for 2001 and not less than $1,300,000 for 2002, and that management
will recommend to the Compensation Committee that he be granted options to
purchase 100,000 shares of Revlon, Inc.'s Class A Common Stock on each of
December 5, 2000 (which grant was made) and 2001. At any time on or after
December 31, 2002, Products Corporation may terminate the term of Mr. Nugent's
agreement by 24 months' prior notice of non-renewal. During any such period,
after notice of non-renewal Mr. Nugent would be deemed an employee at will and
would be eligible for severance under the Executive Severance Policy (see
"--Executive Severance Policy").
Mr. Greeff entered into an employment agreement with Products Corporation
dated as of May 9, 2000, which provides that he will serve as Chief Financial
Officer of Products Corporation at a base salary of not less than $650,000 per
annum and that management will recommend to the Compensation Committee that he
be granted options to purchase 100,000 shares of Revlon, Inc.'s Class A Common
Stock on May 9, 2000 (which grant was actually made on May 22, 2000) and 50,000
shares of Revlon, Inc.'s Class A Common Stock on each of February 15, 2001 and
2002. At any time after May 8, 2003, Products Corporation may terminate Mr.
Greeff's employment by 24 months' prior notice of non-renewal. During any such
period, after notice of non-renewal, Mr. Greeff would be deemed an employee at
will and would be eligible for severance under the Executive Severance Policy
(see "--Executive Severance Policy").
Each of Messrs. Nugent's and Greeff's employment agreements provides for
participation in the Executive Bonus Plan. Mr. Nugent's agreement also provides
that he will receive not less than $500,000 as a bonus in respect of 2000. Mr.
Greeff's employment agreement provides that he will receive not less than
$450,000 as a bonus in respect of 2000. Each of Messrs. Nugent's and Greeff's
employment agreements provides for participation in other executive benefit
plans on a basis equivalent to other senior executives of Products Corporation
generally. The employment agreements of Mr. Nugent and Mr. Greeff provide for
company-paid supplemental term life insurance during employment in the amount of
three times and two times base salary, respectively, and for company-paid
supplemental disability insurance. Each of the employment agreements currently
in effect provides for protection of company confidential information and
includes a non-compete obligation. Mr. Greeff's employment agreement provides
for his participation in the Senior Executive Long-Term Incentive Plan (the
"SELTIP"), with a target payout of $500,000 at the end of the fiscal year ending
December 31, 2002, subject to the terms of the SELTIP (See "Long-Term Incentive
Plans - Awards In Last Fiscal Year").
30
Mr. Nugent's employment agreement provides that in the event of termination
of the term of such agreement by Mr. Nugent for breach by Products Corporation
of a material provision of such agreement or failure of the Compensation
Committee to adopt and implement the recommendations of management with respect
to stock option grants, or by Products Corporation prior to December 31, 2002
(otherwise than for "cause" as defined in Mr. Nugent's employment agreement or
disability), Mr. Nugent would be entitled, at his election, to severance
pursuant to the Executive Severance Policy (see "--Executive Severance Policy")
(other than the six-month limit on lump sum payments provided for in the
Executive Severance Policy, which six-month limit provision would not apply to
Mr. Nugent) or continued payments of base salary through December 31, 2004 and
continued participation in the company's life insurance plan, which life
insurance coverage is subject to a limit of two years, and medical plans subject
to the terms of such plans through December 31, 2004 or until Mr. Nugent were
covered by like plans of another company, continued company-paid supplemental
term life insurance and continued company-paid supplemental disability
insurance. Any such payments to Mr. Nugent (other than any lump sum payment to
which he may be entitled under the Executive Severance Policy) would be reduced
by any compensation earned by Mr. Nugent from other employment or consultancy
during such period. In addition, the employment agreement with Mr. Nugent
provides that if he remains employed by Products Corporation or its affiliates
until age 62, then upon any subsequent retirement he will be entitled to a
supplemental pension benefit in a sufficient amount so that his annual pension
benefit from all qualified and non-qualified pension plans of Products
Corporation and its affiliates (expressed as a straight life annuity) equals
$500,000. If Mr. Nugent's employment were to terminate on or after September 30,
2000 and prior to September 30, 2001 then he would receive 11.1% of the amount
otherwise payable pursuant to his employment agreement and thereafter an
additional 11.1% would accrue as of each September 30th on which Mr. Nugent is
still employed (but in no event more than would have been payable to Mr. Nugent
under the foregoing provision had he retired at age 62). Mr. Nugent would not
receive any supplemental pension benefit and would be required to reimburse
Products Corporation for any supplemental pension benefits received if he were
to terminate his employment prior to January 1, 2003 other than for "good
reason" (as defined in his employment agreement), or if he were to breach the
agreement or be terminated for "cause" (as defined in his employment agreement).
Mr. Greeff's employment agreement provides that in the event of termination
of the term of such agreement by Mr. Greeff for breach by Products Corporation
of a material provision of such agreement or failure of the Compensation
Committee to adopt and implement the recommendations of management with respect
to stock option grants, or by Products Corporation prior to May 8, 2003
(otherwise than for "cause" as defined in his employment agreement or
disability), Mr. Greeff would be entitled, at his election, to severance
pursuant to the Executive Severance Policy (see "--Executive Severance Policy")
(other than the six-month limit on lump sum payments provided for in the
Executive Severance Policy, which six-month limit provision would not apply to
Mr. Greeff) or continued payments of base salary through May 8, 2005 and
continued participation in the company's life insurance plan, which life
insurance coverage is subject to a limit of two years, and medical plans subject
to the terms of such plans through May 8, 2005 or until Mr. Greeff were covered
by like plans of another company, continued company-paid supplemental term life
insurance and continued company-paid supplemental disability insurance. Any such
payments to Mr. Greeff (other than any lump sum payment to which he may be
entitled under the Executive Severance Policy) would be reduced by any
compensation earned by Mr. Greeff from other employment or consultancy during
such period. In addition, the employment agreement with Mr. Greeff provides that
if he remains employed by Products Corporation or its affiliates until age 62,
then upon any subsequent retirement he will be entitled to a supplemental
pension benefit in a sufficient amount so that his annual pension benefit from
all qualified and non-qualified pension plans of Products Corporation and its
affiliates (expressed as a straight life annuity) equals $400,000. If Mr.
Greeff's employment were to terminate prior to January 31, 2001 then he would
receive no supplemental pension benefit. If his employment were to terminate on
or after January 31, 2001 and prior to January 31, 2002 then he would receive
9.09% of the amount otherwise payable pursuant to his employment agreement and
thereafter an additional 9.09% would accrue as of each January 31st on which Mr.
Greeff is still employed (but in no event more than would have been payable to
Mr. Greeff under the foregoing provision had he retired at age 62). Mr. Greeff
would not receive any supplemental pension benefit and would be required to
reimburse Products Corporation for any supplemental pension benefits received if
he were to terminate his employment prior to May 8, 2003 other than for "good
reason" (as defined in his employment agreement), or if he were to breach such
agreement or be terminated for "cause" (as defined in his employment agreement).
The employment agreements in effect for Messrs. Nugent and Greeff provide for
continuation of life insurance and executive medical insurance coverage in the
event of permanent disability.
31
Mr. Nichols retired from his employment with Products Corporation effective
October 1, 2000 and entered into a retirement agreement with Products
Corporation dated as of September 15, 2000, which provides that he is to receive
a retirement allowance payable in equal bi-weekly installments of $33,333
commencing October 1, 2000 and expiring February 28, 2003, which allowance would
not be reduced on account of any compensation earned from other employment or
consulting services by Mr. Nichols during such period. Pursuant to his
retirement agreement, commencing January 1, 2005, Products Corporation shall pay
Mr. Nichols a monthly straight life annuity pension at a specified rate, to be
reduced by any benefit to which Mr. Nichols is eligible under any defined
benefit plan currently or previously maintained by Products Corporation or any
of its affiliates.
By mutual agreement, the term of Mr. Gehrmann's employment agreement with
Products Corporation, as amended on March 23, 2000 and May 9, 2000, ended on
June 30, 2000. Mr. Gehrmann's amended employment agreement provides that he is
to receive continued base salary and bonus payments for a period of 36 months
commencing on June 30, 2000 at the aggregate annual rate of $875,000, which
payments would not be reduced by compensation earned for other employment or
consulting services by Mr. Gehrmann during the severance period. Pursuant to his
amended employment agreement, Products Corporation recommended to the
Compensation Committee that he be granted options to purchase 50,000 shares of
Revlon, Inc.'s Class A Common Stock in 2000, which options were granted to Mr.
Gehrmann in May 2000.
Mr. Nugent's employment agreement provides that he is entitled to a loan
from Products Corporation of up to $500,000 for relocation expenses (which he
received), which will be due and payable with interest at the applicable federal
rate upon the earlier of the termination of his employment or five years from
the initial loan. In addition, during the term of his employment agreement, Mr.
Nugent will receive additional compensation payable on a monthly basis equal to
the amount actually paid by him in respect of interest and principal on a bank
loan (the "Mortgage") of up to $1,500,000 obtained by Mr. Nugent to purchase a
principal residence in the New York metropolitan area (the "Home Loan
Payments"), plus a gross up for any taxes payable by Mr. Nugent as a result of
such additional compensation. If Mr. Nugent terminates his employment for other
than "good reason" or is terminated for "cause" (as such terms are defined in
his employment agreement), then he shall be obligated to pay to Products
Corporation an amount equal to the total amount of interest that would have been
payable on the Home Loan Payments if the rate of interest on the Mortgage were
the applicable federal rate in effect from time to time, plus the applicable tax
gross up for such amounts. In addition, Mr. Nugent's employment agreement
provides that he shall be entitled to a special bonus, payable on January 15 of
the year next following the year in which his employment terminates, equal to
the product of (A) $1,500,000 less the amount of Home Loan Payments made prior
to the termination multiplied by (B) the following percentages: for termination
in 2000, 0%; for termination in 2001, 20%; for termination in 2002, 40%; for
termination in 2003, 60%; for termination in 2004, 80%; and for termination in
2005 or thereafter, 100%. Notwithstanding the above, if Mr. Nugent terminates
his employment for other than "good reason" or is terminated for "cause" (as
such terms are defined in his employment agreement), or if he breaches certain
post-employment covenants, any bonus described above shall be forfeited or
repaid by Mr. Nugent, as the case may be.
Mr. Greeff's employment agreement provides that he is entitled to a loan
from Products Corporation in the amount of $800,000 (which he received), with
the principal to be payable in five equal installments of $160,000, with
interest at the applicable federal rate, on each of May 9, 2001 and the four
successive anniversaries thereafter, provided that the total principal amount of
such loan and any accrued, but unpaid, interest at the applicable federal rate
(the "Loan Payment") shall be due and payable upon the earlier of the January 15
immediately following the termination of his employment for any reason or May 9,
2005. In addition, Mr. Greeff's employment agreement provides that he shall be
entitled to a special bonus, payable on each May 9th commencing on May 9, 2001
and ending with May 9, 2005 equal to the sum of the Loan Payment with respect to
such year, provided that he is employed on each such May 9th, and further
provided that in the event that Mr. Greeff terminates his employment for "good
reason" or is terminated for a reason other than "cause" (as such terms are
defined in his employment agreement), he shall be entitled to a special bonus in
the amount of $800,000 minus the sum of any special bonuses paid through the
date of such termination plus accrued, but unpaid, interest at the applicable
federal rate. Notwithstanding the above, if Mr. Greeff terminates his employment
for other than "good reason" or is terminated for "cause" (as such terms are
defined in his employment agreement), or if he breaches certain post-employment
covenants, any bonus described above shall be forfeited or repaid by Mr. Greeff,
as the case may be.
32
EXECUTIVE SEVERANCE POLICY
Products Corporation's Executive Severance Policy provides that upon
termination of employment of eligible executive employees, including Messrs.
Nugent and Greeff (but excluding Messrs. Nichols and Gehrmann), other than
voluntary resignation or termination by Products Corporation for good reason, in
consideration for the execution of a release and confidentiality agreement and
Products Corporation's standard employee non-competition agreement, the eligible
executive will be entitled to receive, in lieu of severance under any employment
agreement then in effect or under Products Corporation's basic severance plan, a
number of months of severance pay in semi-monthly installments based upon such
executive's grade level and years of service reduced by the amount of any
compensation from subsequent employment, unemployment compensation or statutory
termination payments received by such executive during the severance period,
and, in certain circumstances, by the actuarial value of enhanced pension
benefits received by the executive, as well as continued participation in
medical and certain other benefit plans for the severance period (or in lieu
thereof, upon commencement of subsequent employment, a lump sum payment equal to
the then present value of 50% of the amount of base salary then remaining
payable through the balance of the severance period). Pursuant to the Executive
Severance Policy, upon meeting the conditions set forth therein, as of December
31, 2000 Messrs. Nugent and Greeff would be entitled to severance pay equal to
19 and 18 months' of base salary, respectively, at the rate in effect on the
date of employment termination plus continued participation in the medical and
dental plans for the same respective periods on the same terms as active
employees.
DEFINED BENEFIT PLANS
The following table shows the estimated annual retirement benefits payable
(as of December 31, 2000) at normal retirement age (65) to a person retiring
with the indicated average compensation and years of credited service, on a
straight life annuity basis, after Social Security offset, under the Revlon
Employees' Retirement Plan (the "Retirement Plan"), including amounts
attributable to the Pension Equalization Plan, each as described below. These
amounts reflected in the table are attributable to all benefits accrued under
the Retirement Plan on or before December 31, 2000 and will continue to apply to
any person who is actively employed after that date who meets the Retirement
Plan's eligibility requirements and who does not participate in the Cash Balance
program described below (the "Non-Cash Balance Retirement Plan"). The table does
not apply to benefits accrued on and after January 1, 2001 by any person who is
eligible to participate in the Cash Balance program on or after that date.
HIGHEST CONSECUTIVE ESTIMATED ANNUAL STRAIGHT LIFE ANNUITY BENEFITS AT RETIREMENT
FIVE-YEAR AVERAGE WITH INDICATED YEARS OF CREDITED SERVICE (a)
COMPENSATION DURING -----------------------------------------------------------------
FINAL 10 YEARS 15 20 25 30 35
----------------------- -------- -------- -------- -------- --------
$ 600,000 $151,392 $201,856 $252,320 $302,784 $302,784
700,000 177,392 236,523 295,653 354,784 354,784
800,000 203,392 271,189 338,987 406,784 406,784
900,000 229,392 305,856 382,320 458,784 458,784
1,000,000 255,392 340,523 425,653 500,000 500,000
1,100,000 281,392 375,189 468,987 500,000 500,000
1,200,000 307,392 409,856 500,000 500,000 500,000
1,300,000 333,392 444,523 500,000 500,000 500,000
1,400,000 359,392 479,189 500,000 500,000 500,000
1,500,000 385,392 500,000 500,000 500,000 500,000
2,000,000 500,000 500,000 500,000 500,000 500,000
2,500,000 500,000 500,000 500,000 500,000 500,000
(a) The normal form of benefit for the Retirement Plan and the Pension
Equalization Plan is a straight life annuity.
The Retirement Plan is intended to be a tax qualified defined benefit plan.
Non-Cash Balance Retirement Plan benefits are a function of service and final
average compensation. The Non-Cash Balance Retirement Plan is designed to
33
provide an employee having 30 years of credited service with an annuity
generally equal to 52% of final average compensation, less 50% of estimated
individual Social Security benefits. Final average compensation is defined as
average annual base salary and bonus (but not any part of bonuses in excess of
50% of base salary) during the five consecutive calendar years in which base
salary and bonus (but not any part of bonuses in excess of 50% of base salary)
were highest out of the last 10 years prior to retirement or earlier
termination. Except as otherwise indicated, credited service includes all
periods of employment with Revlon, Inc. or a subsidiary prior to retirement or
earlier termination. Messrs. Nugent and Greeff do not participate in the
Non-Cash Balance Retirement Plan.
Effective January 1, 2001, Products Corporation amended the Retirement Plan
to introduce a Cash Balance program under the Retirement Plan (the "Cash Balance
Plan"). Under the Cash Balance Plan, eligible employees will receive quarterly
pay credits to an individual cash balance bookkeeping account equal to 5% of
their compensation for the previous quarter. Interest credits will also be
allocated quarterly (based on the yield of the 30-year Treasury bond),
commencing June 30, 2001. Employees who as of January 1, 2001 were at least age
45, had 10 or more years of service with Revlon, Inc. and whose age and years of
service totaled at least 60 were "grandfathered" and continue to participate in
the Non-Cash Balance Retirement Plan under the same retirement formula described
in the preceding paragraph. All other eligible employees had their benefits
earned (if any) under the Non-Cash Balance Retirement Plan "frozen" at the
current level on December 31, 2000 and began to participate in the Cash Balance
Plan on January 1, 2001. The "frozen" benefits will be payable at normal
retirement age. Any employee who, as of January 1, 2001 was at least age 40 but
not part of the "grandfathered" group will, in addition to the "basic" 5%
quarterly pay credits, receive quarterly "transition" pay credits of 3% of
compensation each year for up to 10 years or until he/she leaves employment with
Revlon, Inc., whichever is earlier. Messrs. Nugent and Greeff both participate
in the Cash Balance Plan and will be eligible to receive basic and transition
pay credits. The estimated annual benefits payable under the Cash Balance Plan
as a single life annuity (assuming Messrs. Nugent and Greeff remain employed by
Revlon, Inc. until age 65 at their current level of compensation) is $199,000
for Mr. Nugent and $249,700 for Mr. Greeff. Messrs. Nugent's and Greeff's total
retirement benefits will be determined in accordance with their respective
employment agreements, each of which provides for a guaranteed retirement
benefit provided that certain conditions are met.
The Employee Retirement Income Security Act of 1974, as amended, places
certain maximum limitations upon the annual benefit payable under all qualified
plans of an employer to any one individual. In addition, the Omnibus Budget
Reconciliation Act of 1993 limits the annual amount of compensation that can be
considered in determining the level of benefits under qualified plans. The
Pension Equalization Plan, as amended effective December 14, 1998, is a
non-qualified benefit arrangement designed to provide for the payment by
Products Corporation of the difference, if any, between the amount of such
maximum limitations and the annual benefit that would be payable under the
Retirement Plan (including the Non-Cash Balance Retirement Plan and the Cash
Balance Plan) but for such limitations, up to a combined maximum annual straight
life annuity benefit at age 65 under the Retirement Plan and the Pension
Equalization Plan of $500,000. Benefits provided under the Pension Equalization
Plan are conditioned on the participant's compliance with his or her
non-competition agreement and on the participant not competing with Products
Corporation for one year after termination of employment.
The number of years of credited service under the Retirement Plan and the
Pension Equalization Plan as of January 1, 2001 (rounded to full years) for Mr.
Nugent is one year, for Mr. Gehrmann was six years and for Mr. Nichols was 22
years. Mr. Greeff had no years of credited service as of January 1, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ronald O. Perelman, 35 East 62nd Street, New York, New York 10021, through
MacAndrews & Forbes, beneficially owns all of the outstanding shares of common
stock of REV Holdings. No other director, executive officer or other person
beneficially owns any shares of common stock of REV Holdings. MacAndrews &
Forbes, through Mafco Holdings (which through REV Holdings), beneficially owns
11,250,000 shares of Class A Common Stock of Revlon, Inc. (representing
approximately 56% of the outstanding shares of Class A Common Stock of Revlon,
Inc.) and all of the outstanding 31,250,000 shares of Class B Common Stock of
Revlon, Inc., which together represent approximately 83% of the outstanding
shares of Revlon, Inc. common stock and have approximately 97.3% of the combined
voting power of the outstanding shares of Revlon, Inc. common stock. All of the
shares of Revlon, Inc. common stock owned by REV Holdings are pledged by REV
Holdings to secure obligations, and shares of intermediate holding companies are
or may from time to time be pledged to secure obligations under certain
34
indebtedness. Shares of REV Holdings and shares of intermediate holding
companies are or may from time to time be pledged to secure obligations of Mafco
Holdings or its affiliates.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MacAndrews & Forbes beneficially owns all of the outstanding shares of REV
Holdings' common stock. As a result, MacAndrews & Forbes is able to elect the
entire Board of Directors of REV Holdings and control the vote on all matters
submitted to a vote of REV Holdings' stockholder, including extraordinary
transactions such as mergers or sales of all or substantially all of REV
Holding's assets. MacAndrews & Forbes is wholly owned by Ronald O. Perelman, who
is Chairman of the Board, Chief Executive Officer and a Director of REV
Holdings.
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an asset
transfer agreement with Holdings and certain of its wholly-owned subsidiaries
(the "Asset Transfer Agreement"), and Revlon, Inc. and Products Corporation
entered into a real property asset transfer agreement with Holdings (the "Real
Property Transfer Agreement" and, together with the Asset Transfer Agreement,
the "Transfer Agreements"), and pursuant to such agreements, on June 24, 1992
Holdings transferred assets to Products Corporation and Products Corporation
assumed all the liabilities of Holdings, other than certain specifically
excluded assets and liabilities (the liabilities excluded are referred to as the
"Excluded Liabilities"). Certain consumer products lines sold in demonstrator
assisted distribution channels considered not integral to the Company's business
and which historically had not been profitable (the "Retained Brands") and
certain of the assets and liabilities were retained by Holdings. Holdings agreed
to indemnify Revlon, Inc. and Products Corporation against losses arising from
the Excluded Liabilities, and Revlon, Inc. and Products Corporation agreed to
indemnify Holdings against losses arising from the liabilities assumed by
Products Corporation. The amount reimbursed by Holdings to Products Corporation
for the Excluded Liabilities for 2000 was $0.4 million.
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 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 amount reimbursed by MacAndrews Holdings to Products Corporation for the
services provided under the Reimbursement Agreements for 2000 was $0.9 million.
Each of Revlon, Inc. and Products Corporation, on the one hand, and MacAndrews
Holdings, on the other, has agreed to indemnify the other party for losses
arising out of the provision of services by it under the Reimbursement
Agreements other than losses resulting from its willful misconduct or gross
negligence. The Reimbursement Agreements may be terminated by either party on 90
days' notice. REV Holdings does not expect Revlon, Inc. or Products Corporation
to request services under the Reimbursement Agreements unless their costs would
be at least as favorable to Revlon, Inc. or Products Corporation, as the case
may be, as could be obtained from unaffiliated third parties.
In March 1993, Revlon Worldwide (now REV Holdings) and MacAndrews Holdings
entered into a reimbursement agreement pursuant to which MacAndrews Holdings
agreed to provide third party services to REV Holdings on the same basis as it
provides services to Revlon, Inc., and REV Holdings agreed to indemnify
35
MacAndrews Holdings on the same basis as Revlon, Inc. is obligated to indemnify
MacAndrews Holdings under the Reimbursement Agreements. There were no services
provided and no payments made pursuant to this agreement during 2000.
TAX SHARING AGREEMENTS
REV Holdings, Holdings, Revlon, Inc. and Products Corporation, for federal
income tax purposes, are included in the affiliated group of which Mafco
Holdings is the common parent, and REV Holdings', Revlon, Inc.'s and Products
Corporation's federal taxable income and loss are included in such group's
consolidated tax return filed by Mafco Holdings. REV Holdings, Revlon, Inc. and
Products Corporation also may be included in certain state and local tax returns
of Mafco Holdings or its subsidiaries. In June 1992, Holdings, Revlon, Inc.,
Products Corporation and certain of its subsidiaries, and Mafco Holdings entered
into a tax sharing agreement (as subsequently amended, the "1992 Tax Sharing
Agreement"), pursuant to which Mafco Holdings has agreed to indemnify Revlon,
Inc. and Products Corporation against federal, state or local income tax
liabilities of the consolidated or combined group of which Mafco Holdings (or a
subsidiary of Mafco Holdings other than Revlon, Inc. and Products Corporation or
its subsidiaries) is the common parent for taxable periods beginning on or after
January 1, 1992 during which Revlon, Inc. and Products Corporation or a
subsidiary of Products Corporation is a member of such group. Pursuant to the
1992 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.
In March 1993, Revlon Worldwide (now REV Holdings) and Mafco Holdings
entered into a tax sharing agreement (the "1993 Tax Sharing Agreement" and,
together with the 1992 Tax Sharing Agreement, the "Tax Sharing Agreements")
pursuant to which, for all taxable periods beginning on or after January 1,
1993, REV Holdings will pay to Mafco Holdings amounts equal to the taxes that
REV Holdings would otherwise have to pay if it were to file separate federal,
state and local income tax returns for itself, excluding Revlon, Inc. and its
subsidiaries (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the tax liability relating
to any such period which is attributable to REV Holdings).
Since the payments to be made by Revlon, Inc. under the 1992 Tax Sharing
Agreement and by REV Holdings under the 1993 Tax Sharing Agreement will be
determined by the amount of taxes that Revlon, Inc. or REV Holdings, as the case
may be, would otherwise have to pay if they were to file separate federal, state
or local income tax returns, the Tax Sharing Agreements will benefit Mafco
Holdings to the extent Mafco Holdings can offset the taxable income generated by
Revlon, Inc. or REV Holdings against losses and tax credits generated by Mafco
Holdings and its other subsidiaries. The 1992 Tax Sharing Agreement was amended
to eliminate a contingent payment to Revlon, Inc. under certain circumstances in
return for a $10 million note with interest at 12% and interest and principal
payable by Mafco Holdings on December 31, 2005. With respect to REV Holdings, as
a result of the absence of business operations or a source of income of its own,
no federal tax payments or payments in lieu of taxes pursuant to the 1993 Tax
Sharing Agreement were required for 2000. With respect to Revlon, Inc., 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
1992 Tax Sharing Agreement for 2000.
REGISTRATION RIGHTS AGREEMENT
Prior to the consummation of Revlon, Inc.'s initial public equity offering,
Revlon, Inc. and Revlon Worldwide (now 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 Revlon, Inc.'s Class A Common Stock owned by such Holders and Revlon,
Inc.'s Class A Common Stock issuable upon conversion of Revlon, Inc.'s Class B
Common Stock owned by such Holders under the Securities Act of 1933, as amended
(the "Securities Act") (a "Demand Registration");
36
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 Revlon, Inc.'s Class A Common Stock sold by such
Holders.
KEEPWELL AGREEMENT
REV Holdings has entered into the Keepwell Agreement with GSB Investments
Corp., one of its affiliates, pursuant to which GSB Investments Corp. has agreed
to provide REV Holdings with funds in an amount equal to any interest payments
due on the New REV Holdings Notes, to the extent that REV Holdings does not have
sufficient funds on hand to make such payments on the applicable due dates.
However, the Keepwell Agreement is not a guarantee of the payment of interest on
the New REV Holdings Notes. The obligations of GSB Investments Corp. under the
Keepwell Agreement are only enforceable by REV Holdings, and may not be enforced
by the holders of the New REV Holdings Notes or the trustee under the New
Indenture for the New REV Holdings Notes. The failure of GSB Investments Corp.
to make a payment to REV Holdings under the Keepwell Agreement will not be an
event of default under the New Indenture. Further, the New Indenture has no
requirement that REV Holdings maintain the Keepwell Agreement. In addition,
although REV Holdings has the right to enforce the Keepwell Agreement, there can
be no assurance that GSB Investments Corp. will have sufficient funds to make
any payments to REV Holdings under the Keepwell Agreement or that it will comply
with its obligations under the Keepwell Agreement.
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leased to Products Corporation the Edison research and development facility for
a term of up to 10 years with an annual rent of $1.4 million and certain shared
operating expenses payable by Products Corporation which, together with the
annual rent, were not to exceed $2.0 million per year. In August 1998, Holdings
sold the Edison facility to an unrelated third party, which assumed
substantially all liability for environmental claims and compliance costs
relating to the Edison facility, and in connection with the sale Products
Corporation terminated the Edison Lease and entered into a new lease with the
new owner. Holdings agreed to indemnify Products Corporation to the extent rent
under the new lease exceeds rent that would have been payable under the
terminated Edison Lease had it not been terminated. The net amount reimbursed by
Holdings to Products Corporation with respect to the Edison facility for 2000
was $0.2 million.
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
was $0.9 million.
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.
37
During 2000, Products Corporation made an advance of $0.1 million to Mr.
Jeffrey Nugent pursuant to his employment agreement for relocation expenses,
which advance bears interest at the applicable federal rate.
During 2000, Products Corporation made an advance of $0.8 million to Mr.
Douglas Greeff pursuant to his employment agreement, which bears interest at the
applicable federal rate.
During 2000, Products Corporation made payments of $0.1 million to a
fitness center, an interest in which is owned by members of the immediate family
of Mr. Donald Drapkin, a director of Products Corporation, 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 million 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.
In connection with the cancellation of the Revlon Worldwide Notes, at
December 31, 2000 REV Holdings had an outstanding payable to an affiliate of
approximately $1.9 million.
On March 15, 2001, an affiliate contributed $667.5 million principal amount
of Old REV Holdings Notes to REV Holdings, which were delivered to the trustee
for cancellation and contributed $22.0 million in cash to REV Holdings to retire
the remaining Old REV Holdings Notes at maturity.
In connection with the issuance of the New REV Holdings Notes, at December
31, 2000 REV Holdings had an outstanding payable to an affiliate of
approximately $2.6 million.
REV Holdings has guaranteed, on a non-recourse basis, certain obligations
of an affiliate and has pledged certain shares of the Revlon, Inc. common stock
owned by REV Holdings to secure such guarantee.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Auditors' Report
included herein:
See Index on page F-1
(2) Financial Statement Schedule:
See Index on page F-1
All other schedules are omitted as they are inapplicable or the
required information is furnished in the Consolidated Financial
Statements of the Company or the Notes thereto.
(3) List of Exhibits:
EXHIBIT NO. DESCRIPTION
-----------
3. CERTIFICATE OF INCORPORATION AND BY-LAWS.
3.1 Certificate of Incorporation and Certificate of Ownership and
Merger dated as of August 7, 1997 merging Revlon Worldwide
Corporation into Revlon Worldwide (Parent) Corporation and
changing the name of Revlon Worldwide (Parent) Corporation to
REV Holdings Inc. (incorporated by reference to Exhibit 3.1
to the Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1997 of REV Holdings).
3.2 By-Laws of REV Holdings dated February 24, 1997 (formerly
Revlon Worldwide (Parent) Corporation) (incorporated by
reference to Exhibit 3.2 to the Registration Statement on
Form S-1
38
of Revlon Worldwide (Parent) Corporation filed with the
Commission on March 17, 1997, File No. 333-23451).
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 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")).
39
4.13 Seventh Amendment, dated as of January 29, 2001, to the
Credit Agreement (incorporated by reference to Exhibit 4.13
to the Annual Report on Form 10-K for the year ended December
31, 2000 of Revlon, Inc. (the "Revlon 2000 10-K")).
*4.14 Indenture, dated as of February 1, 2001, between REV Holdings
and Wilmington Trust Company, as Trustee, relating to the 12%
Senior Secured Notes due 2004.
10. MATERIAL CONTRACTS.
10.1 Asset Transfer Agreement, dated as of June 24, 1992, among
Holdings, National Health Care Group, Inc., Charles of the
Ritz Group Ltd., Products Corporation and Revlon, Inc.
(incorporated by reference to Exhibit 10.1 to Amendment No. 1
to the Revlon, Inc. Registration Statement on Form S-1 filed
with the Commission on June 29, 1992, File No. 33-47100 (the
"Revlon 1992 Amendment No. 1")).
10.2 Tax Sharing Agreement, dated as of June 24, 1992, among Mafco
Holdings, Revlon, Inc., Products Corporation and certain
subsidiaries of Products Corporation (the "Tax Sharing
Agreement") (incorporated by reference to Exhibit 10.5 to the
Revlon 1992 Amendment No. 1).
10.3 First Amendment, dated as of February 28, 1995, to the Tax
Sharing Agreement (incorporated by reference to Exhibit 10.5
to the Annual Report on Form 10-K for the year ended December
31, 1994 of Products Corporation).
10.4 Second Amendment, dated as of January 1, 1997, to the Tax
Sharing Agreement (incorporated by reference to Exhibit 10.7
to the Annual Report on Form 10-K for the year ended December
31, 1996 of Revlon, Inc.).
10.5 Third Amendment, dated as of January 1, 2001, to the Tax
Sharing Agreement (incorporated by reference to Exhibit 10.5
to the Revlon 2000 10-K).
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 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. (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")).
10.124 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
40
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).
10.18 Tax Sharing Agreement, dated as of March 17, 1993,
between Revlon Worldwide Corporation and Mafco Holdings
(incorporated by reference to Exhibit 10.30 to the
Registration Statement on Form S-1 of Revlon Worldwide
Corporation filed with the Commission on April 2, 1993, File
No. 33-60488 (the "Worldwide 1993 Form S-1")).
10.19 Indemnity Agreement, dated March 25, 1993, between
Revlon Worldwide Corporation and Holdings (incorporated by
reference to Exhibit 10.32 to the Worldwide 1993 Form S-1).
10.20 Form of Registration Rights Agreement (incorporated by
reference to Exhibit 10.1 to the Annual Report on Form 10-K
for the year ended December 31, 1995 of Revlon Worldwide
Corporation).
*10.21 Keepwell Agreement between GSB Investments Corp. and REV
Holdings dated February 12, 2001.
21. SUBSIDIARIES.
*21.1 Subsidiaries of the Registrant.
24. POWERS OF ATTORNEY.
*24.1 Power of Attorney of Ronald O. Perelman.
*24.2 Power of Attorney of Howard Gittis.
27. Financial Data Schedule.
41
- --------------------
* Filed herewith.
(b) Reports on Form 8-K.
Form 8-K filed on December 14, 2000, in connection with the
Registrant's filing of a registration statement with the Securities and Exchange
Commission in respect of a proposed exchange offer for its outstanding Senior
Secured Discount Notes Due 2001.
42
REV HOLDINGS 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 Stockholder's 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-33
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
REV Holdings Inc.:
We have audited the accompanying consolidated balance sheets of REV Holdings
Inc. and its subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholder's deficiency and
comprehensive loss and cash flows for each of the years in the three-year period
ended December 31, 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 REV Holdings 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
REV HOLDINGS 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 .............................................. 147.2 182.0
Intangible assets, net .................................... 206.1 356.8
---------- ----------
Total assets .................................... $ 1,102.4 $ 1,562.8
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings - third parties ............... $ 30.7 $ 37.6
Current portion of long-term debt - third parties ... 753.6 10.2
Accounts payable .................................... 86.3 139.8
Accrued expenses and other .......................... 309.9 409.7
---------- ----------
Total current liabilities ....................... 1,180.5 597.3
Long-term debt - third parties ............................ 1,539.0 2,416.5
Long-term debt - affiliates ............................... 24.1 24.1
Other long-term liabilities ............................... 222.1 215.9
Stockholder's deficiency:
Common stock, par value $1.00 per share, 1,000 shares
authorized, issued and outstanding .............. -- --
Capital deficiency .................................. (408.8) (408.8)
Accumulated deficit since June 24, 1992 ............. (1,424.7) (1,214.1)
Accumulated other comprehensive loss ................ (29.8) (68.1)
---------- ----------
Total stockholder's deficiency .................. (1,863.3) (1,691.0)
---------- ----------
Total liabilities and stockholder's deficiency .. $ 1,102.4 $ 1,562.8
========== ==========
See Accompanying Notes to Consolidated Financial Statements.
F-3
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
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 ............................. 219.4 215.4 206.6
Interest and net investment income ........... (2.1) (2.8) (9.0)
Gain on sale of subsidiary stock ............. (1.1) (0.1) (2.6)
Amortization of debt issuance costs .......... 9.2 7.9 9.0
Foreign currency losses (gains), net ......... 1.6 (0.5) 4.6
Gain on sale of product line and brand, net .. (10.8) -- --
Miscellaneous, net ........................... 0.8 0.9 4.5
---------- ---------- ----------
Other expenses, net ...................... 217.0 220.8 213.1
---------- ---------- ----------
Loss from continuing operations before income taxes (202.0) (433.4) (88.5)
Provision for income taxes ........................ 8.6 9.1 5.0
---------- ---------- ----------
Loss from continuing operations ................... (210.6) (442.5) (93.5)
Loss from discontinued operations ................. -- -- (16.5)
Loss from disposal of discontinued operations ..... -- -- (47.7)
Extraordinary items - early extinguishments of debt -- -- (51.7)
---------- ---------- ----------
Net loss .......................................... $ (210.6) $ (442.5) $ (209.4)
========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements.
F-4
REV HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY AND COMPREHENSIVE LOSS
(dollars in millions)
ACCUMULATED
OTHER TOTAL
CAPITAL ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
DEFICIENCY DEFICIT LOSS (a) DEFICIENCY
---------- ------- -------- ----------
Balance, January 1, 1998 .......................... $ (408.8) $ (562.2) $ (23.7) $ (994.7)
Comprehensive loss:
Net loss .............................. (209.4) (209.4)
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 ..................... (258.3)
---------- ------------ ---------- -------------
Balance, December 31, 1998 ........................ (408.8) (771.6) (72.6) (1,253.0)
Comprehensive loss:
Net loss .............................. (442.5) (442.5)
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 ..................... (438.0)
---------- ------------ ---------- -------------
Balance, December 31, 1999 ........................ (408.8) (1,214.1) (68.1) (1,691.0)
Comprehensive loss:
Net loss .............................. (210.6) (210.6)
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 ..................... (172.3)
--------- ------------ ---------- ------------
Balance, December 31, 2000 ........................ $ (408.8) $ (1,424.7) $ (29.8) $ (1,863.3)
=========== ============ ========== ============
- ---------------------
(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
REV HOLDINGS 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 ........................................................................... $ (210.6) $ (442.5) $ (209.4)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization ................................................. 130.5 129.7 115.2
Amortization of debt discount ................................................. 74.9 67.5 68.7
Loss from discontinued operations ............................................. -- -- 64.2
Extraordinary items ........................................................... -- -- 51.7
Gain on sale of subsidiary stock .............................................. (1.1) (0.1) (2.6)
(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 ................................................................ 7.0 19.0 1.4
--------- --------- ----------
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)
Acquisition of technology rights ................................................... (3.0) -- --
Sale of marketable securities, net ................................................. -- -- 337.4
Proceeds from the sale of certain assets ........................................... 344.1 1.6 27.4
--------- --------- ----------
Net cash provided by (used for) investing activities ............................... 322.1 (40.7) 246.4
--------- --------- ----------
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) (1,608.3)
Net proceeds from the sale of subsidiary 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 (178.3)
--------- --------- ----------
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
========= ========= ==========
See Accompanying Notes to Consolidated Financial Statements.
F-6
REV HOLDINGS 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:
Effective August 5, 1997, Revlon Worldwide Corporation ("Revlon Worldwide")
was merged with and into Revlon Worldwide (Parent) Corporation ("Revlon
Worldwide (Parent)") (the "Merger"), with Revlon Worldwide (Parent) surviving
the Merger and changing its name to REV Holdings Inc. (together with its
subsidiaries, "REV Holdings" or the "Company"). All references to the Company
for periods prior to the Merger are to Revlon Worldwide and for periods
subsequent to the Merger are to REV Holdings. REV Holdings succeeded to the
rights and obligations of Revlon Worldwide under its various agreements,
including those described in Note 14, Related Party Transactions, by reason of
the Merger.
REV Holdings is a holding company that 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.
REV Holdings has no business operations of its own and its only material
asset is its ownership of approximately 83% of the outstanding shares of capital
stock of Revlon, Inc. (which represents approximately 97.3% of the voting power
of those outstanding shares), which, in turn, owns 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
Revlon, Inc. and accretion of interest expense and amortization of debt issuance
costs related to Revlon Worldwide's Senior Secured Discount Notes due 1998
(the " Revlon Worldwide Notes") and REV Holdings Senior Secured Discount Notes
due March 15, 2001 (the "Old REV Holdings Notes"). For such years, REV Holdings
has had no cash flows of its own other than proceeds from the issuance of the
Old REV Holdings Notes and the repayment of a portion of the Revlon Worldwide
Notes in 1998 with a capital contribution from its indirect parent in 1997.
The Consolidated Financial Statements include the accounts of REV Holdings
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 wholly-owned subsidiary of Revlon Holdings Inc.
("Holdings") and an indirect wholly-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. All of the equity
securities of REV Holdings are beneficially owned by MacAndrews & Forbes.
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).
F-7
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 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 $19.9 and $25.5 (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."
REV Holdings, for federal income tax purposes, is included in the
affiliated group of which Mafco Holdings is the common parent, and REV
Holdings' federal taxable income and loss is included in such group's
consolidated tax return filed by Mafco Holdings. REV Holdings 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 REV Holdings filed its own income tax returns (excluding
Revlon, Inc. and its subsidiaries) and as if Revlon, Inc. and its subsidiaries
filed its own tax returns. On June 24, 1992, Holdings, Products Corporation and
certain of its subsidiaries, Revlon, Inc. and Mafco Holdings entered into a tax
sharing agreement and on March 17, 1993 Revlon Worldwide (now REV Holdings) and
Mafco Holdings entered into a tax sharing agreement, each of which is described
in Notes 11 and 14.
F-8
PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS:
Products Corporation 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.
Products Corporation 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.
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.
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 Revlon, Inc.'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.
F-9
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.
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.
F-10
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 (UTILIZED) RECEIVED BALANCE
BEGINNING EXPENSE -------------------------- END
OF 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, Products Corporation 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"). Products Corporation 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
Senior Secured Discount Notes due 2001, net of
unamortized discount of $16.4 and $91.3 (g)..... 753.6 678.7
Notes payable due through 2004 ................... - 0.7
---------- ----------
2,316.7 2,450.8
Less current portion ............................. (753.6) (10.2)
---------- ----------
$ 1,563.1 $ 2,440.6
========== =========
(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
F-14
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 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 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
F-15
or transferring any of their assets except in the ordinary course of business,
all subject to certain limited exceptions, (iv) with certain exceptions,
engaging in merger or acquisition transactions, (v) prepaying indebtedness,
subject to certain limited exceptions, (vi) making investments, subject to
certain limited exceptions, and as described below and (vii) entering into
transactions with affiliates of Products Corporation other than upon terms no
less favorable to Products Corporation or its subsidiaries than it would obtain
in an arms'-length transaction. In addition to the foregoing, the Credit
Agreement contains financial covenants requiring Products Corporation to
maintain minimum 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
F-16
8 1/8% Notes Indenture) and, subject to certain conditions, each holder of the 8
1/8% Notes will have the right to require Products Corporation to repurchase all
or a portion of such holder's 8 1/8% Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the date of repurchase.
The 8 1/8% Notes Indenture contains covenants that, among other things,
limit (i) the issuance of additional debt and redeemable stock by Products
Corporation, (ii) the incurrence of liens, (iii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and the
redemption of capital stock of Products Corporation and certain subordinated
obligations, (v) the sale of assets and subsidiary stock, (vi) transactions with
affiliates and (vii) consolidations, mergers and transfers of all or
substantially all Products Corporation's assets. The 8 1/8% Notes Indenture also
prohibits certain restrictions on distributions from subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
(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.
F-17
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.
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.
(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) On March 5, 1997, the Company issued and sold $770.0 aggregate
principal amount at maturity (net proceeds of $505.0) of the Old REV Holdings
Notes. The Old REV Holdings Notes were issued at a discount from their principal
amount at maturity representing a yield to maturity of 10 3/4% per annum
calculated from March 5, 1997. There were no periodic interest payments on the
Old REV Holdings Notes. In August 1997, substantially all of the Old REV
Holdings Notes were exchanged for registered notes with substantially identical
terms. The Old REV Holdings Notes were senior debt of REV Holdings and ranked
pari passu in right of payment with any future debt of REV Holdings. REV
Holdings is a holding company and substantially all of its liabilities (other
than the Old REV Holdings Notes) are liabilities of subsidiaries. The Old REV
Holdings Notes were effectively subordinated to all liabilities of REV Holdings
subsidiaries, including trade payables.
On February 12, 2001, REV Holdings issued $80.5 in principal amount of its
12% Senior Secured Notes due 2004 (the "New REV Holding Notes"), which were
issued in exchange for a like principal amount of the Old REV Holdings Notes.
The New REV Holdings Notes bear interest at 12% per year, payable semi-annually,
and mature on February 1, 2004. On March 15, 2001, an affiliate contributed
$667.5 principal amount of Old REV Holdings Notes to REV Holdings, which were
delivered to the trustee for cancellation and contributed $22.0 in cash to REV
Holdings to retire the remaining Old REV Holdings Notes at maturity. Upon
cancellation, the indenture governing the Old REV Holdings Notes was discharged.
The New REV Holdings Notes are secured by a pledge of 52 shares of Class A
Common Stock of Revlon, Inc. per $1,000 principal amount of New REV Holdings
Notes and all dividends, cash instruments and property and proceeds from time to
time received in respect of the foregoing shares (collectively, the "New
Collateral"). In addition, the indenture governing the New REV Holdings Notes
(the "New Indenture") contains covenants that, among other things, limit (i) the
issuance of additional debt and redeemable stock by REV Holdings, (ii) the
creation of additional liens on the New Collateral (other than the lien created
by the New Indenture), (iii) the payment of dividends on capital stock of REV
Holdings and the redemption of capital stock of REV Holdings or any of its
direct or indirect parents, (iv) the sale of assets and subsidiary stock
(including by way of consolidations, mergers and similar transactions), and (v)
transactions with affiliates. All of these limitations and prohibitions,
however, are subject to a number of qualifications, which are set forth in the
New Indenture.
F-18
The 8 1/8% Notes Indenture, the 8 5/8% Notes Indenture, the 9% Notes
Indenture and the New REV Holdings Notes Indenture contain customary events of
default for debt instruments of such type.
(h) Products Corporation borrows funds from its affiliates from time to
time to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 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 $753.6, $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), borrowings under the Credit
Agreement and advances under the Keepwell Agreement (as hereinafter defined)
will be sufficient to enable the Company to meet its anticipated cash
requirements during 2001, including for debt service of its subsidiaries 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), borrowings under the Credit Agreement and advances under the Keepwell
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
from these sources, 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 subsidiary indebtedness, selling additional assets or
operations, selling its equity securities or seeking capital contributions or
additional loans from affiliates of the Company or selling 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.
The Company currently anticipates that cash flow generated from operations
will be insufficient to pay interest when due and the principal amount at
maturity of the New REV Holdings Notes. The Company currently anticipates that
it will be required to adopt one or more alternatives to pay the principal
amount at maturity of the New REV Holdings Notes, such as refinancing its
indebtedness, selling its equity securities or the equity securities or assets
of Revlon, Inc. or seeking capital contributions or loans from its affiliates.
There can be no assurance that any of the foregoing actions could be effected on
satisfactory terms, that any of the foregoing actions would enable the Company
to pay the principal amount at maturity of the New REV Holdings Notes or that
any of such actions would be permitted by the terms of the New Indenture or any
other debt instruments of the Company and the Company's subsidiaries then in
effect. REV Holdings has entered into a Keepwell Agreement with GSB Investments
Corp., one of its affiliates, (the "Keepwell Agreement") pursuant to which GSB
Investments Corp. has agreed to provide REV Holdings with funds in an amount
equal to any interest payments due on the New REV Holding Notes, to the extent
that REV Holdings does not have sufficient funds on hand to make such payments
on the applicable due dates. However, the Keepwell Agreement is not a guarantee
of the payment of interest on the New REV Holdings Notes. The obligations of GSB
Investments Corp. under the Keepwell Agreement are only enforceable by REV
Holdings, and may not be enforced by the holders of the New REV Holdings Notes
or the trustee under the New Indenture for the New REV Holdings Notes. The
failure to GSB Investments Corp. to make a payment to REV Holdings under the
Keepwell Agreement will not be an event of default under the New Indenture.
Further, the New Indenture has no requirement that REV Holdings maintain the
Keepwell Agreement. In addition, although REV Holdings has the right to enforce
the Keepwell Agreement, there can be no assurance that GSB Investments Corp.
will have sufficient funds to make any payments to REV Holdings under the
Keepwell Agreement or that it will comply with its obligations under the
Keepwell Agreement.
As of December 31, 2000, GSB Investments Corp. owned an aggregate of
42,949,525 shares, or approximately 32% of the common stock of Golden State
Bancorp. Inc. ("GSB"). At March 23, 2001, the last reported sale price of GSB
common stock on the New York Stock Exchange ("NYSE") was $26.85 per share. All
of these shares are currently pledged to secure obligations of GSB Investments
Corp. or affiliates of GSB Investments Corp. GSB Investments Corp. has received
three quarterly dividends of $0.10 per share, or an aggregate of $13.1, since
GSB commenced paying quarterly dividends in July 2000. If GSB were to continue
to pay quarterly dividends at this rate and GSB Investments Corp. were to
continue to own the same number of shares, GSB Investments Corp. would have
sufficient income from dividends paid on its GSB stock to make any payments to
REV Holdings that it might be required to make under the Keepwell Agreement.
However, GSB has only paid dividends at this rate since July 2000 and there can
be no assurance that GSB will continue to pay dividends at this rate, if at all,
or that GSB Investments Corp. will continue to own its shares of the common
stock of GSB. If either GSB Investments Corp. or affiliates of GSB Investments
Corp. were to fail to comply with their respective obligations that are secured
by the pledge of the GSB common stock, the beneficiary of such pledge could
enforce its rights with respect to such collateral and could deprive GSB
Investments Corp. of its rights to receive dividends on such pledged shares. If
GSB Investments Corp. does not receive sufficient dividend income from its GSB
stock, it will be required to seek alternative sources of funds in order to
satisfy its potential obligations under the Keepwell Agreement.
F-19
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 $764.7 and $971.4
less than the carrying values of $2,316.7 and $2,450.8, 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. Products Corporation and certain of
its subsidiaries, and Mafco Holdings entered into a tax sharing agreement (as
subsequently amended, the " 1992 Tax Sharing Agreement"), pursuant to which
Mafco Holdings has agreed to indemnify Revlon, Inc. and Products Corporation
against federal, state or local income tax liabilities of the consolidated or
combined group of which Mafco Holdings (or a subsidiary of Mafco Holdings other
than Revlon, Inc. and Products Corporation or its subsidiaries) is the common
parent for taxable periods beginning on or after January 1, 1992 during which
Revlon, Inc. and Products Corporation or a subsidiary of Products Corporation is
a member of such group. Pursuant to the 1992 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.
In March 1993, Revlon Worldwide (now REV Holdings) and Mafco Holdings
entered into a tax sharing agreement (the "1993 Tax Sharing Agreement" and,
together with the 1992 Tax Sharing Agreement, the "Tax Sharing Agreements")
pursuant to which, for all taxable periods beginning on or after January 1,
1993, REV Holdings will pay to Mafco Holdings amounts equal to the taxes that
REV Holdings would otherwise have to pay if it were to file separate federal,
state and local income tax returns for itself, excluding Revlon, Inc. and its
subsidiaries (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the tax liability relating
to any such period which is attributable to REV Holdings).
Since the payments to be made by Revlon, Inc. under the 1992 Tax Sharing
Agreement and by REV Holdings under the 1993 Tax Sharing Agreement will be
determined by the amount of taxes that Revlon, Inc. or REV Holdings, as the case
may be, would otherwise have to pay if they were to file separate federal, state
or local income tax returns, the Tax Sharing Agreements will benefit Mafco
Holdings to the extent Mafco Holdings can offset the taxable income generated by
Revlon, Inc. or REV Holdings against losses and tax credits generated by Mafco
Holdings and its other subsidiaries. The 1992 Tax Sharing Agreement was amended
to eliminate a contingent payment to Revlon, Inc. under
F-20
certain circumstances in return for a $10 note with interest at 12% and interest
and principal payable by Mafco Holdings on December 31, 2005. With respect to
REV Holdings, as a result of the absence of business operations or a source of
income of its own, no federal tax payments or payments in lieu of taxes pursuant
to the 1993 Tax Sharing Agreement were required for 2000, 1999 or 1998. With
respect to Revlon, Inc., 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 1992 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 1992 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.
The Company's loss from continuing operations before income taxes and the
applicable provision (benefit) for income taxes are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------
Loss from continuing operations before income taxes: 2000 1999 1998
-------- -------- --------
Domestic ......................................... $ (128.3) $ (360.7) $ (50.9)
Foreign .......................................... (73.7) (72.7) (37.6)
-------- -------- --------
$ (202.0) $ (433.4) $ (88.5)
======== ======== ========
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 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....... 0.1 0.1 0.4
Foreign and U.S. tax effects attributable to
operations outside the U.S. ................................. 1.1 1.4 1.4
Nondeductible amortization expense............................. 1.2 0.8 3.6
Tax write-off of U.S. investment in foreign subsidiary......... - - (8.0)
Change in valuation allowance.................................. 6.6 34.7 46.2
Cancellation of long-term debt................................. 13.9 - -
Sale of businesses............................................. 16.2 - (1.3)
Other.......................................................... 0.2 0.1 (1.7)
------------- ------------ -------------
Effective rate................................................. 4.3 % 2.1 % 5.6 %
============= ============ =============
F-21
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,
--------------------------
2000 1999
Deferred tax assets: ------------ -----------
Accounts receivable, principally due to doubtful accounts ............ $ 2.6 $ 5.0
Inventories .......................................................... 10.8 16.8
Net operating loss carryforwards - domestic .......................... 423.4 443.0
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 ................................................................ 32.2 29.3
------------ -----------
Total gross deferred tax assets .................................. 686.8 726.3
Less valuation allowance ......................................... (637.8) (664.9)
------------ -----------
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 $27.1 during 2000 and increased by
$85.7 and $127.0 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 $1,564.7 that expire in future years as follows: 2001-$17.8;
2002-$33.9; 2003-$20.7; 2004-$27.4; 2005 and beyond-$1,314.4; 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-22
12. POSTRETIREMENT BENEFITS
Pension:
A substantial portion of Products Corporation'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:
Products Corporation 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. Products Corporation 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 Products Corporation's significant pension and other
postretirement plans at the dates indicated is as follows:
OTHER POSTRETIREMENT
PENSION PLANS BENEFITS
---------------------------- ----------------------------
DECEMBER 31,
------------------------------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Change in Benefit Obligation:
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-23
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. The
Company applies APB Opinion No. 25 and its related interpretations in accounting
for the Plan. Under APB Opinion No. 25, because the exercise price of employee
stock options under the Plan equals the market price of the underlying stock on
the date of grant, no compensation cost has been recognized. Had compensation
cost for the Plan been determined consistent with SFAS No. 123, the Company's
net loss of $210.6 for 2000, $442.5 for 1999, and $209.4 for 1998 would have
been changed to the pro forma amounts of $221.6 for 2000, $468.2 for 1999, and
$233.0 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.
Under the Plan, awards may be granted to employees and directors of Revlon,
Inc., and the Company for up to an aggregate of 7.0 million shares of Revlon,
Inc. Class A Common Stock. Non-qualified options granted under
F-24
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, Revlon, Inc.
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-25
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-26
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. REV Holdings
does not expect Revlon, Inc. or Products Corporation to request services under
the Reimbursement Agreements unless their costs would be at least as favorable
to Revlon, Inc. or Products Corporation, as the case may be, as could be
obtained from unaffiliated third parties.
In March 1993, Revlon Worldwide (now REV Holdings) and MacAndrews Holdings
entered into a reimbursement agreement pursuant to which MacAndrews Holdings
agreed to provide third party services to REV Holdings on the same basis as it
provides services to Revlon, Inc., and REV Holdings agreed to indemnify
MacAndrews Holdings on the same basis as Revlon, Inc. is obligated to indemnify
MacAndrews Holdings under the Reimbursement Agreements. There were no services
provided and no payments made pursuant to this agreement during 2000, 1999 or
1998.
TAX SHARING AGREEMENTS
Holdings, Revlon, Inc., Products Corporation and certain of its
subsidiaries and Mafco Holdings are parties to the 1992 Tax Sharing Agreement
and Revlon Worldwide (now REV Holdings) and Mafco Holdings are parties to the
1993 Tax Sharing Agreement, each of which is described in Note 11. Since
payments to be made by Revlon, Inc. under the 1992 Tax Sharing Agreement and by
REV Holdings under the 1993 Tax Sharing Agreement will be determined by the
amount of taxes that Revlon, Inc. or REV Holdings, as the case may be, would
otherwise have to pay if it were to file separate federal, state or local income
tax returns, the Tax Sharing Agreements will benefit Mafco Holdings to the
extent Mafco Holdings can offset the taxable income generated by Revlon, Inc. or
REV Holdings 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. or REV Holdings pursuant to the Tax Sharing Agreements 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 (now 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 Revlon, Inc.'s Class A Common Stock owned by such Holders and Revlon,
Inc.'s Class A Common Stock issuable upon conversion of Revlon, Inc.'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
Revlon, Inc.'s Class A Common Stock sold by such Holders.
KEEPWELL AGREEMENT
REV Holdings has entered into the Keepwell Agreement with GSB Investments
Corp., one of its affiliates, pursuant to which GSB Investments Corp. has agreed
to provide REV Holdings with funds in an amount equal to any interest payments
due on the New REV Holdings Notes, to the extent that REV Holdings does not have
sufficient funds on hand to make such payments on the applicable due dates.
However, the Keepwell Agreement is not a guarantee of the payment of interest on
the New REV Holdings Notes. The obligations of GSB Investments Corp. under the
Keepwell Agreement are only enforceable by REV Holdings, and may not be enforced
by the holders of the New REV Holdings Notes or the trustee under the New
Indenture for the New REV Holdings Notes. The failure of GSB Investments Corp.
to make a payment to REV Holdings under the Keepwell Agreement will not be an
event of default under the New Indenture. Further, the New Indenture has no
requirement that REV Holdings maintain the Keepwell Agreement. In addition,
although REV Holdings has the right to enforce the Keepwell Agreement, there can
be no assurance that GSB Investments Corp. will have sufficient funds to make
any payments to REV Holdings under the Keepwell Agreement or that it will comply
with its obligations under the Keepwell Agreement. (See Note 9).
F-27
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 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, Products Corporation 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 of Products Corporation during part of
1998, respectively, which advances were repaid in 1999.
During 2000 and 1999, Products Corporation 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, Products Corporation 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
F-28
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 Products Corporation 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
the immediate family of Mr. Donald Drapkin, a director of Products Corporation,
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.
In connection with the cancellation of the Revlon Worldwide Notes, at
December 31, 1999 and 2000 REV Holdings had an outstanding payable to an
affiliate of approximately $1.9.
On March 15, 2001, an affiliate contributed $667.5 principal amount of Old
REV Holdings Notes to REV Holdings, which were delivered to the trustee for
cancellation and contributed $22.0 in cash to REV Holdings to retire the
remaining Old REV Holdings Notes at maturity.
In connection with the issuance of the New REV Holdings Notes, at December
31, 2000 REV Holdings had an outstanding payable to an affiliate of
approximately $2.6.
REV Holdings has guaranteed, on a non-recourse basis, certain obligations
of an affiliate and has pledged certain shares of the Revlon, Inc. common stock
owned by REV Holdings to secure such guarantee.
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.
F-29
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.
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.................... (46.6)(a) (43.1)(a) (46.0)(a) (74.9)(a)
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.................... (51.2)(b) (21.5)(b) (182.5)(b) (187.3)(b)
(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-30
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.................................... $ 399.7 $ 615.8
International.................................... 175.3 259.4
------------ -------------
$ 575.0 $ 875.2
============ =============
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 Products Corporation 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-31
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.
On February 12, 2001, REV Holdings issued $80.5 in principal amount of the
New REV Holding Notes, which were issued in exchange for a like principal amount
of the Old REV Holdings Notes. (See Note 9).
F-32
Schedule II
REV HOLDINGS 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-33
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.
REV Holdings Inc.
(Registrant)
By: /s/ Todd J. Slotkin
------------------------------------
Todd J. Slotkin
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
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, Chief
- ----------------------------------- Executive Officer and Director
(Ronald O. Perelman)
* Vice Chairman of the Board and
- ----------------------------------- Director
(Howard Gittis)
* 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